Half-year Report

28 September 2016

Petropavlovsk PLC

Half-Year Report for the Period Ended 30 June 2016

Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together with its subsidiaries, the "Group") today issues its Half-Year Report for the period from 1 January 2016 to 30 June 2016 ("H1 2016" or the "Period").

Introducing the announcement, Peter Hambro, Chairman, said:

"I am pleased to announce a return to profitability for the six months to 30 June 2016 with an increase in Operating Profit (excluding IRC) to c.US$37.8 million and Profit after Tax of c.US$9.2 million. This was principally due to the Company's success in cutting production costs and overheads and weakening of the rouble, with Total Cash Costs ("TCC") falling by 14% and Central Administration Costs falling by 17%. The first half of our year is usually the weaker of the two, yet in this period we have managed to achieve a good set of results.

We are nearing our main strategic objective of amending the maturity profile of our bank facilities with our Russian lenders with a back-ended repayment profile. Key terms have been agreed in principle for the rebalancing of the Group's debt maturities with its production profile. We expect to be in a position to announce the conclusion of this before the end of October. At this stage we are also expecting to update the market on the previously announced corporate actions and acquisition plans, including the joint venture on the POX assets, the acquisition of the Amur Zoloto assets, and the consideration of the Kamchatka gold assets.

The financial and operational progress we have made has enabled the Company to progress the development of our flagship POX project, which is expected to unlock the value in our c.9.3 million ounces of refractory gold reserves and resources.

In addition, we have completed the underground mine portal and started access and ventilation declines. The first ore from underground is planned to be mined at Pioneer in Q1 2017. This is a significant milestone for the Group, which has hitherto been solely an open pit mining venture. This start up is in line with the Group's previously announced plan.

The value of our shareholding in IRC, the Hong Kong listed iron ore group, is also beginning to reflect IRC's recent success. IRC is progressing the commissioning and ramping up process at its flagship K&S mine and has recently started shipping iron ore concentrate to customers across the border in China, with regular commercial production anticipated soon. Petropavlovsk continues to guarantee the US$255 million of debt of IRC to ICBC/Sinosure.

The Company is focusing on delivering annual gold production in line with the lower end of our original guidance of c.460,000 - 500,000oz due to effects of severe flooding in the region, which impacted stripping works in H1 and production in the second half of the year.

In short, Petropavlovsk is delivering on the objectives that were set in 2015 to achieve our primary aim - the rebuilding of shareholder value. We look forward to updating you on our progress."

FINANCIAL HIGHLIGHTS

Operating Profit (excluding IRC) Up 161%

§ Operating profit (excluding IRC) increased to US$37.8 million (H1 2015: US$14.5 million)

Profit vs. Loss H1 2015

§ Profit after tax from continuing operations for the period of US$9.2 million vs. a loss of US$(28.9) million during the same period in 2015 due to a decrease in cash costs, reversal of stockpile impairments and reduction in interest expense

Cash Costs Down Across all Mines

§ TCC down 14% to US$663/oz, beating preliminary estimates (H1 2015: US$767/oz), due to a weaker rouble (average 70.54RUB / USD in H1 2016 vs. average 58.06RUB / USD in H1 2015) and continuous improvement in efficiencies of our operations

§ All-in-Sustaining Costs ("AISC") and All-in-Costs ("AIC") down 21% and 26% to US$762/oz and US$761/oz respectively (H1 2015: US$963/oz and US$1,031/oz) reflecting the reduction in TCC as well as lower central administration expenses, decrease in development, exploration, sustaining capital expenditure and impairment reversal

Further Net Debt Reduction

§ c.US$12.4 million reduction in Net Debt as at 30 June 2016 to c.US$598 million

§ The Group had sufficient liquidity headroom and complied with related financial covenants which were relaxed by the banks earlier in the year

EBITDA in Line with Company Estimates

§ H1 2016 underlying EBITDA (see the definition below) of US$88 million, in line with H1 2015, notwithstanding a decrease in total ounces sold and a lower realised gold price but mitigated by an improvement in cash costs

Capital Expenditure

§ 33% decrease in the Group's exploration and development expenditure of US$11.9 million in H1 2016 (H1 2015: US$17.8 million) excluding IRC. Key areas of focus in H1 2016 were underground exploration at Pioneer and expansion of tailing dams at Pioneer and Albyn.

H1 PRODUCTION HIGHLIGHTS

§ Total gold production of 187,400oz (H1 2015: 240,200oz). The decrease was mainly caused by the scheduled processing of lower grade material and seasonally bad weather

§ Gold sales of 195,400oz (H1 2015: 229,700oz) at an average price of US$1,194/oz (H1 2015: US$1,221/oz) including hedging loss of US$(5.5) million (H1 2015: gain of US$2.4 million).

DEBT MATURITY UPDATE

§ The Company currently has bank debt facilities of US$530 million from its Russian lenders - Sberbank (75% of total bank debt) and VTB. The Company has received major support to extend the maturity profile of facilities to 2022 with a back-ended repayment schedule to match the Company's production schedule. Key terms of the rebalancing of the Group's debt maturities with its production profile have been agreed in principle. Credit approval of the new terms is being targeted during October 2016 with final documentation to follow.

FY 2016 OUTLOOK

§ Production: expected to be in line with lower end of original guidance of c.460,000 - 500,000oz due to effects of severe flooding in the region, which impacted stripping works in H1 and production in the second half of the year

§ Costs: re-iterated guidance of FY TCC of c.US$700/oz

§ Forward contracts to sell an aggregate of 118.7Koz of gold at an average price of US$1,269/oz were outstanding as at 30 June 2016.

