Interim Results and Third Quarter Sales Report

30 October 2020

Petropavlovsk PLC

Interim Results for the Period Ended 30 June 2020 and Third Quarter Sales Report

Petropavlovsk PLC ("Petropavlovsk", or the "Company" and, together with its subsidiaries, the "Group") today issues its Interim Results for the period from 1 January 2020 to 30 June 2020 ("H1 2020" or the "Period") and a Third Quarter Sales Report ("Q3 2020").

James W Cameron Jr, Petropavlovsk Chairman said: EBITDA almost doubled from the first half of 2019 to US$193m, benefitting from higher gold prices and increased production. Petropavlovsk has some excellent assets with substantial opportunities. Our guiding focus is to deliver greater value for all shareholders. This will involve reducing costs, improving controls and raising standards of governance across the Company.

As previously announced, over the past few months the Board and interim CEO have encountered a lack of cooperation from certain employees and received legal actions, which have no legal merit, led by Sergey Ermolenko and Alexey Maslovskiy (Pavel Maslovskiy's son).

The Board is finalising the selection of a forensic investigator to examine all transactions in the past few years which may have involved 'connected parties', as requested by shareholders at the Requisitioned General Meeting on 10 August 2020.

Financial Highlights

1All figures reflect the H1 2019 period except Net debt of US$561.3m which was the position as at 31 December 2019

§ Total gold produced increased 42%: 320.6koz (H1 2019: 225.0koz), including 178.0koz from the processing of own and third-party refractory gold concentrates at the POX Hub

§ Total gold sales increased 39%: 312.4koz (H1 2019: 225.0koz) driven by the increase in gold production

§ Average realised gold price♦ increased 28%: US$1,640/oz (H1 2019: US$1,286/oz) driven by higher gold prices and zero impact from the Company's hedging arrangements which compares to a H1 2019 hedging loss of US$(26)/oz

§ Total Cash Costs (TCC)♦ increased 27%: US$983/oz (H1 2019: US$774/oz) primarily due to higher costs associated with third-party gold concentrate

§ Total Cash Costs from own material have marginally increased by 3%: US$800/oz (H1 2019: US$774/oz) due to lower grades of non-refractory ore at Albyn and Malomir, lower RIP recoveries at Malomir, inflation of certain Rouble denominated costs, and an increase in mining tax rates from 1.2% to 6.0% at LLC Malomirskiy Rudnik. The increase was partly offset by higher grades and recoveries of non-refractory ore processed at Pioneer, higher grades and recoveries of refractory ore processed at Malomir and Rouble depreciation

§ All-in Sustaining Costs (AISC♦) increased 19%: US$1,220/oz (H1 2019: US$1,029/oz) mainly due to higher TCC as well as an increase in capitalised stripping expenditure at both Pioneer and Malomir

§ Group revenue (including non-precious operations) increased 71%: US$522.7m (H1 2019: US$305.3m) reflecting higher production volumes and a higher average gold sales price

§ Underlying EBITDA♦[2]increased 96%: US$192.6m (H1 2019: US$98.5m) due to higher revenues and partly offset by higher TCC♦

§ Headline loss for the period of US$(22.0)m: compares to a gain in H1 2019 of US$3.9m and caused by a negative non-cash adjustment of US$(122.2)m related to a fair value loss on the conversion option (H1 2019: US$(9.2)m) reflecting the increase in the Company's share price

§ Capital expenditure♦ increased by 32%: to US$59.6m (H1 2019: US$45.0m) with expenditure focused on construction of the Pioneer and Malomir flotation plants, Elginskoye mine development and development work to support underground mining at Pioneer

§ Cash generated from operations increased by 213%: US$172.8m (H1 2019: US$55.2m) driven by higher gold sales, higher gold prices and Rouble weakness, partly offset by an increase in costs associated with the purchase of third-party concentrates and higher mining taxes

§ Net debt♦ reduction: US$538.0m as at 30 June 2020 (31 December 2019: US$561.3m) principally driven by an increase in cash

