Half Yearly Report

Petropavlovsk PLC

Half-Year Report for the Period Ended 30 June 2015

Petropavlovsk PLC ("Petropavlovsk", the "Company" or, together with its subsidiaries, the "Group") today issues its Half-Year Report for the period from 1 January 2015 to 30 June 2015 ("H1 2015" or the "Period").

Introducing the announcement, Peter Hambro, Chairman, said:

"It is welcome to be able to report a small Operating Profit in the first half of 2015 in spite of the lower gold price and a 26% yoy reduction in the number of ounces we sold. This compares to an operating profit of US$44m in H1 2014 when the gold price was higher. In the first half of 2015 we made further progress at our mines, continuing to deliver on our strategy of decreasing costs and generating cash to fulfil the Group's deleveraging programme and focus on our number one priority: restoring shareholder value. In particular, this involved prioritising advance stripping works, at the expense of lower-grade production, in order to be able to maximise higher-grade production in H2."

This prioritisation is in line with our new policy, which includes a targeted gross margin of c.US$500 per ounce in relation to total cash costs per ounce ("TCC/oz") at current gold prices while maintaining optimal capital and maintenance expenditure.

To achieve the gross margin target in the lower gold price environment, we have concentrated on reducing costs and success has already been achieved at our two main producing mines - Pioneer and Albyn. We intend to improve on this during the second half of 2015.

We expect these achievements to enable us to fulfil our commitments to senior lenders and, thus, achieve our targeted decrease in net debt by the end of 2015. By doing this, we continue to transfer enterprise value back to the equity holders, which is, I believe, where it belongs.

I am pleased to note that IRC has successfully raised net proceeds of c.US$50m from their open offer. These funds significantly de-risk the commissioning process at its K&S mine, which is now well underway. K&S is forecast to be one of the lowest cost iron ore mines in the world and, even in the currently depressed markets, it should generate a significant operating margin when ramped up. Petropavlovsk remains IRC's largest shareholder.

Finally, on behalf of the Board, I am pleased to welcome Alex Green, as an independent Non-Executive Director of the Company with effect from 27 August 2015. Details of his career are set out in the body of this statement. My fellow directors and I look forward to working with him and I am sure that his experience will be of great value to the Board."

Financial Highlights Overview

Costs

· A c.9% year-on-year ("yoy") decrease in average TCC/oz for the Group's four mines to US$767/oz (H1 2014: US$847/oz) mainly due to:

- Significant yoy decreases in TCC/oz of 25% and 9% at Pioneer and Albyn respectively: the Group's main mines which, combined, are expected to produce c.79% of the Group's gold production in 2015

- 13% further increase in operational efficiencies, facilitated by 66% depreciation of the Rouble against the US Dollar in H1 2015 vs H1 2014

- A 37% yoy reduction in costs per tonne mined and 36% yoy reduction in costs per tonne processed

· Decrease in TCC/oz achieved in spite of a scheduled 21% yoy decrease in grades processed, including 27% and 14% respective decrease in grades processed at Pioneer and Albyn

· 11% and 34% respective decrease in TCC/oz at Pioneer and Albyn for Q2 2015 compared with Q1 2015

- Q2 2015 TCC/oz stood at US$567/oz for Pioneer and US$611/oz for Albyn

· Inflationary pressures experienced by the Group offset by:

- The role-out of a new system of procurement, which resulted in a c.4% yoy reduction in the purchasing price for diesel

- The devaluation of the Rouble against the US Dollar, which has benefited Rouble-denominated costs, such as labour, materilas, diesel, electricity and external services. Rouble-denominated costs account for c.75% of the Group's operating cash costs

Reduction in other expenditure

· The Group's cost-cutting programme delivered impressive results:

- 31% yoy decrease in administrative costs

- 84% yoy decrease in development capex

- 48% yoy decrease in exploration capex

Net Debt

· c.US$234 million reduction in net debt as at 30 June 2015 to c.US$696 million following the Group's refinancing, compared with c.US$930 million audited net debt as at 31 December 2014

· Reiterated 2015 year-end net debt guidance of c.US$600 million

· The Company is trading comfortably within its relaxed bank covenants for the period to 30 June 2015

· Reiterated net debt : EBITDA ratio target of 1.5:1, with the Group's production plan providing sufficient cash flows for its scheduled senior bank debt repayments by the middle of 2018 and repayment of US$100 million Convertible Bonds in 2020

EBITDA

· H1 2015 underlying EBITDA of US$90 million, of which 70% was generated in Q2 (H1 2014 US$ 139 million), in line with the Group's forecast

- Resulted in an 89% reduction in loss per share at US$0.03 (H1 2014: US$0.28)

Production

· H1 2015 total gold production of 240.2koz, in line with guidance

· Petropavlovsk maintains flexibility in output in order to minimize operational expenses and maximise cash flow in low gold price environment

FY 2015 Outlook

· H2 2015 production is forecast to be significantly higher than H1, especially at Pioneer, the Group's flagship mine

· Tactical decision on absolute levels of production will be taken during the remainder of H2 2015 to achieve targeted cash flow generation and net debt repayment

· Current mine plans envisage an improvement in head grades and recovery rates across all four mines due to a combination of careful mine planning and the optimisation of technical parameters:

- Pioneer: H2 head grades calculated to more than double compared with H1; expected improvement in recovery rates

- Albyn: H2 head grades to increase by up to 33% compared with H1; recovery rates scheduled to remain stable or to slightly improve

- Malomir: H2 head grades scheduled to be the same or slightly better than in H1; improvement in recovery rates forecast

- Pokrovskiy: H2 head grades scheduled to be the same or slightly better than in H1;

- Increase in grades to be achieved not through high grading but through the planned development of pits and the exploitation of high-grade ore bodies, in accordance with the Group's mining schedules

· In addition, the Group re-iterates its full-year guidance of:

- c.US$600/oz for TCC/oz;

- c.US$600 million for net debt; and

- US$35 million for total capital expenditure

· The Group continues its exploration works and expects to make a further update on new Reserves and Resources in Q1 2016.

