Half Yearly Report

23 August 2012

Half-Year Report for the Period Ended 30 June 2012

Petropavlovsk PLC ("Petropavlovsk", the "Company" or, together with its subsidiaries, the "Group") today issues its Half-Year Report for the period from 1 January 2012 to 30 June 2012 ("H1 2012" or the "Period").

Summary

n Total attributable gold production for the Period of 279,100oz, up 27% on H1 2011 (219,100oz);

n 7% increase in gold sold (to 286,074oz) and 13% increase in average realised gold sales price (US$1,639);

n Record half-year revenues of US$546.8 million, up 15% versus H1 2011 (US$475.1 million);

n Total cash costs for hard-rock mines (excluding Albyn during its ramp-up phase) of US$697/oz, only 6% higher than in H1 2011 despite inflationary pressures;

n Underlying EBITDA increased by 10% versus H1 2011 to US$204.1 million, EBITDA margin of 37%;

n Operating profit of US$93.8 million (2011: US$152.4 million) and net profit of US$11.0 million (2011: US$108.2 million), principally impacted by higher depreciation charges, effect of foreign exchange and interest expense;

n Net cash from operating activities increased 152% to US$46.3 million; 

n Interim dividend of £0.05 declared;

n 1Moz increase in Mineral Resources, despite depletion;

n Pressure oxidation project remains on track;

n The Group reiterates its full year production target of 700,000oz;

n Scheduled increase in production in H2 2012 is expected to significantly improve Group's profitability versus H1 2012.

(a) Reconciliation of underlying EBITDA is included in note 24 to the Condensed Consolidated Interim Financial Statements

Note: Figures may be rounded. Please see end of section for definitions of terms, which are valid throughout the document

Analysis of capital expenditure

Analysis of the Group's net debt position (including IRC)

The Group's net debt position (excluding IRC)

HIGHLIGHTS

Operations and gold production

§ Total attributable gold production for the Period was 279,100oz, a 27% increase on the same period in 2011 (219,100oz);

§ The fourth processing line at Pioneer and the second processing line at Albyn were commissioned in June 2012, ahead of schedule. Consequently, the design throughput capacity at Pioneer increased by 40% to c.6.6Mtpa and has doubled at Albyn to c.3.6Mtpa, contributing to an expected approximate threefold increase in Albyn's production during the second half of the year;

§ Gold production during H2 2012 is expected to be c.420,000oz, 50% higher than in H1 2012 due to the full effect of the expansion of Albyn and Pioneer and a greater contribution from the Group's seasonal heap-leach and alluvial operations;

§ Performance across the Group's mines has continued to be good from 1 July 2012 to date; and

§ The Group is reiterating its full year production target of 700,000oz.

Financial highlights

§ Group revenue for the Period was US$546.8 million, a 15% increase compared with US$475.1 million in H1 2011 and was at a record level for the Group's half-year results;

§ The increase in revenue versus H1 2011 is attributable to a 13% increase in the average realised gold sales price to US$1,639/oz (compared with US$1,455/oz in H1 2011) and an 7% increase in physical volumes of gold sold during the Period to 286,074oz which was due to higher production volumes resulting from a strong performance at Pioneer, the commissioning of Albyn (Q4 2011) and the successful expansion of operations at Malomir, Pioneer and Albyn (during the Period);

§ Operating cash flows of US$46.3 million generated during the Period increased by 152% compared with H1 2011;

§ Underlying EBITDA for the Period increased by 10% to US$204.1 million compared with US$186.2 million in H1 2011, reflecting the positive effect from the increased average realised gold sales price and physical volumes of gold sold;

§ Operating profit was US$93.8 million for the Period, a 38% decrease compared with H1 2011, primarily reflecting the following factors:

- A depreciation charge of US$106.9 million, an increase of 132% in H1 2012 versus H1 2011. The H1 2012 depreciation charge was in line with the charge the Group incurred in the second half of 2011 of US$86 million plus the inclusion of Albyn mine's depreciation charge of US$12 million, which occurred only in the first half of 2012;

- Foreign exchange losses of US$3.4 million versus foreign exchange gains of US$17.8 million in H1 2011. These are non-cash losses primarily arising from a revaluation of Russian Rouble denominated net monetary assets due to the depreciation of the Russian Rouble against the US Dollar. This, on the other hand, benefited the cost of production as the majority of the Group's operating costs are Rouble denominated;

n Net profit for the Period of US$11 million was principally affected by:

- An increase in net interest expense from US$15.8 million in H1 2011 to US$34.6 million in H1 2012, reflecting the Group's higher net debt position of US$1,123.8 million as at 30 June 2012 (of which US$67.7 million is attributable to IRC) compared with US$510.7 million as at 30 June 2011;

- US$9.4 million of fair value losses recognised on gold option contracts traded by the Group, of which US$1.9 million is a realised loss/cash payable on the contracts exercised during the Period and US$7.5 million is a fair value change on the contracts outstanding at the Period-end;

§ Central administration costs for the Group's precious metals operations of US$33.1 million for the Period remained broadly in line with H1 2011 (US$31.9 million);

§ Total tax charge for the Period comprised US$37.8 million, arising primarily in relation to the Group's precious metals operations;

§ As at 30 June 2012, the Group had US$190.2 million in cash and US$450.3 million of available undrawn facilities (of which US$265.5 million relates to IRC);

§ On 26 July 2012, the Company paid a final dividend for the 2011 financial year of £0.07 per share to shareholders on the register as at close of business on 29 June 2012. The Board of Directors has approved an interim dividend of £0.05 per share, which will be paid on 8 November 2012 to shareholders on the register as at close of business on 5 October 2012.

