Final Results

29 April 2015

Annual Results for the Year Ended 31 December 2014 and Production Update for Q1 2015

Petropavlovsk PLC ("Petropavlovsk" or the "Company", or together with its subsidiaries the "Group") today issues its audited annual results for the year ended 31 December 2014 (the "Period") and a production update for the period from 1 January to 31 March 2015.

Peter Hambro, Chairman of Petropavlovsk, said: "This was a period in which we re-engineered the Group in the light of the lower gold price, and secured the immediate future of the business. Petropavlovsk is now a significantly stronger and more efficient business and well-placed to optimise its returns on its excellent assets.

"Since the start of 2014, we have radically reduced the Group's cost base and operating costs, added significant non-refractory reserves and improved resources thanks to our successful exploration programme and transformed the balance sheet with our recent financial restructuring. We have also welcomed the return of Pavel Maslovskiy as Group Chief Executive and he is already having a significant positive impact on the business.

"Looking ahead, we are forecasting four years of stable, low-cost production and a balanced programme of further net debt reduction and selected investments to secure attractive returns for our shareholders."

2014 Financial Highlights

n A 15% reduction in Total Average Cash Costs per ounce ("TCC/oz") to US$865/oz (2013: US$1,016/oz)

n The Group is disclosing All-In Sustaining Costs ("AISC") and All-In Costs ("AIC") for the first time. In 2014, the Group achieved a 22% reduction in AISC (US$970/oz for 2014 vs. US$1,248/oz for 2013) and a 24% reduction in AIC (US$1,088/oz in 2014 vs. US$1,439/oz in 2013)

n Positive contribution from hedging activities of US$66/oz (2013: US$146/oz) to the average realised gold price of US$1,331/oz (2013: US$1,519/oz)

n A further 17% reduction in central administration costs to US$38.2 million (2013: US$45.8 million)

n A c.60% reduction in total capital expenditure for gold division to US$97 million (US$237 million) in line with guidance

n Underlying EBITDA of US$252 million (2013: US$325 million)

n Adjusted net profit from continuing operations of US$4.4 million, compared with US$(1.5) million loss in 2013

n Reduced net loss of US$348m (2013: US$713m) mainly due to the improvement in operating costs and significant decrease in impairment charges. The loss is substantially attributable to non-cash items such as foreign exchange losses, related deferred tax and losses from discontinued operations (IRC)

n A further decrease in working capital of US$60 million as a result of continued optimisation mainly due to decrease in ore stockpiles and in stores and spares

n Net cash flow from operating activities from continuing operations of US$169 million (2013: US$292 million)

n Net debt as of 31 December 2014 of US$930 million

n Forward contracts to sell 50,000oz of gold at an average price of US$1,310/oz outstanding as at 31 December 2014. In October 2014 the Group acquired 150,000 oz of gold put options with a strike price of US$1,150/oz acquired as part of a downside protection strategy and maturing in the first half of 2015

Operational and Exploration Highlights

n Full-year 2014 production delivered: 624,500oz of gold in line with the Company's guidance

n 38% increase in gold production at Albyn - the backbone of the Group's future production expansion

n Significant decrease in mining and processing costs per unit at each of the Group's mines, apart from mining costs at Albyn due to the planned development of the pit

n Successful exploration identified c.1.3Moz of additional non-refractory JORC Ore Reserves, more than offsetting 2014 mine depletion

n At a non-refractory zone, Andreevskaya, high-grade extensions discovered adding c.100,000oz to JORC Mineral Resources at an average grade of c.34g/t suitable for open-pit extraction and processing at the Pioneer resin-in-pulp ("RIP") plant

n An increase at Alexandra and Shirokaya of c.510,000oz of contained gold in the Measured and Indicated Resource categories and c.256,000oz in Probable Ore Reserves

Strategic Review Concluded

n Focus on net debt reduction by maximising operating margins and free cash flows

n Conservative borrowing policy with a medium-term Net Debt/EBITDA target of 1.5:1

n Further 10-15% reduction in operating costs in 2015 planned using a systematic analysis of operating processes and capabilities to develop an optimal, sustainable operating model for each mine:

o incorporating standardised operating systems

o implementation of new cost-saving technologies

o optimisation of management efficiency

o optimisation of procurement

o outsourcing

n Optimised capital allocation

Corporate Highlights

n Refinancing plan completed on 18 March 2015, consisting of:

o A pre-emptive 157 for 10 Rights Issue at £0.05 per Ordinary Share

o A new, five-year US$100 million convertible bond

n Post-Refinancing net debt reduced down to US$707 million (unaudited) as at 31 March 2015

n The Company signed definitive waiver documentation with its senior lenders for waivers and relaxations of its key financial covenants for the periods from 31 December 2014 to and inclusive of 31 December 2015

n Reduction of the size of the Board of Directors to three executive Directors and four Non-Executive Directors due to the reduced size of the Company's market capitalisation

n In April 2015, a conditional Share Purchase Agreement concluded to sell interest in a non-core high cost alluvial gold deposits company, Joint-stock gold-mining company Koboldo ("Koboldo"), for RUB 942 million (c.US$18.7 million ) plus reimbursement of VAT for the Q4 2014. The production from these assets is not included in the Company's 2015 production target

Q1 2015 Highlights

n Gold production of 112,800oz, 29% lower than in the comparative period (Q1 2014: 159,100oz), due to a scheduled 28% decrease in average grades while mine sites focused on stripping high-grade areas for mining in H2

n Gold sales of 110,600oz, 31% lower than in the comparative period (Q1 2014: 161,200oz)

n Average realised gold sales price of US$1,217/oz, 13% lower than in the comparative period (2014: US$1,403/oz), including a US$5/oz negative contribution from the protective hedging position of the Group

n Further non-refractory satellite deposit - Afanasevskaya - confirmed. C.15km away from Albyn plant; initial exploration has yielded very promising results

n Estimated consolidated net debt as at 31 March 2015 of US$707 million (unaudited), US$223 million lower than 31 December 2014, in line with the Group's previous guidance and reflecting the Group's continued focus on cost reduction and operational efficiency

2015 Outlook

n 9-10% year-on-year increase in production target to 680,000-700,000oz of gold for 2015, principally reflecting the inclusion of higher-grade material from newly-identified Reserves into the mining schedule

n 1H 2015 production of c.250,000-255,000oz as stripping works to access high-grade material at Andreevskaya at Pioneer, Magnetitovoye at Malomir and Unglichkan at Albyn are scheduled for the first half of the year and high-grade processing for the second

n A further, significant, year-on-year reduction in total capital expenditure for gold projects in 2015 to an estimated US$35 million (US$24 million exploration programme and US$11 million development and maintenance)

n Forward-sales contracts for a total of 26,600oz at an average gold price of US$1,311/oz and 77,000oz options with the strike price US$1,150/oz were outstanding as at 31 March 2015

n The Group expects a significant decrease in its total average cash costs of production in 2015 to lower than US$700/oz due to its cost cutting programme, devaluation of the Rouble and processing higher grade ore

n In line with the Group's strategy of debt reduction, net debt is expected to decrease below US$600 million by the end of 2015 assuming an average gold price of US$1,200/oz for the rest of 2015

2016-2019 Outlook

n Guidance maintained for average yearly production at the rate of c.600,000oz from non-refractory ores, using existing processing facilities and from existing JORC Reserves and Resources, at an average TCC/oz of less than US$700/oz at current exchange rates. The ongoing exploration programme is expected to improve the base-case production schedule

n Annual maintenance capex of c.US$10 million and exploration expenditure of approximately US$35 million in the years 2016 and 2017

n The preliminary estimates of Pioneer's underground mining potential indicate an increase in total Pioneer RIP production to c.500,000oz per year

n The development of higher-grade, non-refractory satellite deposits at Albyn mine (mainly Afanasevskaya and Unglichikan) to increase production from the Albyn RIP plant

n A significant uplift in current c.2.3Moz JORC Resources estimate at Elginskoye deposit is expected to enlarge the mineral base for the Albyn RIP plant

n Annual review of the pressure oxidation (POX) project, taking into account viability of finance and prevailing market conditions. Capital expenditure for the finalisation of construction of the POX plant is currently estimated at c.US$140 million due to the depreciation of the Rouble

Financial Results 2014 Summary

Notes:

Figures may be rounded.

