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22 October 2013

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Interim Management Statement and Production Update for Q3 2013

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Petropavlovsk??PLC ("Petropavlovsk" or the "Company", or together with its subsidiaries "the Group") today issues its interim management statement and its production update for the period from 1 July??2013 to the date of this release ("the Period") in accordance with the UK Listing Authority's Disclosure and Transparency Rules.??

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Highlights

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n?? 204,400oz of gold produced in the period from 1 July??2013 to 30 September 2013 ("Q3 2013") and unit costs within 2013 guidance, despite severe rains and widespread flooding in the Amur region

n?? Total gold production and sales for the first nine months of the year amounted to 499,100oz and 512,900oz respectively, slightly higher than the corresponding period in 2012

n?? Exceptional efforts by Petropavlovsk staff and management at all sites limited the effect of flooding on estimated annual production to a reduction of less than 3%

n?? Average realised gold price of US$1,495/oz during Q3 2013, including US$157/oz benefit due to the successful hedging programme set in place earlier in the year

n?? Further promising exploration results expected to prolong the life of non-refractory processing facilities at the majority of the Group's mines

n?? Further development of the POX hub with the ??lining of the autoclaves on track to be finished by February 2014 at a reduced cost

n?? Strong performance at IRC Limited ("IRC"), the Group's industrial commodities subsidiary; on course to meet increased production guidance

n?? Net debt as at 4 October 2013 was US$1.08 billion, a decrease of US$70 million compared to net debt as at 30 June?? 2013 (US$1..15 billion). This was due to lower than budgeted unit cash costs (on per tonne and per m³ basis) and the previously-announced cost cutting programme; on course to reduce net debt to US$1 billion by year end

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Gold production summary

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Peter Hambro, Chairman of Petropavlovsk, said:

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"I am extremely proud of everyone in the Group for their tremendous efforts in the past quarter. We continued to produce high volumes of gold despite atrocious weather conditions and unprecedented flooding at our mines.

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"The weather has inevitably had some impact. As a result we may not have access to some higher-grade areas, which were scheduled for processing this year, until Q1 2014. Hence, we expect a reduction of approximately 3% in our annual production for the year; and are therefore reducing our production guidance for the year to 740,000oz-750,000oz with the shortfall coming predominantly from Pokrovskiy and Pioneer which were affected by flooding most of all. Hard rock total cash costs per ounce are expected still to come within our previously stated range of US$900-US$1000/oz but will be towards the top end of this range.

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"Our cost-cutting and working capital optimisation programme also remains on track and net debt is expected to fall to US$1 billion by the year-end.

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"IRC has reported the recently-received commitment in respect of the second tranche of the investment by General Nice and Minmetals, which is anticipated on 18 November 2013, at which time the Group's shareholding in IRC will be diluted to c.41%."

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Operations report

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During the quarter, activity at the majority of Petropavlovsk's mines was affected by torrential rain and some of the worst flooding in 120 years which caused more than 20,000 people to be evacuated from their homes.

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Despite this, the mines remained in production for the majority of the period as the Group's engineers worked to remove enormous volumes of flood water. Inevitably, there was some loss of production and the total volume of gold produced in the quarter was 204,400oz, a decline of 7% compared to the same period in 2012.

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Pioneer

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During Q3 2013, Pioneer produced 59,400oz of gold as the Group was unable to access the high-grade ore scheduled for processing during the quarter due to flooding; ore from low-grade areas and from the stockpiles was instead fed through the mill.

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Pokrovskiy

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During Q3 2013, Pokrovskiy produced 23,800oz of gold. High-grade ore from the bottom of the Pokrovka-1 pit was being mined and processed during the start of the period as planned, however this was halted from mid-July onwards as heavy rain flooded the pit. Consequently, the majority of ore processed during Q3 was from the Pokrovka-2 deposit and stockpiles, resulting in average grades for the period significantly lower than budgeted.