Outlook for H2 2012

§ The Group is scheduled to produce c.420,000oz (c.60% of the planned 2012 gold output) in H2 2012 due to the seasonality of its alluvial and heap-leach operations and the full effect of the mill expansions at Pioneer and Albyn;

§ 80% of the annual alluvial production and sales are scheduled for H2 2012, which is expected to bring the total cash cost down by c.30% vs. H1 2012;

§ At Albyn, more than two thirds of the mine's annual production is scheduled for H2 2012 and total cash costs for Albyn are expected to decrease significantly now the mine has ramped up to its full design capacity;

§ Heap-leach operations at the Pokrovskiy and Pioneer mines (only a marginal contribution in H1 2012) are scheduled to deliver the majority of their production in the second half of 2012;

§ At current gold price levels, Group net debt (excluding IRC) is expected to remain broadly unchanged. IRC's net debt is projected to increase as it continues to draw down on its project loan from the Industrial and Commercial Bank of China ("ICBC") in order to fund the construction of the K&S Project;

§ Cash operating costs per ounce in the second half of the year are expected to remain broadly in line with H1 2012;

§ Total depreciation charges in the second half of the year are expected to be broadly consistent with H1 2012; and

§ Total interest costs are expected to be slightly higher in the second half of the year, in line with the Group's overall increase in net debt.

Costs

§ Total cash costs for the Group's hard rock mines (excluding Albyn) were US$697/oz, an increase of 6% compared with H1 2011 (US$659/oz) despite inflationary pressures;

§ Total cash costs for the Group's flagship mine, Pioneer, were US$639/oz, a 5% decrease compared to H1 2011, achieved despite similar head grades to H1 2011. This was due to the increased mining efficiencies following the comprehensive cost-cutting measures implemented during 2011;

§ Total cash costs for Albyn were US$1,251/oz, having been affected by the mine's ramp up during the Period. Total cash costs for Albyn are expected to decrease during the second half of the year as the mine has now reached its full capacity following the commissioning of the second processing line in June 2012;

§ Total cash costs at Malomir and Pokrovskiy for the Period were US$712/oz and US$880/oz respectively, higher than the comparative period due to a scheduled decrease in grades processed; and

§ Total cash costs for the Group's alluvial operations are expected to be in line with FY 2011.

Exploration and JORC Reserves and Resources

§ Exploration was focused on expanding the Group's non-refractory Ore Reserves at, or adjacent to, its existing projects, with the aim of confirming reserves suitable for processing at the Group's existing facilities;

§ The Group's exploration programme resulted in an 1Moz increase in the Group's gold Mineral Resources to 25.42Moz, of which 10.05Moz wereProvenand Probable Ore Reserves;

§ The increase was achieved despite the depletion of c.320Koz of Ore Reserves from mining activities since 1 January 2012;

§ The majority of this new material is confirmed as, or considered to be, non-refractory;

§ Mine-by-mine highlights:

- Malomir: 74,000oz of non-refractory Reserves were identified at the Quartzitovoye and Central open pits by upgrading Inferred Resources and, to a lesser extent, by converting material previously classified as refractory as suitable for RIP processing;

- Pokrovskiy: a new zone of high-grade mineralisation was delineated and included in ore reserves at Zheltunak; this zone is still open in a down-dip direction offering further exploration potential;

- Pioneer: additional non-refractory Ore Reserves at NE Bakhmut have been incorporated into the mine plan;

- Albyn: exploration of the non-refractory Elginskoye deposit (adjacent to Albyn) resulted in the deposit's inclusion in the Group's Resource statement for the first time. The deposit still remains at an early stage of exploration and the Group's geologists consider it to be highly prospective. Mineralised zones are open in both strike directions. Exploration is on-going to convert the Elginskoye Resources into Reserves and to establish further Resources;

§ As per the previous estimate for 1 January 2012, Ore Reserves for Albyn and Visokoe were estimated using a gold price of US$1,200/oz and Ore Reserves for the Group's remaining assets were estimated using a gold price of US$1,000/oz.

Project Development

§ Work on the pressure oxidation plant ("POX hub") at Pokrovskiy and the flotation plant at Malomir, including on-site construction and the manufacture and delivery of equipment, is progressing as scheduled;

§ At Pokrovskiy, the oxygen plant is under construction and the foundations for the autoclave building are being laid. As per the schedule, some key items of equipment have already been delivered to the site. Further items, including four autoclaves and four flash tanks, are due to be delivered in September and October 2012. The Group intends to install this equipment during the winter months;

§ At Malomir, the flotation plant building is nearing completion. The Group anticipates the plant will be completed by the end of 2012 and will be commissioned either immediately or in early 2013, depending on the exact timing of the depletion of Malomir's oxidised ore, following the extra findings during the first half of the year; and

§ The Group continues to train personnel, simulate ramp up scenarios and define operating parameters at its unique pilot test plant in Blagoveschensk, Russia.

Capital expenditure

§ During the Period, the Group invested US$262.0 million in the maintenance and development of its gold projects and its in-house services, as planned. The key focus areas were the development of the POX hub at Pokrovskiy, the flotation plant at Malomir and the plant expansions at Pioneer and Albyn;

§ During the Period, IRC partially drew down on its existing loan facilities and spent US$86.8 million, including US$79.1 million on the construction of the K&S project, US$5.5 million on the continued development of Kuranakh and US$2.2 million on other projects. This was an increase compared to the equivalent period in 2011 as the K&S project is approaching its expected commissioning in 2014;

§ During the Period, the Group invested US$34.7 million on gold exploration, less than the comparable period in 2011 (US$44.8 million); and

§ Total capital expenditure for the Group's gold operations (excluding exploration) for FY 2012 is expected to be approximately 20% higher than the guidance for the year.

Operational performance post-Period end

§ From the period 1 July to date, performance across the Group's mines was good;

§ Performance at Pioneer continued to be in line with the Group's expectations;

§ Production from Pokrovskiy continued to be ahead of the Group's forecast as grades mined were higher than had been originally estimated;

§ Production at Malomir continues to be in line with the Group's expectations; and

§ The plant at Albyn is ramped up to c.3.6Mtpa.

