2010 Full Year and Fourth Quarter Update

2010 Full Year & Fourth Quarter Trading Update

Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together with its subsidiaries, the "Group") today issues its 2010 full year and fourth quarter trading statement as an update and in advance of its Annual Results for the year ended 2010 which are expected to be issued on 31 March 2011.

HIGHLIGHTS

Attributable gold production for the fourth quarter and full year 20101

Gold sold by the Group (excluding joint ventures) in 2010 was 445,500oz (2009 - 438,200oz).

1. Total attributable gold production, as stated throughout this document, is comprised of 100% of production from the Group's subsidiaries and the relevant share of production from joint ventures and other investments. Figures for the comparative period are restated accordingly. The Group has held 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 Pokrovskiy Rudnik and ZAO ZRK Omchak are 98.61% and 90% respectively.

2. During 2009, some of the ore from the Pioneer deposit was processed through the Pokrovskiy mill, yielding production of 9,500oz. Pioneer gold processed through Pokrovskiy mill is included in the Pioneer deposit figures. Figures for the comparative period are restated accordingly.

3. In July 2010 the Group increased its total holding in ZAO ZRK Omchak to 90% after the acquisition of 32.5% and 7.5% of the issued capital of the ZAO ZRK Omchak from OAO Susumanzoloto and OAO Shkolnoye respectively. Accordingly, Omchak has become a subsidiary of the Group and production from Omchak for H2 2010 is 100% attributable to Group. Production from Omchak for H1 2010 and for 2009 was 50% attributable to the Group.

Operations and production update

·; Total attributable gold production for 2010 amounted to 506,800oz, which represents an increase of 4% compared with attributable gold production in 2009 (486,800oz);

·; Total attributable gold production during Q4 2010 amounted to 202,200oz, an increase of c.51% compared with total attributable gold production during Q4 2009 (133,500oz);

·; Production at Pioneer during Q4 2010 increased by 21% to 98,500oz compared with the same period in 2009 (81,600oz);

·; Total attributable gold production from Pokrovskiy during Q4 2010 totalled 54,600oz, an increase of 33% compared with the same period in 2009 (41,100oz in Q4 2009). This increase is in line with the Group's mine plan and is the result of mining works progressing into the higher-grade areas which were undergoing stripping during the first three quarters of 2010;

·; Following its successful commissioning in August 2010, the Malomir plant has been steadily ramped up to its design capacity of 55,000tpm, producing 36,400oz in 2010 (33,000oz in Q4 2010);

·; Total attributable gold production from Omchak during 2010 was 52,300oz in line with the Group's expectations following an increase in the Company's holding from 50% to 90% in July 2010;

·; Attributable gold production from other alluvial operations in 2010 was 28,000oz, representing an increase of 15% on the same period in 2009 (24,400oz).

Costs and average realised gold sales price

·; The Group's average realised gold sales price was US$1,253/oz during 2010, 29% higher than the average price of US$975/oz achieved in 2009.

·; Gold sold by the Group (excluding joint ventures) in 2010 was 445,500oz (compared to 438,200oz in 2009);

·; The Group's total cash operating costs were marginally higher in the second half of the year; From 1 July 2010, following an increase in the Company's holding from 50% to 90%, Omchak became a subsidiary of the Group with total cash operating costs similar to the those at the Group's other alluvial operations;

·; The Russian Rouble depreciated against the US Dollar by 0.8% during 2010, commencing 2010 at RUB/ US$30.24 and ending the year at RUB/ US$30.48.

Exploration and development

·; The second milling facility at Malomir remains on schedule for commissioning in H2 2011 and the second stage of mine development to process refractory ore is also on track for commissioning in H2 2012;

·; Construction work at Albyn is advancing as planned, with commissioning expected to take place during Q4 2011;

·; Initial reserve and resource estimates compiled in accordance with the JORC Code (2004)1 have indicated a potential upgrade to the Group's reserves and resources, as a result of the Group's successful exploration programme and licence acquisitions during 2010;

·; The Group intends to publish its full reserves and resources statement in accordance with the JORC Code (2004) and audited by Wardell Armstrong International together with its Annual Results on 31 March 2011.