EXPLORATION UPDATE

§ A new 370m (open in one direction) ore zone identified at Pioneer with a thickness of up to 97.0m and grades ranging from 1.03g/t up to 18.79g/t, with potential to add new reserves and resources of high-grade, non-refractory ores for underground operations as well as regular grade (1.3-1.7g/t) refractory ores for open pit mining

§ 500m extension of Brekchievaya zone (Pioneer) confirmed with 1.4m to 1.7m thickness and grades between 9.05g/t and 12.15g/t

§ A feasibility study supported by exploration works being undertaken for the part of the Elginskoye deposit scheduled for near-term production. This is expected to confirm the current 2.7Moz internal and unaudited estimate of reserves in accordance with JORC (2012) Code by the end of 2016. The reserves were defined only for part of the Elginskoye deposit, whilst the rest of the zone remains under exploration.

UNDERGROUND MINING UPDATE

§ High grade mineral resource in excess of 500koz for underground mining proven at Pioneer and Malomir (North-East Bakhmut, Bakhmut, Andreevskaya and Quartzitovoye zones) with significant potential for an uplift in the course of scheduled underground exploration works

§ Two recent high grade drill intersections (9.85g/t at 14m and 4.49g/t at 23.0m) from North-East Bakhmut N3 and one from North East Bakhmut N1 (27.7g/t at 2.7m) are yet to be included into the resource estimate

§ Further exploration potential at Pioneer Nikolaevskaya, Otvalnaya, Promezhutochnaya and North East Bakhmut No4 and 5 zones.

§ Work on the access portal has commenced and underground exploration works are scheduled for 2016-2017.

CORPORATE UPDATE

Proposed Deals

§ The previously announced corporate transactions will be reassessed upon the conclusion of the extending of the Company's bank facilities, which is the immediate priority. Corporate transactions remain subject to shareholder approval and any circular relating to the transactions would only be published once the financing discussions are complete. The Company will make further announcements as to the progress of these transactions during the fourth quarter.

Disposal of Subsidiaries

§ In April and May 2016, the Group announced that it signed an agreement to sell its wholly owned subsidiary OOO Ilyinskoye (Visokoye deposit) and its associate ZAO Verkhnetisskaya Ore Mining Company for an aggregate cash consideration of an equivalent US$20 million, payable in tranches during 2016. The disposal of LLC Ilyinskoye was completed in May 2016.

IRC Limited (IRC)

§ H1 2016 net loss attributable to owners of IRC reduced by 95% to US$9.9 million (30 June 2015: US$198.6 million)

§ Waivers obtained - ICBC confirmed that all conditions precedent to the grant of the ICBC waivers have been fulfilled and the waivers became effective in June 2016

§ Agreement reached with CNEEC to delay outstanding construction payments, alleviating IRC's cash flow position in the near term

§ K&S has completed numerous commissioning tests with production of maiden ores and is on track for commissioning in Q3 2016

§ On 30 August 2016, a maiden shipment of 4,527 tonnes of iron ore concentrates produced during the trial production at K&S departed for China

§ Kuranakh moved to care and maintenance with minimal cash outflow and costs

§ IRC's Half-year Report was released on 31 August 2016 and is available to view on the IRC website, http://www.ircgroup.com.hk/html/index.php 

§ Petropavlovsk continues to guarantee the US$255 million of debt IRC holds with ICBC/Sinosure.

Commenting on the announcement, Pavel Maslovskiy, CEO, said: 

I am very pleased to report that during H1 2016 we managed to achieve progress in every strategic objective that I outlined in my letter to shareholders in our 2015 Annual Report.

Strengthening our Balance Sheet

The progress in our main current strategic objective of strengthening of our balance sheet is evidenced by a further decrease in Net Debt to US$598 million during the first half of the year. Discussions with our main lenders are advanced and the Company aims to make a further announcement during October on a revised repayment schedule. The Company has received support to extend the maturity profile of bank facilities until 2022 and for a shift of the majority of the repayment towards the end of the schedule. The key terms of a new schedule have been agreed in principle with our main bank-lender strongly supporting our plans of development and we look forward to updating the market on final terms before the end of October when credit approval of the new terms is obtained.

Focusing on Cash Generation and Free Cash Flow Margin

I am very proud that our team managed to achieve a further 14% decrease in our total cash costs in spite of the year on year decrease in production and bad weather conditions. This was achieved due to Group cost optimisation measures introduced in response to the prevailing gold price environment and due to the weakening of the rouble against the dollar.

Strict financial discipline and optimisation measures introduced over several years are delivering strong results in the further decreasing of our central administrative costs which are down by 17% in the period, bringing a cumulative decrease of 60%(excluding IRC) since 2012 when the cost optimisation programme was initially launched.

As a result of this, the Group generated cash from operations in line with the previous year in spite of a decline in the realised gold price and number of ounces.

Protecting Long-Term Sustainability

To ensure that our business generates sustainable returns in the mid and long term as well as to maximise the net present value of the producing assets, we continue production related exploration and development of our ore bodies both for open pit and underground mining.

At the same time we have carried out early stage exploration and prospecting in the vicinity of our processing facilities including exploration on the expected deeper extensions of our Pioneer and Malomir (Quarzitovoye) deposits. As a result of this work we are increasing mineral resources and ore reserves for both the underground and open pit mining at Malomir and Pioneer as well as Albyn.

Following completion of a detailed engineering study we appointed an underground mining contractor who commenced decline development work at the North-East Bakhmut zone at Pioneer. At the same time the exploration drilling at the North East Bakhmut zone proved further extensions of high grade mineralisation, which should contribute to our near term underground production. The two new drill intersections of 9.85g/t at 14m thickness and 4.49g/t at 23.0m thickness have proved that our Pioneer deposit remains highly prospective for further significant high grade discoveries.

During H1 2016, we continued successful exploration at Quartzitovoye (Malomir) identifying further high grade as well as low grade mineralisation. We have commenced an engineering study preparing the deposit for underground mining.

At Albyn we are well under way updating the mineral resource and reserve estimates for the Elginskoye satellite deposit with H1 2016 exploration results.