§ Gold prepays reduction: The Company continues to prioritise settlement of the interest-bearing gold prepays which stood at c.US$121.0m as at 30 June 2020 (US$187.4m as at 31 December 2019), a net decrease of US$66.4m over the period

Comments from James W Cameron Jr, Chairman

This is the first report since I became Chairman of Petropavlovsk PLC ("Petropavlovsk" or the "Company"), following the Requisitioned General Meeting of 10 August 2020 (the "RGM"). Since the RGM, the Board has been steadfastly focussed on ensuring the ongoing operational stability of the Company and its subsidiaries (the "Group"). At the same time, we are making good progress in strengthening the governance of the Group and working towards our stated ambition of achieving full compliance with the UK Corporate Governance Code.

ASSESSMENT AND ACTIONS

First and foremost, the Company has some excellent assets in its three active gold mines and the world-class POX Hub, a dedicated workforce of highly-qualified employees, robust operational capability and significant future potential.

However, since my appointment as Chairman, it has become increasingly apparent that the substantial opportunities open to us will only be achieved when some fundamental (and largely legacy) issues are addressed, including:

· Ensuring a greater focus on providing returns to all shareholders, who have helped provide the capital for the significant projects and development of the Group.

· Taking advantage of the current pricing environment to further reduce the levels and cost of debt, which have historically been a source of instability and undervaluation.

· Introducing more robust and up-to-date systems, such as SAP, to provide the tools to control and reduce operating costs.

· Continuing to improve standards of governance and transparency across the Group. This comes both from installing relevant controls, but also in demanding integrity in behaviours, in line with our corporate values. This includes simplifying an unnecessarily complex organisational structure, with over 30 subsidiaries.

· Enlarging the Board, which following the RGM is not an appropriate size for the Company. We are actively engaged with an external consultant in appointing new members. Finding the right people with relevant skills and backgrounds will inevitably take some time. We believe that a Board of around seven to eight directors, the majority of whom are independent, would be optimal to provide sufficient diversity and allocate responsibilities effectively.

· Increasing the rigour and realism applied to budgeting and guidance procedures. This is already exemplified by the announcement on 9 October of lower production guidance for 2020, revising the numbers set out on 23 July 2020, which proved to be overly optimistic, particularly in light of the COVID-19 pandemic.

The Board and management team are committed to driving these improvements, to ensure that Petropavlovsk can deliver on its significant potential, providing improved returns and maximising value for all its shareholders.

DISRUPTION AND LEGAL MATTERS

As we first announced on 28 August 2020, since his appointment, the interim Chief Executive Officer has encountered a lack of co-operation from certain employees and ex-employees. This lack of co-operation is still continuing from a very small number of senior employees and officers of the Company's subsidiaries, who appear to have been subjected to pressure to withhold certain documents and operational data from the Board and to disregard the Board's instructions in certain respects.

Further, some individuals, in particular Sergey Ermolenko and Alexey Maslovskiy (Pavel Maslovskiy's son) are pursuing litigation in Russia against certain of the Company's subsidiaries. This litigation, which has no proper legal basis, has arisen principally as a result of the Company's efforts to undo actions taken in June and July of this year, when a few key Russian subsidiaries changed their constitutional arrangements. These changes took place without the knowledge of the current Board, and apparently at the direction of Pavel Maslovskiy.

While the directors believe that these actions have had no material adverse impact on the Group's financial position and its operations to date, they are clearly not in the interests of the Group, its employees nor its many stakeholders. Not least, the ongoing litigation has caused (and will continue to cause) the Company to incur legal and other costs, which could be more usefully deployed elsewhere.

In this context, we note that 84% of shareholders voted in favour of Resolution 19 at the RGM, which mandated the Board to commission an independent forensic investigation to review all transactions over the preceding three years which may have involved 'connected parties'. The Board is currently finalising the appointment of an independent forensic investigator as required by the terms of the Resolution.