Board Changes

· With effect from 27 August 2015, Alex Green has been appointed as an independent Non-Executive Director of the Company. Mr Green has two decades of experience in the resources industry and has a wealth of experience including risk management, development of business strategy and corporate governance. 

IRC Limited ("IRC")

· Ongoing cost optimisation programme and the depreciation of Rouble yielded significant reduction of cash costs at the Kuranakh mine

· As advised by IRC's contractor at K&S, overall work progress remains solid and K&S is on track to produce 500,000 tonnes of iron ore in 2015

· Due to the completion of their Open Offer, the Group's stake in IRC Limited reduced from 45.39% to 35.83% on 7 August 2015

· The independent auditors of IRC included an emphasis of the matter, without qualifying their review conclusion, in their report which accompanied IRC's consolidated financial statements for the six months ended 30 June 2015

· IRC's Half-year Report was released on 27 August 2015 and is available to view on the IRC website, www.ircgroup.com.hk 

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

"The recent downward pressure and prevailing negative short-term outlook in investor sentiment on the gold price has confirmed that the Group's strategy - decreasing costs and increasing profitability by maximising operational efficiencies, decreasing administrative and capital expenditure and optimising volumes of production - is the right choice.

The measures taken by management to decrease operational expenses were clearly demonstrated in the Q2 2015 results for our two leading mines, Pioneer and Albyn, which are scheduled to produce approximately 79% of the Group's output this year.

Although the Group's average ТСС/oz for H1 2015 was as forecast, below $800 at US$767/oz, H1 2015 ТСС/oz at Pioneer was an impressive US$598/oz, including a Q2 result of US$567/oz. This was achieved despite Pioneer's average H1 2015 head grade being 1.1g/t.

The H2 mining schedules include a planned 2.0 -2.5 times increase in processed grades at Pioneer which, alongside the continued implementation of measures to increase efficiency, is expected to bring Pioneer's H2 TCC/oz significantly lower, to less than US$500/oz.

I want to emphasise that this planned increase in grades in H2 is not going to be achieved through high grading, which could be detrimental to the mine's future economics, but rather through the planned development of pits and the exploitation of high-grade ore bodies, according to the mining schedule.

The optimisation measures at Albyn were focused on increasing recovery rates at the plant. Our metallurgical tests showed that blending ore from the main ore body with ores from satellite deposits depressed recovery rates. Thus the decision was taken to change Albyn's mining schedules accordingly, a decision which has impacted the TCC/oz at the mine: TCC/oz for Q2 2015 decreased by 34% to US$611/oz and, furthermore, we expect H2 ТСС/oz at Albyn to be lower than US$600/oz.

It is also important to note the 25% and 9% of decrease in ТСС/oz at Pioneer and Albyn respectively, of this remarkable TCC/oz decrease was due to improved operational efficiencies at every stage of the production process.

Although the H1 results at our other two mines, Malomir and Pokrovskiy, were less impressive - the targeted level of TCC/oz was not achieved - we do expect, however, that H2 TCC/oz at these mines will be less than US$800/oz due to the optimisation of mining schedules and a decrease in stripping coefficients.

Strict control of capital and administrative expenses resulted in a yoy decrease in all-in costs ("AIC") to US$1,031/oz (H1 2014: US$1,198/oz). These measures are expected to ensure that full-year AIC will not be more than 20-25% higher than ТСС/oz.

Looking at our medium-term production potential, it is important to note the further positive results from the exploration of high-grade ore bodies at deeper horizons at Pioneer. These results have allowed us to commence talks with potential foreign subcontractors to carry out detailed underground exploration."

ENQUIRIES

WEBCAST

There will be a webcast presentation followed by a question and answer session today at 10.00am. Please log onto the Company's website, www.petropavlovsk.net, to view. To ask a question, please dial +44(0)20 3139 4830 and, when prompted, please enter the confirmation number 49860787#.

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 25 to the financial statements

(b) Net Debt is as set out in note 22 to the financial statements. As at 30 of June 2014, 31 December 2014 and 30 June 2015, net debt excludes IRC and derivative financial liabilities

FINANCIAL REVIEW

- Financial Highlights

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

(b) The Group disposed its alluvial operations in April 2015. The comparative data for H1 2014 was restated accordingly to ensure comparably.

(c) 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.

(d) Reconciliation of loss for the period and underlying EBITDA is set out in note 25 to the condensed consolidated financial statements.

(e) US$100.0 million convertible bonds due on 18 March 2020 (31 December 2014: $310.5 million convertible bonds due on 18 March 2015).

Note: Figures may not add up due to rounding

Revenue

Physical volumes of gold production and sales

Group revenue during the period was US$297.3 million, 34% lower than the US$453.0 million achieved in H1 2014.

Revenue from hard-rock mines was US$281 million, 34% lower than the US$424.1 million achieved in H1 2014. Gold remains the key commodity produced and sold by the Group, comprising 94% of total revenue generated in H1 2015. The physical volume of gold sold from hard-rock mines decreased by 24% from 304,176 ounces in H1 2014 to 229,657 ounces in H1 2015. The average realised gold price decreased by 12% from US$1,386/oz in H1 2014 to US$1,221/oz in H1 2015. The average realised gold price was above the average market price of US$1,206/oz, reflecting the Group's efforts in effective hedging arrangements.