Unlocking value from our Refractory Reserves

I am pleased to report that we have taken the decision to progress the development of our flagship POX project, which forms a key part of the Company's strategy.

With the current refractory reserve and resource base of 9.31Moz (including 3.95Moz of JORC reserves at Malomir and Pioneer), we expect the project to unlock significant value for our shareholders and ensure sustainable production from refractory assets for 20 years with excellent growth potential.

The proposed project schedule is about two and a half years including a full ramp-up of the plant. The ramp-up is based on each of the 4 autoclaves starting one month apart commencing September 2018 and finishing December 2018. During the initial stage we are planning to process Malomir concentrate. Once fully ramped up the POX plant is expected to process c.500kt of refractory concentrates per year. The POX plant design allocates slots for two further autoclave vessels, which can be added in the future increasing processing capacity by 50%.

We are extremely excited to be able to return to this project, which will allow us to realise the value of refractory resources not only within the Group but also within the Russian Far East area. The POX Hub design allows for separate and simultaneous processing of refractory concentrates with a wide range of metallurgical properties and could be used as a processing base for third parties on an off-take agreements basis.

Focus on Core Projects

Development of our core producing assets remains a key pillar of our strategy and for this reason we do not actively allocate meaningful capital expenditure to non-core projects. However, the Group frequently reviews ways in which value can be realised from these assets.

During Q2 2016, we signed an agreement to sell our Visokoye and Verkhnetisskaya assets, for a combined cash consideration equivalent to US$20 million, payable in tranches during 2016. As at 30 June 2016, an amount equivalent to US$15.5m had been received by the Group.

Our Strategic Priorities for the rest of 2016

Our key priority for the remainder of the year is to finalise discussions with our lending banks and thereafter swiftly conclude discussions in relation to the announced transactions.

Severe flooding during H1 2016 impacted production in June and July and also significantly delayed stripping works at the beginning of the year, which may potentially affect H2 production. This led us to review our production output and adjust our expectations to be at the lower end of our original guidance of c.460,000-500,000oz. In spite of this, due to the cost reduction strategies we have in place we still expect to meet FY TCC guidance of c.US$700/oz which, at current gold price levels, is an impressive margin of c.US$600/oz.

Pavel Maslovskiy, CEO

ENQUIRIES

WEBCAST

There will be a webcast presentation followed by a question and answer session today at 9.00am (BST).

To view the presentation, please click here: http://microsites.streamuk.com/petropavlovsk221. Alternatively, please visit our website: http://www.petropavlovsk.net.

To ask a question, please dial:

RU Toll Number: +7 (0)495 646 9304

RU Toll-Free Number: 810 800 2136 5011

UK Toll Number: 02031394830

UK Toll-Free Number: 08082370030

International dial in details can be found here: http://events.arkadin.com/ev/docs/NE_FEL_Events_International_Access_List.pdf

When prompted, please enter this participant code: 84068553#

FINANCIAL RESULTS SUMMARY

Note: Figures may be rounded

(a) Underlying EBITDA is the profit for the Period before financial income, financial expenses, foreign exchange gains and losses, fair value changes, taxation, depreciation, amortisation and impairment charges. A reconciliation of loss for the year and underlying EBITDA is set out in note 24 to the financial statements

(b) 2015 includes IRC

FINANCIAL REVIEW

- Financial Highlights

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

(b) All-in sustaining costs ("AISC") and all-in costs ("AIC") are calculated in accordance with guidelines for reporting all-in sustaining costs and all-in costs published by the World Gold Council. 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 24 to the condensed consolidated financial statements.

(d) Including US$15.1 million received under investment agreement with the Russian Ministry of Far East Development.

(e) US$100.0 million convertible bonds due on 18 March 2020.

Note: Figures may not add up due to rounding

Revenue

Physical volumes of gold production and sales

Group revenue during the period was US$254.0 million, 15% lower than the US$297.3 million achieved in H1 2015.

Revenue from hard-rock mines was US$234.2 million, 17% lower than the US$281.0 million achieved in H1 2015. Gold remains the key commodity produced and sold by the Group, comprising 92% of total revenue generated in H1 2016. The physical volume of gold sold from hard-rock mines decreased by 15% from 229,657 ounces in H1 2015 to 195,434 ounces in H1 2016. The average realised gold price decreased by 2% from US$1,221/oz in H1 2015 to US$1,194/oz in H1 2016.

Hard-rock mines sold 48,124 ounces of silver in H1 2016 at an average price of US$15/oz, compared to 39,763 ounces in H1 2015 at an average price of US$16/oz.

Revenue generated as a result of third-party work by the Group's in-house service companies was US$19.8 million in H1 2016, a US$3.5 million increase compared to US$16.3 million in H1 2015. 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$17.5 million in H1 2016 compared to US$14.9 million in H1 2015.

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 65,828 ounces of gold matured during the period and resulted in US$(5.5) million net cash settlement paid by the Group (H1 2015: US$5.6 million contribution to cash revenue from forward contracts to sell an aggregate of 75,000 ounces of gold).

Forward contracts to sell an aggregate of 118,723 ounces of gold at an average price of US$1,269/oz were outstanding as at 30 June 2016.

Forward contracts contributed US$(28)/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 months as considered necessary. Forward contracts to sell an aggregate of 77,276 ounces of gold at an average price of US$1,302/oz are outstanding as at 27 September 2016.

Underlying EBITDA and analysis of operating costs

(a) Reflecting recovery in gold price and partial processing of ore stockpiles.

(b) Group's share of interest expense, investment income, other finance gains and losses, foreign exchange losses, taxation, depreciation and impairment recognized by an associate (IRC)

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

Hard-rock mines

This period, hard-rock mines generated underlying EBITDA of US$103.8 million compared to US$104.3 million underlying EBITDA in H1 2015.