(a) Calculation of total cash costs is set out in Chief Financial Officer's statement.

(b) All-in sustaining cash costs include both operating and capital costs required to sustain gold production on an ongoing basis. All-in costs are comprised of all-in sustaining costs as well as capital expenditures for major growth projects or enhancement capital for significant improvements at existing operations. All-in sustaining costs and all-in costs are calculated in accordance with guidelines for reporting all-in sustaining costs and all-in costs published by the World Gold Council in June 2013. Calculation of all-in sustaining costs and all-in costs is set out in Chief Financial Officer's statement.

(c) Reconciliation of loss for the period and underlying EBITDA is set out in note 35 to the consolidated financial statements.

(d) Adjusted profit/ (loss) is a profit/(loss) from continuing operations excluding the effect of certain non-cash and one-off items which management believes are not reflective of the Group's underlying performance for the reporting period, such as impact of foreign exchange gains and losses, related effect on deferred taxation, impairment charges, gains and losses related to disposals and other one-off transactions. Calculation of adjusted profit/(loss) is set out in the Chief Financial Officer's Statement.

(e) US$310.5million convertible bonds due 2015 (the "Existing Bonds") at amortised cost

Chairman's Introduction

"I am delighted to be able to welcome back my old friend Pavel Maslovskiy, who has been my business partner of more than 20 years, as Group Chief Executive.

The Group's successful operational performance in 2014 was masked by the publicity surrounding its refinancing so it is worth reminding ourselves that in 2014, we produced 624,500oz of gold, in line with previously stated guidance. Partly due to the sale of its Berelekh operation during the third quarter of 2013, which operated high-cost alluvial operations in the Magadan region, 2014 production was lower than the 741,200oz of gold produced in 2013.

The Group's four hard-rock gold mines, on a like-for-like basis that excludes production from Berelekh and from the alluvial mining at Koboldo, the disposal of which the Group announced on 20 April 2015, produced 595,000oz of gold in the year ended 31 December 2014 compared with 656,000oz of gold in the year ended 31 December 2013.

Gold sales in 2014 of 617,000oz achieved an average realised gold price of US$1,331/oz, including a US$66/oz contribution from hedging activities.

TCC/oz of production for 2014 at US$865/oz were in line with the Company's guidance of less than US$900/oz, benefiting from the cost-cutting programme introduced by the Company and the devaluation of the Rouble in the last quarter of the year.

This year, we are publishing our AISC for the first time. I am pleased to note that, in spite of the reduced number of ounces produced, our AISC at US$970/oz compares well with our peers, especially when adjusted for absolute production numbers, and represents a 22% reduction on our capital intensive year in 2013.

In spite of the lower level of gold production, resulting partly from the disposal of high-cost alluvial assets, our continuing operations generated US$252 million of EBITDA.

I believe that this level of cash generation bodes well for the future years and you will see that this is something which Pavel Maslovskiy talks about in his CEO report. 

Unfortunately, the continuing operations still showed a loss in 2014, which is almost entirely due to non-cash items such as foreign exchange losses, related deferred tax and some impairment charges. Nonetheless, the result is a considerable improvement on the US$514 million loss from continuing operations recorded in 2013.

Wardell Armstrong, our geological consultant, has again reviewed the ongoing results of our exploration activities and I am pleased to tell you that these demonstrate that the Company has sufficient non-refractory gold reserves and resources for implementation of our five years production plan.

The value of our investment in IRC, the Hong Kong Listed iron-ore and ilmenite miner, has again decreased. The much publicised fall in the price of the two commodities that it produces is the reason for the decrease because from an operational point of view it has performed very well. As a listed company, IRC reports separately and full details of its operations can be found on its website www.ircgroup.com.hk. However I am pleased to note that commissioning of its 3.2 million tonne per year mining and concentration facilities in the Russian Far East commenced in December 2014 and these are expected to be operating at full capacity by the end of 2015. In its Q1 2015 trading update IRC alludes to cost savings that it has identified which will enable K&S to produce iron ore concentrate below US$50 per tonne and additional measures that could reduce this further if the price remains low. This is welcome news and demonstrates the flexibility inherent in the operations

The refinancing of US$310.5 million convertible bonds due in 2015, which was completed on 18 March 2015, was the management's primary focus during the year. The pricing of the Rights Issue and the new five year US$100 million convertible bond was set by the Bondholders in their debt exchange. In light of this, many alternative refinancing avenues were explored but this deal, though expensive, was the only way in which the Board could be certain of the Company meeting its obligations as and when they fell due.

Overall, I am extremely encouraged by the developments at Petropavlovsk over the past year and believe we have now established a far stronger operational and financial platform that will enable us to exploit our excellent resource base and deliver significant returns to our shareholders over the coming years.

Neither our operational success, nor our refinancing would have been possible without the support that all members of our team put in and, on behalf of the Board and the Company I extend my thanks for all they have done."

Peter Hambro, Chairman

Chief Executive's Statement

"It is with great pleasure that I write to you once again as CEO and my purpose is to explain to you, and to future shareholders, why I have made a further substantial investment in our Company. I would like to share my plans with you and explain why I expect them to generate a strong and significant return on our investment.

I believe that, due to the short-term liquidity problem that we experienced in 2014, the Company has been, and remains, significantly undervalued by the market.

In order to decrease the risk of another liquidity crisis and to avoid a repetition of the situation which occurred in 2014, it is vital for the Group to focus on decreasing its Net Debt by maximising its free cash flow.

It is also necessary to implement a conservative policy of borrowing and I propose that the main element in this policy should be a medium-term target of reducing Net Debt/EBITDA to less than 1.5:1 at a gold price US$1,200/oz and maintaining net debt at that level.

This means a change in approach to short-term (1-2 years) planning. From now on, our focus will be on delivering higher operating margins and increased cash-generation at the expense, if necessary, of reduced production. The recently announced sale of our high-cost alluvial production is another way of reducing our debt and I am pleased that the disposal can be achieved without reducing our 2015 production target.

Though it sounds obvious, it will require some tenacity on the part of management to achieve this and, importantly, to prove to our shareholders that a decrease in production could actually create more cash.

I am confident that we can deliver on these objectives due to the Group's first-rate assets:

n A substantial, easily accessible resource base: more than 20Moz of Measured, Indicated and Inferred JORC Resources and a strong and growing Reserve base of more than 9Moz

n A strong team of highly qualified and extremely knowledgeable employees - built up over more than 20 years of operating - and a comprehensive programme of recruitment and career advancement

n A mining fleet which has the ability to move more than 80 million cubic metres of rock a year, and modern resin-in-pulp (RIP) plants, which have the capacity to process 18 million tonnes of ore a year

A combination of our excellent assets and success in the action plan outlined below enables us to achieve the most important performance indicator - growth in free cash flow. In turn, this enables us to take on the task both of decreasing debt and, once this is achieved, also delivering significant shareholder value.