Corporate update

·; During Q4 2010, a strategic review of the business was conducted by the Board. In accordance with this review, three additional Executive Directors were appointed in January 2011: Dr Alya Samokhvalova as Strategic Director, Mr Andrey Maruta as Finance Director, Russia, and Mr Martin Smith as Technical Director;

·; The Board established two new committees in January 2011: the Strategic Committee to formulate annual and long-term budgets, set production forecasts, and to monitor the Group's performance against these targets, and the Technical Committee, to provide support for the Strategic Committee by providing a technical analysis of the Group's budgets, forecasts and investment plans;

·; The previously-reported management restructuring at Pioneer has now been completed and a further plan of action to strengthen the Group's operational efficiency is being developed and implemented;

·; The new management structures are expected to both enable the Group to overcome the challenges inherent in it becoming a multi-mine producer and to establish a more predictable and sustainable production pattern. This will be achieved by restructuring the work of the planning department and a wider involvement of independent consultants for mining scheduling and production optimisation;

·; Mr Peter Hill-Wood has stepped down from his role as Senior Non-Executive Director, with Dr Graham Birch was appointed in his place.  

2011 plans and forecast production

·; The Group's conservative base case scenario for attributable gold production for 2011 is currently estimated to be 600,000oz, representing an increase of approximately 18% over total attributable gold production for 2010. In connection with this, it is expected that the Group will benefit from cash flows attributable to at least 600,000 oz of gold sales in 2011;

·; The Group's estimated 2011 base case production figure does not take into account production from the Albyn deposit (expected to be commissioned in Q4 2011), or the expansion of the Malomir plant. Substantial reserves of high grade material at Pioneer were also rescheduled for processing through the plant from 2011 to 2012;

·; It is again expected that the Group's production will be weighted towards the second half of the year due to the substantial backlog of stripping works initially scheduled for 2010 and an anticipated increase in attributable alluvial production coupled with production from heap leach operations, both of which are seasonal;

·; It is the Company's intention to continue to update the market on the Group's anticipated full-year production plans on a quarterly basis;

·; The Group believes that this new approach to mine planning and reporting gives it sufficient contingency should any of its mining operations run into unexpected difficulties in 2011.

Update on IRC Limited

On 10 January 2011, IRC Limited, in which Petropavlovsk is a 65.6% shareholder, issued a trading statement, which noted the following points:

·; c.US$240 million Initial Public Offering on the Stock Exchange of Hong Kong Limited;

·; Iron ore concentrate production achieved as forecast; sales ongoing;

·; First trial production from the K&S development project;

·; Completion of US$340 million project finance arrangements with the Industrial and

Commercial Bank of China (ICBC);

·; US$400 million Engineering, Procurement and Construction Contract (EPC) signed with the China National Electric Equipment Corporation (CNEEC);

·; Excellent progress at development projects; and

·; IRC Limited is expecting to publish its Annual Results on 28 February 2011.

1. Throughout this document references to the JORC Code (2004) refer to the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves as prepared by the Joint Ore Reserves Committee of the Australian Institute of Mining and Metallurgy, Australian Institute of Geosciences and Minerals Council of Australia ("JORC Code (2004)").

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

"2010 was a year of great change as the Group became a multi-mine producer; a transformation that involved a number of challenges for the Group.

The Group's major achievements were the successful installation of the new Pioneer processing line, which has increased the processing capacity of the mine to 420,000 tonnes per month and the resolution of the potential south wall weakness at Pokrovskiy which allowed for the mine's robust performance in Q4 2010.

Additionally, bringing Malomir - yet another new mine - into production on time and on budget, without any third party contractor's assistance, is further testimony to the abilities and professionalism of our teams.