Total cash costs for hard-rock mines decreased from US$767/oz in H1 2015 to US$663/oz in H1 2016, primarily reflecting the effect of cost optimisation measures undertaken by the Group in response to the declining gold price environment as well as positive effect of Rouble depreciation. The decrease in the average realised gold price from US$1,221/oz in H1 2015 to US$1,194/oz in H1 2016 and decrease in physical ounces sold resulted in US$20.7 million decrease in the underlying EBITDA. This effect was mitigated by the improvement of the total cash costs which had a net US$20.2 million positive contribution to the underlying EBITDA in H1 2016.

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 H1 2015 there was no significant inflation Rouble denominated costs, in particular, electricity costs in Rouble decreased by up to 1% (decreased by up to 18% in US Dollar terms) and cost of diesel remained the same level (decreased by up to 18% in US Dollar terms). 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 58.06 Roubles per US Dollar in H1 2015 to 70.54 Roubles per US Dollar in H1 2016.

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

AISC decreased from US$963/oz in H1 2015 to US$762/oz in H1 2016, 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$1,031/oz in H1 2015 to US$761/oz in H1 2016, reflecting the decrease in all-in sustaining costs explained above, reversal of impairment of refractory ore stockpiles due to gold price recovery and decrease in exploration expenditure and decrease of capital expenditure related to POX, which was limited to fulfilling existing contractual commitments.

(a) Refractory ore stockpiles to be processed at the POX Hub.

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$2.6 million from US$15.7 million in H1 2015 to US$13.1 million in H1 2016, primarily reflecting depreciation of the Rouble against the US Dollar.

During H1 2016 corporate and other operations contributed US$(15.8) million to the underlying EBITDA vs. US$(14.3) million in H1 2015. Included in result of corporate in other operations in H1 2016 is US$3.6 million share in losses generated by IRC.

Interest income and expense

The Group earned US$0.2 million interest income on the cash deposits with banks.

Interest expense for the period was comprised of US$5.9 million effective interest on the Convertible Bonds and US$24.5 million interest on bank facilities (H1 2015: US$7.7 million and US$29.5 million, respectively). There were no interest expense was capitalised as part of mine development costs within property, plant and equipment.

Other finance gains/ (losses)

Taxation

The Group is subject to corporation tax under the UK, Russia and Cyprus tax legislation. The average statutory tax rate for H1 2016 was 20% 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$15.0 million (H1 2015: US$16.2 million) and by the deferred tax credit, which is a non-cash item, of US$19.5 million (H1 2015: deferred tax credit of US$13.3 million). Included in the deferred tax credit is a US$17.6 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.

This period, the Group made corporation tax payments in aggregate of US$19.3 million in Russia (H1 2015: corporation tax payments in aggregate of US$26.2 million in Russia).

Profit/(loss) per share

Basic profit per share for H1 2016 was US$0.00 compared to (US$0.02) basic loss per share for H1 2015. The key factor affecting the basic profit/(loss) per share was the increase of net profit for the period attributable to equity holders of Petropavlovsk PLC from the net loss of US$(27.7) million for the first half of 2015 to US$9.2 million net profit for the first half of 2016.

The total number of Ordinary Shares in issue as at 30 June 2016 was 3,303,768,532 (30 June 2015: 3,300,561,697).

The Group has a number of potentially dilutive instruments which were anti-dilutive in the H1 2015 and H1 2016 and, accordingly, diluted profit/ (loss) per share was not different from the basic profit/(loss) per share.

Financial position and cash flows

(a) US$100.0 million convertible bonds due on 18 March 2020 (31 December 2015: US$100.0 million convertible bonds due on 18 March 2020).

(b)

Key movements in cash and net debt from continuing operations

(a) Including US$15.1 million received under investment agreement with the Russian Ministry of Far East Development

The increase in working capital reflects US$7.9 million decrease in inventories reflecting the efforts undertaken by the Group to optimise the working capital structure offset by a US$16.7 million reduction in trade and other payables.  

As at 30 June 2016 there were no undrawn facilities available to the continuing operations.

Capital expenditure

The Group spent an aggregate of US$11.9 million on its gold projects in H1 2016 compared to US$17.8 million invested in H1 2015. The key areas of focus in H1 2016 were on exploration to support the underground mining at Pioneer, 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$0.4 million of development expenditure in relation to POX is considered to be non-sustaining capital expenditure for the purposes of calculating the all-in sustaining costs and all-in costs.

(b) Including US$2.0 million of exploration expenditure in relation to the underground mining project at Pioneer 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 the Russian Rouble and GB Pounds Sterling.

The Rouble recovered by 12% during H1 2016, from RUB72.88: USD1 as at 31 December 2015 to RUB64.26: USD1 as at 30 June 2016. The average-on-year depreciation of the Rouble against the US Dollar was approximately 21%, with the average exchange rate for H1 2016 being RUB70.54 : USD1 compared to RUB58.06 : USD1 for H1 2015.

As a result of the significant volatility of the Russian Rouble, the Group recognised foreign exchange losses of US$5.9 million in H1 2016 (H1 2015: US$7.4 million) arising primarily on Rouble denominated net monetary assets.

Disposal of subsidiaries

This Period, the Group entered into agreements to sell its wholly owned subsidiary LLC Ilijnskoye and its associate JSC Verkhnetisskaya Ore Mining Company for an aggregate cash consideration of an equivalent to US$20 million, payable in tranches during 2016, out of which US$19.8 million were attributed to the value of Visokoe asset held by LLC Ilijnskoye and the remainder to Verkhnetisskaya Ore Mining Company. The disposal of LLC Ilijnskoye was completed on 11 May 2016. The Group recognised US$0.5 million net loss on this disposal.

H2 2016 Outlook

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 current Rouble exchange rate is RUB 64.15/US$ compared to RUB64.26/USD as at 30 June 2016.

The Group re-iterates total average cash costs for the full year 2016 of c.US$700/oz.

