23 July 2013

2013 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 2013 to 30 June 2013 ("the Period" or "H1 2013") in advance of its 2013 Half-Year Results, which are expected to be published on 29 August 2013.

Key points

Results

n?? H1 2013 gold production at 294,700oz, up 6% on H1 2012 (H1 is always lower than H2 due to weather conditions);

n?? H1 2013 gold sales at 297,100oz, up 4% on H1 2012;

n?? H1 2013 average realised gold price of US$1,579/oz, including US$84/oz contributed by the Group's hedge arrangements; ??Forward gold sales outstanding as at 1 July 2013:

-???????? 219,400oz at forward price of US$1,664/oz for H2 2013,

-???????? 145,700oz at forward price of US$1,494/oz for H1 2014

n?? Exploration success in H1 2013 has identified additional, higher-grade mineralisation near Pioneer, Malomir and Albyn processing facilities; and

n?? Net debt peaked in March 2013 (at c.US$1.2 billion) and fell by c.US$50 million to c.US$1.15 billion as at 30 June 2013.

Outlook

n?? Full-year 2013 forecast gold production 760,000-780,000oz reiterated; ??

n?? Cost cutting programmes are targeting a 9-12% reduction in cash operating expenses at all mines in H2 2013 compared to the H2 budget and a c.US$6 million reduction in central administration costs for the full year;

n?? Total Cash Costs per ounce for hard rock deposits ("TCC/oz") for the Full Year 2013 expected to be somewhat better than originally budgeted, mostly as a result of cash operating cost reduction program. However, lower-grade mill feed and high stripping volumes in preparation for H2 2013 production caused H1 2013 TCC/oz to be higher than the projected H2 2013 TCC/oz;

n?? H1 2013 mining programme has enabled a scheduled increase in head grades through the mills in H2 2013: Pioneer +c.38% (2.2g/t), Pokrovskiy +c.47% (2.2g/t), Malomir +c.57% (2.2g/t), Albyn +c.78% (1.6g/t ) compared to H1; ????

n?? POX Hub commissioning delayed allowing the re-balance of capital expenditure requirements with free cash flow in the lower gold price environment. This decision taken in response to a lower gold price environment and is possible because of recent exploration success;

n?? At today's gold price levels and exchange rates, net debt is expected to be less than US$1.0 billion by year-end; and

n?? Management reiterates comments in the recent Annual Report, AGM presentation and in its announcement issued on 11 July 2013 regarding the likelihood of substantial impairments in a declining gold price environment.

Summary

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Commenting on today's announcement, Peter Hambro, Chairman, said:

"Following an initial decline Petropavlovsk responded to the fall in the gold price by making a series of timely forward sales at prices considerably higher than those presently prevailing.?? These actions have helped to secure our cash flows whilst we re-configure the business for the current pricing environment. We have made a good start in our debt reduction programme and are beginning to see the fruits of our substantial cost-cutting exercise.

"In the meantime we are encouraged by the results coming from our exploration programme, which is concentrated around our existing production facilities so as to save on capital expenditure in the event of success.?? So far indications of non-refractory ore occurrences give us grounds for optimism that any need for the treatment of refractory ore in the nearest future can be further deferred, enabling us to continue our debt reduction programme, which I expect will accelerate as free cash flow allows.

IRC has continued to deliver on its operation and construction targets and I welcome the new directors representing Minmetals and General Nice to IRC."

Enquiries ??

Conference call

There will be a conference call today to discuss the announcement at 10.00 BST.*??

To access the call, please dial + 44 (0)20 3139 4830 if calling from the UK or elsewhere. When prompted, please enter the pin code 87244023?? to be transferred to the call.

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

Detailed operational update

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Pioneer

Mining and processing in H1 2013

Mining at Pioneer concentrated on mining high-grade ore (1.8-3.5g/t) from NE Bakhmut as well as advanced stripping and stripping the western part of Andreevskaya so as to access high-grade material in both zones in the second half of the year.?? Low-grade ore was mined only if associated with high grade ore. As planned, the majority of the lower-grade ore which is used for blending came from existing low-grade stockpiles.

In February 2013, the sorption circuit was expanded, enabling the fourth milling line, which was commissioned in 2012, to reach full capacity. This resulted in 3,334,000 tonnes of ore being processed in H1 2013: an increase of 35% on H1 2012. Despite the lower grades of ore processed, gold production for the period was 15% higher at 143,900oz in H1 2013 compared to 125,300oz in H1 2012.

