Full Year 2015 & Fourth Quarter Trading Update

25 January 2016

Full Year 2015 & Fourth Quarter Trading Update

Petropavlovsk PLC ("Petropavlovsk" or the "Company", or together with its subsidiaries the "Group") today issues its full year 2015 and fourth quarter ("Q4") trading update in advance of its Annual Results for the year ended 31 December 2015.

2015 Highlights

■ Annual gold production of 504,200oz and annual gold sales of 481,900oz

■ US$1,178/oz average realised gold price, including US$20/oz effects of hedging

■ Reduction in net debt as forecast, to make unaudited c.US$610 million as at 31 December 2015 due to refinancing, and focus on financial discipline and cash optimisation

■ Capital expenditure for year in line with guidance at c.US$35 million

2016 Guidance

■ Group expects gold production to be between 460,000-500,000oz

■ Outstanding forward sales contracts of 71,600oz at a gold price of US$1,116/oz as at 31 December 2015

Pavel Maslovskiy, Chief Executive comments:

"I would like to thank the Petropavlovsk team for their committed and loyal approach in a year which has, on many levels, been challenging for all mining companies. It is greatly to the credit of the workforce that the Group achieved such a significant reduction in net debt in spite of the falling gold price environment in which we operated and the consequent decision to curtail production from marginally profitable sources of gold.

This has been a transformative year for the Group. In the midst of a continuing slump in commodity prices, we successfully overcame the biggest challenge hanging over Petropavlovsk: namely, the refinancing of our 2015 convertible bonds by means of a Rights Issue and the issue of a new convertible bond. The refinancing removed the uncertainties regarding the Group's immediate liquidity and re-established a stable operating environment for the Group throughout the year. The refinancing also emphasised the need for strong financial discipline and for a focus on optimising cash flows to ensure the Group's compliance with its repayment schedule to the banks.

Looking forward, the decrease in leverage allows us to be more confident about our future based on the Group's previously announced strategy revision, which takes account of the prevailing macroeconomic uncertainties and a relatively weak gold price.

As we have previously explained, the new strategy is focused on the Group deleveraging and on cash cost optimisation, and envisages an increase in production of high-margin ounces in the short-term and ensures sustainability of production in the medium - to long-term. This is planned to be achieved through accelerated development of our underground mining projects and a revised approach to development of the POX project, along with the rebalancing of the Group's debt maturity profile.

In implementing the Group's new strategy, some changes were introduced into the mining plan for the year, aimed at optimising cash flows and minimising operational and maintenance expenses. These included the adoption of improved processing parameters, the more effective usage of mining equipment and administrative facilities as well as flexibility of capital expenditure requirements. Assisted as it was by a weaker Rouble exchange rate, all of these support a decrease in the Group's outgoings and were the main factors taken into account when planning and carrying out the mining operations. This, together with the refinancing, ensured the achievement of the main short-term strategic goal of the Group - the reduction in Net Debt from c. US$930 at the start of 2015 to c.US$610 million at the year-end.

Within the framework of our new strategy we have focused on progressing some significant prospective developments during the year.

First, an engineering study was carried out on Pioneer and Malomir underground mining. Based on the initial results of the study we expect these projects to be highly profitable with the potential to contribute high-margin ounces to the Group's production schedule within 12-16 months.

Second, we started productive discussions with a reputable industry player on a potential partnership for the development of the POX project. The talks have been based on a significant downward revision of budgeted capital and operational expenditures in the current low rouble environment. The Group is currently evaluating potential plans for such a partnership envisaging the development of a regional hub for processing of refractory concentrate from both the Group's and from third-party deposits. It is expected that such partnerships would allow the Group to accelerate the development of this project, ensuring steady cash flows in the short to medium term.

All this allows us to look to the future with optimism and, in line with the new strategy, our mining plan for 2016 shows gold production projected between 460,000-500,000oz."