We look confidently into 2011 when our fourth gold mine - Albyn - is expected to make its first contribution to the Group's gold production. Construction works at the Albyn site, which is one of the most prospective assets of the Group, are advancing well and we are currently on track to commission the c.1.6 - 2 million tonnes per year first stage plant in H2 2011. Exploration works are ongoing and the Group has acquired two additional prospective licences nearby.

In 2010, the Group was also successful in the acquisition of a number of licences in the Amur, Krasnoyarsk and Jewish Autonomous regions. We look forward to exploring these prospective assets in due course. We intend to announce our new JORC Code reserves and resource numbers in March 2011.

I am glad to say that all of us have learnt from the difficulties that we encountered and we have responded to these by the creation of the new management structures that were announced at the beginning of this year. The newly formed committees are developing a more conservative approach to forecasting of our production and, a major review of mining schedules by the Group's specialists and leading external consultants at our main producing assets is under way.

Going forward, it is our intention that the market will be informed of our conservative base case production estimates only, adjusted quarterly. Accordingly, our production target of 600,000oz for 2011 does not take into account production from Albyn because of the uncertainty involved in estimating production from a newly commissioned asset. Likewise, our 2011 target also does not include potential upside from the commissioning of another milling line at Malomir.

Optimisation of mining schedules has resulted in the shifting of a substantial amount of high grade material at Pioneer and Malomir mines from 2011 to 2012. This will also allow us to establish a more predictable and sustainable production pattern and to deal with the backlog of stripping works caused by 2010 equipment delivery delays."

CONFERENCE CALL

There will be a conference call today to discuss the announcement at 10:00 (GMT).

Details to access the conference call are as follows:

The Dial-in number in the UK will be: 0800 073 8965

The Dial-in number in Russia will be: 8108 002 394 2044

The Dial-in number in the USA will be: 1866 926 5708

Elsewhere, the Dial-in number will be: +44 (0) 1452 560 304

The Conference ID in all cases will be: 36053552

ENQUIRIES

GROUP OPERATIONS REPORT

Pioneer

During 2010, Pioneer produced 230,900oz of gold, with 98,500oz produced in Q4 2010, representing 43% of total production for the year. As was previously noted, production from Pioneer for the first three quarters of the year was adversely affected by delays in both the delivery of key mining machinery, which was ordered in a timely manner but which was delivered several months late, and extreme adverse weather conditions. This resulted in a delay in accessing the higher-grade ore which was due to be processed from Q3 2010 but was not in fact processed until December 2010.

Following the delivery of the last 15m3 excavator in January 2011, all mining equipment which the Group had ordered for Pioneer is now on-site and in operation. The Group anticipates that the arrival of this final excavator will enable 2011 stripping works to be conducted according to the updated mine's schedule.

During 2010, the amount of total material moved increased by 116%, reflecting the amount of stripping the Group needed to conduct in order to reach the target high-grade areas.

The total material milled was 3,943,000t, an increase of 263%. This was in part due to the successful commissioning of the third milling line in April 2010.

During the warmer months of 2010, a small amount of lower-grade ore was processed by the mine's heap-leach operations, in accordance with the Group's mine plan.

Pioneer mining and processing operations

Pokrovskiy

During 2010, Pokrovskiy produced 144,900oz of gold, which was at the high end of the Group's range at the start of the year (135,000 - 145,000oz). This can be attributed to the mining and processing of reserve grades that were higher than predicted by geological exploration.

Technical issues with the instability of the southern wall were successfully overcome in the first half of the year with both the work at the pit and the operations at the plant continuing steadily during the second half of the year.

Pokrovskiy mining and processing operations

Malomir

Following its successful commissioning on 25 August 2010, the Malomir plant ramped up steadily to produce 36,400oz of gold during the remaining four months of 2010. This production was lower than the Group's original production target for 2010 due to the dilution of the upper levels of the Quarzitovoye ore body's higher grade core by some surrounding lower grade material. The dilution was exacerbated by the narrow shape of the ore body at this level, resulting in lower than expected grades though the mill (5.4g/t vs. 9.4g/t). A review of mining works allowed the Group to overcome the dilution issue, resulting in mining operations continuing steadily in Q4 2010 with an average grade through the mill of 6.3g/t, in line with the Group's original expectations. Despite the problems at Malomir's mining operations, the Malomir plant has been working consistently since being commissioned.