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In addition, adverse weather also affected plant recoveries due to the presence of clay, which was washed down from pit walls.

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Malomir

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Situated in a mountainous area in the north of the Amur region, mining at Malomir was less affected by the heavy rain and flooding. Thus the high-grade, non-refractory areas prepared in H1 2013 were mined and processed in Q3 2013 as planned, producing 31,700oz of gold. This was an increase of 75% on the comparative period in 2012 (18,100oz) and 48% on the amount produced in Q2 2013 (21,400oz).

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The higher grades achieved and the improved recoveries in Q3 2013 are expected to have a positive impact on Malomir's total cash costs for the full year, as planned.

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Albyn

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During Q3 2013, Albyn produced 34,900oz of gold. This was slightly lower than budgeted as this mine was also affected by heavy rainfall. The grades of ore processed were also lower than budgeted due to higher than expected dilution in the East Pit. Strong recoveries (93%) and increased grades in Q4 2013 should ensure production levels for the mine according to the Group's budget.

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Alluvial Operations

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During Q3 2013, the Group's alluvial operations produced 54,600oz, in line with the comparative period in 2012 (58,500oz), as Q3 is the main producing quarter in the year for alluvial production. Alluvial production for FY 2013 is expected to be at a similar level to FY 2012.??

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2013 production guidance

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Production is still affected in some areas due to flooding and this, as indicated at the time of the half year results in August, has prompted the Group to reduce its production guidance for 2013 to 740,000-750,000oz, a reduction of approximately 2-3% from the previous guidance.

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Gold sales, costs and financial position

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The Group's average realised gold sales price of US$1,495/oz for Q3 2013 included a US$157/oz benefit from hedging. This compared with a price of US$1,683/oz in the same period in 2012, reflecting the fall in the global gold price.

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Total cash costs for hard-rock mines are expected to be within but at the top end of the previous guidance of c.US$900/oz-US$1,000/oz, due to the processing of some high-grade material likely to be shifted to Q1 2014, which was previously envisaged to be processed in 2013.

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The Group's cost-cutting and cash conservation programme is on track. Since the beginning of the year central administration costs have been reduced by c.20% compared with 2012. As a result of cost cutting and working capital optimisation, net debt fell by US$70 million in Q3 2013 to US$1.08 billion as at 4 October and the Group remains on track to reduce net debt to US$1 billion by year-end.

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Exploration

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Further to the informal exploration results published with the H2 Results, the Group has continued to focus exploration on delineating JORC-compliant gold reserves as close as possible to the Group's existing processing facilities.?? However, the production of JORC-compliant results was hampered by the same adverse weather conditions which delayed a small part of the 2013 production. Once the normal winter temperatures arrive, the logistical challenges for drill rigs on boggy ground should be alleviated and JORC drill spaced exploration will continue.

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Pioneer

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During Q3 2013, the Group continued exploration of mineralised zones discovered earlier this year which are situated 5-10km north of the active open pits. As the area is covered with swamps, making access and exploration difficult during the summer months when the ground is not frozen, exploration progressed at a slower pace during Q3 2013. With completion of a better access road at the end of Q3 2013, the Group can actively carry out in-fill drilling and metallurgical sampling. This data will enable the area to be evaluated as a JORC Mineral Resource and Ore Reserve.

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The results received to date have been very encouraging, indicating the presence of substantial non-refractory gold mineralisation.??

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Malomir

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During Q3 2013, trenching, pre-stripping and drilling continued on the recently-acquired Magnetitovoye licence area containing non-refractory mineralisation.

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Short, narrow high-grade pay shoots have been identified with grades in intersections of up to 31.2g/t Au.

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JORC-compliant Mineral Resources and Ore Reserves are being evaluated for the Magnetitovoye licence area with a view to starting production in December 2013 and are expected to cover non-refractory production at the Malomir plant till 2015.