How, then, shall we make best use of our assets? First, we must concentrate on reducing the mining and processing costs as a central part of our remit.

For any established enterprise, this is a complex task, which is constantly high on the agenda, but there is always room for improvement, particularly in light of the development of new cost-saving procedures and technologies. Accordingly, for Petropavlovsk the most immediate results can be achieved in the following actions:

n An optimisation of our procurement process. This programme, which has already begun, has led to an increase in competition among suppliers and has enabled us to secure improvement in contract terms from many of the Company's suppliers. The results of this optimisation can be seen in our Annual Report - materials and other inventories dropped by 22% year-on-year and our Total Average Cash Costs at US$865/oz were reduced by 15% vs. 2013. This reduction was achieved despite 16% lower volume of gold sold than in 2013. Going forward the competition involved in our new procurement methods, including tenders for the signing of new contracts is expected to result in successful renegotiations with organizations engaged in servicing imported mining equipment.

n Intensification and modernisation of mining operations by the introduction of best practice procedures in management, operations, planning and control of the mines.

n Cost reduction and the optimisation of management efficiency to enable an overall reduction in administrative costs have been helped by the introduction of new incentives programmes for staff. These programmes are in the final stages of development and will be implemented in 2015.

We have also changed our "we-do-everything attitude" and now are reviewing outsourcing possibilities where it is efficient and cost beneficial. In the past, the economic environment in which the Group grew led to the creation of a self-contained structure, capable of supporting the entire lifecycle chain of mining-related activities: exploration; assay analysis; metallurgical studies; all stages of the design; the construction of mines, processing facilities and infrastructure; mining operations; ore processing and the transportation of products.

Today, with the welcome development of the Russian economic environment and the availability of a number of skilled, professional service companies that can be involved in many parts of the production cycle, outsourcing is another way for us to reduce costs. This removes the need for us to run many service companies and to increase the efficiency of our operations.

The specific areas mentioned above, alongside the daily work of improving the efficiency of other areas of our operations, are expected to secure a 10-15% reduction in operating costs in 2015 net of RUR/US$ exchange rate.

Much of the foregoing appears aspirational and so I would like to emphasise the achievements that our management team and employees have already made and, moreover, to congratulate them on our current steady and impressive performance.

Our analyses show that today our team is one of the most efficient in our Russian peer group in terms of mining and processing costs which enables us to process sometimes technologically challenging or low grade material within competitive cost structure.

This means that the optimal way to improve our financial performance is not only through better operations, but also through an increase in the quality of our Reserves and Resources base, in grades of gold in the material mined and processed.

We think that we have great potential to improve the quality of our assets and grades of the feed through the mill without expensive acquisitions but by pursuing organic growth through further exploration of our already existing assets and their flanks and satellites.

This leads me to report in detail on our mining assets, the most prospective of which, Pioneer and Albyn, have processing capacities of approximately 6.5Mtpa and 4.2Mtpa respectively. Our team believes that these two assets have further growth potential and they are working hard on unlocking the untapped value of these mines.

I would draw your attention particularly to our plans for a possible high-grade underground mine at Pioneer and the continuation of pressure oxidation. Details of these plans are set out below.

Looking at our exploration and production plans in some detail, I would like to highlight the following:

Pioneer

Since 2008, a characteristic feature of the Pioneer deposit has been the presence of closely-knit ore occurrences alongside high-grade, individual ore bodies. In most cases, the impact of these high-grade ore zones on the average content of the reserve grades has not been fully taken into account, as this would necessitate a tighter grid of field exploration, which would incur significant costs.

However, upon mining the deposit, the reconciliation between reserve and actual ore grades has always shown that the actual grade is higher than the estimated grade.

As an example, the Reserves and Resources estimated by independent minerals' experts Wardell Armstrong International (WAI), which were published in 2011, indicated the presence of 934koz of gold (with an average grade of 1.19g/t) in 35 million tonnes of (oxidised) ore in Measured and Indicated Resources, of which 777koz of gold (with an average grade of 0.95g/t) in 25,451 million tonnes of ore in Proven and Probable Reserves. However, between 2011 and 2014 (inclusive), the Pioneer RIP plant processed 23.2Mt of ore containing 1.542Moz of gold (with an average grade of 2.06g/t) from the areas outlined in the initial WAI report, and this impressive performance has now been independently verified by the same WAI.

In 2012, we discovered a new ore zone, Alexandra, which is located approximately 8km from the Pioneer RIP plant. Today, intensive exploration work has revealed that due to its size and scope it could be considered as a deposit in its own right.

Continuing exploration at Alexandra demonstrates its similarity to the corresponding zones at Pioneer mentioned above. The tightening of the exploration grid results in an increase in both the gold content of these zones and size of these high-gold content zones. It also leads us to the discovery of new high grade areas.

And, yet again, we have experienced that, whilst the average grade of resources at the explored parts of the deposit is 0.6g/t, the ore, which was sent to the plant at the end of 2014 and during Q1 2015, had an average grade of more than 1g/t achieved without selective mining or "high grading".

Another exciting prospect for maximising value of the Pioneer deposit is the development of an underground mine. Several ore columns at Pioneer are high-grade and remain open at depth, offering the potential for significant resource and reserve expansion. From the outset of mining operations, a large amount of gold was produced from these ore columns in the open pits. At the Andreevskaya ore body, 700,000oz of gold at 13g/t were extracted from a 180m-deep pit. At NE Bakhmut, 700,000oz of gold at 6g/t were extracted from 220m-deep pit. Other smaller ore bodies yielded another 330,000oz at 8g/t from 100m-deep open pit.

In January 2015, Petropavlovsk launched an intensive exploration programme in order to evaluate the reserves and resources base of the deeper horizons at Pioneer. The independent consultant, WAI, reviewed our assessment of Pioneer underground exploration potential target of c.3Moz to 6Moz at grades which may exceed 7g/t and supports our approach. The same evaluation suggested that the development of these operations would take about 30 months from the commissioning of the project to its first production. Within four years from the beginning of the project, the operations are expected to work at their full capacity of 0.9-2 million tonnes of ore per year, which will led to an increase in Pioneer RIP production of up to 300,000-500,000oz per year. Preliminary estimates indicate an order of magnitude capital expenditure requirement of US$50 million.

Albyn

Due to the favourable geological positioning of the Albyn deposit, it has a substantial mineral resource base located in a number of satellite deposits which lie in close proximity. The development of these satellites could lead to a significant increase in gold production from the RIP plant via the delivery of a higher-grade feed to the mill. The two most promising satellites identified so far are Afanasevskaya and Unglichikan. The Unglichikan deposit, which is located 16 kilometres away from the plant, is at the advanced stage of exploration and, from 2014, the ore from this deposit began to be used for preparing a blend for the mill.

In addition, our accelerated exploration of the Afanasevskaya deposit, from which some production, focussing only on the deposit's rich quartz veins, was carried out during the Soviet era, has produced very promising results, discovering significant amounts of ore which were missed by our predecessors.