Detailed Operations Report

Pioneer

The Pioneer mining plan called for a significant increase in processed grades at the plant in Q4. Pioneer produced approximately c.231,400oz of gold in 2015, of which approximately c.84,100oz were produced in Q4.

This was achieved even though the full 66% increase in grades of ore produced by mining operations in Q4 was partly held up by some delays in stripping of high grade areas at the Andreevskaya zone, which will right itself over time.

Pioneer is the flagship mine of the Group and the main producer of its cash flows hence the main focus of our operational team was on reducing cash costs at the mine. These works were very successful and it is expected that cash costs at the mine in 2015 will be c.25% lower compared to the previous year.

Our 2016 plan, based on the Group's new strategy of cash flow optimisation, provides for a similar production profile at the mine by focusing on decreasing current and future expenditure and maintenance costs.

Pokrovskiy

During 2015, Pokrovskiy produced c.56,000oz of gold, including c.11,300oz in Q4.

The Pokrovskiy mine is a mature mine with excellent infrastructure and a vital role in the future development of the POX Hub as a base for the main processing facilities for recovery of various refractory concentrates.

As such, one of the Group's main goals for Pokrovskiy is to maintain production at levels that are sufficient to generate cash flows to cover the mine's maintenance costs and provide for the most efficient use of machinery. During 2015, this was achieved through careful management of production costs at the mine during 2015.

The 2016 Pokrovskiy mining plan was derived, based on the same strategic considerations as in 2015 and it will be executed under constant review based on prevailing macroeconomic circumstances and progress in the development of the POX Hub.

Malomir

During 2015, Malomir produced c.59,100oz of gold, including c.13,200oz in Q4.

An integrated approach to creating an optimal mining plan demonstrated the benefits of rescheduling the mining of part of the reserves to later years. The rescheduling mainly concerns reserves from a number of satellite deposits because mining from a number of small pits located at substantial distances from the plant resulted in an increase in operating expenses and sustaining capital costs in relation to the mining fleet.

The new plan provides for the mining of these satellite pits in a timely manner, alongside developing Malomir into one of the main producers of refractory concentrate for the future POX Hub.

Currently, the main focus of works at the deposit, as at Pokrovskiy, is on producing steady cash flows sufficient for the mine's maintenance and machinery preservation while the large scale refractory operations are being developed. In line with this, the 2016 production is expected to be at similar levels to 2015 with management's main focus being the optimisation of cash costs.

Albyn

The Albyn mine produced approximately 157,600oz during 2015, including approximately 40,800oz produced in Q4.

As at Pioneer one of the main management's goals was to decrease the cash costs of production and significant progress was made during the year. The decline in costs was partly achieved thanks to a significant increase in the plant's recovery rates, which in Q4 achieved an impressive 95%. This was done by revising mining schedules, and through the deferment of processing of Unglichikan deposit's high grade ores through the Albyn plant for several years.

The overall improvement of profitability of this project was also achieved due to extension of its mine life and a decrease in the maintenance expenditure.

The 2016 production plan provides for the mining of ore from the main areas of the deposit, yielding production at the same levels as in the previous year.

Project Development

POX Hub

During Q4 2015 the Group carried out a review of the project that focused both on reviewing the technical state of the mothballed plant and economic calculations for the project. The revised calculations confirmed the decrease in estimated capital expenditure to complete to US$120 -140 million and the potential for a decrease in projected production costs. In light of the recent weakness in the Rouble exchange rate, these estimates may be reduced further.

The review was carried out as part of comprehensive discussions with current and potential producers of refractory concentrates interested in using the POX Hub's facilities. It is expected that a potential partnership with one or more such producers would allow the Group to accelerate the development of this project, ensuring steady cash flows in the short to medium term.

The projected size of this potential transaction, relative to the Group's market capitalisation, is such that, were it to go ahead, the Group would be required to seek shareholder approval at an extraordinary general meeting by means of a Class 1 circular.