Going concern

The Group monitors and manages its liquidity risk on an ongoing basis to ensure that it has access to sufficient funds to meet its obligations. Cash forecasts are produced regularly based on a number of inputs including, but not limited to, forecast commodity prices and impact of hedging arrangements, Group mining plan, forecast expenditure and debt repayment schedules. Sensitivities are run for different scenarios including, but not limited to, changes in commodity prices, cost inflation, different production rates from the Group's producing assets and the timing of expenditure on development projects. This is done to identify risks to liquidity and covenant compliance and enable management to develop appropriate and timely mitigation strategies. The Group meets its capital requirements through a combination of sources including cash generated from operations and external debt.

The Group performed an assessment of the forecast cash flows and covenant compliance in relation to bank facilities for the period of 12 months from the date of approval of the 2016 Half-Year Report. As at 30 June 2016, the Group had sufficient liquidity headroom and complied with related financial covenants. The Group's projections demonstrate that although the Group expects to have sufficient working capital liquidity over the next 12 months, these projections indicate that, unless mitigating actions can be taken, there will be insufficient liquidity to meet its debt repayment schedule on 31 October 2016.

The Group initiated negotiations with its principal lenders with a view to obtaining satisfactory modifications and temporary waivers regarding the existing covenants and the current repayment schedule ahead of the current repayment schedule and ("Debt Restructuring"). The Group has received written comfort including preliminary term sheets from their principal lenders intending to support the Debt Restructuring. As part of these negotiations, the agreement has been reached in relation to temporary relaxation of the existing covenants and the debt repayment holidays were granted until 31 October 2016 to allow finalisation of the Debt Restructuring. If an agreement with the Group's principal lenders in relation to the Debt Restructuring cannot be reached, and as a result missed debt repayment occurs, this would result in events of default which, through cross-defaults and cross-accelerations, could cause all other Group's debt arrangements to become repayable on demand.

The Group has guaranteed the outstanding amounts IRC owes to ICBC. The outstanding loan principal was US$255 million as at 30 June 2016. The assessment of whether there is any material uncertainty that IRC will be able to repay this facility as it falls due is another key element of the Group's overall going concern assessment. In their 30 June 2016 interim report, IRC have identified a material uncertainty in relation to their ability to continue to operate as a going concern. 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 volatility of the iron ore price. IRC is also in negotiations with several banks in Russia for working capital financing for the K&S project and is implementing active cost-saving measures to improve operating cash flows and financial position. If IRC were unable to achieve scheduled commissioning of the K&S project, successfully implement the measures described above or the market conditions turn out significantly less favourable to IRC than predicted, IRC may not have sufficient liquidity to facilitate a debt repayment of US$21.5 million in December 2016, which will cause the related facility to become immediately due and payable.

The risk that the Group will be unable to achieve appropriate mitigating actions is a material uncertainty which may cast significant doubt upon the Company's ability to continue to apply the going concern basis of accounting and, therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

Nevertheless, after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation, after taking into account the aforementioned factors, that the Group will have 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 2016 Half-Year report. Accordingly, they continue to adopt the going concern basis of accounting in preparing the condensed consolidated interim financial statements.

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OPERATIONS REPORT

Highlights

Production

H1 2016 gold production of 187.4koz (H1 2015: 240.2koz: 22% decrease). The year on year decrease in production was mainly caused by the scheduled processing of lower grade material. Cold weather conditions in spring have affected the start of the heap-leach season shifting the production from the heap-leach to the second half of the year.

Total cash costs

H1 2016 TCC/oz decreased by 14% to US$663/oz across all operating mines primarily reflecting the effect of cost optimisation measures undertaken by the Group as well as the positive effect of Rouble depreciation. The key components of operating cash expenses are wages, electricity, diesel, chemical reagents and consumables. The key cost drivers affecting 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.

Summary of gold production and total cash costs

Note: Figures may not add up due to rounding

PIONEER

During H1 2016 the ore was sourced predominantly from Pits N10 and N11 of the Alexandra zone as well as Pit N2 (Promezhutochnaya) and Pit N7 (Vostochnaya). At the Andreevskaya zone (Pit N5) stripping works were carried out in H1 to access high grade ore for production in Q4 and some ore was blended from stockpiles. Heap leach operations commenced in Q2 (April), with a one month delay due to cold weather. In H2, ore is expected to be produced from the Alexandra, Bakhmut and Vostochnaya zones. At the Andreevskaya zone stripping works to access high grade areas will be continued through Q3 with production of material at the average grade of 8.4g/t scheduled for Q4.

Costs

The programme of cost optimisation has continued progressing well and a further decrease of the mining and processing unit costs by 11% and 17% respectively was achieved.

TCC/oz: US$582 (-3% H1 vs H1)

AISC/oz: US$707 (-19% H1 vs H1)

AIC/oz: US$722 (-21% H1 vs H1)

ALBYN

During H1 2016, the majority of ore was sourced from the Eastern section of the pit as well as from stockpiles, whilst stripping works were carried out at the Northern section of the ore body. H2 2016 production is expected to come primarily from the Northern section. In H2 2016, minor tonnages are also scheduled from the Eastern section and from the stockpiles.

Costs

The programme of cost optimisation has continued progressing well and a further decrease of the mining and processing unit costs by 24% and 21% respectively was achieved.

TCC/oz: US$628 (-18% H1 vs H1)

AISC/oz: US$705 (-24% H1 vs H1)

AIC/oz: US$742 (-22% H1 vs H1)

MALOMIR

During the period ore was mined at Quartzitovoye 2. Mining and stripping were carried out throughout the whole of H1 at the Magnetitovoye pit and at Quartzitovoye 1. The remainder was blended using existing stockpiles. In H2, ore production will continue from Quartzitovoye 2. At the Magnetitovoye zone, production of the main volumes of ore scheduled for 2016 is expected to commence in Q3, in line with the schedule of stripping works.

Costs

The programme of cost optimisation has continued progressing well and a further decrease of the mining and processing unit costs by 20% and 20% respectively was achieved.