The Afanasevskaya deposit is controlled by a thick (up to 1km) and long (up to 12km) tectonic zone. In 2014, this ore structure was explored by three 600-1,200m-long trenches, with several ore bodies identified in each of the trenches. Within the high-grade veins, which were partially mined during Soviet-era, the grades were up to 6.8g/t and large (up to 0.5-0.7 mm) particles of free gold were identified.

One such trench identified an ore body which was followed for 1km and remains open along the strike. Its average parameters are 3.4g/t for 6.1m. An additional eight ore bodies were identified by the trenching, with grades ranging between 1.26g/t and 8.0g/t for 1-1.3m.

In order to follow the mineralisation in depth, three deep (up to 120m) drill holes were drilled, identifying grades of 1.6g/t for a surface length of 9 metres. The mineralisation remains open in depth.

Laboratory test work has indicated that the ore in this mineralisation has good technological properties: 94.5%-95% can be recovered by direct cyanidation.

The current resource estimate for the Afanasevskaya deposit is c.40 tonnes (c.1.3Moz) of gold.

Our head geologist, Nikolai Vlasov, has asked me to emphasise that the long-term future for Albyn production capacities is expected to be secured by the large Elginskoye deposit, which was recently discovered by our geologists. Exploration of this deposit is still on going, since the ore bodies and zones of the deposit have not yet been outlined and opened along the strike and to the depth. So far, this deposit, which was explored by a wide grid, contains c.2.3Moz of Resources according to JORC estimates but the Group's geologists expect a significant uplift in these initial estimates in the course of further exploration work.

Pokrovskiy

This deposit, Petropavlovsk's first mine, was commissioned in 1999 and has a processing plant capacity of 1.8 million tonnes of ore a year. Due to depletion of the Pokrovskiy deposit's reserves, the Group planned to remodel the plant in 2014 in order to enable the treatment of filter cakes for autoclave production. However, our scheduled pause in the construction of the POX plant and the intensification of exploration on the flanks of the deposit has allowed the plant to be provisioned with non-refractory reserves and resources for five years or more.

For this reason, I consider it practical to review the technical solutions for POX for the purpose of evaluating the efficiency of constructing an independent section for the cyanidation of filter cakes preserving the Pokrovskiy plant as an independent unit. Preliminary calculations demonstrate that it will not increase the capital expenditure for the POX plant significantly, if at all.

Malomir

The treatment facilities at Malomir have a capacity of 4.5-4.7 million tonnes a year and can be quickly increased up to 6.5 million tonnes. Currently, these facilities are partially utilised for treatment of non-refractory ores from top areas at flanks of the main deposit. Resources of these flanks are currently 680,000oz (24.6 million tonnes of ore) and are likely to be increased by further exploration work. However, the economic efficiency of their treatment, though positive, is not very high due to their scattered positioning and high stripping coefficients. And when determining the strategy of the Group's development, it is important to note that the cost of production from these non-refractory areas is higher than the cost of production from the refractory ores of the main deposit. This is due to the thickness of the main ore body and its flat-lying nature, which determines a low stripping coefficient, and also to the low concentrate yield (reducing raw ore tonnage by 95%) and high yield of metal into flotation concentrate (about 85%). All these factors determine competitive costs of production by autoclave leaching.

That is why POX is still important for the development of the Group: first and foremost, in order to bring into production more than 6Moz of refractory reserves and resources from the Malomir deposit and, further into future, from other deposits belonging to the Group. It could also treat ores from deposits that are available for acquisition in the region, especially those which have got significant reserves and resources but were abandoned during Soviet period due to the absence of a technology for treatment of such ores.

The Capital expenditure required in order to finalise the construction of the POX plant was estimated at c.US$180 million before the rouble devaluation. As the main expenditure for imported components have been already incurred, the re-evaluation of this figure in January 2015 estimated about US$140 million capital left to be spent, taking into account the recent Rouble devaluation. But the most precise evaluation could only be done closer to resumption of construction of the project.

Talking about the future without addressing the need for capital expenditure on our development assets and the source of funding for this would be unbalanced.

In summary, the necessity in strategic investments - organisation of underground production at Pioneer and finalisation of the POX plant will require about US$150-200 million. Depending on the ability of the Company to generate cash, as I have already said, the funding could be sourced internally, via cash flows, or externally by debt.

However, these investments should not be made at the expense of achievement of our target Net Debt/EBITDA ratio of 1.5:1 and a sustainable dividend policy.

In conclusion, I want to emphasise that my dream and aspiration is to see Petropavlovsk, which I created, together with my partner from the outset, as a high-margin producer. For years we have spoken about the ephemeral "1 million ounces a year" but this lofty target projection and this spectre now seems capable, once again and based solely on organic growth, of becoming a reality."

Pavel Maslovskiy, CEO

WEBCAST

There will be a webcast presentation followed by a question and answer session today at 10.00am (BST).

Please log onto the Company's website, www.petropavlovsk.net, to view.

To ask a question, please dial +44 (0) 20 3139 4830.

When prompted, please enter the confirmation number 38359492#.

ENQUIRIES

CHIEF FINANCIAL OFFICER'S STATEMENT

- Financial Highlights

(a) Calculation of total cash costs is set out in the section Hard-rock mines and alluvial operations below.

(b) All-in sustaining costs and all-in costs are calculated in accordance with guidelines for reporting all-in sustaining costs and all-in costs published by the World Gold Council in June 2013. Calculation is set out in the section All-in sustaining costs and all-in costs below.

(c) Reconciliation of loss for the period and underlying EBITDA is set out in note 35 to the consolidated financial statements.

(d) Calculation of adjusted profit/ (loss) is set out in the section Net result from continuing operations below.

(e) US$310.5million convertible bonds due 2015 (the "Existing Bonds") at amortised cost

Note: Figures may not add up due to rounding.

Revenue

Physical volumes of gold production and sales

Group revenue during the period was US$865.0 million, 28% lower than the US$1,199.8 million achieved in 2013.

Revenue from hard-rock mines and alluvial operations was US$825.5 million, 26% lower than the US$1,122.5 million achieved in 2013. Gold remains the key commodity produced and sold by the Group, comprising 95% of total revenue generated in 2014. The physical volume of gold sold decreased by 16% from 736,344 ounces in 2013 to 617,213 ounces in 2014. The average realised gold price decreased by 12% from US$1,519/oz in 2013 to US$1,331/oz in 2014. The average realised gold price was above the average market price of US$1,266/oz, reflecting the Group's efforts in effective hedging arrangements.

The Group sold 196,510 ounces of silver in 2014 at an average price of US$19/oz, compared to 176,638 ounces in 2013 at an average price of US$21/oz.

Revenue generated as a result of third-party work by the Group's in-house service companies was US$39.5 million in 2014, a US$37.8 million decrease compared to US$77.3 million in 2013. This revenue is substantially attributable to sales generated by the Group's engineering and research institute, Irgiredmet, primarily through engineering services and the procurement of materials, consumables and equipment for third parties, which comprised US$34.1 million in 2014 compared to US$68.4 million in 2013.

Cash flow hedge arrangements

In order to increase certainty in respect of a significant proportion of its cash flows, the Group has entered into a number of gold forward contracts.

Forward contracts to sell an aggregate of 364,253 ounces of gold matured during the year and contributed US$42.3 million to cash revenue (2013: US$107.7 million from forward contracts to sell an aggregate of 444,292 ounces of gold).

Forward contracts to sell an aggregate of 50,000 ounces of gold at an average price of US$1,310/oz were outstanding as at 31 December 2014.