The decrease in recovery rates in H1 2013 to 81% (compared to 86% in H1 2012) was due to the metallurgical properties of the high-grade ore (1.8g/t) from deep areas of pit 4 of the NE Bakhmut.

Production forecast for H2 2013

In H2 2013, all mining and processing volumes are expected to be similar to Q2 2013 while the average head grade processed through the RIP plant is expected to be 2.2g/t, up 38% on grades in H1 2013. Gold recovery is expected at approximately 77%, since recoveries from the deeper horizons of NE Bakhmut are 4-5% lower than the upper horizons due to metallurgical properties of the ore.

As a result of accelerated overburden stripping in H1 2013, high-grade ore (2.5-5.5g/t) is scheduled from pits 1 and 3 of the NE Bakhmut, as well as from the western part of the Andreevskaya ore zone. This will be blended with lower-grade ore from existing stockpiles.

H2 2013 expected production range is 190,000-195,000oz of gold.

Pokrovskiy

Mining and processing in H1 2013

The majority of mining activity at Pokrovskiy for the half year remained focussed on stripping the overburden needed to expose the high-grade (2.3g/t) ore of the Pokrovka-1 deposit.

High-grade ore was mined from the Zheltunak deposit whilst average- and low-grade ore was brought from the Pokrovka-2 deposit and the ore stockpiles.

The overall RIP recovery rate was somewhat lower in H1 2013 due to the processing of heap-leach tailings stockpiled in previous years.

Production forecast for H2 2013

Ore mining in H2 2013 will focus on Pokrovka-1 with an average grade of ore processed through the RIP plant expected at 2.2g/t with gold recoveries averaging 85%.

Conversion of the RIP plant for pressure oxidation purposes, previously scheduled for September 2013, has been postponed. The RIP plant is now scheduled to operate at full capacity on non-refractory ore until at least September 2014.

Pokrovskiy is expected to produce ??..60,000oz of gold in H2 2013.

Malomir

Mining and processing in H1 2013

Mining operations in H1 2013 focused on stripping and ore mining at the Quartzitovoye deposit and Central and Sukhonyr zones of the Malomir deposit.

Ore processed was from the transitional ore zone at Central and Sukhonyr, as well as from additional mineralisation detected during stripping and adjacent to the principal ore-bearing zone. The lower recovery at the RIP plant mostly relates to the processing of transitional ore, which has high sulphide content.

Production forecast for H2 2013

High-grade material (3.3g/t) is scheduled in H2 2013 from Quartzitovoye, and this will be the main source of ore for the RIP plant.

Stripping of refractory ore was halted in May 2013 and will not be undertaken again until 2014. Consequently, total volumes mined in H2 2013 are expected to be significantly lower than in H1 2013.

The average head grade through the RIP plant in H2 2013 is expected to be 2.2g/t, up 57% on the average grade for H1 2013 and the recovery rate expected to be 72%.

Malomir is expected to produce 70,000-75,000oz of gold in H2 2013.

Albyn

Mining and processing in H1 2013

The majority of mining at Albyn was focussed on stripping of the central part of the deposit, which contains higher-grade ore in wider mineralised zones.

The processed ore came mainly from the eastern part of the deposit, which consists of narrow, lower-grade ore bodies.??

Abnormally low temperatures, below -40⁰??, had an adverse effect on operations at Albyn over the Period. Limited access to hydraulic excavators delayed stripping while additional delays were also experienced in assembling new 16m³-capacity excavators and 136-tonne dump trucks, which, due to their large size, were assembled outdoors. As a result of these delays, work was conducted throughout H1 2013 to catch up with the initial mining schedule.

Production forecast for H2 2013

In H2 2013, ore is scheduled from the central part of the deposit with an average grade through the RIP plant estimated at 1.6g/t and recoveries averaging 93%.

In order to prevent a delay to the 2013 stripping schedule and prepare for stripping to be undertaken in 2014, some mining equipment and machinery from Malomir, currently available due to the rescheduling of stripping of Malomir's refractory ore bodies, will be relocated to Albyn in H2 2013.

Albyn is expected to produce 85,000-90,000oz of gold in H2 2013.

Alluvial Operations

During the Period, the Group produced 24,600oz of gold from its alluvial operations. The majority of alluvial production is expected during H2 2013; given that July to October are the main production months for this seasonal operation.

The Group's alluvial operations are expected to produce 60,000-65,000oz of gold in H2 2013.

