2011 Half Year Trading Update

21 July 2011

2011 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 2011 to 30 June 2011 ("the Period") in advance of its half year results, which are expected to be published on 25 August 2011.

HIGHLIGHTS

Total attributable gold production for H1 2011

Operations and production

§ Total attributable gold production for the first half of the year was 219,100oz, c.32% higher than during the same period in 2010 (166,300oz) and marginally ahead of the Group's estimate for the first six months of 2011. Production in the second half of the year 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;

§ Total material moved at Pioneer during H1 2011, was c.84% higher than during the comparative period in 2010 (14,177,000m3 vs. 7,707,000m3). Advanced stripping will allow access to ore scheduled for processing in H2 2011; and

§ The Group reiterates its announced production target of 600,000oz for the year.

Gold sales and costs

§ During the first half of the year, the Group sold 266,000oz of gold at an average realised gold sales price of US$1,455, a c.71% increase in the quantity of gold sold compared with the first six months of 2010 (155,000oz at an average realised gold sales price of US$1,154/oz);

§ Gold sold in H1 was c.47,000oz greater than H1 2011 production due to gold in circuit from 2010 becoming available for sale; and

§ Operating costs were in line with the Group's estimates, which have been under pressure from industry wide inflation and the appreciation of the Rouble against the US$, the Group's functional reporting currency.

Project development: Malomir and Albyn

§ In mid-July 2011, the second crushing and grinding line at Malomir was commissioned ahead of schedule and is currently being ramped up; and

§ Construction work on the Group's fourth gold mine, Albyn, remains on track for launch in Q4 2011, as previously announced.

Financial position excluding IRC

§ In addition to the 2010 year end cash-in-hand of US$96 million, the Group has entered into new committed banking facilities totalling US$340 million. Accordingly the Group is fully funded for its capital expenditure programmes.

POX processing hub

§ As announced on 21 June 2011, following a period of extensive research and testing, the Group has completed an internal feasibility study for the construction of a pressure oxidation processing plant to be located at the Pokrovskiy mine ("POX hub"), to process flotation concentrate from Malomir and Pioneer;

§ Work on the foundations for the plant at Pokrovskiy and construction of the flotation stage at Pioneer and Malomir is in progress; and

§ The contract for construction and installation of the flotation plant at Malomir was signed with Outotec (Finland) Oy ("Outotec") in June with a contract price of €24.6 million.

Exploration

Pioneer

§ A new, previously unknown, high-grade mineralised zone with intersections of up to 17.0g/t on 20m thickness has been delineated at NE Bakhmut. The high grade ore column contains both non-refractory and refractory mineralisation and remains open in a down dip direction;

§ A new mineralised zone, Zvezdochka, has been discovered and explored north-west of the Bakhmut zone. It is parallel to the high grade Andreevskaya and NE Bakhmut ore bodies and contains both non-refractory and refractory mineralisation at shallow depth from the surface.

Albyn and the surrounding areas

§ A new zone of alteration similar to the Albyn zone has been intersected by two trenches in the Kharginskaya area; and

§ Exploration at the new Elginskoye licence area has identified wide shallow dipping zones of alteration with the first intersection of 33m thickness at an average grade of 1.23g/t.

Malomir

§ New non-refractory mineralisation has been identified to the north-east of the Quartzitovoye open pit;

§ Exploration at the previously identified Kanavinskaya zone has identified non-refractory resources which will become a source of additional ore for the existing RIP plant at Malomir. The zone remains open in a down dip direction; and

§ Exploration at Zone 26, north of the Malomir deposit, has identified an addition to Malomir's refractory ore reserves and mineral resources. The zone remains open in a down dip direction.

Other exploration areas

§ Geochemical work at the Osezhinskaya licence has identified extensive gold, copper and molybdenum anomalies. The Group's geologists are evaluating the possibility of discovering a copper-molybdenum-porphyry deposit. 

JORC Reserves and Resources estimates

§ A new JORC-based Reserves and Resource estimate, including results of H1 2011 exploration work, is being prepared for release on 25 August 2011, together with the Group's interim results.