IRC Limited ("IRC")

On 22 August 2012, IRC issued its Interim Results. For the first six months of 2012, progress was made in production, construction, development and exploration. Key highlights from IRC's Interim Results include:

§ Re-affirming 2012 production targets of 820,000 tonnes iron-ore concentrate and 125,000 tonnes of ilmenite concentrate at Kuranakh;

§ Construction activities at the K&S Project, which is on track for completion in mid-2014;

§ Announcement of a low cost, direct shipment ore-style operation to bring the Garinskoye Project into production sooner; and

§ Completion (in July 2012) of the acquisition of the remaining 51% of the Bolshoi Seym ilmenite project and acquisition of a controlling 50% plus one share stake and an option over all remaining shares in certain molybdenum exploration projects.

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

On the key points of production, costs, sales price and cash flow generation, the Group has had an extremely good start to the year. The end of June marked the seventh consecutive quarter in which we have beaten our production target, resulting in a 27% increase in our total attributable gold production for the Period to 279,100oz, when compared to the same period in 2011 (219,100oz).

At the same time, total cash costs for the Group's hard-rock assets (excluding our newest mine, Albyn, which was undergoing the ramp-up phase) increased by only 6% compared with the corresponding period last year. We anticipate that total cash costs at Albyn will decrease significantly in the second half of the year as the mine achieves full capacity. The average realised gold sales price increased by 13% to US$1,639/oz. and we achieved a 7% increase in the amount of gold sold during the Period to 286,074oz.

These successes show up clearly in the financial statements where Group revenue for the Period, at US$546.8 million, increased by 15% and was at a record level for the Group's half-year results. This record revenue translated into a 152% increase in positive operating cash flows and a 10% increase in underlying EBITDA to US$204.1 million.

The bottom line, however, is less satisfactory, with operating profit showing a 38% decrease compared with H1 2011, and an even greater fall in Net Profit and Earnings per Share.

This headline disappointment should be viewed against the background that it was caused mainly by non-cash items such as a US$60.8 million increase in depreciation charges and foreign exchange translation losses of US$3.4 million (compared to foreign exchange translation gains of US$17.8 million in H1 2011). The increased depreciation charge is in line with the charge for the second half of 2011 and is projected to continue broadly at this level in the future.

The other factors affecting this were an increase in net interest expense from US$15.8 million in H1 2011 to US$34.6 million in H1 2012, reflecting the Group's higher net debt position of US$1,123.8 million as at 30 June 2012 (of which US$67.7 million is attributable to IRC) compared with US$510.7 million as at 30 June 2011; and US$9.4 million of fair value losses recognised on gold option contracts traded by the Group, of which US$1.9 million is a realised loss/cash payable on the contracts exercised during the Period and US$7.5 million is a fair value change on the contracts outstanding at the Period end. These hedging costs were offset by the 13% improvement in the average price achieved for our gold sales. We continue to expect a strong gold price environment in the second half of the year but continue to keep our hedging policy under review.

The Board has resolved to maintain the level of the Interim Dividend. I am pleased by this not least because I believe that this is a concrete indication that the Group's full year results will show the benefits to be derived from the planned increase in gold production in the second half of the year. It should, of course be remembered that the cold winter and spring months are less productive than those in the warmer summer and autumn and thus we are expecting Group's profitability to be improved by increased production following the commissioning of new processing facilities at Albyn and Pioneer during the first half of the year.

The Group's exploration programme continues to bring positive results, with an increase in the Group's resource base of 3%, notwithstanding the depletion of c.320,000oz of Reserves by mining activities. This was achieved despite the scheduled reduction in our exploration capital expenditure as we focused on expanding our non-refractory Ore Reserve base at, or adjacent to, existing projects. New resources at Elginskoye, a deposit located in close proximity to Albyn which is included in our Resource statement for the first time, are especially important as they confirm the possibility of a significant increase in gold output from this mine in the future. Increases in Reserves net of depletion, and particularly ones like these, also have a positive effect on depreciation charges if they do not involve additional investment.

At IRC, our industrial commodities subsidiary, good progress has been made during the first six months of 2012. As Kuranakh celebrates its second year in commercial production, I am pleased to see the operation maturing at near full capacity rates and the re-affirming of the 2012 production targets. Our team recently visited the larger K&S operation and report good progress. Looking to the long-term, IRC has also advanced its exploration activities with progress at Garinskoye and the acquisition of new ilmenite exploration opportunities.

During the second half of the year, we remain on schedule to produce 60% of our planned gold output for the year, some 420,000oz. Cash costs at Albyn (which was ramping up during H1 2012) are projected to decrease during the second half of the year and we expect the gold price to remain buoyant in a world of increasing financial turbulence. I am pleased to advise that we expect all our mines will achieve the full year target of minimum 700,000 ounces in production. Interest costs and depreciation are expected to remain broadly in line, while our capital expenditure requirements are covered by our existing debt facilities.

Looking further ahead, we continue to focus on the sustainable growth of our business. The commissioning of our pressure oxidation hub at Pokrovskiy remains on track and, once commissioned, is expected to provide us with unique opportunities for growth in Russia.

CONFERENCE CALL

There will be a webcast presentation followed by a question and answer session* at today at 11:00. Please log onto the Company's website, www.petropavlovsk.net, to view. To ask a question, please dial:

020 3425 3098 if calling from the United Kingdom

8 499 270 0354 if calling from the Russian Federation

+4420 3425 3098 if calling from elsewhere in the world

When prompted, please enter the confirmation number 830904#.

Participants without access to the internet may also dial in to listen to the presentation and question and answer session.

* The question and answer session may include information relating to the Company's shares and convertible bonds

ENQUIRIES

FINANCIAL REVIEW

Revenue

Physical volume of gold production and sales

(a) Attributed to high grades processed in December 2010 at Pokrovskiy, Pioneer and Malomir with subsequent sales in 2011.

Group revenue during the Period was US$546.8 million, 15% higher than the US$475.1 million achieved in H1 of 2011.