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Albyn

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During Q3 2013, exploration continued on identified targets within the non-refractory Afanasevskaya and Elginskoye licence areas, which cover an area 10-35km from the Albyn RIP processing plant.??

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At Elginskoye, in-fill drilling was conducted on the higher-grade areas of the deposit with a view to increasing grades of the ore potentially suitable for processing at the Albyn plant. It is expected that JORC-compliant Ore Reserves for this area will be calculated in 2014.??

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Corporate Update

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Sale of Non-Core Assets

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As announced on 10 July 2013, the Company executed a Share Purchase Agreement dated 2 July 2013 relating to the transfer of 21% of the issued shares in CJSC Verkhnetisskaya Ore Mining Company ("Verkhnetisskaya") to OJSC Krasnojarskaya Gorno-Geologicheskaya Company ("Krasnojarskaya GGK"). The total consideration for the sale was a rouble equivalent of US$172,756 which will be used for ongoing working capital requirements.

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Following completion of the transaction in July 2013, the Group retains a 49% interest in Verkhnetisskaya , which has ceased to be a subsidiary of the Group.

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Sale of non-strategic, Alluvial assets

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As announced, on 17 September 2013??the Company signed a share purchase agreement ("SPA") relating to the sale of its entire interest of 76.62% of the issued shares in OJSC Berelekh ("Berelekh"), a company which holds licences to mine and explore alluvial operations, to OJSC Susumanzoloto ("Susumanzoloto") for a total cash consideration of US$25 million, payable in two tranches.?? The first payment of US$5 million was received on 18 September 2013 with the balance of US$20 million payable within 10 days following approval of this transaction by shareholders of the Company at a general meeting.?? The consideration will be used to reduce the Group's net debt. Should the transaction not proceed to completion, the first payment of US$5 million is repayable to the purchaser, subject to certain exceptions.????

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The transaction was also conditional upon the approval of the Federal Antimonopoly Service of Russia, which was subsequently received on 9 October 2013.

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Should this transaction be completed in the year ending 31 December 2013, it is expected to result in an estimated accounting??loss on disposal of c.US$15 million which will be recognised in the Group's consolidated results for the year ending 31 December 2013.?? The actual result on disposal may vary depending on the operational results of Berelekh for the period up to the date of completion of the transaction.

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IRC Limited ("IRC")

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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.

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Further to the Circular issued by Petropavlovsk on 18 February 2013 and previous announcements by IRC and the Company, the Company announced on 4 October 2013 that IRC had received an irrevocable notice from General Nice Development Limited ("General Nice") for the exercise of the General Nice Further Subscription Right to subscribe for 863,600,000 new Shares for a cash consideration of HK$811.8 million (approximately US$104.7 million).

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Following the exercise of the General Nice Further Subscription Right, Minmetals Cheerglory Limited ("Minmetals Cheerglory") will subscribe for 247,300,000 new Shares for a cash consideration of HK$232.5 million (approximately US$30.0 million).

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As agreed between IRC, General Nice and Minmetals Cheerglory in respect of their respective subscription agreements, completion of the General Nice and Minmetals Cheerglory subscriptions are anticipated to take place on 18 November 2013.?? Following the completion of these subscriptions the Company's interest in IRC will be diluted to 40.49% and IRC will become an associate of the Group.

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On 16 October 2013, IRC issued its third quarter (to 30 September 2013) Trading Update, in which the following highlights were noted:

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n?? Increased quarterly production and sales at Kuranakh compared to same period last year

n?? 2013 full-year production targets recently increased and re-affirmed

n?? General Nice and Minmetals Cheerglory transaction

o?? Stage 1 completed for US$103.3 million

o?? Stage 2 for US$134.7 million is set for anticipated?? completion on 18 November 2013

n?? Construction and mine development at K&S on-going with weather-related delay expected to plant construction

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

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Enquiries??

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Forward-looking statements

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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. ??

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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.

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

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