Malomir mining and processing operations

Alluvial production and joint ventures

The Company's joint ventures and alluvial operations contributed a further 94,600oz in 2010 (62,600oz in 2009). This was in line with the Group's forecast following an increase in the Group's holding from 50% to 90% in July 2010.

COSTS AND AVERAGE REALISED GOLD SALES PRICE

The Group's average realised gold sales price for 2010 was US$1,253/oz, an increase of 29% on 2009 (US$975/oz). Gold sold by the Group (excluding joint ventures) in 2010 was 445,500oz (2009 - 438,200oz).

The Group's total cash operating costs were marginally higher in the second half of the year. From 1 July 2010, following an increase in the Company's holding from 50% to 90%, Omchak became a subsidiary of the Group with total cash operating costs similar to the those at the Group's other alluvial operations.

The Russian Rouble depreciated against the US Dollar by 0.8% during 2010, commencing 2010 at RUB/ US$30.24 and ending the year at RUB/ US$30.48.

EXPLORATION AND DEVELOPMENT

Malomir

Construction work is continuing on the crushing, grinding and flotation circuits at Malomir, with commissioning scheduled for H2 2011 as planned. The plant will include a 7.5m x 2.8m SAG mill and two 4m x 6m ball mills, with a capacity of 180Ktpm. The pressure oxidation plant is on schedule for commissioning in Q4 2012.

Albyn

During 2010, work continued towards the plant's expected commissioning in Q4 2011. This included construction of the accommodation blocks, haul roads and power lines. In addition, orders were placed for key equipment, which management expects to arrive on schedule.

Reserves and Resources Update

Initial reserve and resource estimates compiled in accordance with the JORC Code (2004) have indicated a potential upgrade in the Group's reserves and resources, attributable to the Group's successful 2010 exploration programme and the acquisition of new licences. In addition, some upgrades can be expected due to increases in the gold price and the consequent reduction in economic cut-off grade, particularly at Pokrovskiy. Where this occurs, it is also anticipated that the mine life may be extended.

The reserve and resource estimates were compiled by the Group's modelling department, Regis, in Blagoveschensk, Russia, with the assistance of an independent mineral consultant, AuVerdi Capital. The data is currently being audited by Wardell Armstrong International. The Group intends to publish full reserve and resource estimates in accordance with the JORC Code (2004) together with its 2010 Annual Results on 31 March 2011.

GROUP PRODUCTION TARGET AND OUTLOOK FOR 2011

The Group's conservative base case scenario of attributable gold production for 2011 is currently 600,000oz, representing an increase of approximately 18% on total attributable gold production for 2010.

The Group's revised approach to deriving production guidance does not allow for the inclusion of any mines or production lines scheduled for commissioning during the year. Accordingly, the 2011 guidance excludes production from the Albyn deposit, which is expected to be commissioned in Q4 2011 and does not take into account the expansion of the Malomir plant, which is scheduled for the second half of 2011.

The 2011 base case scenario is the result of a revision in mine planning for the Group's main assets. This will ensure a more stable production profile, optimise mining works and deal with the backlog of stripping works originally scheduled for 2010. Some of the high grade areas at Pioneer, which were previously scheduled to be depleted in 2011, are expected to be treated in 2012. This rescheduling is expected to derisk Group's mining operations and be beneficial in terms of mining costs.

The Company aims to continue to update the market with adjusted production targets quarterly.

The Group believes that this new approach to mine planning and reporting gives it sufficient contingency should any of its mining operations run into unexpected difficulties in 2011.

CORPORATE UPDATE

New Board appointments

In relation to the strategic review of the business conducted by the Board in Q4 2010, three additional Executive Directors were appointed in January 2011.