Hard-rock mines sold 39,763 ounces of silver in H1 2015 at an average price of US$16/oz, compared to 125,428 ounces in H1 2014 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$16.3 million in H1 2015, a US$3.6 million decrease compared to US$19.9 million in H1 2014. 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$14.9 million in H1 2015 compared to US$17.6 million in H1 2014.

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 75,000 ounces of gold matured during the period and contributed US$5.6 million to cash revenue (H1 2014: US$28.8 million from forward contracts to sell an aggregate of 188,807 ounces of gold).

Forward contracts to sell an aggregate of 75,000 ounces of gold at an average price of US$1,201/oz were outstanding as at 30 June 2015.

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$(3.2) million change in the options fair value contributed US$11/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 26 August 2015:

- Forward contracts to sell an aggregate of 50,000 ounces of gold at an average price of US$1,201/oz.

Underlying EBITDA and analysis of operating costs

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

Hard-rock mines

This period, hard-rock mines generated underlying EBITDA of US$104.3 million compared to US$163.7 million underlying EBITDA in H1 2014.

Total cash costs for hard-rock mines decreased from US$847/oz in H1 2014 to US$767/oz in H1 2015, primarily reflecting the effect of cost optimisation measures undertaken by the Group in response to the declining gold price environment and scheduled decrease in grades processed as well as positive effect of Rouble depreciation. The decrease in the average realised gold price from US$1,386/oz in H1 2014 to US$1,221/oz in H1 2015 and decrease in physical ounces sold resulted in US$77.9 million decrease in the underlying EBITDA. This effect was partially mitigated by the improvement of the total cash costs which had a net US$18.5 million positive contribution to the underlying EBITDA in H1 2015.

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 2014 there was ongoing inflation of certain Rouble denominated costs, in particular, electricity costs in Rouble increased by up to 8% (decreased by up to 35% in US Dollar terms) and cost of chemical reagents increased by up to 4% (decreased by up to 38% in US Dollar terms). In the meantime, cost of diesel decreased by up to 4% (decreased by up to 42% in US Dollar terms) and consumables prices decreased by up to 8% (decreased by up to 45 % in US Dollar terms) as a result of procurement optimisation. The impact of Rouble price inflation was mitigated by the 66% average depreciation of the Rouble against the US Dollar, with the average exchange rate for the period going from 35.03 Roubles per US Dollar in H1 2014 to 58.06 Roubles per US Dollar in H1 2015.

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.

(a) The Group disposed its alluvial operations in April 2015. The comparative data for H1 2014 was restated accordingly to ensure comparably.

All-in sustaining costs and all-in costs

AISC decreased from US$1,036/oz in H1 2014 to US$983/oz in H1 2015, 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$1,198/oz in H1 2014 to US$1,031/oz in H1 2015, 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.

(a) The Group disposed its alluvial operations in April 2015. The comparative data for H1 2014 was restated accordingly to ensure comparably.

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$7.2 million from US$22.9 million in H1 2014 to US$15.7 million in H1 2015, primarily reflecting cost cutting measures undertaken by the Group.

This period, other operations contributed US$1.4 million to the underlying EBITDA vs. US$(3.3) million in H1 2014.

Interest income and expense

The Group earned US$0.6 million interest income on the cash deposits with banks.

Interest expense for the period was comprised of US$7.7 million effective interest on the Convertible Bonds and US$29.5 million interest on bank facilities (H1 2014: US$12.6 million and US$30.2 million, respectively). There were no interest expense was capitalised as part of mine development costs within property, plant and equipment (H1 2014: US$6.4 million).

Other finance gains/ (losses)

(a) The conversion option of the New Bonds represents the fair value of the embedded option for the bondholders to convert into the equity of the Company ("the Conversion Right"). As the Company can elect to pay the cash value in lieu of delivering the Ordinary Shares following the exercise of the Conversion Right, the conversion option is a derivative liability. Accordingly, the conversion option is measured at fair value and is presented separately within derivative financial liabilities.

Taxation

The Group is subject to corporation tax under the UK, Russia and Cyprus tax legislation. The average statutory tax rate for H1 2015 was 20.5% 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$16.2 million (H1 2014: US$12.4 million) and by the deferred tax credit, which is a non-cash item, of US$13.3 million (H1 2014: deferred tax charge of US$12.6 million). Included in the deferred tax charge is a US$2.8 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 H1 2015.

This period, the Group made corporation tax payments in aggregate of US$26.2 million in Russia (H1 2014: corporation tax payments in aggregate of US$19.0 million in Russia).

Net result from continuing operations

This period net loss from continuing operations amounted to US$28.9 million, compared to net loss of US$16.8 million in H1 2014.

Loss per share

Basic loss per share from continuing operations for H1 2015 was US$0.02 compared to US$0.10 basic loss per share for H1 2014. The key factor affecting the basic loss per share was the increase in the weighted average number of Ordinary Shares in issue during the period from 196,423,244 in H1 2014 to 2,001,412,516 in H1 2015. This increase in weighted average number of shares was due the total 3,102,923,272 Ordinary Shares issued in March 2015 as part of the Refinancing.

The total number of Ordinary Shares in issue as at 30 June 2015 was 3,300,561,697 (30 June 2014: 197,638,425).