In October 2014, the Group also purchased a number of gold put options for an aggregate of 150,000 ounces of gold with a strike price of US$1,150/oz as part of a downside protection strategy. The option contracts mature over the period from January 2015 to June 2015. The aggregate premium paid was US$4.8 million.

Forward contracts and US$(1.6) million change in the options fair value contributed US$66/oz to the average realised gold price.

The Group constantly monitors gold price and hedges some portion of production for periods of up to 12-18 months as considered necessary.

The following hedge arrangements were outstanding as at 28 April 2015:

- Forward contracts to sell an aggregate of 17,732 ounces of gold at an average price of US$1,311/oz; and

- Option contracts for an aggregate of 76,548 ounces of gold with a strike price of US$1,150/oz.

Underlying EBITDA and analysis of operating costs

Underlying EBITDA as contributed by business segments is set out below.

Hard-rock mines and alluvial operations

This period, hard-rock mines and alluvial operations generated underlying EBITDA of US$287.5 million compared to US$366.7 million underlying EBITDA in 2013.

The average total cash cost per ounce for the Group decreased from US$1,016/oz in 2013 to US$865/oz in 2014.

Total cash costs for hard-rock mines decreased from US$976/oz in 2013 to US$860/oz in 2014, primarily reflecting the effect of cost optimisation measures undertaken by the Group in response to the declining gold price environment, improvement in recovery rates at Pokrovskiy and Albyn, increase in grades processed at Albyn and Rouble depreciation. The decrease in the average realised gold price from US$1,519/oz in 2013 to US$1,331/oz in 2014 and decrease in physical ounces sold resulted in US$175.9 million decrease in the underlying EBITDA. This effect was partially mitigated by the improvement of the total cash costs which had a net US$93.2 million positive contribution to the underlying EBITDA in 2014. Alluvial operations contributed US$10 million to the underlying EBITDA, in line with 2013.

The key components of the operating cash expenses are wages, electricity, diesel, chemical reagents and consumables, as set out in the table below. The key cost drivers affecting the operating cash expenses are stripping ratios, production volumes of ore mined and processed, grades of ore processed, recovery rates, cost inflation and fluctuations in the Rouble to US Dollar exchange rate.

Compared with 2013 there was ongoing inflation of certain Rouble denominated costs, in particular, electricity costs increased by up to 4% and cost of diesel increased by up to 4%. In the meantime, cost of chemical reagents decreased by up to 14% and consumables prices decreased by up to 4%. The impact of Rouble price inflation was mitigated by the 21% average depreciation of the Rouble against the US Dollar, with the average exchange rate for the period going from 31.9 Roubles per US Dollar in 2013 to 38.4 Roubles per US Dollar in 2014.

Refinery and transportation costs are variable costs dependent on production volume. Mining tax is also a variable cost dependent on the production volume and the gold price. The mining tax rate is 6%.

(a) Excluding deferred stripping

All-in sustaining costs and all-in costs

In June 2013, the World Gold Council published its guidelines for reporting all-in sustaining costs ("AISC") and all-in costs ("AIC"). This period, the Group calculated and disclosed all-in sustaining costs and all-in costs for the first time.

AISC decreased from US$1,248/oz in 2013 to US$970/oz in 2014, reflecting the reduction in TCC as well as lower central administration expenses and sustaining capital expenditure related to the existing mining operations.

AIC decreased from US$1,439/oz in 2013 to US$1,088/oz in 2014, reflecting the decrease in all-in sustaining costs explained above, decrease in exploration expenditure and decrease of capital expenditure related to new projects, which was limited to fulfilling existing contractual commitments relating to POX.

Corporate and other

The Group has corporate offices in London, Moscow and Blagoveschensk which together represent the central administration function. Central administration expenses decreased by US$7.6 million from US$45.8 million in 2013 to US$38.2 million in 2014, primarily reflecting cost cutting measures undertaken by the Group.

This period, other operations contributed US$2.5 million to the underlying EBITDA, in line with US$3.7 million in 2013.

Impairment review

Impairment of mining assets

The Group undertook an impairment review of the tangible assets attributable to the gold mining projects and the supporting in-house service companies and concluded no impairment was required as at 31 December 2014.

The estimated recoverable amounts demonstrated improvements compared to the previous year as a result of cost optimization measures undertaken by the Group in response to the declining gold price environment, increase in the Group's non-refractory mineable reserves and effect of the Rouble depreciation on operating cash costs

Having considered the excess of estimated recoverable amounts over the carrying values of the associated assets on the balance sheet as at 31 December 2014, the Directors concluded on the following:

- A reversal of the impairment previously recorded against the carrying value of the assets that are part of the Albyn reportable segment would be appropriate. Accordingly, a post-tax impairment reversal of US$23.1 million (being US$28.9 million gross impairment reversal net of associated deferred tax liabilities) has been recorded against the associated assets within property, plant and equipment. The aforementioned impairment reversal takes into consideration the effect of depreciation attributable to relevant mining assets and intra-group transfers of previously impaired assets to Albyn.

- Whilst there have been improvements in the recoverable amounts of assets that are part of Pioneer and Malomir reportable segments, there is still uncertainty connected with the timing of the final construction and performance of the POX Hub, and, accordingly, no impairment reversals have been recorded. When the aforementioned uncertainty is eliminated or substantially reduced, there is a potential for reversal of the impairment previously recorded against the carrying values of the aforementioned assets.

The forecast future cash flows are based on the Group's current mining plan. The other key assumptions which formed the basis of forecasting future cash flows and the value in use calculation are set out below:

(a) Being the post-tax real weighted average cost of capital, equivalent to a nominal pre-tax discount rate of 11.8% (2013: 12.5%)

Impairment of exploration and evaluation assets

The Group performed a review of its exploration and evaluation assets and recorded the following impairment charges:

- Considering the anticipated timescale for a potential financial return from exploration and evaluation assets in Guyana, an impairment provision of US$13.3 million was recognised against the carrying values of the associated assets included in exploration and evaluation costs previously capitalised within intangible assets (US$10.4 million), property, plant and equipment (US$1.2 million) and inventories (US$1.7 million);

- Considering the anticipated timescale for a potential financial return from the Tokur assets, which are awaiting development of a full-scale mining operation and which was put on hold in 2013, a further US$4.8 million impairment provision was recognised against the carrying values of the associated assets previously capitalised within property, plant and equipment (US$1.4 million) and inventories (US$3.4 million); and

- US$4.0 million impairment charges were recorded against associated exploration and evaluation costs previously capitalised within intangible assets following the decision to suspend exploration at various licence areas, primarily located in the Amur region.

Impairment of ore stockpiles

The Group assessed the recoverability of the carrying value of ore stockpiles and recorded impairment charges/ reversals of impairment as set out below:

Impairment of investments in associates

Taking into consideration the alternatives sought to realise the value of investments in associates through sale and indicative purchase consideration from the potential buyers, respective impairment provision of US$9.7 million was recognised against the associated carrying values.

Interest income and expense

The Group earned US$1.7 million interest income on the cash deposits with banks.

Interest expense for the period was comprised of US$25.4 million effective interest on the Convertible Bonds and US$55.2 million interest on bank facilities (2013: US$29.4 million and US$64.8 million, respectively). A further US$13.4 million of this interest expense was capitalised as part of mine development costs within property, plant and equipment (2013: US$19.3 million).

Other finance gains

Taxation

The Group is subject to corporation tax under the UK, Russia and Cyprus tax legislation. The average statutory tax rate for 2014 was 21.5% in the UK and 20% in Russia.