TCC/oz: US$917 (-16 % H1 vs H1)

AISC/oz: US$1,055 (-11% H1 vs H1)

AIC/oz: US$876 (-40% H1 vs H1)

POKROVSKIY

During H1 2016, ore at Pokrovskiy was extracted mainly from Pit 1 (Zeyskoye ore body), from the Zheltunak satellite pit and from Pits 2 and 3 (Rucheynoye ore body). Heap leach operations commenced in Q2 (May) with a one month delay. In H2 ore is expected to be produced from the same areas as in H1.

Costs

The programme of cost optimisation has continued progressing well and a further decrease of the mining and processing unit costs by 18% and 28% respectively was achieved.

TCC/oz: US$810 (-20% H1 vs H1)

AISC/oz: US$843 (-28% H1 vs H1)

AIC/oz: US$845 (-28% H1 vs H1)

H1 2016 EXPLORATION

During H1 2016, most exploration works were carried out to facilitate the development of underground mining operations at Pioneer and Malomir, completing exploration of the Elginskoye deposit (Albyn flanks), and confirming other non-refractory targets near the Group's operational mines. The principal results of this work can be summarised as follows:

Pioneer:

All ore columns mined from the surface open pits at Pioneer were traced down below these pits.

§ Bakhmut Zone

At the point where the Promezutochnaya and Bakhmut zones meet, a new thick lateral mineralised ore zone has been identified. It deepens 45 to 65° to the north and its strike length confirmed to date is 370m. The average thickness varies from 10.9 to 97.0m, at average cross section grades of 1.03 to 18.79g/t. Inside the structure there are two distinct ore columns, c.200m apart from each other:

- At ore column 1, four ore bodies with thickness between 1.0 - 12.4m and average cross-sections grades between 1.61 - 18.68g/t have been identified. These include 18.68g/t at 5.1m, 12.7g/t at 6.8m and 6.99g/t at 12.4m

- At ore column 2, five ore bodies have been identified with thickness between 0.9 -20.6m, at 1.98 to 78.0g/t including 12.8g/t at 9.0m, 10.3g/t at 4.0m and 78.0g/t at 1.0m.

Surface drilling continued at other North East Bakhmut ore columns. The selected high grade intersections include 27.7m at 2.7m and 10.3g/t at 5.6m (North East Bakhmut N1); 9.85g/t at 14.0m (North East Bakhmut N2); 6.2g/t at 0.8m, 6.3 at 0.6m and 9.89g/t at 1.2m (North East Bakhmut No 4); 3.52g/t at 17.8m, 6.1g/t at 0.8m and 30.65g/t at 3.7m (North East Bakhmut N5).

Initial estimates show that the new ore structure will add new R&R of rich non-refractory ores for underground operations, alongside average refractory ores for open pit mining.

During September the development of underground access at the North East Bakhmut N3 pit has started in line with previously announced plans. Further exploration here is expected to continue from underground. Surface exploration on other areas at these payshoots is expected to continue in Q3 and Q4 of 2016.

§ Otvalnaya Zone

This zone is located at the left bank of the Ulunga River, 1.6km north of NE Bakhmut. In 2016, exploration of Otvalnaya's south-west flank was carried out. The zone strikes in a northwest direction and deepens at 50 - 65°. The ore zone consists of a main ore body with separate subparallel ore bodies. It has been followed for 500m along the strike with a thickness of 18.0m at 5.26g/t. The thickness of loose sediments within the explored interval is 3.5 - 26.5m and thinning towards a southwest direction. The zone has been proven to a depth of 360m and remains open downwards. The results of metallurgical sampling show 70% recovery rates. Initial estimates indicate that the Otvalnaya zone will provide non-refractory ore both for open and underground mining, in particular:

- The part of the ore zone suitable for open pit mining (depth 130m) has a thickness of 0.8 - 15.4m at average grades of 0.88-3.4g/t, including 3.28g/t at 15.0m, 3.04g/t at 7.5m and 5.26g/t at 1.6m

- At deep horizons beyond the designed pit, cross-sections of 3.8-7.5m at average grades of 2.0- 6.0g/t (up to 18.0g/t in some samples) have been identified.

§ Brekchievaya

A 500m continuation of the zone to the east has been identified at an average thickness of 1.4-1.7m at 9.05-12.15g/t; exploration work here continues.

· Nikolaevskaya

Other notable results include a discovery of a new apophyisis at the Nikolaevskaya Zone. The apophyisis has been explored by unevenly spaced trenches and drill holes over a strike length of 1,000m and remains open in all directions. Grades are generally between 0.9 and 1.5g/t at the intersections, with a thickness of 2 to 3m. The higher grade intersections include 2.05g/t at 5.0m, 4.5g/t at 4.0m, 2.24g/t at 5.0m and 5.07g/t at 1.8m. Mineralisation is expected to be predominantly refractory but it is exposed to the surface and should be suitable for open pit extraction.

· Sosnovaya

Field work started at the Sosnovaya licence, covering a highly prospective area west, south west and south of Pioneer. The first geochemistry results indicate a more than 8km long gold-arsenic anomaly, which coincides with old alluvial workings. These results are considered to be very encouraging and further exploration is planned in this area.

Albyn: 

§ Elginskoye 

At Elginskoye the exploration works are being finalised at the part of the deposit scheduled for near-term production and a feasibility study including R&R is being prepared. The current preliminary internal resource estimate at a cut off 0.5g/t has 2.7Moz of gold at an average grade of 1.34g/t in C1+C2 Russian categories. The reserves were defined only for the part of Elginskoye ore field that is scheduled for production first, the rest of the zone remains under exploration. In the second half of the year detailed exploration by drilling on a 40x40m and 40x80m basis is expected to be continued. Updated Mineral Resource and Ore Reserve statements are expected later this year, once the exploration programme is fully completed.