IRC Limited ("IRC")

§ On 12 July 2011, IRC issued its Trading Update which noted the following points:

- Total production increased by 142% compared to the previous six-month period;

- All 2011 production targets are on track to be achieved;

- The consolidated average realised price achieved in the first half of 2011 was c.US$147/t. Pricing is attained at a formula related to spot, and is agreed on a monthly basis;

- Construction works at K&S are ongoing; and

- IRC is undertaking an optimisation study for the K&S project to review the potential to increase throughput. The study was initiated following the JORC reserve increases announced in February 2011. IRC expects to publish the study with its interim results due on 23 August 2011.

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

"The strong first half and the fact that that the second half of the year is on schedule means that we remain on track to achieve the 600,000oz production target announced at the start of 2011.

Commissioning the second mill at Malomir and the likelihood of our fourth hard-rock gold mine, Albyn, coming on-stream this year demonstrates that both the skill and commitment of our construction teams match that of the production side of the business, which has produced these excellent results.

We have also continued the planning and development of the POX hub at Pokrovskiy, which is due to be commissioned in 2013. This is an exciting new project for the Group which, I believe, will propel us into a new phase of growth and development, helping to unlock the considerable refractory ore resources in our portfolio and in Russia in general.

On the exploration side, we have had a number of successes which have the potential to improve our production scenarios and development plans in the coming years. We are currently evaluating these exploration results and intend to report our findings later in the year."

________________________

CONFERENCE CALL

There will be a conference call today to discuss this announcement at 10:00am (BST).

Details to access the conference call are as follows:

The dial-in number in the UK will be: 0800 694 0257

The dial-in number is Russia will be: 8108 002 097 2044

The dial-in number in the USA will be: 1866 966 9439

Elsewhere, the dial-in number will be: +44 1452 555 566

The Conference ID in all cases will be: 84813714

ENQUIRIES

OPERATIONS AND PRODUCTION

PIONEER

During H1 2011, Pioneer produced 116,600oz of gold, an increase of c.30% on the amount produced during the same period in 2010. This includes production from the seasonal heap-leach facility at Pioneer, which commenced work in April 2011, contributing 2,300oz of gold.

In Q2 2011, production totalled 80,000oz, an increase of c.48% compared with the same period in 2010 (54,100oz). The increase was due to enlarged plant capacity and improved mining and plant efficiencies. These improvements follow a set of measures implemented at the mine during January 2011.

Delivery of the final additions to the mining fleet at Pioneer at the beginning of 2011 resulted in a c.84% increase in the volume of total material moved (14,177,000m3 vs. 7,707,000m3) and a c.63% increase in the volume of ore mined (2,781,000t vs. 1,706,000t) during the first half of the year, compared with the same period in 2010.

Total material moved includes pre-stripping in accordance with the mining schedule for the second half of the year. At present, the mine is operating in line its stripping work plan and the Group's management is confident in achieving Pioneer's 2011 production target of c.323,500oz.

POKROVSKIY

During H1 2011, Pokrovskiy produced 41,900oz, which was ahead of the Group's forecast. This figure includes 4,500oz produced via heap-leach. This was less than the 59,400oz produced during the comparative period in 2010 due to a planned decline in grades.

The ore mined during the first six months of the year was extracted from the deep horizons of the main pit and also from Pokrovka 2.

Total material moved during the period was 3,274,000m3, c.16% more than during the same period in 2010 (2,828,00m3). Stripping work is ongoing as scheduled.

Pokrovskiy's strong performance in H1 2011, indicates it remains on track to produce the Group's target for the year of c.96,200oz.

MALOMIR

During H1 2011, Malomir produced c.37,900oz, in line with the Group's estimates despite marginally lower grades than anticipated.

Mining operations were focused on the Quartzitovoye pit as well as pre-stripping of overburden and exposing ore at the central pit, with total material moved in line with the Group's plan.

The Group's 2011 production estimate for Malomir remains unchanged at c.93,000oz.