The tax charge for this period primarily relates to the Group's precious metals operations and is represented by the current tax of US$34.5 million (2013: US$39.7 million) and by the deferred tax, which is a non-cash item, of US$133.4 million (2013: deferred tax credit of US$48.5 million). Included in the deferred tax charge is a US$128.8 million foreign exchange effect. This arises primarily because the tax base for a significant portion of the future taxable deductions in relation to the Group's property, plant and equipment are denominated in Roubles whilst the future depreciation charges associated with these assets will be based on their US Dollar carrying value and reflects the significant depreciation of the Rouble against the US Dollar in 2014. The deferred tax credit in 2013 was predominantly driven by the impact of impairment charges and associated reversal of deferred tax liabilities.

This period, the Group made corporation tax payments in aggregate of US$34.0 million in Russia (2013: corporation tax payments in aggregate of US$39.7million in Russia).

Net result from continuing operations

This period net loss from continuing operations amounted to US$182.2 million, compared to net loss of US$513.8 million in 2013. Adjusted for the effect of certain non-cash and one-off items as set out below, net profit from continuing operations was U$4.4 million compared to a US$1.5 million loss in 2013.

Adjusted profit/ (loss) from continuing operations

Loss per share

Basic loss per share from continuing operations for 2014 was US$0.94 compared to US$2.59 basic loss per share for 2013. The key factor affecting the basic loss per share was the decrease of net loss for the period attributable to equity holders of Petropavlovsk PLC from US$509.0 million for 2013 to US$184.3 million for 2014.

The total number of Ordinary Shares in issue as at 31 December 2014 was 197,638,425 (31 December 2013: 197,638,425).

The Group has a number of potentially dilutive instruments which were anti-dilutive in the years 2013 and 2014 and, accordingly, diluted loss per share was not different from the basic loss per share.

Discontinued operations - IRC

On 17 January 2013, IRC Limited ("IRC") entered into conditional subscription agreements with each of General Nice Development Limited ("General Nice") and Minmetals Cheerglory Limited ("Minmetals") for a strategic investment by General Nice and Minmetals in new shares of IRC for up to approximately HK$1,845 million (equivalent to approximately US$238 million) in aggregate. The above transactions were approved at the Company's Extraordinary General Meeting on 7 March 2013 and the Extraordinary General Meeting of IRC Limited on 11 March 2013.

As at 31 December 2014 and 28 April 2015, General nice has invested approximately US$170 million into IRC, which represents more than 80% of their subscription obligation. Although full completion of the investment from General Nice and Minmetals has been delayed, General Nice has agreed to commence paying interest on the outstanding investment amount of US$38 million from December 2014 onwards. IRC is in discussions with General Nice and Minmetals about a further deferred completion and other available options. Both Minmetals and General Nice have confirmed to IRC that they wish to invest further in IRC. Details of the transactions and developments that occurred since 31 December 2013 until the date of are set out in note 27 to the consolidated financial statements.

As at 31 December 2014, the Group's interest in the share capital of IRC was 45.39% (31 December 2013: 48.7%). The Group retains sufficiently dominant voting interest to exercise de facto control over IRC on the basis of the size of the Group's shareholding relative to the size and dispersion of the shareholding interests of other shareholders.

If total investment completion occurs, the Group's interest in the share capital of IRC would be diluted to 40.68% and, with another significant shareholder block in place and despite the Group's continuing guarantee of IRC's facility with ICBC, the Group would lose control over IRC and IRC would cease being a subsidiary of the Group.

The Directors continue to consider it is highly probable that IRC will cease to be a subsidiary of the Group within 12 months after the reporting date and, accordingly, IRC continues to be classified as 'held for sale' and presented separately in the balance sheet as well as presented as a discontinued operation in the income statement. In the event completion of the strategic investment by General Nice and Minmetals is further delayed, the Directors are confident that other avenues resulting in the Group losing control over IRC could be successfully pursued.

This period IRC generated US$51.1 million operating losses and recognised US$18.8 million impairment, in aggregate, against its Kuranakh mining assets.

The Group recorded a further US$89.6 million write-down to adjust the carrying value of IRC's net assets to fair value less costs to sell based on IRC's share price of HK$0.52 as at 31 December 2014 and reflect the change in the market share price of IRC shares.

Financial position and cash flows

Key movements in cash and net debt from continuing operations

The decrease in working capital reflects the efforts undertaken by the Group to optimise the working capital structure, including

- an aggregate US$34.4million decrease in ore stockpiles primarily due to the partial processing of ore stockpiles at Pioneer, Pokrovskiy and Malomir and reduction of mining costs at Pioneer which contributed US$29.7million, US$4.2 million and US$11.6 million, respectively, partially offset by the increase in ore stockpiles at Albyn;

- US$11.6 million decrease in capitalised deferred stripping costs primarily due to depreciation of prospective stripping undertaken at Pioneer in prior periods, and

- US$13.8 million decrease in raw materials and spare parts.

As at 31 December 2014 there were no undrawn facilities available to the continuing operations.

Capital expenditure

The Group spent an aggregate of US$96.8 million on its gold projects in 2014 compared to US$236.9 million invested in 2013. The key areas of focus in 2014 were on fulfilling existing contractual commitments relating to POX, expansion of tailing dams at Pioneer and Albyn and ongoing exploration related to the areas adjacent to the ore bodies of the main mining operations.

(a) Including US$38.5 million of development expenditure in relation to POX and flotation line at Malomir that is considered to be non-sustaining capital expenditure for the purposes of calculating the all-in sustaining costs and all-in costs.

Foreign currency exchange differences

The Group's principal subsidiaries have a US Dollar functional currency. Foreign exchange differences arise on translation of monetary assets and liabilities denominated in foreign currencies, which for the principal subsidiaries of the Group are Russian Rouble and GB Pounds Sterling.

The following exchange rates to the US dollar have been applied to translate monetary assets and liabilities denominated in foreign currencies.

The Rouble depreciated by 72% against the US Dollar during 2014, from RUB32.73/USD as at 31 December 2013 to RUB56.26/USD as at 31 December 2014. The average year-on-year depreciation of Rouble against the US Dollar was approximately 21%, with the average exchange rate for 2014 being RUB38.44/USD compared to RUB31.85/USD for 2013.

As a result of the significant devaluation of the Russian Rouble, the Group recognised foreign exchange losses of US$31.3 million in 2014 (2013: US$5.8 million) arising primarily on the Rouble denominated net monetary assets.

Refinancing

On 2 February 2015, the Group announced a proposed Refinancing which was completed on 18 March 2015. The Refinancing consisted of the following:

§ Rights issue pursuant to which 3,102,923,272 new Ordinary Shares were issued at subscription price of £0.05 per Ordinary Share as set out below:

- 2,114,460,594 Ordinary Shares were issued for cash consideration raising £105.7 million (equivalent to US$156.2 million) gross cash proceeds; and

- 988,462,678 Ordinary Shares were issued in exchange for the Existing Bonds as part of settlement of the Existing Bonds (please refer to the details set out below).

§ Issue of the new convertible bonds:

On 18 March 2105, the Group issued US$100 million convertible bonds due on 18 March 2020 ("the New Bonds"). The New bonds were issued pursuant to the completion of the exchange offer of the Existing Bonds as set out below.