The Group has a number of potentially dilutive instruments which were anti-dilutive in the H1 2014 and H1 2015 and, accordingly, diluted loss per share was not different from the basic loss per share.

Discontinued operations - IRC

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.

This period IRC generated US$8.3 million operating losses.

As at 30 June 2015, IRC management concluded that impairment charge was necessary for the K&S Project as its recoverable amount is lower that its carrying amount. Due to falling spot iron ore prices and forecast inflation, the carrying amount of the K&S Project has been impaired by approximately US$189.5 million. This impairment of the carrying amount of the K&S Project was recognised by the Group in prior periods through write-downs of IRC's net assets to fair value less costs to sell based on IRC's share price and, accordingly, had no impact the operating results of IRC in the Group's consolidated financial statements for H1 2015.

The Group recorded a further US$44.9 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$0.44 as at 30 June 2015 and reflect the change in the market share price of IRC shares.

On 7 August 2015, IRC completed the Open Offer resulting in the issue of 1,295,976,080 shares. The Group did not subscribe for the Offer Shares it was entitled to and the Group's interest in the share capital of IRC was diluted to 35.83%. With other significant shareholder blocks in place following the completion of the Open Offer and despite the Group's continuing guarantee of IRC's facility with ICBC, the Group is no longer considered to be exercising de facto control over IRC and, accordingly, IRC ceased being a subsidiary to the Group and is recognised as an associate to the Group from 7 August 2015.

The result from disposal of IRC has not been finalised by the date of approval of the 2015 Half-Year Report and will be disclosed in the 2015 Annual Report. Subsequent to 30 June 2015, the IRC share price decreased to HK$0.35 as at the date of disposal, 7 August 2015. Whilst this will not impact the Group's annual EBITDA, this further decline in the value of IRC is expected to have a material impact on the Group's results in H2 2015.

The Group will account for IRC as an associate under the equity accounting method as required by IAS 28 "Investments in Associates and Joint Ventures". Under this method, the fair value of the Group's interest in IRC on 7 August 2015 of c.US$100 million will become the deemed historical cost of the associate. This will be recognised within the investments in associate line as a single amount following de-recognition of the separate "asset held for sale", "liability held for sale" and NCI balance at that date. Subsequently, this investment in associate will be tested for impairment, if there are any impairment indicators, and the Group will recognise its 35.8% share of IRC profit/ loss for period as income / loss from an associate.

Financial position and cash flows

(a) US$100.0 million convertible bonds due on 18 March 2020 (31 December 2014: $310.5 million convertible bonds due on 18 March 2015).

Key movements in cash and net debt from continuing operations

As at 30 June 2015 there were no undrawn facilities available to the continuing operations.

Capital expenditure

The Group spent an aggregate of US$17.8 million on its gold projects in H1 2015 compared to US$70.2 million invested in H1 2014. The key areas of focus in H1 2015 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$1.4 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 average -on-year depreciation of Rouble against the US Dollar was approximately 66%, with the average exchange rate for H1 2015 being RUB58.06/USD compared to RUB35.03/USD for H1 2014.

Whilst the Rouble slightly recovered during H1 2015, from RUB56.26/USD as at 31 December 2014 to RUB55.52/USD as at 30 June 2015, it remained volatile during H1 2015.

As a result of the significant volatility the Russian Rouble, the Group recognised foreign exchange losses of US$7.4 million in H1 2015 (H1 2014: US$5.4 million) arising primarily on the Rouble denominated net monetary assets.

The 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 2015, 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 as at 31 December 2014 (note 16) were settled as follows:

§ Bank Waivers:

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

The aggregate transaction costs of US$42.8 million, out of which US$7.8 million were paid as at 31 December 2014, were primarily allocated to equity (US$33.4 million), the New Bonds (US$5.1 million).

Disposal of alluvial operations

On 16 April 2015, the Group entered into a conditional SPA relating to the sale of its 95.7% interest in OJSC ZDP Koboldo ('Koboldo'). The disposal was completed on 22 April 2015.

Koboldo is an alluvial operation located in the Amur region in the Far East of Russia and represents an alluvial operations segment. Net assets of Koboldo were written down to fair value based on indicative cash consideration as at 31 December 2014. Accordingly, the disposal did not result in significant gains or losses on disposal in 2015.

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.

H2 2015 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 RUB69.31/US$ compared to RUB55.52/USD as at 30 June 2015.

The Group re-iterates a significant decrease in its total average cash costs of production in 2015 to lower than US$600/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$1,100/oz for the rest of the year 2015.

Going concern

The Group monitors and manages its liquidity risk on an ongoing basis. Cash forecasts are regularly produced and sensitivities run for different scenarios including, but not limited to, changes in commodity prices, different production rates from the Group's producing assets and the timing of expenditure on development projects. The Group meets its capital requirements through a combination of sources including cash generated from operations and external debt.

As a separate listed group, IRC is required to perform an assessment of their going concern position. In their condensed consolidated financial statements for the six months ended 30 June 2015 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 report on review of the condensed consolidated financial statements for the six months ended 30 June 2015. The main uncertainties in relation to the ability of IRC to continue to operate as a going concern are the timing of the completion 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 owes to ICBC, which outstanding loan principal was US$297.5 million as at 30 June 2015, 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 August 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 2015 Half-Year Report and the condensed consolidated interim financial statements. Thus, they continue to adopt the going concern basis of accounting in preparing the condensed consolidated interim financial statements.