ALLUVIAL PRODUCTION

During the period, the Group produced c.23,000oz of gold from its alluvial operations. The majority of alluvial production is expected to be delivered during H2 2011, given that July to October are the main production months for this seasonal type of operation. The Group's management remains confident in the full year alluvial production target of c.87,000oz.

TOKUR

During H1 2011, the Group processed c.400oz of gold from Tokur through the mill at Malomir, as part of the testing work conducted at the deposit. Tokur production is reported together with production from the Group's alluvial deposits. The Group continues to evaluate the development of Tokur.

DEVELOPMENT

Malomir

In mid-July 2011, the second crushing and grinding line at Malomir was successfully commissioned ahead of schedule. The plant is currently ramping up and is expected to reach full capacity by September 2011. 

Albyn

Construction work on the Group's fourth gold mine, Albyn, is on schedule. The plant is expected to be commissioned in Q4 2011.

Work conducted during H1 2011 included construction of the crushing, grinding and sorption buildings, fuel and explosives storage facilities, dormitory blocks and administration offices. Work continues on the development of the tailings dam. The 110kV power supply and the internal 6kV power supply are in the final stages of installation.

POX hub at Pokrovskiy

As reported on 21 June 2011, following a period of extensive research and testing, an internal feasibility study for the construction of a POX plant at the Pokrovskiy mine to process flotation concentrate from Malomir and Pioneer was completed. The plant will be constructed in two stages: four 60m3 pressure autoclaves for processing concentrate from Malomir are planned for launch in Q2 2013 and an additional two vessels to process Pioneer concentrate will be commissioned in Q3 2013, taking the plant to its final design capacity of c.600Ktpa.

In accordance with the schedule of works outlined in the internal feasibility study, work on the foundations for plant at Pokrovskiy and construction of the flotation building at Pioneer and Malomir has commenced.

As previously announced, a c.€30 million contract for the delivery of key long-lead time equipment has been entered into with Outotec and a c.€22 million contract for the design of the oxygen plant was also signed with LLC Premium Engineering, a subsidiary of Red Mountain Engineering Corporation.

In addition, a contract for the construction and installation of the flotation plant at Malomir was entered into with Outotec in June 2011, with a contract price of €24.6 million.

EXPLORATION

Pioneer

Drilling at the fourth high grade ore column at NE Bakhmut has been completed. A new and previously unknown high-grade mineralised zone with intersections of up to 17.0g/t on 20m thickness has been delineated. The exploration results are currently being incorporated into an updated resource estimate for Pioneer. The high grade ore column contains both non-refractory and refractory mineralisation and remains open in a down dip direction. Exploration continues to follow the highly prospective NE Bakhmut trend towards the north east.

The preliminary unclassified resource estimate for the ore column indicates 222 kt of non-refractory resources at an average gold grade of 9.53 g/t (c.70,000oz of gold) and 374 kt of refractory mineralisation at an average gold grade of 8.52 g/t (c.100,000oz of gold).

A new mineralised zone, Zvezdochka, has been discovered and explored north-west of the Bakhmut zone. It has a north-east strike, parallel to the high grade Andreevskaya and NE Bakhmut ore bodies and contains both non-refractory and refractory mineralisation at a shallow depth from the surface.

Albyn and the surrounding areas

Initial results from two trenches developed in the Kharginskaya area showed alteration zones similar to Albyn, with a thickness of 3 - 5 m. Initial exploration within the new Elginskoye licence area shows promising results. The first three trenches completed in the area to date have identified wide shallow dipping zones of quartz-feldspar alteration. The first assay results received to date indicate a 33m wide intersection at an average grade of 1.23g/t. Work is ongoing.

Malomir

Exploration has continued around the Quartzitovoye open pit. To the north-east, a new, previously unknown zone of non-refractory mineralisation has been identified.

Exploration at the previously identified Kanavinskaya zone has continued for over 540m of the strike length with trenches and drill holes on a grid of 80x80m. The metallurgical samples tested indicate that Kanavinskaya is non-refractory and will become a source of additional ore for the existing RIP plant at Malomir. The intersections analysed to date include 8.5m at 3.61g/t, 29.0m at 2.81g/t, 8.9m at 1.43g/t, 4.2m at 1.65g/t and 5.3m at 1.13g/t. The zone remains open in a down dip direction. The Group is planning to prepare a JORC-based resource estimate for Kanavinskaya, once it has finished all assay sampling.