Revenue from the Group's precious metals operations grew by 19% from US$394.6 million in H1 2011 to US$469.7 million in H1 2012, contributing to a US$75.1 million increase in revenue. Gold remains the key commodity produced and sold by the Group, comprising 86% of the total revenue generated during the Period. The Group's average gold price realised increased by 13% from US$1,455/oz in H1 2011 to US$1,639/oz in H1 2012, which contributed to a US$49 million increase in revenue from the precious metals operations. The physical volume of gold sold increased by 7% from 268,460oz in H1 2011 to 286,074oz in H1 2012, which contributed to a further US$29 million increase in revenue from the Group's precious metals operations.

There were no sales of silver in H1 2012, compared to 115,840oz sold in H1 2011 at an average price of US$35/oz. The aggregate 168,520oz of silver at refineries and pre-refinery stage as at 30 June 2012 are expected to be realised through sales in H2 2012.

IRC revenue decreased by US$3.5 million from US$60.4 million in H1 2011 to US$56.9 million in H1 2012, primarily reflecting an approximate 17% decrease in the average selling price for the iron-ore concentrate from US$146.8/tn in H1 2011 to US$121.8/tn in H1 2012. IRC sold approximately 424,021 tonnes of iron-ore concentrate and approximately 52,966 tonnes of ilmenite, and recorded revenue of US$51.7 million from the iron-ore concentrate sales.

Exceptional items

The Group discloses separately exceptional items, being significant items of income and expense, which due to their nature or the expected infrequency of the events that give rise to these items should, in the opinion of the Directors, be disclosed separately to enable a better understanding of the financial performance of the Group.

This period, the following item was considered as exceptional:

n A US$1.6 million gain on the disposal of the Group's wholly-owned subsidiary SeverChrome, being the difference between US$7.8 million cash consideration received and US$6.2 million net assets disposed.

The effect of exceptional items on operating profit and profit for the period is set out in the table below.

Underlying EBITDA, operating profit and expenses before exceptional items

Operating profit and underlying EBITDA before exceptional items, as contributed by business segments, is set out below.

(a) Including central administration expenses of IRC Limited of US$13.6 million (H1 2011: US$12.6 million)

Precious metals

This Period, the precious metals operations generated a segment profit before exceptional items of US$143.1 million compared to US$160.1 million in H1 2011 and contributed US$241.9 million to the total underlying EBITDA compared to US$206.1 million in H1 2011.

The average total cash cost per ounce for the Group increased moderately from US$684/oz in H1 2011 to US$796/oz in H1 2012, primarily reflecting the scheduled decrease in grades processed at Malomir and Pokrovskiy, ramp up of the RIP plant at Albyn and cost inflationary trends, partially offset by increased mining efficiencies at Pioneer. This was more than compensated by the increase in the average gold price realised and an increase in physical volume of gold sold, resulting in a net US$35 million increase in operating cash profit and underlying EBITDA. This was offset by a US$58.3 million increase in depreciation charges compared with H1 2011. The H1 2012 depreciation charge (US$98.8 million) was in line with the charge the Group incurred in the second half of 2011 (US$78.1 million), plus the inclusion of Albyn mine's depreciation charge of US$12.4 million, which occurred only in the first half of 2012. There were no impairment charges in H1 2012 compared to US$5.5 million in H1 2011.

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 production volumes of ore mined and processed, cost inflation and fluctuations in Rouble to US Dollar exchange rate.

Compared with H1 2011, Rouble price inflation of key cost components was as follows: electricity costs increased by 1%, cost of chemical reagents increased by 27%, cost of diesel increased by 22% and consumables prices increased by up to 10%. The impact of Rouble price inflation was decreased by the depreciation of the Rouble against the US Dollar by 7%, with the average exchange rate for the period going from 28.6 Roubles per US Dollar in H1 2011 to 30.6 Roubles per US Dollar in 2012.

Refinery and transportation costs are variable costs dependent on the production volume and comprise about 0.5% of the gold price. Royalties, comprising 6% of the gold price, are also variable costs dependent on the production volume and the gold price realised.

The Group does not report cash costs per ounce for alluvial operations as it is not representative for the first half of the year; alluvial operations are seasonal with production skewed towards the second half of the year. The Group includes the results of all mines and operations within the precious metals operations for the total average cash cost calculation.

IRC

IRC generated a segment loss before exceptional items of US$0.3 million compared to a profit of US$7.6 million in H1 2011.

IRC produced approximately 432,000 tonnes of iron-ore concentrate. Total site operating expenses and service costs for Kuranakh for the Period amounted to approximately US$47.1 million (H1 2011: US$44.0 million), of which approximately US$19.2 million was railway tariffs and related transportation costs (H1 2011 US$15.1 million). Depreciation charges for IRC comprised US$7 million. There were no impairment charges in H1 2012.

Central administration expenses

The Group has corporate offices in London, Hong Kong, Moscow and Blagoveschensk which together represent the central administration function. Central administration expenses before exceptional items during the Period were US$46.8 million, broadly in line with US$44.5 million in H1 2011.

Finance income and expenses

The Group earned US$1.5 million interest income on the cash deposits with banks.

Interest expense increased by US$18.2 million, from US$17.9 million in H1 2011 to US$36.1 million in H1 2012. Interest expense for the period was comprised of US$14.3 million effective interest on the convertible bonds and US$25.5 million interest on bank facilities. A further US$3.9 million of interest expense was capitalised as part of mine development costs within property, plant and equipment (H1 2011: US$4.7 million).

Included in Other finance losses is a US$9.4 million fair value loss on gold option contracts traded by Petropavlovsk PLC, out of which US$1.9 million is a realised loss on the contracts exercised during the Period and US$7.5 million is a fair value change on the contracts outstanding as at the Period-end.

Taxation

The Group pays corporation tax under the UK, Russian and Cypriot tax legislation. The statutory tax rate is 25% in the UK and 20% in Russia (H1 2011: 27% in the UK and 20% in Russia).

Total tax charge for the Period comprised US$37.8 million, arising primarily in relation to the Group's precious metals operations. Compared to profit before tax, total tax charge reflects the US$9.3 million foreign exchange effect on deferred tax balances as well as unutilised current period tax losses represented by certain central costs.

This Period, the Group made corporation tax payments in aggregate of US$36.1 million (H1 2011: US$22.4 million) in Russia.