EXECUTIVE COMMITTEE

We have reconstituted our Executive Committee, which now consists of Maksim Meshcheryakov, Danila Kotlyarov, Dmitrii Chekashkin, John Smelt and Dorcas Murray. The Executive Committee will commence a corresponding refresh of governance controls throughout the organisation. We are delighted to have recruited John Smelt and Dorcas Murray in London to assist us with these efforts. Once the enlarged Board is constituted and the ongoing litigations is concluded, the Board will embark on the process of appointing a permanent CEO.

Maksim Meshcheryakov has recently been unwell, as a result of COVID, but I am pleased to say that he is returning to full strength.

CONCLUSION

The Board is clear that, going forward, there must be a greater focus on providing returns to all shareholders, who have helped provide the capital for significant projects and development of the Group. Petropavlovsk has not declared a dividend for eight years.

The period since the RGM has been a challenging one, combining continued governance disruption and the COVID-19 pandemic. I would like to thank our employees for their resilience and hard work in the face of these difficulties.

The Board is unwavering in its dedication to resolving the legacy issues that are currently hampering the Group from achieving its potential. We have a clear plan which will drive change and will ensure that the Company's shares more fully reflect the substantial underlying worth and potential of the business, creating value for all stakeholders.

Third Quarter Sales Report

Gold sales

§ A marginal 4% decrease in total gold sales to 121.1koz (Q3 2019: 126.4koz) primarily reflecting the depletion of Albyn non-refractory reserves that are planned to be replaced with Elginskoye reserves per Company development plans and also decrease of Malomir production reflecting transfer to refractory ore processing

§ Brings total gold sales for the first nine months of 2020 to 433.4koz (first nine months of 2019: 351.4koz), an increase of 23%

§ Average realised gold price increase of 38% to US$1,919/oz in Q3 2020 (Q3 2019: US$1,388/oz)

Gold sales '000oz

Note: Numbers may not add up due to rounding effect

Net debt

§ Net debt (unaudited) reduced by c.US$56.8m to c.US$481.2m as of 30 September 2020 (30 June 2020: US$538.0m) principally reflecting partial conversion of the US$125 million Convertible Bonds

§ The Company continues to prioritise settlement of the interest-bearing gold prepays which stood at c.US$72.3m as at 30 September 2020 (US$121.0m as at 30 June 2020), a net decrease of US$48.7m for the third quarter

COVID-19 Update

§ The Company continues to implement strict quarantine and safety measures at all its operations with remote working practices established at offices in Moscow, Blagoveshchensk and London

§ At the time of reporting, there have been 29 reported cases among the Company's employees, the majority of which have been at the Company's offices in the far east of Russia with a small number of cases reported at the Albyn mine

§ All affected employees are self isolating or receiving medical care

FY 2020 Outlook

The outlook for the full year 2020, assuming no further significant disruption arising from the current COVID-19 pandemic, is as follows:

Total Group Production (includes processing of third-party refractory concentrates):

§ Between 560koz to 600koz (versus previous forecasts of 620koz to 720koz)

Gold production (Company's own ore):

§ Between 395koz and 415koz (versus previous 430koz to 460koz)

§ Lower grades from Malomir underground and slower development of underground operations at the Andreevskaya zone at Pioneer

TCC (Company's own gold production):

§ Between US$800/oz and US$850/oz (versus previous US$700/oz to US$800/oz)

§ Lower production and higher unit costs at the POX Hub due to lower throughput following the delay to the start-up of the Pioneer flotation plant

Capital Expenditure:

§ Between US$90m to US$100m (versus previous US$70m to $80m)

§ Reclassification of part of Pioneer underground workings as Capex, accelerated expenditure on the Malomir flotation plant expansion and POX related upgrade expenditure

IRC Update

Petropavlovsk is a major shareholder in IRC (31.1%), a Hong-Kong-listed producer and developer of industrial commodities