Underground projects

In the second half of 2015, the Group carried out an engineering study on underground development at Pioneer and Malomir mines. This study was performed with the support of Russian and foreign specialists. The first results of the study have given confidence that both Pioneer and Malomir underground projects should be technically viable and highly profitable.

It is expected that the full feasibility study for this project will be completed in Q2 -Q3 2016 and, subject to approval by the Russian competent authorities, the underground access ramp portal can be opened. It is also planned to complete the geological assessment of the technical and economic parameters of the deeper levels simultaneously with the development of the ramp. Therefore, ffurther exploration drilling is planned to be carried out from within the underground workings.

2016 Production Guidance

Production is expected to be between 460,000-500,000oz. This target reflects the Group's new strategy with its focus on production of high-margin ounces at optimal levels of maintenance expenditure.

Exploration

As in 2015, the 2016 exploration program focuses on the targets near Group's operational processing facilities with a view to maximising returns from the existing operations. As such, the 2016 exploration program is designed to find and explore further high quality non-refractory reserves for both open pit and underground mining in proximity to the Group`s four mines. 

Exploration at Pioneer and Malomir will target predominantly deeper high grade targets potentially suitable for underground extraction at Andreevskaya, North East Bakhmut (both Pioneer) and Quartzitovoe (Malomir). 

At Albyn, the majority of work is expected at Elginskaya, where in-fill drilling will convert Inferred resources into Measured and Indicated allowing for the evaluation of additional Ore Reserves.

The Group also plans to drill several scout drill holes to test the extent of known high grade mineralisation potentially suitable for underground mining below the Albyn pit.

The Group also plans to conduct a small amount of exploration at the Pokrovskiy satellite deposit Bazoviy. A new Sosnovaya license area North-East from Pokrovka and South-West from Pioneer was acquired at government auction in December 2015. This new license covers geological contact between Cretaceous granitoids and Jurassic country rocks. This contact hosts Pokrovskiy and Pioneer deposits and is believed to be favourable for the formation of gold deposits in the area. This Sosnovaya license links together the sites of Pioneer and Pokrovka and the Group now has control over the entire length of the eastern segment (c.80km long) of this prospective contact. Preparation of the exploration program for Sosnovaya is already under way with the first field work expected to start later in 2016.

IRC Limited ("IRC")

IRC is a producer and developer of industrial commodities with its shares quoted on the Hong Kong Stock Exchange (Stock Code 1029).

On 20 January 2016, IRC issued its Fourth Quarter Trading Update. This reiterated that the hot commissioning of K&S is expected to be completed in the first half of 2016, around which time IRC will provide production guidance for the year. In 2015, production of iron ore and ilmenite concentrate at Kuranakh exceeded targets by 24% and 21%, though in light of the weak commodity market, Kuranakh - as announced in December 2015, is being put through a temporary care and maintenance programme. This allows management to focus on K&S, which after its hot commissioning and commercial production should generate an operating margin even in current depressed iron ore markets.

IRC negotiations with CNEEC continue regarding its liquidated damages for CNEEC's delay and claims made by CNEEC for additional work. Discussions also continue between IRC, ICBC and Sinosure regarding potential debt service relief and covenant waivers.

On the 20 January 2016, Danila Kotlyarov became Executive Director and Chief Financial Officer of IRC, whilst Jay Hambro became Non-Executive Chairman. Mr Jay Hambro remains Chairman of the Board and Chair of the Nomination Committee and is responsible for the Group's overall strategic direction.

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

Enquiries

Note: Figures throughout this release may not add up due to rounding.

Forward-looking statements

This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial position, liquidity, prospects, growth, strategies and expectations of the industry.

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, any forward-looking statements contained in this release. In addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward-looking statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors could cause developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in law or regulation, currency fluctuations (including the US dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, political and economic uncertainty. Save as required by the Listing and Disclosure and Transparency Rules, the Company is under no obligation to update the information contained in this release.

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

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