§ Unglichkan

An in-fill drilling programme (40x20m and 20x15m) at Unglichkan to prepare the area for open pit mining is nearly completed. This took place at the southern group of the orebodies at drill holes on a 40x20m and 20x15m basis. As a result, the area's Inferred resources are expected to be upgraded to the Indicated category. Furthermore, new additional smaller zones of gold mineralisation have been discovered, which should add to the Mineral Resources and Ore Reserves at Unglichkan. New significant intersections include 1.6g/t at 10.0m, 2.91g/t at 13.0m, 5.93g.t at 3.0m and 42.28g/t at 1.4m. Updated Resource and Reserve estimates are currently being prepared.

Malomir: 

§ Quartzitovoye 

In H1 2016, exploration for underground operation at deeper horizons continued exploring deeper extensions of orebodies No 55 and 61. Ore zone 55 was confirmed to extend 200m beyond the pit. At a cut-off grade of 1.7g/t, the thickness of this zone is 1.4-12.9m at an average grade of 5.79-68.3g/t. In some drill holes it is 68.3g/t at 1.4m, 5.79g/t at 12.9m and 22.18g/t at 3.7m. Further exploration at these orebodies is expected to continue from underground. The design of the underground access and exploration programme from underground is in progress, which will also allow trial mining and production.

Apart from the main ore body 55, 150m to the east another two subparallel ore bodies were identified. They are potentially suitable for underground extraction and have an average thickness of 1.1-3.9m at average grades of 6.14-10.55g/t; work here continues.

DEVELOPMENT OF UNDERGROUND MINING

Company specialists have always believed in the potential for developing underground mining at Pioneer and Quartzitovoye (Malomir). However, until recently it was a secondary priority after open pit mining of non-refractory and refractory reserves.

The underground potential was first proven at Quartzitovoye (Malomir) where Russian GKZ approved a small reserve for potential underground mining in 2010. These were subsequently re-evaluated for open pit extraction via a bigger open pit, however 2015 - 2016 exploration proved high grade resources to extend at least 200m below the proposed bigger pit. The current unaudited JORC resource estimate for potential underground mining at Quartzitovoye is c.210koz (at 8.2g/t) of Indicated and c.100koz (5.3g/t) of Inferred. The Company plans to continue exploration and expects to increase this estimate.

These extensions have been explored by 40 drill holes, of which 25 intersected potentially economical mineralisation. Gold mineralisation is confined within three subparallel zones drilled at a 50-30m by 60-40m drill grid. Zones are up to 400m in strike length and have been proven to 200m below the open pit. They remain open in a down dip direction. Typical drill intersections have gold grades between 2.5 g/t and 10.8g/t with horizontal thickness of 1.4m to 3.6m. Further exploration at Quartizitovoye is proposed to continue via drilling from underground workings.

At Pioneer a resource potentially suitable for underground mining was first explored at the deeper extensions of the eastern part of the Andreesvkaya zone. A total of 42 deep drill holes have been completed there with 28 holes intersecting high grade mineralisation. However, most of the resources were subsequently mined or scheduled for open pit mining. Although the high grade zone remains open in a down dip direction, exploration of the deeper extensions is currently on hold here so as not to interfere with open pit stripping works.

The next target at Pioneer was North East Bakhmut No 3 where 39 deep drill holes were completed in 2015 and 2016. 30 drill holes intersected high grade mineralisation extending to the depth of up to 250m below the mined open pit. Gold mineralisation was present within a main zone accompanied by a series of a smaller satellite zones and apophysis. The grade of the drill intersections varies between 1.5 and 66.6g/t with horizontal thickness between 0.5 and 14.4m. Unaudited mineral resources for potential underground mining are estimated in accordance with JORC Code as c.100koz (at 6.1g/t) of Indicated and further c.30koz (at 5.8g/t) of Inferred. The main mineralised zone remains open in down dip direction as well as in some areas along strike offering potential to increase resources.

The most recent drilling completed in Q3 2016 indicates the presence of a high grade pay shoot in the adjacent area of North East Bakhmut No2. To date, 9 drill holes over a 200m strike length have been completed in this area. Seven drill holes intersected potentially economical mineralisation. Selected best drill intercepts include 9.85g/t at 14m and 4.49g/t at 23.0m. These results are yet to be reflected in the mineral resource estimates. Mineralised zones remain open in a down dip direction. Further exploration here is a high priority as this area can be developed into production together with North East Bakhmut No 3.

Potential for further underground resources exists at North East Bakhmut No1. Here a drill hole completed in 2016 returned an intersection grading 27.7g/t over a thickness of 2.7m. North East Bakhmut zones Nos 4 and 5 are also regarded as prospective for increases in underground mineral resources. Selected drill intersections below the planned open pits include 10.5g/t at 1.7m, 9.9g/t at 1.2m, 6.2g/t at 6.5m, 12g/t at 3.0 and 5.1g/t at 3.1m.

High grade mineralisation was also explored at the Bakhmut zone. The very first high grade pay shoot discovered at Pioneer (Pay Shoot No1) was explored in previous years below the open pit but it remains open in a down dip direction. The preliminary resource estimate of the small area around the two drill holes is c.50koz at an average grade of 6.6g/t - the area has potential for additional resources to be discovered. It is expected to be explored via underground exploration in 2016-2017.

2016 drilling also discovered a second pay shoot (Pay Shoot No 2) 160 m east from No 1. 40 drill holes were drilled here in 2016 covering a strike length of 300m. High grade mineralisation was discovered at 26 of these with grades between 1.5 and 78.0g/t and thickness of 0.7 to 20.6m. The unaudited preliminary estimate suggests resources for potential underground mining of c.130koz at an average grade of 4.1g/t.

Underground potential also exists at the Nikolaevskaya, Otvalnaya and Promezhutochnaya zones of Pioneer.