OPERATIONS REPORT

Operational highlights:

Production:

· H1 2015 gold production of 240.2koz (H1 2014: 306.4koz)

· H2 2015 production forecast to be significantly higher than H1 2015, especially at Pioneer

· The Group re-iterates that it has the capacity to produce 680koz however its mine plans will remain under constant review. In order to optimize cash generation, the Group maintains the flexibility to revise its mine plans in line with the Group's strategy

Total cash costs:

· A c.9% year-on-year ("yoy") decrease in TCC/oz for the Group's four mines to US$767/oz (H1 2014: US$847/oz)

· FY 2015 TCC/oz forecast to be c.US$600/oz

Summary of gold production and total cash costs

Note: Figures may not add up due to rounding.

1The Group disposed of Koboldo, an entity which held licences to mine alluvial gold, in April 2015.  

PIONEER

Additional core drilling of the north-east part of the Andreevskaya zone and the analysis of grade control data indicated that this high-grade orebody, which was previously mined by the Group, is not only open in depth, but also is stretching horizontally along the strike, into the wall of the existing pit, and plunging in a south-east direction. This data resulted in an increase in Pioneer's high-grade ores reserves. As these reserves are accessible for open-pit extraction in 2015/16, the Group reviewed its near-term development plans for this pit.

The availability of new high-grade reserves for the 2015-2016 mining schedules has given the Group the ability to continuously review its mine planning, not only at Pioneer, but at the Malomir and Albyn mines, optimising cash costs, sustaining capital expenditure and efficiency of usage of fleet and machinery.

In practice, this means that the main task of the Group - maximising cash flows - can be achieved not only via an increase in absolute production levels, but also through the minimisation of operational expenses and sustaining capital expenditure, taking into account the schedule of preparation of the reserves for extraction in 2016 and further years.

The new high-grade reserves have enabled the Group to vary production levels at Pioneer in H2 2015. Compared with H1 2015, between a two to three fold increase in production is scheduled at Pioneer in H2 2015. A tactical decision on absolute levels of production will be taken during the next six months to achieve the targeted cash flow generation and net debt repayment.

In line with this decision, large-scale expansion of the Andreevskaya pit was carried out in H1 2015, moving c.4.5 million m3 of material from its north-east part in order to expose high-grade reserves for extraction in H2 2015. In addition, the planned expansion of the central part of the pit was carried out in order to prepare rich ore reserves for extraction in Q4 2015.

In H1 2015, the main sources of feed for the plant were average grade ores from Alexandra and Vostochnaya, with some additions from the high-grade ore zones, NE Bakhmut and Nikolaevskaya.

The heap-leach operation commenced in Q2 and will continue until the end of Q3. Low-grade ore from stockpile 8, pit 7 and Alexandra (less than 0.8g/t) is being used to feed the heap leach.

Head grades through the Pioneer plant averaged 1.1g/t in H1 and this is expected to rise significantly in H2. Plant recovery in H1 was 82%, in line with the plan.

Costs

TCC/oz at Pioneer for H1 2015 were US$598/oz, a decrease of 25% compared with the same period in 2014 (US$793/oz). TCC/oz in Q2 2015 stood at US$567/oz.

All-in sustaining costs ("AISC") at Pioneer for H1 2015 were approximately 45% higher than TCC/oz and were largely driven by stripping at Andreevskaya, undertaken in order to prepare material for extraction in H2 2015. Due to the tight control of capital expenses, All-in-costs ("AIC") were kept at 6% higher than AISC.

In H2 2015, the planned 2.5x increase in head grades at Pioneer and the absence of large volumes of stripping indicate TCC/oz at Pioneer in H2 2015 will be less than US$600/oz and AISC and AIC will not be more than 20% higher than TCC/oz.

In H2 2015 the recovery rate for the RIP plant is expected to increase up to approximately 87 - 88%.

ALBYN

In H1 2015, mining was mainly concentrated in the Central Pit with some stripping taking place in the East Pit.

In Q1 2015, the Albyn plant treated a blend of ore from the main Albyn deposit and from the nearby Unglichikan deposit, the latter containing some higher-grade ore. However, technical and economic analysis of the treatment of this blend indicated that this approach was not optimal, despite leading to an increase in gold output. When blended with the ore from the main Albyn deposit, the recovery rate from the Unglichikan ore was c.70% however technical work has indicated that the separate treatment of Unglichikan ore should result in recovery rates of more than 90%.

Analysis discovered that Unglichikan ores require different technological parameters to provide optimal recovery rates. These parameters include: the fineness of the grind, the leaching time and, potentially, some flow sheet adjustments, which, though not very expensive, would require considerable time to be undertaken. It is also evident that, in order to avoid dilution, mining of ore from Unglichikan requires a more considered approach. Such an approach, although very well known in global practice, has not been used by the Group before, thus personnel would need training and significant managerial time would be required.

In addition, in order to cut the cost of transporting large volumes of ore from the Unglichikan deposit to the Albyn plant, the quality of some 13km of roads would need to be improved. Furthermore, the deposit has very strong potential to increase its reserves and resources. This could affect its mining schedule.

Taking into account all of the above factors, it was decided to postpone the treatment of Unglichikan ores at the Albyn plant. This substantially improved operational costs at the mine. Ores from Afanasevskaya, a new satellite pit which is at an advanced stage of development, are expected to be tested at the Albyn plant in H2 2015.

Forecast gold production for Albyn in H2 2015 is expected to be slightly higher than in H1.

Costs

TCC/oz at Albyn for H1 2015 were US$765/oz (H1 2014: US$843/oz). As a result of the efficiency measures undertaken during the Period, TCC/oz decreased by 34% from US$928/oz in Q1 2015 to US$611/oz in Q2 2015.