The New Bonds were issued by the Group's wholly owned subsidiary Petropavlovsk 2010 Limited and are guaranteed by the Company. The New Bonds carry a coupon of 9.00% payable quarterly in arrears and are convertible into redeemable preference shares of Petropavlovsk 2010 Limited which are guaranteed by and will be exchangeable immediately upon issuance for Ordinary Shares in the Company.

The conversion price has been set at £0.0826 per Ordinary Share, subject to adjustment for certain events, and the conversion exchange rate has been fixed at US$1.5171:£1. The New Bonds were admitted to listing on the Official List of the UK Listing Authority and admitted to trading on the Professional Securities Market of the London Stock Exchange on 18 March 2015.

§ Settlement of the Existing Bonds:

The Existing Bonds with a par value of US$310.5 million were settled as set out below.

§ Bank Waivers:

The Group obtained waivers and relaxation of certain financial covenants for the period to 31 December 2015, inclusive.

The estimated aggregate transaction expenses comprise approximately US$41 million, out of which US$7.8 million were paid as at 31 December 2014. Included in the transaction costs paid as at 31 December 2014 are US$0.4 million expensed during the year and US$7.4 million deferred until transaction completion.

Disposal of alluvial operations

On 21 November 2014, the Group entered into a conditional Share Purchase Agreement ('SPA') relating to the sale of its 95.7% interest in Koboldo, the Group's alluvial operations, however, due to the non-fulfilment of certain conditions precedent, the sale was not finalised at the time.

Subsequently, the Group was approached by another purchaser, Global-Polymetall, with whom the Group entered into a SPA relating to the sale of its 95.7% interest in Koboldo on 16 April 2015. The total cash consideration for the transaction is RUB 942 million (equivalent of c.US$ 18.7 million) plus reimbursement of VAT for the fourth quarter 2014, payable within prescribed timeframes from the date of entering into the SPA.

The disposal of Koboldo is expected to be completed within 12 months after the reporting date and accordingly Koboldo has been classified as 'held for sale' and presented separately on the balance sheet as at 31 December 2014. The Group recorded a US$11.9 million write-down to adjust the carrying value of Koboldo's net assets to fair value less costs to sell based on the indicative cash consideration.

Disposal of investments in associates

On 7 April 2015, the Group entered into a Share Purchase Agreement to sell its 25% interest in CJSC ZRK Omchak ("Omchak") for a total cash consideration of US$1 million. The carrying value of the Group's share in Omchak was partially written down in 2014 to reflect the effect of disposal.

Going concern

The financial position of the Group, its cash flows and liquidity position are described in the section Financial position and cash flows above.

As a separate listed group, IRC is required to perform an assessment of their going concern position. In their 31 December 2014 annual report they have identified a material uncertainty in relation to their ability to continue to operate as a going concern, and accordingly their auditor, Deloitte Hong Kong, referenced this in an emphasis of matter in their audit report published on 25 March 2015. The main uncertainties in relation to the ability of IRC to continue to operate as a going concern are the timing of the commissioning of the K&S project and the substantial drop in the iron ore price.

As the Group has guaranteed the outstanding amounts IRC owe to ICBC, which outstanding loan principal was US$266.7 million as at 31 December 2014, the assessment of whether there is any material uncertainty that IRC will be able to repay this facility as it falls due is a key element of the Group's overall going concern assessment.

The Group performed an assessment of the forecast cash flows for its gold division. Following the successful completion of the Refinancing and receipt of covenant relaxation and waivers, the Group is satisfied that it has sufficient headroom under a reasonable downside scenario for the period to April 2016 to cover both its own cash flow requirements together with any potential deficit in IRC, subject to a mechanism for providing this funding being established. The Directors are confident that, should it be required, such a mechanism could be established.

Accordingly, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being at least the next 12 months from the date of approval of the 2014 Annual Report and Accounts. Thus, they continue to adopt the going concern basis of accounting in preparing these consolidated financial statements.

2015 Outlook

The Group is on track to achieve 2015 production guidance of 680-700Koz. As the Group's operating cash expenses are substantially Rouble denominated, the Group expects that the impact of Rouble price inflation will be mitigated by the depreciation of the Rouble against the US Dollar. The Group expects a significant decrease in its total average cash costs of production in 2015 to lower than US$700/oz at current exchange rate due to its cost optimization programme, the devaluation of the Rouble and processing higher grade ore. In line with the Group's strategy of debt reduction, net debt is expected to decrease below US$600 million by the end of 2015 assuming an average gold price of US$1,200/oz for the rest of the year 2015.

2014 OPERATIONAL REPORT

PIONEER

Performance in 2014

In 2014, Pioneer produced approximately 263,000oz, equating to approximately 42% of the Group's total gold production for the year.

The majority of the ore mined at Pioneer during the year came from the three NE Bakhmut pits. Pits 6.1 and 6.2 continued throughout the year and pit 6.3 was completed in June and subsequently backfilled.

During the first six months of 2014, the western section of the Andreevskaya main pit was completed and backfilling commenced. The expansion of the Andreevskaya East commenced.

Mining of soft oxidised ores was intensified in Pit 1 and the southwest flank of Pit 2 in order to achieve a suitable blend to maintain throughput at the plant, which operated in line with the Group's forecast.

Low-grade ore for feed to both the heap-leach and the processing plant commenced at pit 7 at the end of the second quarter of 2014.

During Q3, Alexandra was prepared for bulk sampling and, in Q4, large diesel-powered excavators commenced full-scale mining operations here. Alexandra will become the largest operating pit at Pioneer by 2016.

During the second half of 2014, mining continued at Pits 6.1 and 6.2. Head grades through the Pioneer plant averaged 1.6g/t in Q3 and 1.47g/t in Q4 2014.

In the fourth quarter of 2014, the high-grade ore came from the NE Bakhmut pits and Andreevskaya and the low-grade ore came from Pit 7 and Alexandra.

Costs

For the period ended 31 December 2014, TCC/oz for Pioneer were US$818/oz, a c.8% reduction compared with 2013 (US$887/oz), in spite of a 17% decrease in grades processed through the mill, a slight decrease in recovery rates and ongoing inflation of Rouble-denominated costs. The improvement of costs was also due to a programme of cost-optimisation measures and by the 21% average depreciation of the Rouble against the US Dollar.

Outlook

In 2015, Pioneer is expected to produce c.340,000-350,000oz of gold, equating to approximately 42% of the Group's total production for the year.

In the longer term, in order to process the mine's large reserves of refractory ore, the Group is planning to construct a flotation plant at Pioneer, which will convert the refractory ore into flotation concentrate. This would then be sent for processing to the POX Hub, once completed.

In 2014, Group geologists began to evaluate the possibility of developing underground mining plans at Pioneer. The results of the evaluation so far have been encouraging, however work remains at an early stage.

POKROVSKIY

Performance in 2014

In 2014, Pokrovskiy, together with its satellite operation at Burinda, produced approximately 64,200oz, equating to approximately 10% of the Group's total gold production.

During Q1 2014, mining was concentrated on the bottom of the main pit at Pokrovka 1 and in the Pokrovka 2 pit. The current phase of the main pit was completed in March 2014 following which mining equipment was moved to the upper benches of the Zeyskoye zone on the north-west flank of the main pit to commence a pit expansion.

During the second half of 2014, the extension to the northwestern flank continued together with a small extension to the Pokrovka 3 pit which was completed in September.

Work at the Burinda satellite pit continued throughout the year. Initially, the ore body in the Central 1 zone was opened and this was followed, in Q2, with the opening of the Central 2a, Central 2b and Zone 5 ore bodies. The high-grade ore mined at Burinda was delivered to the Pokrovka plant for blending and processing.