Exploration at Zone 26, situated north of the Malomir deposit, continues to return positive results, with selected intersections including 3.9m at 6.29g/t, 15m at 1.71g/t, 17.0m at 1.67g/t and 6.0m at 1.78g/t. The zone remains open in a down dip direction. The drilling and trenching of Zone 26 is largely completed and a JORC-based resource estimate will be completed upon receipt of all assay results. This discovery will add to Malomir's refractory ore reserves and mineral resources.

The pre-stripping completed at Ozhidaemoye has improved confidence in the reserve and resource estimates at this deposit.

Other exploration areas

Geochemical works at the Osezhinskaya licence have identified extensive gold, copper and molybdenum anomalies which are currently being verified by trenching. Work remains at an early stage and the Group's geologists are evaluating the possibility of discovering a copper-molybdenum-porphyry deposit.

GOLD SALES AND COSTS

During the first six months of the year, the Group sold 266,000oz of gold at an average realised gold sales price of US$1,455. This represents an increase of c.71% on ounces of gold sold during the first six months of 2010 (155,000oz at an average realised gold sales price of US$1,154/oz). The Group's average gold sales price in H1 2011 was 26% higher than in H1 2010.

The Group sold c.47,000oz more gold in H1 2011 than was produced during the period due to gold in circuit from the previous year becoming available for sale.

Operating costs were in line with the Group's estimates, although, as anticipated, high inflation and Rouble appreciation put pressure on operating costs during the period.

CORPORATE UPDATE

Following shareholder approval at the Company's Annual General Meeting held on 19 May 2011, the Company will pay a final dividend of £0.07 per share on 28 July 2011 to shareholders on the register as at close 1 July 2011.

During the period, the Group terminated the Odolgo Joint Venture with Priisk Solovyevskiy with the Group's share sold to its former joint venture partner for c.US$10 million.

On 18 February 2011, the Group announced that it had entered into a non-binding Heads of Agreement with Meridian Minerals Limited relating to the potential sale by the Group of a 75% interest in Omchak. This potential sale relates only to non-producing hard-rock assets which are not considered to be core for the Group.

During the first six months of the year, three new directors were appointed to the Board: Mr Andrey Maruta (Finance Director, Russia), Dr Alfiya Samokhvalova (Strategic Director) and Mr Martin Smith (Technical Director). Mr Peter Hill-Wood retired from his position as Non-Executive Director at the conclusion of the Company's Annual General Meeting on 19 May 2011.

During the Period, three new committees were established at Board level: the Strategic Committee, Technical Committee and the Anti-Bribery Committee.

The Anti-Bribery Committee was formed in response to recent implementation of the UK Bribery Act 2010 and is responsible for the development, implementation and communication of the Company's anti-bribery policies and procedures to employees, suppliers, customers, joint venture partners and any other third parties with whom the Company conducts business. Anti-Bribery Committee membership comprises the Company Chairman, the Chief Executive, the Chief Financial Officer, the Strategic Director, the Head of Legal, the Deputy General Director of MC Petropavlovsk and the Company Secretary.

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 65.6% stake in IRC.

On 12 July 2011, IRC issued its Trading Update. It stated that all 2011 production targets were on track to be achieved. Production at Kuranakh in H1 2011 was 350,136 tonnes of iron ore concentrate and 22,171 tonnes of ilmenite concentrate, representing a half-on-half increase of 142% of total production, as compared with the second half of 2010.

The consolidated average realised price achieved in the first half of 2011 was c.US$147/t. Pricing is attained at a formula related to spot, and is agreed on a monthly basis.

Construction work at K&S is ongoing. IRC is undertaking an optimisation study for the K&S project to review the potential to increase throughput. The study was initiated following the JORC reserve increases as announced in February 2011. IRC expects to publish the study with its interim results on 23 August 2011.

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.