AISC at Albyn for H1 2015 were approximately 21% higher than TCC/oz, in line with the Group's forecast. AIC were 3.6% higher than AISC.

In H2 2015, the Group intends to continue to explore methods for processing the new material from the Afanasevskaya deposit in order to not negatively impact on Albyn's TCC/oz. Test work on Afanasevskaya ores is expected to be finalised by the end of Q3. The results of this work will form the basis of a decision whether to include Afanasevskaya ores in the mine's Q4 production plan, or whether to continue to defer the processing of this ore. Based on the current mine plan, the Group is projecting average head grades for H2 2015 at Albyn to be approximately 1.5-1.6g/t and average recovery rates are expected to slightly improve and to be approximately 92-93%. These factors, together with planned cost-optimisation measures, will benefit costs in H2 2015, with TCC/oz forecast to be less than US$600/oz and the ratio of TCC/oz, AISC and AIC to be at the same levels as in H1 2015.

MALOMIR

Although the vast majority of non-refractory reserves and resources at the Malomir mine are confined within the Quartzitovoye and Magnetitovoye deposits, during H1 2015 mining was also carried out at some of the mine's smaller ore zones, namely Osennaya, Bazoviy, Sukhanir and Ozhidaemoye.

Originally this mine plan was justified by the fact that Magnetitovoye's best quality reserves in terms of continuity, grade and thickness are located at a substantial depth under a thick barren sill. In H1 2015, stripping was carried out at Magnetitovoye by a contractor which also resulted in some small quantities of ore being produced from this pit.

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 and an increase in the mine's overall gold output.

New data from the Pioneer mine has given the Group the flexibility to revise Malomir's plan for H2 2015. In order to optimise operating and sustaining capital costs and also to increase the efficiency of usage of the mining fleet, production at Malomir in H2 2015 will be limited to the Quartzitovoye 2 and Magnetitovoye pits. Total H2 2015 production from Malomir is expected to remain the same or slightly exceed the H1 output.

Costs

TCC/oz at Malomir in H1 2015 were US$1,098/oz. The high level of ТСС/oz at Malomir in H1 2015 reflects some drawbacks of the original mining schedule alongside large volumes of stripping works carried out at the Magnetitovoye ore body in Q2, although the majority of the material accessed as a result of this stripping is scheduled to be processed in Q4 2015 and in 2016, this stripping was not capitalised due to small by-side production during the Period.

The main difference between AISC and TCC/oz in H1 2015 was the non-cash impairment of stockpiles due to the decrease in the price of gold in Q2 2015.

In H2 2015, the Group is forecasting TCC/oz to decrease to US$800/oz and levels of both AISC and AIC to be 10-15% over TCC/oz. This reduction in costs will be achieved by switching from expensive production from multiple satellite deposits, which are located some distances from the Malomir RIP plant, to production from the mine's main non-refractory deposits, Quartzitovoye-2 and Magnetitovoye. The majority of H2 production is scheduled to come from the former due to its close proximity to the plant and its lower stripping coefficient. The Magnetitovoye production schedule is currently under review in order to optimise the cost of transportation of the ore to the plant (the Magnetitovoye deposit being situated further from the plant than the Quartzitovoye deposit). The higher cost of transportation, however, is expected to be offset by higher recovery rates and higher grades.

H2 average head grades at Malomir are expected to be approximately 1.1-1.3g/t and average recovery rates are expected to increase up to approximately 79-80%.

POKROVSKIY

The expansion to the upper benches of the north-western part of the Pokrovka-1 pit continued throughout H1 2015 and this was the source of medium-grade ore. This work is scheduled to continue throughout H2. In H1 2015, a small amount of ore came from an extension to the northern pit wall at Pokrovka-3 and low-grade ore was fed to the processing plant from existing stockpiles.

During the period, higher-grade ores (c.2g/t) were discovered at deeper levels of the Pokrovka 3 pit. These ores were prepared for treatment in Q3 2015.

In Q1 2015, high-grade ore for processing through the Pokrovskiy plant was sourced from the Burinda satellite pit. This pit was completed in March. The mining of medium-grade ore recommenced at the Zeltunak satellite pit in April and is scheduled to continue through H2.

Head grades through the Pokrovskiy plant averaged 1.1g/t in H1 and are expected to remain constant in H2.

Costs

TCC/oz at Pokrovskiy for H1 2015 were US$1,011/oz. Costs were impacted by a high stripping ratio at the mine of 1:9 and the blending of ore from the pit with low-grade stockpiles. These factors were a function of the Group's change of strategy for the development of Pokrovskiy: initially, the Group planned to convert the Pokrovskiy plant into the POX Hub in 2014 however, after this project was put on hold, the Group carried out extensive and successful exploration for oxide ores at the flanks of the mine. Although this work substantially lengthened the life of mine, not all reserves were prepared for exploitation at the beginning of 2015.

The main difference between AISC and ТСС in H1 2015 was the non-cash impairment of lower-grade stockpiles due to the decrease in gold price in Q2 2015.

In H2 2015, the Group is forecasting TCC/oz at Pokrovskiy to be less than US$800/oz and both AISC and AIC levels to be approximately 10% over TCC/oz. Positive exploration results, which includes the discovery of new ore bodies at Pokrovka 3; new, high-grade ores at Zheltunak; and additions to reserves to the north-west of Pokrovka-1, led to a review of H2 mining schedules with a view to optimising cash costs at the mine. This resulted in the inclusion of material from Pokrovka-3 and Zheltunak into H2 production schedules instead of the material from Pokrovka 2 which was scheduled previously.