Earnings per Share

Basic earnings per share for H1 2012 were US$0.08 compared to US$0.57 in H1 2011. The key factor affecting the basic earnings per share was the decrease in net profit for the period attributable to equity holders of Petropavlovsk PLC from US$106.0 million in H1 2011 to US$15.1 million in H1 2012. The total number of Ordinary Shares in issue as at 30 June 2012 was 187,860,093 (30 June 2011: 187,860,093).

Financial position and cash flows

Key movements in cash and debt

Net cash generated from operations before working capital changes primarily reflects US$204.1 million total EBITDA.

The US$97.8 million increase in working capital is analysed as follows:

n US$108.2 million is attributed to an increase in inventories, including:

- US$68.0 million increase in ore stockpiles, primarily reflecting US$12.8 million in the balance of ore stockpiles at Malomir attributed to refractory ore and a US$48.2 million increase in the balance of ore stockpiles at Pioneer as a result of the increased cost of mining;

- US$28.4 million increase in work in progress, reflecting the increase in the scale of production; and

- US$22.0 million increase in stores and spares, reflecting the expansion of mining operations and seasonality of alluvial operations.

n Accounts receivable increased by US$5.5 million, primarily attributable to VAT on advances for property, plant and equipment and other debtors, again reflecting the expansion of operations, partially offset by a decrease in advances to suppliers and VAT recoverable.

n The effect of the above was partially offset by a US$15.9 million increase in trade and other payables, primarily attributable to the increase in other payables.

As at 30 June 2012, the Group had committed, but undrawn, facilities of US$450.3 million in aggregate, including US$257.5 million available under IRC's facility with ICBC.

Capital expenditure

During the Period, the Group spent an aggregate of US$383.5 million on its gold and iron-ore projects compared to the US$354.6 million invested in H1 2011. The key areas of focus this Period were on the further expansion of Albyn and Pioneer, the development flotation plant at Malomir and the POX "hub" at Pokrovskiy and ongoing exploration related to the Pokrovskiy, Pioneer and Albyn projects. For IRC, the key area of focus was the continuous development of K&S project.

Foreign currency exchange differences

The principal subsidiaries have a US Dollar functional currency. Foreign exchange differences arise from the 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 following exchange rates to the US Dollar have been applied to translate monetary assets and liabilities denominated in foreign currencies.

The Group recognised foreign exchange losses of US$3.4million in H1 2012 (H1 2011: foreign exchange gains of US$17.8 million), arising primarily from Russian Rouble denominated net monetary assets and GB Pounds Sterling denominated net monetary liabilities.

Subsequent events

On 11 July 2012, the Group, through its subsidiary IRC Limited, acquired a 50% plus one share equity interest in Caedmon Limited ("Caedmon"), the holder of exploration and mining licenses of a molybdenum exploration project in the Amur Region. The total consideration was satisfied through the issuance and allotment of 57,352,941 ordinary shares of IRC Limited with a nominal value of HK$0.01 each. In addition, IRC Limited also acquired the related shareholder indebtedness and an option to acquire the remaining 50% minus one share equity interest in Caedmon (the "Option"). The Group may exercise the Option any time over a two-year period commencing on the date of completion of the transaction. US$180,000 and US$320,000 are payable for the grant of Option and the shareholder indebtedness, respectively within six months of the completion of the transaction.

On 24 July 2012, the Group, through IRC Limited and its subsidiaries, acquired the remaining 51% interest in its associate LLC Uralmining ("Uralmining"), the holder of the exploration and mining licenses of Bolshoi Seym ilmenite deposit. The total consideration was satisfied through the issuance and allotment of 74,681,360 ordinary shares of IRC Limited with a nominal value of HK$0.01 each. Uralmining changed from an associate to a subsidiary of the Group thereof.

On 22 August 2012, the Board of Directors approved an interim dividend of £0.05 per share which is expected to result in the aggregate payment of £9.4 million. The interim dividend will be paid on 8 November 2012 to the shareholders on the register at the close of business on 5 October 2012.

Going concern

As set out in note 2 to the condensed consolidated interim financial statements, at the time when the condensed consolidated interim financial statements are authorised, there is a reasonable expectation that the Group has sufficient liquidity and adequate resources to continue operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

OPERATIONS AND GOLD PRODUCTION

MINE-BY-MINE: GOLD PRODUCTION AND CASH COSTS SUMMARY

PIONEER

Production at the Group's flagship mine was up 7% for the Period to 125,300oz compared to H1 2011 (116,600oz). The production increase is attributable to higher than previously budgeted grades, an increase in the quantity of ore mined and the introduction of new mining machinery (a new Hitachi 15m3 excavator and four Belaz 140-tonne capacity dump trucks). These factors contributed to a 5% reduction in total cash costs for Pioneer compared to the same period in 2011 (H1 2012: US$639/oz compared to H1 2011 US$673/oz), despite similar head grades. Cash costs were also positively affected by increased mining efficiencies following the comprehensive cost-cutting measures introduced during 2011.

Mining

During the Period, the volume of material moved increased by 41% compared to H1 2011 (19,967,000m3 vs. 14,177,000m3) and the quantity of ore mined increased by 48% (4,120Kt vs. 2,781Kt) compared with the first six months of 2011. The ore mined was sourced primarily from the NE Bakhmut and Yuzhnaya open pits. Both gold grades and tonnages of ore at Yuzhnaya were higher than originally anticipated. As a result, production from Yuzhnaya was higher than predicted by the Group's JORC Reserve estimate.

Processing

In June 2012, the Group successfully commissioned a fourth processing line at Pioneer's RIP plant. This line has now ramped up as expected, increasing the Pioneer plant's design throughput capacity by 40% to c.6.6Mtpa.

During the Period, the Group's heap-leach operations produced 1,300oz of gold. As heap-leaching is seasonal, the contribution from this facility is expected to increase significantly during the second half of 2012.