Cost-cutting programme

The extended timeline for commissioning the POX Hub and for moving into refractory processing enabled the Group to make reductions in the cost of ancillary facilities and services at mine sites as well as savings in central administration costs in the Moscow and Blagoveschensk offices. In addition, a comprehensive cost-cutting program was initiated in April/May 2013 and began to be implemented across all sites from June 2013. It was always the intention of the management to optimise operating costs once Group finished the phase of developing new mines and building new processing plants. In response to the recent fall in the gold price, the Group brought these plans forward, implementing them in shorter timeframe.

The program covers a range of measures aimed at decreasing three key components of TCC:

n?? Increasing the efficiency of equipment and machinery and thus, optimising productivity. ??As a result of these measures, cash operating expenses are projected to decrease by 4-5% in H2 2013 and 7-9% in 2014 compared to previously budgeted costs;

n?? Reducing ancillary costs (including, but not limited to, costs relating to on-site worker accommodation and warehouses, maintenance costs, power supply and heating facilities). As a result of these measures, cash operating expenses are projected to decrease by 3-4% in H2 2013 and 5-7% in 2014 compared to previously budgeted costs;

n?? Reducing site administration expenses. ??As a result of these measures, cash operating expenses are projected to decrease by 2-3% in H2 2013 and 3-4% in 2014 compared to previously budgeted costs.

The overall effect of these measures is expected to result in reduction of cash operating expenses by 9-12% in H2 2013 and 15-20% in 2014 compared to 2013 budget.

Detailed measures being undertaken during June-July 2013 include:

n?? Pioneer and Pokrovskiy:

-???????? Headcount reduction of 350 amongst the auxiliary, service and maintenance staff;

-???????? Termination of contract mining and, consequently, the intensification of in-house mining operations, without a reduction in volumes or an increase in costs;

-???????? Additional incentives for increased productivity;

-???????? Optimisation of waste rock stockpiles and mine road locations aimed at a reduction in ore and rock haulage distances.

n?? Malomir:

-???????? Headcount reduction of 150;

-???????? Temporary shutdown of part of the maintenance and service workshops;

-???????? Temporary shutdown of part of the shift camp.

n?? Albyn:

-???????? Headcount reduction of 130 auxiliary, service and maintenance staff;

-???????? Introduction of ore screening prior to feeding the primary crusher, optimising the crushing and grinding circuit, reducing processing costs;

-???????? Ore screening before crushing at RIP plant aimed at overall crushing-and-screening cycle production cost reduction;

-???????? Reduction in blasting costs by optimising technology and use of emulsion explosives;

-???????? Personnel transportation cost reduction by increasing duration of the shift from 30 to 60 days.

n?? Central administration:

-???????? Headcount reduction of 90 in?? Moscow and Blagoveschensk offices;

-???????? Reduction in business expenses;

-???????? Reduction in office space in Moscow and London;

-???????? Cancellation of management bonuses.

Currently, the Group's production and engineering divisions are working on a number of additional technical projects aimed at optimising existing production facilities. ??A detailed action plan is expected to be prepared by October 2013. This will include measures aimed at a further reduction of production costs, which are expected to be implemented in 2014 in addition to actions mentioned above.

Exploration

H1 2013, exploration was concentrated on areas in the vicinity of Pioneer, Malomir and Albyn with the aim of identifying further high-quality non-refractory reserves suitable for processing at the mines' existing RIP plants.

Pioneer

Exploration extended the high-grade Andreevskaya Zone 300m further west, towards the intersection with the Yuzhnaya Zone. In addition, recently completed in-fill drilling identified a previously unknown high-grade pay shoot, situated between 50m and 120m from the surface and lying in a south-west direction. Significant intersections identified in this area include 4.8m at 21.0g/t Au (drill hole C5364) and 4.9m at 3.7g/t Au (C5366).. The gold grade in individual samples is up to 156.0g/t Au.

Exploration started at the Alexandra, Shirokaya and Otvalnaya Zones, which are located between 3km and 7km from the high-grade North-East Bakhmut Zone and expected to hold non-refractory reserves.

The Alexandra Zone now has an established strike length of 1,400m, of which c.800m has been drilled. It is a thick linear stockwork with a true thickness between 60m and 120m (at a cut-off grade of 0.40g/t) and steeply dipping in south to south-west direction at 70-90??. Selected intersections from Alexandra include: 86.2m at 1.3g/t Au and 13.5m at 1.4 g/t (drill hole C8106),?? 84.9m at 1.6g/t Au and 6m at 1.5g/t Au (C8107), 92.9m at 1.1g/t Au (C8135 and 36.9m at 1.4g/t Au (C8117).?? This ore body lies near the surface and is expected to be amenable for low-cost, open-pit mining with a low strip ratio.