This optimisation of the mining plan took into account the following factors: average grade, the stripping coefficient the distance to transport the ore to the plant and the amount of drilling and blasting required for its production.

The average head grades at Pokrovskiy for H2 are forecasted to be 1.1-1.3g/t and the average recovery rate is forecasted to increase up to approximately 84-87%.

PROJECT DEVELOPMENT

Underground mining

The Group has identified two areas at Pioneer potentially suitable for underground mining: Andreevskaya and NE Bakhmut. In addition, the Group has also identified the Quartzitovoye deposit at Malomir and the Pokrovka 1 deposit at Pokrovskiy as potentially suitable.

At Pioneer, deep drill holes completed during H1 2015 successfully confirmed the anticipated continuation of Pioneer high-grade mineralization to the depth of 100 to 240m below the open pits.

Resources potentially suitable for underground mining have been identified at Pioneer's Bakhmut and Andreevskaya trends. At the Bakhmut trend, there are 3 proven pay shoots: one under North East Bakhmut pit 6.3 (mined from open pit to a depth of 230m), pay shoot No 1 at the Bakhmut Zone itself and another high- grade shoot at the Pormezhutochnaya Zone.

At NE Bakhmut pit 6.3, high-grade mineralisation remained at the bottom of the pit with the strike length of 60m and a thickness of 15m at an average grade of 25.0g/t. This mineralisation was traced 125m below the existing pit to an elevation of -50m by 12 drill holes. The best intersections from this area include 19.8m at 7.92g/t and 9.4m at 86.26g/t. The known high-grade mineralization is open in a down dip direction and the Group anticipates that continued drilling is expected to extend this further down.

Pay shoot No 1 (Bakhmut) was intersected by 11 drill holes and traced to an elevation of +40, approximately 160m below the existing pit. The thickness of drill intersections varies between 5.2 and 22.4m at a grade between 2.0 and 19.46g/t. The strike length of the pay shoot is up to 70m and, similar to the NE Bakhmut pay shoot, it is open in depth.

The Promezhutochnaya pay shoot is also located within the Bakhmut trend, close to conjunction with Yuzhnaya zone. It is not as well explored as the first two pay shoots; nonetheless, it has been intersected by drilling c.240m below the existing open pit with an intersection width of 1.5m at 47.8g/t.

At Andreevskaya, which has historically been a source of exceptionally high-grade ore, Group geologists identified 3 pay shoots which they consider warrant further exploration. The Andreevskaya East shoot has been explored by 20*20m drilling (40 drill holes) to an elevation of -10m some 130m below the planned open pit. The main high-grade zone has a thickness between 1.5 and 4.8m with the grade varying between 34.7 and 90.6g/t. A secondary smaller zone, which is believed to be an apophysis to the main zone, has a thickness between 1.1 and 2.8m with intersection grade varying between 12.35 and 20.5g/t. Both zones are surrounded by a lower-grade halo with thickness of 2.0-2.5m and grades of 1.86-4.38g/t. The exploration results are being evaluated by Group specialists and expected to be included in the next JORC mineral resource update. At least two higher grade shoots are anticipated at Andreevskaya central and western sections. These require further drilling to be confirmed which is budgeted for H2 2015 and 2016.

The Group is in preliminary talks with a mining subcontractor who has undertaken a site visit to assess the project.

Pressure oxidation (POX) Hub

In order to conserve capital expenditure following the decline in the gold price in Q2 2013, the Group decided to slow down the pace of development of the POX Hub and in December 2013, work on the POX Hub was put on hold. Consequently, only essential maintenance work was conducted on the POX Hub in H1 2015.

OUTLOOK

H2 2015 gold production is scheduled to be significantly higher than H1 2015, mainly due to a significant scheduled increase in production from the Group's flagship mine, Pioneer.

The Company stated that it will focus on optimising 2015 production from a cash generation point of view.

Due to the introduction of this optimization process and the Rouble devaluation, the Company decreases its guidance for Total Cash Costs of production from below US$700/oz to c.US$600/oz

The Company reiterates its 2015 year-end Net Debt guidance to c.US$600 million.

IRC

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

On 29 June 2015, IRC announced that it proposed to raise approximately HK$408 million (approximately US$52.6 million (before expenses)) by way of an Open Offer involving the issue of 1,295,976,080 Offer Shares at the Subscription Price of HK$0.315 per Offer Share on the basis of 4 Offer Shares for every 15 Shares in issue held on the Record Date and payable in full on application. Subsequent to this announcement, on 17 July 2015, IRC published a prospectus in relation to the Open Offer which is available to view on the website of IRC, www.ircgroup.com.hk.

On 5 August 2015, IRC announced that the Open Offer had completed and all funds had been received.

Cayiron Limited, a wholly-owned subsidiary of Petropavlovsk PLC, did not subscribe to its Offer Shares. Consequently, the Group's holding in IRC was reduced from 45.39% to 35.83%. As a result, IRC is no longer considered a subsidiary of the Petropavlovsk Group and, going forward, will be accounted for as an associate.

On 27 August 2015, IRC issued its Half-Year Report, the full text of which is available to view on the website of IRC, www.ircgroup.com.hk.

Given the significant reduction in the iron ore price over the period, IRC recorded a one-off, non-cash impairment provision of US$189.5 million for its K&S mine in order to partially write down the carrying value of the project.

CORPORATE UPDATE

Refinancing

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

· A rights issue pursuant to which 3,102,923,272 new Ordinary Shares were issued at a 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 2015, the Group's wholly owned subsidiary, Petropavlovsk 2010 Limited, issued US$100 million convertible bonds due on 18 March 2020 ("the New Bonds").