Dr Alya Samokhvalova was appointed Strategic Director and chairs the newly created Strategic Committee. Dr Samokhvalova continues in her role as Group Head of External Communications, a position she has held since joining Petropavlovsk in 2002. Dr Samokhvalova has a Masters in Investment Management from the CASS Business School in London and a PhD in Economics from the Moscow International High Business School.

Mr Andrey Maruta becomes Finance Director - Russia, and serves on the Strategic Committee. Mr Maruta, who was Group Financial Controller, qualified as a Chartered Certified Accountant at Moore Stephens in 2001 and joined the Group in 2003 as Group Chief Accountant. He was appointed Deputy Finance Director in 2005 and Finance Director in 2006 before the Group's merger with Aricom plc.

Mr Martin Smith has been appointed Technical Director and chairs the newly created Technical Committee. Mr Smith, now Group Head, Technical Services, joined as Technical Director of Aricom plc in June 2006. He has more than 25 years' operational and corporate management experience across the global mining industry, and has worked with Anglo American Corporation, Kier International, Costain Mining and Shell International.

Establishment of new committees at an executive level

The Board established a Strategic Committee and a Technical Committee in January 2011.

The Strategic Committee is responsible both for formulating annual and long-term budgets and setting production forecasts and for monitoring the Group's performance against these targets. It reports directly to the Group's Executive Committee and is supported by the Technical Committee.

The Strategic Committee, chaired by Dr Alya Samokhvalova, Strategic Director and Group Head of External Communications, and includes Andrey Maruta, Finance Director, Russia. Dr Samokhvalova and Mr Maruta both sit on the Board of Directors and the Executive Committee, having each worked for the Group in London for over seven years. Dr Pavel Maslovskiy, Chief Executive Officer, and Dmitry Chekashkin, a member of the Executive Committee and Group Head of Precious Metals Operations also serve on the Strategic Committee.

The Technical Committee was established to provide support for the Strategic Committee by providing a technical analysis of the Group's budgets, forecasts and investment plans. The Committee reports directly to the Group's Executive Committee. The Technical Committee is chaired by Martin Smith, Technical Director, who also sits on the Board of Directors and the Executive Committee. Membership to the Technical Committee will be drawn from the Company's technical services divisions, including geology, engineering, mining and processing. 

Management restructuring

The previously-reported management restructuring at Pioneer has now been completed and the Board believes that this has greatly strengthened operational efficiency.

These new management structures will enable the Group to overcome the challenges of becoming a multi-mine producer, and establish a more predictable and sustainable production pattern by restructuring the planning department and wider involvement of independent consultants for mining scheduling and production optimisation.

Change to Senior Independent Non-Executive Director

Mr Peter Hill-Wood stepped down as Senior Independent Non-Executive Director and Dr Graham Birch was appointed in his place.

Dr Birch became a Non-Executive Director in February 2010, retiring in 2009 as head of international fund manager BlackRock's successful Natural Resources team, where he was responsible for approximately US$40 billion of assets under management. Dr Birch is well known in the investor community and will provide shareholders with further independent access to the Company.

The Board is seeking to make additional Non-Executive Directorship appointments to ensure an appropriate balance between executive and non-executive directors.

UPDATE ON IRC LIMITED

On 10 January 2011, IRC Limited, in which Petropavlovsk is a 65.6% shareholder, issued a trading statement, which noted the following points:

·; c.US$240 million Initial Public Offering on the Stock Exchange of Hong Kong Limited;

·; Iron ore concentrate production achieved as forecast; sales ongoing;

·; First trial production from the K&S development project;

·; Completion of US$340 million project finance arrangements with the Industrial and

·; Commercial Bank of China (ICBC);

·; US$400 million Engineering, Procurement and Construction Contract (EPC) signed with the China National Electric Equipment Corporation (CNEEC);

·; Excellent progress at development projects; and

·; IRC Limited is expecting to be publish its Annual Results on 28 February 2011.

IRC Limited is listed on the Stock Exchange of Hong Kong Limited. Further information, including the Company's full Trading Update, may be found on the Company's 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.