OUTLOOK FY 2016

Due to the effects of severe flooding in the first half of the year, we expect production to be at the lower end of our original guidance of c.460,000-500,000oz, as this impacted production in June and July and delayed stripping works in H1 2016, which could potentially affect the output in H2 2016.

We will continue the progress we have made in reducing cash costs across all mines and are expecting to be on track to achieve our full year guidance of c.US$700/oz.

Forward contracts to sell an aggregate of 118.7Koz of gold at an average price of US$1,269/oz were outstanding as at 30 June 2016.

IRC

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

In Q1 2016, IRC agreed with CNEEC to delay the outstanding construction payments, improving IRC's cash flow position in the near term. Kuranakh was moved to care and maintenance in March 2016 with minimal cash outflow and cost.

ICBC waivers were obtained on 23 June 2016, relating to the maintenance of certain cash deposits and obligations to comply with certain financial covenants.

Numerous commissioning tests were completed at K&S during H1 2016 and maiden ores were produced, with the plant on track to be commissioned in Q3 2016 - IRC considers this to be a transformative step for its business. On 14 September 2016, IRC announced that CNEEC had started the Hot Testing of the Drying Unit at K&S, needed for production during cold winter conditions.

On 31 August 2016, IRC announced a net loss attributable to shareholders reduced by 95% to US$9.9 million (30 June 2015: US$198.6 million) and, underlying loss excluding impairment at US$9.8 million (30 June 2015: US$9.0 million).

PRINCIPAL RISKS AND UNCERTAINTIES

The Group is exposed to a variety of risks and uncertainties which could significantly affect its business and financial results. A detailed review of the key risks facing the Group is set out in the Risks to Our Performance section on pages 26 to 39 of the 2015 Annual Report which is available on the Group's website, www.petropavlovsk.net. This also includes a description of the potential impact of such risks on the Group together with measures in place to manage or mitigate against each specific risk where this is within the Group's control.

The Board's view of the principal risks that could impact the Group for the remainder of the current financial year remain largely unchanged from those set out in the 2015 Annual Report.

A summary of the Group's key risks is set out below:

Operational Risks:

§ Factors which impact the level of production including: i) weather and ii) availability and failure of equipment or services;

§ Failure to execute various construction and development projects;

§ The Group's activities are reliant on the quantity and quality of the Mineral Resources and Ore Reserves available to it; and

§ The Group's Mineral Resources and Ore Reserves are estimates based on a range of assumptions

Financial risks:

§ Lack of funding and liquidity to allow the Group to:

i) Support its existing operations;

ii) Invest in and develop its exploration projects;

iii) Extend the life and capacity of its existing mining operations; and

iv) Refinance/repay the Group's debt as it falls due.

If the operational performance of the business declines significantly the Group will breach one or more of the financial and production covenants as set out in various financing arrangements.

§ The Group's results of operations may be affected by changes in the gold price.

§ Currency fluctuations may adversely affect the Group.

§ Risks related to the Company's 35.83% interest in IRC, a Hong Kong Listed iron ore producer:

i) Funding may be demanded from Petropavlovsk under a guarantee in favour of the Industrial and Commercial Bank of China; and

ii) IRC's results of operations may be affected by changes in the iron ore price;

Health, safety and environmental risks:

§ There could be failures in the Group's health and safety processes and/or a breach of Occupational, Health and Safety legislation.

§ The Group's operations require the use of hazardous substances including cyanide and other reagents which may result in damage to the environment, personnel and individuals within the local community.

Legal and regulatory risks:

§ The Group requires various licences and permits in order to operate.

§ The Group is subject to risks associated with operating in Russia.

§ The Group is subject to risks that may arise from the political uncertainty within Russia.

DIRECTORS' RESPONSIBILITIES STATEMENT

We confirm that to the best of our knowledge:

§ The condensed set of financial statements, which has been prepared in accordance with IAS34 "Interim Financial Reporting" as endorsed and adopted by the European Union, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company, or the undertakings included in the consolidation as a whole as required by DTR4.2.4R;

§ The interim management report includes a fair review of the information required by DTR4.2.7R (indication of important events and their impact, and description of principal risks and uncertainties for the remaining six months of the financial year); and

§ The interim management report includes a fair review of the information required on related party transactions as required by DTR4.2.8R.

By order of the Board,

Peter Hambro Andrey Maruta

Chairman Chief Financial Officer

27 September 2016

INDEPENDENT REVIEW REPORT TO PETROPAVLOVSK PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 24. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Emphasis of matter - going concern

In forming our conclusion on our review of the condensed financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2 of the condensed financial statements concerning the Group's ability to continue as a going concern. As disclosed in note 2, the Group is engaged in active negotiations with its principal lenders to modify the repayment schedule of its loan facilities, however, the outcome of these negotiations is uncertain at the date of approval of the condensed financial statements. Additionally, the Group continues to guarantee the ICBC loan of IRC, the Group's associate, which disclosed a material uncertainty in relation to its ability to continue as a going concern in the interim financial statements for the period to 30 June 2016. These conditions, together with the other matters set out in note 2 of the condensed financial statements, indicate the existence of a material uncertainty which may give rise to significant doubt over the Group's ability to continue as a going concern. The condensed financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, UK

PETROPAVLOVSK PLC

Condensed Consolidated Income Statement

Six months ended 30 June 2016

(a) IRC was classified as 'held for sale' and presented separately in the balance sheet as at 30 June 2015 as well as presented as a discontinued operation in the income statement for the period from 1 January until 7 August 2015, when it ceased being a subsidiary and became an associate to the Group.

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2016

(a) IRC was classified as 'held for sale' and presented separately in the balance sheet as at 30 June 2015 as well as presented as a discontinued operation in the income statement for the period from 1 January 2015 until 7 August 2015, when it ceased being a subsidiary and became an associate to the Group.

PETROPAVLOVSK PLC

Condensed Consolidated Balance Sheet

At 30 June 2016