- The New Bonds are guaranteed by the Company, 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 Company has an option to settle in cash at the prevailing share price at the time of conversion.

- 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 US$310.5 million 4.00% convertible bonds due 2015

· Bank Waivers:

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

Disposal of non-core assets

In April 2015, a conditional Share Purchase Agreement was concluded to sell the Group's interest in a non-core, high-cost alluvial gold deposits company, Joint-stock gold-mining company Koboldo ("Koboldo"), for RUB 942 million plus reimbursement of VAT for the Q4 2014.

On 7 April 2015, the Group entered into a Share Purchase Agreement to sell its 25% interest in CJSC ZRK Omchak for a total cash consideration of US$1 million.

Board Changes

With effect from 27 August 2015, Alex Green has been appointed, as an independent Non-Executive Director of the Company. Mr Green has two decades of experience in the resources industry. From 2003 to 2012, he was a Marketing Director at BHP Billiton, a leading global resources company, and he has recently retired as a non-executive director of Torm A/S Copenhagen a Danish shipping company, listed on the Nasdaq Copenhagen Stock Exchange, following its financial restructuring. Mr Green also focuses on angel investing, academic study and mentoring to young entrepreneurs, social enterprises and charities. He has a wealth of experience including risk management, development of business strategy and corporate governance. Mr Green's appointment is also supported by representatives of the former holders of the Group's 4% Convertible Bond 2015, who recommended him as a suitable candidate to be considered for this role. The process to appoint the second new independent Non-Executive Director in accordance with the terms agreed with the former Bondholders is continuing with their support and an announcement will be made in due course.

The Company confirms that there are no further details to be disclosed in relation to Mr Green in accordance with Listing Rule 9.6.13.

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 37  of  the  2014  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 Group's view of the principal risks that could impact it for the remainder of the current financial year remain largely unchanged from those set out in the 2014 Annual Report with the exception of the factors detailed below relating to the open offer of new IRC shares, completed on 5 August 2015. In addition, since the publication of the 2014 Annual Report there has been volatility in the gold price and weakness in global commodity markets including iron ore.

Changes in principal risks since the publication of the 2014 Annual Report

Since the publication of the 2014 Annual Report, in April 2015, IRC has raised approximately HK$408 million (approximately US$52.6 million) before expenses by way of an open offer to investors involving the issue of 1,295,976,080 new IRC shares (the 'Open Offer'). Petropavlovsk's wholly-owned subsidiary, Cayiron Limited, did not subscribe for the new shares to which it was entitled under the Open Offer. Upon the issue of new shares by IRC on 7 August 2015 under the Open Offer, Petropavlovsk's interest in IRC reduced to 35.8%. Consequently IRC is now an associate of Petropavlovsk and not a subsidiary. The risk that IRC would be re-consolidated on the balance sheet on a line-by-line basis, as detailed on page 33 of the 2014 Annual Report has been extinguished.

However, Petropavlovsk continues to provide a guarantee to the Industrial and Commercial Bank of China ("ICBC") in respect of the US$340 million loan facility provided to Kimkano-Sutarsky Mining and Beneficiation Plant LLC ("K&S") by ICBC to fund the construction of IRC's mining operations at K&S ("ICBC Guarantee"), as detailed on page 32 of the 2014 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;

· 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 Reserves and Ore Resources are estimates based on a range of assumptions.

Financial risks:

· Lack of funding and liquidity to:

i) Support the Group's existing operations;

ii) Invest in and develop the Group's exploration projects;

iii) Extend the life and capacity of the Group's 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 Company will breach one or more of the financial covenants as set out in various financing arrangements

· The Group's results of operations may be affected by changes in the gold price. Since the publication of the 2014 Annual Report on 30 April 2015 there has been significant volatility in the gold price. In response and, as detailed above, the Group continues to maximise cost benefits and has revised its production plan.

· Currency fluctuations may affect the Group. Since the publication of the 2014 Annual Report on 30 April 2015 there has been significant volatility in the Russian Rouble to US Dollar exchange rate. The Russian Rouble resumed depreciation against the US Dollar, principally as a result of falling oil prices. Lower oil prices and the weaker Russian Rouble are beneficial for the Group as 75% of its operating cash expenses are Russian Rouble denominated.

Risks related to IRC:

· Funding may be demanded from Petropavlovsk under a guarantee in favour of ICBC.

· IRC's operations may be affected by changes in the iron ore price. Due to the weakness in global bulk commodity markets, including iron-ore, IRC has taken a partial impairment provision of approximately US$190 million for the K&S mine.

· There are certain covenants associated with the guarantee, some of which are in relation to the Petropavlovsk Group. A breach in the covenants may result in an event of default.

Health, safety and environmental risks:

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

· The Group's operations require the use of hazardous substances including cyanide and other reagents.

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

Human Resources

· The  Group  depends  on  attracting  and  retaining  key  personnel  who  have  the  requisite  skills  and experience to satisfy the specific requirements for the business.

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 IAS 34 "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 DTR 4.2.4R;

· the interim management report includes a fair review of the information required by DTR 4.2.7R (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 DTR 4.2.8R).

By order of the Board,

Peter Hambro Andrey Maruta

Chairman Chief Financial Officer

26 August 2015

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 2015 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 25. 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 2015 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.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, UK

26 August 2015

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.

PETROPAVLOVSK PLC

Condensed Consolidated Income Statement

Six months ended 30 June 2015