During the Period, the recovery rate for Pioneer's heap-leach facility was 15% as the facility ramps up following its recommencement in Q2 2012. In July 2012 the recovery rate was 47%, which is average for this type of facility.

(POKROVSKIY

In total, Pokrovskiy produced 37,400oz of gold during the Period, outperforming the Group's original forecast of 33,000oz for the Period.

Total cash costs at Pokrovskiy for the Period were US$880/oz, in line with the Group's forecast and higher than the comparative period in 2011 (US$707/oz) mainly due to higher stripping charges.

Total material moved during the first six months of the year increased by 20% compared to the same period in 2011. The ore came from Pokrovka 2, and, to a lesser extent, Zheltunak. No ore was mined from the main pit due to the expansion of the pit towards the south.

MALOMIR

During the Period, Malomir produced 66,100oz of gold, a 74% increase on the amount produced during the first six months of 2011 (37,900oz). This was due to the contribution of the second milling line (commissioned July 2011) and the expansion of the sorption circuit in Q1 2012, which increased annual design processing capacity to c.1.7Mtpa.

During the first six months of 2012, the volume of material moved compared to H1 2011 increased by 89% (7,009,000m3 vs. 3,710,000m3) while the quantity of ore mined compared to H1 2011 increased by 144% (1,783Kt vs. 732Kt), reflecting the increased scale of this mine. The majority of ore processed came from the non-refractory Quartzitovoye ore body with some additions from the oxidized upper levels of the refractory ore body in the Central pit.

Total cash costs at Malomir for the Period were US$712/oz, an increase on the comparative period in 2011 due to a scheduled decrease in grades processed.

The recovery rate for the Malomir RIP plant for the Period was 72% compared to 85% for the comparable period due to lower head grades and the processing of the oxidized cap of the refractory ore body at the Central pit.

ALBYN

Albyn produced 24,100oz during the Period as the plant (commissioned in Q4 2011) and the second 1.8Mtpa processing line (commissioned in June 2012), were ramping up. Albyn reached its design throughput capacity of c.3.6Mtpa in August 2012. Consequently, gold production from Albyn during the second half of the year is expected to be approximately three times the H1 2012 production level.

The ramp up of the plant during the Period contributed to Albyn's high total cash costs of US$1,251/oz. Total cash costs for Albyn are expected to decrease significantly during the second half of the year as the mine reaches its full capacity.

ALLUVIAL PRODUCTION

The Group's alluvial operations produced 26,200oz during the Period, an increase of 15% compared to the same period in 2011. As alluvial production is seasonal, with operations typically running from April to November, the majority of the Group's full-year gold production from its alluvial operations will fall in the second half of the year.

PROJECT DEVELOPMENT

POX HUB AND MALOMIR AND PIONEER FLOTATION PLANTS

During the Period, work on the pressure oxidation plant ("POX hub") at Pokrovskiy and the flotation plant at Malomir was progressing.

At Pokrovskiy, the oxygen plant is under construction and is progressing according to schedule. The layout of the autoclave facility was finalised and the foundations for the autoclave building are currently being laid. As per the schedule, some key items of equipment have already been delivered to the site. Further items, including four autoclaves and four flash tanks, are due to be delivered in September and October 2012. The Group intends to install this equipment during the winter months.

At Malomir, the flotation plant building is nearing completion. During the Period, construction of the flotation plant at Malomir continued and is progressing well. The main structure of the building is almost complete and 16 flotation tanks have been installed. The Group anticipates the plant will be completed by the end of 2012 and will be commissioned either immediately or early 2013, depending on the exact timing of depletion of Malomir's oxidised ore.

The Group continues to test various processing parameters, confirming its earlier laboratory tests, in its pilot test plant in Blagoveschensk. The test plant facility is also still being used to train operating personnel.

UPDATE ON JORC CODE (2004)-COMPLIANT GOLD ORE RESERVES AND MINERAL RESOURCES

Following exploration work conducted during the Period, the Group reports an updated Mineral Resources and Ore Reserve Statement. This unaudited update, as at 1 July 2012, has been prepared in accordance with the guidelines of the JORC Code (2004).

The Group's exploration programme during the Period focused on non-refractory areas, at or adjacent to, its existing mines, resulting in the majority of the new reserves and resources identified being non-refractory material, suitable for conventional processing through the Group's existing RIP and heap-leach facilities.

As per the previous estimate at 1 January 2012, Ore Reserves for Albyn and Visokoe were estimated using a gold price of US$1,200/oz and Ore Reserves for the Group's remaining assets were estimated using a gold price of US$1,000/oz.

A summary of the Group's Mineral Resources and Ore Reserves as at 1 July 2012 is shown in the tables below.

Summary of Mineral Resources in accordance with the JORC Code (2004) for hard rock gold assets

Note: Mineral Resources are reported inclusive of Ore Reserve; contained gold represents estimated contained metal in the ground and has not been adjusted for metallurgical recovery; numbers may not add up due to rounding.

Summary of Ore Reserves in accordance with the JORC Code (2004) for hard-rock gold assets

Note: Numbers may not add up due to rounding

In addition to the Ore Reserves and Mineral Resources estimated in accordance with the JORC Code (2004), the Group also holds significant alluvial gold reserves and resources classified in accordance with the Russian Classification System. Due to the seasonality of these operations, the Group reports its alluvial reserves and resources annually; consequently the next update is expected to be announced in Q1 2013.

EXPLORATION REPORT

During the Period, the Group spent US$34.7 million on exploration with the majority of this allocated to the exploration of non-refractory ore areas at, or adjacent to the Pioneer, Pokrovskiy, Malomir and Albyn mines, with the aim of confirming non-refractory reserves suitable for processing in the existing facilities at these mines. The Group intends to continue active exploration of its assets in the Krasnoyarsk, Chita and Yamal regions of Russia and the remote areas of the Amur region at a later date.

PIONEER

During the Period, a high-grade, non-refractory pay shoot was identified and extensively explored near the eastern side of NE Bakhmut. The zone strikes from north-north-east to south-south-west, nearly perpendicular to the NE Bakhmut zones. The new zone is still open in a southern direction towards the high-grade Andreevskaya zone, offering further exploration potential. Mineralisation is also open in a down dip direction, extending beyond 200m below the surface. The potential of this discovery is yet to be fully reflected in the Group's JORC Ore Reserve statement.