The Pokrovskiy heap-leach pads operated from April to October with a recovery rate of 65.4%.

*Including Burinda

Costs

For the period ended 31 December 2014, TCC/oz at Pokrovskiy were US$885/oz, a 25% reduction compared with the same period in 2013 (US$1,180/oz), in spite of a 36% decrease in the average grades processed through the mill and ongoing inflation of Rouble-denominated costs. This was achieved due to the success of the Group's cost-optimisation programme, a 10% increase in recovery rates and the 21% average depreciation of the Rouble against the US Dollar.

Outlook

Production from Pokrovskiy in 2015 is expected to be in the range 60,000oz, constituting approximately 8% of the Group's total production for the year.

In the first quarter of 2015, it is intended that stripping will be concentrated on the upper benches of the northwest extension of the Pokrovka 1 pit and this is expected to produce some low-grade ore. High-grade ore is expected to be mined from Burinda and transported to Pokrovskiy. Processing is planned to include some low-grade ore from the existing stockpiles at Pokrovskiy.

The life of the current mining operations at Pokrovskiy envisaged in the Group's long-term production plan is approximately 5 years. After that, the existing facilities at Pokrovskiy will be integrated into the POX Hub for processing refractory gold-bearing concentrate. The anticipated operational life of the POX Hub is currently estimated to be in excess of 10 years commencing in 2019. This project is currently on hold.

MALOMIR

Performance in 2014

In 2014, Malomir produced approximately 82,200oz (compared with 115,520oz in 2013) equating to approximately 13% of the Group's total gold production for the year.

In H1 2014, the Quartzitovoye 1 pit was completed. Mining continued at the Quartzitovoye 2 pit and three prospective ore zones were opened in the Magnetitovoye pit. In September 2014, the Berezoviy satellite pit was opened and bulk sampling commenced.

The majority of the ore processed at Malomir during the year was extracted from the Quartzitovoye 2 pit.

Costs

2014 total cash costs/oz for Malomir were US$1,031/oz in line with the previous year (2013: US$1,027/oz), in spite of a 24% decrease in processed grades and ongoing inflation of Rouble-denominated costs due to the cost-optimisation programme and a 21% average depreciation of the Rouble against the US Dollar. Cash costs at Malomir are affected by the scattered positioning of multiple deposits and high stripping coefficients.

Outlook

It is expected that Malomir will produce c.90,000oz in 2015, equating to approximately 13% of the Group's total production for the year.

The life of mine currently envisaged in the Group's long-term production plan is in excess of 15 years. This includes production from non-refractory reserves until 2018, switching to refractory processing from 2019 onwards.

ALBYN

Performance in 2014

In 2014, Albyn produced approximately 186,000oz, equating to approximately 30% of the Group's total gold production for the year. This was an increase of 38% compared with 2013 production of 134,800oz.

Albyn is now the Group's largest mine in terms of total mass moved, as it mined almost 30 million cubic metres in 2014.

In H1 2014, ore mining was concentrated on the eastern side of the Central pit while overburden operations worked on the western part of the Central pit. During H2, these operations were reversed with the majority of the ore coming from the western side of the Central pit. The western part of the pit typically produces higher grades than the eastern side.

In Q2 2014, the Unglichikan satellite pit commenced producing small amounts of high-grade ore, in the form of bulk samples, which were delivered to the Albyn plant for metallurgical testing.

The process plant recovery remained high throughout the year and averaged 94.1%.

Costs

Total cash costs at Albyn for the year were US$830/oz, an approximately 18% decrease compared with 2013 (US$1,006/oz). This was achieved in spite of a 10% increase in the stripping ratio compared with the previous year and ongoing inflation of Rouble-denominated costs due to a combination of several factors: a 21% increase in grades processed through the mill, a slight improvement in recovery rates, the cost-optimisation programme and Rouble devaluation.

Outlook

In 2015, Albyn is expected to produce 190,000-200,000oz of gold equating to approximately 37% of total production for the year.

In 2015, the Group plans to mine and process high-grade ore from the Unglichikan satellite pit.

The life of mine currently envisaged in the Group's long-term production plan is approximately 8 years.

ALLUVIAL OPERATIONS

Through its subsidiary, Koboldo, the Group holds licences to mine alluvial gold and conduct exploration work for alluvial gold for a number of small alluvial operations in the Amur region of Russia. Alluvial mining, the washing of gold-bearing gravels using a sluice or dredge, is seasonal, with operations normally running from April to November due to weather conditions, contributing to the typical skew of the Group's gold production to the second half of the year.

Reserves and Resources

Due to the seasonal nature of the Group's alluvial operations, the Group updates its alluvial Mineral Resource and Mineral Reserve statements annually, each January. The Group reports its alluvial Mineral Resources and Mineral Reserves in accordance with the Russian Code for the Public Reporting of Exploration Results, Mineral Resources and Mineral Reserves (the NAEN Code). The NAEN Code is recognised by ESMA. The NAEN Code shares the same template with the JORC Code: Mineral Reserves reported in accordance with the NAEN Code are inclusive of mining dilution and mining losses.

The NAEN Code allows conversion between the Russian GKZ C1, C2 into Proved and Probable Reserves and also conversion of C1, C2 and P1 into respective Measured, Indicated and Inferred Resources.

Production

Although alluvial mining is less capital-intensive than hard-rock mining, following the decline in the gold price in 2013, the Group took steps to scale back production from high-cost assets with the sale of the alluvial operations held by Berelekh in the last quarter of 2013. Consequently, gold produced by the Group's alluvial operations in 2014 declined by approximately 66% to 29,100oz (2013: 84,800oz).

Costs

Total cash costs for the Group's alluvial operations were US$982/oz, a decrease of approximately 26% compared to 2013 (US$1,319/oz).

Outlook

Should the Koboldo Disposal be completed, the Group will no longer hold any material alluvial assets. Consequently, the Group's 2015 production target of 680,000-700,000oz excludes production from the Group's alluvial assets.

EXPLORATION REPORT / RESERVES AND RESOURCES UPDATE

In line with the approach adopted in previous years, the Group reports its hard-rock Mineral Resources and Ore Reserves in accordance with JORC Code. The assets are subdivided into "core" and "non-core" projects. Core projects are classified as the Group's four operational mines, namely: Pokrovskiy, Pioneer, Malomir, Albyn and all their satellites which are scheduled for production through the mines' existing processing facilities. Mineral Resource and Ore Reserve estimates for these assets are audited by WAI in accordance with JORC Code (2012).

The Group considers its "non-core" projects to be those assets which have good prospects, but are not located near current processing facilities. These include: Tokur (Amur Region), Visokoe (Krasnoyarsk) and Yamal assets (the Petropavlovskoe-Nogodnee Monto deposits). Mineral Resources and, where appropriate, Ore Reserves for these projects have not changed since 2011. These estimates has not been updated and therefore reported in accordance with JORC Code (2004), which was the current version of the Code at the time of the estimates. The estimates where reviewed and signed off by WAI in March 2011 (Yamal, Tokur) and February 2012 (Visokoe).

The tables below provide a summary and an asset-by-asset breakdown of Mineral Resources and Ore Reserves.

Note: Figures may not add up due to rounding

A summary of gold Ore Reserves for the Group's Core Projects (which includes Pioneer, Pokrovskiy, Malomir, Albyn and Burinda) is provided in a separate table below. These Reserves are included in the table above and are not additional.