Gold mineralisation at the Otvalnaya Zone was explored over a strike length of 500m and with vertical extension of over 140m. A preliminary estimate has indicated the presence of two ore bodies with an average thickness of 4m-5m and average grade of 1.8-2.4g/t Au.

Malomir

Exploration continues on peripheral structures around the high-grade ore body No. 55 at the Quartzitovoye deposit. This work aims to further increase RIP ore reserves.

Preliminary exploration conducted at the extension of Ozhidaemoye Zone identified new non-refractory mineralisation. Detailed exploration is planned for later this year in order to evaluate JORC Mineral Resources and Ore Reserves in this area. Two new zones of mineralisation with strike length of 200m and 100m respectively and thickness of between 1..0 and 15m have been identified and drilled. Mineralisation has a proven vertical extension of up to 50m. Significant drill and trench intersections include 1.0m at 6.8g/t, 1.3m at 53.0g/t, 2.9m at 43.0g/t, 2.0m at 2.7g/t, 4.6m at 14.0. ??Gold grade in the selected samples is up to 112g/t.??

Albyn

Exploration continued at Elginskoye, identifying further non-refractory Mineral Resources. Significant extensions of the mineralised zone were found at both the north-west and south east sides. New exploration results include: 8.9m at 1.90g/t Au (drill hole E220-4), 20.5m at 1.3g/t (E220-12), 5.8m at 0.7g/t (E204-8) and 2.2m at 2.13 (E228-32).

Exploration started at Uglichican, which is situated 10km north from Albyn. Uglichican has an historical resource of 650koz at a grade 4.0g/t to 6.5g/t. Exploration completed to date suggests high gold concentrations associated with quartz-breccia and with altered schist containing sulphides. Drilling completed by the Group during 2013 confirmed some of the historical intersections and identified seven new mineralised intervals, including: 4.4m at 14.9g/t, 3.6m at 15.5g/t, 11m at 2.9g/t and 7.4m at 31.5g/t.

Exploration plan for H2 2013

In H2 2013, the Group plans to continue exploration at the above areas, continuing to focus on establishing high-grade non-refractory mineralisation which would be potentially suitable for processing at the Group's operational RIP plants.

Currently the Group is in the process of preparing an intermediate reserves/resources statement reflecting results of 2013 exploration works.

Project development

n?? Following the declines in the gold price, the Company announced in May 2013 that it would defer the commissioning of its pressure oxidation ("POX") Hub and the related flotation plant at Malomir, enabling the Group to shift US$150 million of the 2013 capital expenditure budget to 2014 thereby not increasing the Group's net debt;

n?? POX Hub and the Malomir flotation plant commissioning is under review with the following works scheduled ????in H2 2013:

-???????? Lining of the autoclaves and flash tanks;

-???????? Construction of the oxygen plant;

-???????? Construction of the autoclave building, including the completion of the building framework, footings for equipment and the heating system;

-???????? The continued construction of the catchment reservoir dam.

Impairment review

The Group reviews its tangible and intangible assets for possible impairment and it is anticipated that the value of certain assets will be impaired and provided for in the half-year results for the period ended 30 June 2013.?? The Group commented on substantial impairments in its Annual Report and Annual General Meeting presentation/result announcement. While not reflecting the Management's expectations for the gold price, the key assumption used in calculating the impairment is a conservative view in respect of the long-term gold price.

IRC Limited ("IRC")

The Group currently holds a majority stake in IRC, which is a producer and developer of industrial commodities with its shares listed on the Hong Kong Stock Exchange.

On 9 July 2013, IRC issued its Q2 Trading Update which noted the following highlights:

n?? Increased quarterly and first half production and sales at Kuranakh compared to same periods last year;

n?? On-going implementation of cost-saving measures at Kuranakh and across the IRC Group;

n?? General Nice Development Limited and Minmetals Cheerglory Limited transaction Stage 1 completed for US$103.3 million;

n?? 2013 full-year production targets re-affirmed;

n?? K&S on track for commissioning in H1 2014; and

n?? Completion of the Stage 2 investment anticipated in Q3.

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.

The content of websites referred to in this announcement does not form part of this announcement.

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