In addition, two new and previously unknown zones of mineralisation were discovered south east of Nikolaevskaya and north of Bakhmut. Assay results from these new discoveries to date indicate grades of 1.1g/t to 1.7g/t with an apparent thickness of 7m to 29m. Further exploration of these areas is planned for the remaining months of 2012 in order to incorporate these results into the Group's Reserve and Resources statement.

MALOMIR

Grade control drilling and sampling resulted in upgrade of some Inferred resources within the Quartzitovoe open pit into Indicated category and subsequently into non-refractory Ore Reserve. As a result of additional sampling, some material from the Central open pit previously classified as refractory was proved suitable for processing through existing RIP plant. This work has increased Malomir's non-refractory gold reserves by 74,000oz of (before depletion of 92,000oz).

ALBYN

At Albyn, exploration work conducted during the Period continued to be focused on the licence areas recently acquired that lie adjacent to, or short distances from, the Albyn RIP plant.

Elginskoye

The Group conducted a successful exploration programme during the Period at Elginskoye, a highly prospective licence area 15km west of the processing plant at Albyn. The licence area covers several gold and gold antimony occurrences, including the Elginskoye zone itself as well as Grozovoye and several other prospects. Exploration conducted during the Period resulted in the inclusion of Elginskoye in the Group's Resource statement for the first time.

Group geologists consider the Elginskoye licence area to be highly prospective as exploration results obtained to date have indicated the Elginskoye and Grozovoye ore occurrences hold the same easily-extractable, non-refractory mineralisation as at Albyn. Exploration of the licence area remains at an early stage: the current Inferred Category Resource estimate of 670koz only partly includes exploration results from the Elginskoye and Grozovoye zones. Several further targets known from historical work in the far south-west corner of the licence are yet to be explored, offering further exploration potential.

During the Period, the Elginskoye zone was traced by trenching and geochemical surveys over a strike length of 28km. Approximately 1,600m of this length has been drilled on a 150m x 80m grid, identifying shallow-dipping structures 5m to 25m in thickness. This work resulted in the inclusion of c.530koz of gold in Inferred Category Resources. The mineralised zones are still open in strike and down dip directions, pending further exploration. It is intended that work in the remaining months of 2012 will focus on exploring the strike extensions of this zone and identifying areas for conversion into Ore Reserves.

Several additional significant trench intersections, including 76m at 2.3g/t and 9.7m at 2.4 g/t (thickness is apparent), are situated south-west of the Elginskoye Resource. The Group intends to explore these areas further.

A further zone of gold mineralisation was discovered at Grozovoye, an area 2km north of the Elginskoye zone. Mineralisation was confirmed over a 350m strike length resulting in the inclusion of 140Koz of gold to the Group's Inferred Category Resource statement. The mineralisation remains open in a down-dip direction. It is intended that Grozovoye will be explored further by drilling during the remaining months of 2012.

Kharginskoye

During the Period, work also continued at Kharginskoye, a licence area which boarders Albyn to the south, where several non-refractory "Albyn-style" zones of mica-feldspar metasomatites have been identified.

During the Period, results from four trench intersections indicated a zone of potentially economical mineralisation: 2.1m at 2.02g/t, 3.3m at 1.45g/t, 5m at 0.64g/t and 4.6m at 0.62g/t. It is intended that exploration of this licence area will continue during the remaining months of 2012.

Nimanskaya

The first drilling has been completed at Nimanskaya, a licence area situated c.90km south of Albyn. Exploration is currently concentrated on an area of historical mining operations where steeply dipping, high-grade narrow veins were mined.

During the Period, drilling conducted by the Group revealed previously unknown zones of low-grade mineralisation with a thickness of 7.5 to 32m and grades of 0.8 to 1.2g/t which surround the deposit's known high-grade veins. Group geologists consider these results to be very promising as, when combined with the known high-grade veins, offer a potential target for bulk open-pit mining.

Exploration of this licence area remains at an early stage and further results are expected later this year.

POKROVSKIY

The Group continued its successful exploration programme at Pokrovskiy's satellite deposits, focusing on known areas of non-refractory mineralisation which could be processed by Pokrovskiy's current RIP plant prior to its conversion into the POX hub.

Zheltunak

Exploration identified a high-grade, non-refractory zone at Zheltunak. The results were incorporated into the Group's Reserve statement and 2012 mine plan.

The zone identified is shallow dipping with a strike length of 160m and a thickness of between 1.0m and 5m and an average grade of 11g/t Au. The zone is situated within 50m of the surface and is suitable for open-pit extraction.

Zheltunak remains prospective with further exploration planned for H2 2012.

Luzhki

Two intersections, 2.0m at 35.6g/t and 2.2m at 2.7g/t, were identified in drill holes 70 to 80m from the surface. Assays from the adjacent drill holes are still pending; further drilling is required to establish the extent of the high-grade mineralisation found.

CORPORATE UPDATE

DIVIDEND

The Company paid a final dividend for the 2011 financial year of £0.07 per share on 26 July 2012 to shareholders on the register as at close of business on 29 June 2012.

The Board of Directors has approved an interim dividend of £0.05 per share, which will be paid on 8 November 2012 to shareholders on the register as at close of business on 5 October 2012.

RISK MANAGEMENT PROGRAMME

During the Period, and as part of a risk management programme, the Group took some short-term floor protection against a weakening gold price and, as a result, incurred a small cash loss. However, this was offset by the increase in the total average gold sales price received.

CHANGES TO BOARD OF DIRECTORS

During the Period, there were the following changes to the Board of Directors:

Mr Andrey Maruta, previously Finance Director (Russia), was appointed Chief Financial Officer following the departure of Mr Brian Egan. Mr Maruta was formerly the Group's Chief Financial Officer prior to the merger with Aricom Plc in 2009.

Ms Rachel English was appointed as Non-Executive Director in Q1 2012. Ms English has a wealth of experience in the global energy sector; in particular, first-hand experience of developing projects in challenging business environments.

IRC

IRC is a producer and developer of industrial commodities and is the Group's former Non-Precious Metals Division, prior to its listing on the Stock Exchange of Hong Kong Limited.

On 22 August 2012, IRC issued its Interim Results. For the first six months of 2012, progress was achieved in production, construction, development and exploration.

FY2012 production targets reaffirmed

IRC has re-affirmed annual production targets for the Kuranakh Mine of 820,000 tonnes of iron-ore concentrate and 125,000 tonnes of ilmenite concentrate.

Sales above expectations

Iron ore sales were above IRC management expectations, at 424,021 tonnes for H1 2012. Ilmenite sales were also ahead of management expectations, at 52,966 tonnes for H1 2012.

K&S Project on track

Performance at K&S remains on track. Notable progress during the Period included the pouring of the foundations for the Beneficiation Plant. The 22kv transformer site is now complete and ready to be connected to the main cross country overhead power supply, before switching over to full national grid power.

Bolshoi Seym transaction

IRC announced the signing of an agreement to acquire the remaining 51% ownership of the high-grade ilmenite Bolshoi Seym deposit resulting in 100% ownership. Its geology is attractive, with the deposit containing approximately 331.5Mt of reserves and resources and located adjacent to IRC's established Kuranakh mine, suggesting potential for economies of scale and synergies.

Garinskoye Direct Shipment Ore ("DSO") scoping study

Since the DSO opportunity was announced earlier in 2012, progress has continued. The JORC resources model has been updated with new data from recent drilling and a technological mapping of the deposit and a full scale technological sampling for the pilot testing at the Ural Mining Institute of the Russian Academy of Science is underway. During H2 2012, it is anticipated that the JORC report will be completed along with the pit optimisation study and technological study for the primary processing of the high grade ore.

Molybdenum exploration

IRC announced in July 2012 that it had completed an agreement to acquire a controlling 50% plus one share stake and acquired an option over all remaining shares in a molybdenum exploration project situated in the Amur Region. This is a low cost entry into a new project with significant exploration upside. The acquisition will provide IRC with an attractive industrial commodity development opportunity whilst enhancing its commodity and regional diversification.

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

DEFINITIONS AND NOTES

Underlying EBITDA

Underlying EBITDA is profit for the period before fair value changes, financial income, financial expenses, foreign exchange gains and losses, taxation, depreciation, amortisation and impairment (see note 24 to the Condensed Consolidated Interim Financial Statements).

Total Attributable Gold Production

Total attributable gold production, as stated throughout this document, is comprised of 100% of production from the Group's subsidiaries. The Group has held a c.1.1% interest in Rusoro Mining Ltd since March 2009; no attributable ounces are included in the Group's figures. The Company's direct and indirect interest in JSC "Pokrovskiy Rudnik" (the holder of the Group's Pokrovskiy and Pioneer interests) is 98.61%. Cumulative gold production, as stated throughout this document, consists of gold physically recovered and gold in circuit. Accordingly, gold produced in the year consists of gold recovered during the period and adjusted for the movement in gold still in circuit. 

Exceptional Items

Exceptional items are those significant items of income and expense, which due to their nature or the expected infrequency of the events that give rise to these items should, in the opinion of the Directors, be disclosed separately to enable better understanding of the financial performance of the Group.

IMPORTANT INFORMATION

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

Forward-looking statements

This release may include statements that are, or may be deemed to be, "forward-looking statements". Generally, 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 Russian 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.

Basis of reporting reserves and resources

Mineral Resource and Ore Reserve estimates for the Group's hard rock deposits are reported in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves as prepared by the Joint Ore Reserves Committee of the Australian Institute of Mining and Metallurgy, Australian Institute of Geosciences and Minerals Council of Australia ("JORC Code (2004)").

PRINCIPAL RISKS AND UNCERTAINTIES

The Group is exposed to a variety of risks and uncertainties which could significantly affect its business and financial results. 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 2011 Annual Report. A detailed review of the key risks facing the Group is set out on in the Report of the Risk Committee on pages 78 to 87 of the 2011 Annual Report, which is available on the Group's website, www.petropavlovsk.net. This also includes a description of the potential impact of the risk on the Group together with measures in place to manage or mitigate against each specific risk in order that the Group can successfully deliver on its strategy.

 A summary of these key risks is set out below:

§ Operational risks:

- Delay in completion of various capital investment projects including the execution of the commissioning of the Pressure Oxidation hub

- Delay in supply of, or failure of equipment/services

- Factors which impact output such as weather, equipment failures or lack of supplies

§ Financial risks:

- The Group's results of operations may be affected by changes in gold and/or iron ore prices

- Currency fluctuations may affect the Group

- Lack of funding and liquidity to finance could affect the Group's strategy to grow through greenfield and brownfield exploration and through the employment of advanced technologies

- Risk that the Company breaches one or more of the restrictive covenants as set out in various loan agreements

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

- Exploration for reserves can be costly and uncertain

§ 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's mineral reserves and resources are estimates based on a range of assumptions

- The Group is subject to risks associated with operating in Russia

§ Human Resources

- The Group depends on attracting and retaining key personnel

- Lack of skilled labour

Responsibility Statement

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial

Reporting";

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By Order of the Board

Peter Hambro Andrey Maruta

Director Director

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 2012 which comprises the condensed consolidated interim income statement, the condensed consolidated interim statement of comprehensive income, the condensed consolidated interim statement of changes in equity, the condensed consolidated interim balance sheet, the condensed consolidated interim cashflow 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 Services Authority.

As disclosed in note 2, the annual financial statements of the company 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 2012 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 Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London

22 August 2012

PETROPAVLOVSK PLC

Condensed Consolidated Income Statement

Six months ended 30 June 2012

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2012

PETROPAVLOVSK PLC

Condensed Consolidated Balance Sheet

Six months ended 30 June 2012