On 23 October 2020, IRC Limited released its Q3 2020 trading update, confirming that US$8.8m had been paid during the quarter to Gazprombank as principal repayment and interest. This is in accordance with the repayment schedule for the facility agreements guaranteed by Petropavlovsk

On 26 August 2020, IRC released its interim results for the six months ended 30 June 2020. The results are available to view on the IRC website at http://www.ircgroup.com.hk

Key highlights from the report are as follows:

Financials

§ Revenue increased by 19% to US$106.2m (30 June 2019: US$89.2m)

§ Cash cost down by 4.7% to US$48.8/t (30 June 2019: US$51.2/t)

§ EBITDA has more than doubled, increasing to US$33.2m (30 June 2019: US$13.2m)

§ Profit of US$5.9m (30 June 2019: loss of US$25.2m)

Operations

§ 14.3% and 11.4% improvement in production and sales respectively over the same period in 2019

§ Stable production capacity of 89% (30 June 2019: 78%)

§ K&S operated at more than 90% capacity in July and the early part of August. Planned ball mill maintenance and a period of heavy rains affected production in August. Normal production has now been resumed, month-to-date capacity of c.80%.

§ Impact of COVID-19 not as yet significant

 Conference Call and Webcast

The Company's Chief Financial Officer will host a webcast conference to present the Company's financial results today at 09:00 GMT (12:00 Moscow). Details of the webcast can be accessed via the following link: https://www.lsegissuerservices.com/spark/Petropavlovsk/events/02cfaef0-7753-4ad4-b1ff-a6e9393dcd0b

About Petropavlovsk

Petropavlovsk PLC (LSE: POG. MOEX: POGR) is a major integrated Russian gold producer with JORC Resources of 21.03Moz Au which include Reserves of 8.46Moz Au. Following its IPO on the Alternative Investment Market (AIM) in 2002, Petropavlovsk was promoted to the London Stock Exchange in 2009, where today it is a Premium Listed company and a constituent of the FTSE 250, FTSE 350 and FTSE All Share indices. The Company's shares also trade on the Moscow Exchange and are a constituent of the flagship RTS / MOEX index.

Petropavlovsk's key operating mines (Pioneer, Malomir and Albyn) are in the Amur Region in the Russian Far East. Petropavlovsk has produced a total of c.8.1Moz of gold since operations began in 1994 and has a strong track record of mine development, expansion and asset optimisation.

The Group recently entered a new era of growth following the successful commissioning and start-up of its flagship asset, the Pressure Oxidation (POX) Hub at Pokrovskiy, which enables the processing of the Company's abundant refractory reserves and resources.

Petropavlovsk is one of the region's largest employers and one of the largest contributors to the sustainable development of the local economy.

For more information

Please visit www.petropavlovsk.net and www.ircgroup.com.hk or contact:

Citigroup Global Markets Limited ("Citi") is authorised by the Prudential Regulation Authority and regulated in the UK by the Financial Conduct Authority and the Prudential Regulation Authority. UBS AG London Branch ("UBS") is authorised and regulated by the Financial Market Supervisory Authority in Switzerland. It is authorised by the Prudential Regulation Authority and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority in the United Kingdom. Citi and UBS are acting exclusively for Petropavlovsk PLC ("Petropavlovsk") and for no-one else in connection with the contents of this announcement and will not be responsible to anyone other than Petropavlovsk for providing the protections afforded to clients of Citi or UBS for providing advice in relation to the contents of this announcement or any matters referred to herein.

Cautionary note on 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 future price of gold, the Group's results of operations, financial position, liquidity, prospects, growth, estimation of mineral reserves and resources and strategies, and exchange rates and the expectations of the industry. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances outside the control of the Group. 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 results and/or developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, the impact of the current Covid-19 pandemic, general economic and business conditions, demand, supply and prices for gold and other long-term commodity price assumptions (and their effect on the timing and feasibility of future projects and developments), trends in the gold mining industry and conditions of the international gold markets, competition, actions and activities of governmental authorities (including changes in laws, regulations or taxation), currency fluctuations (including as between the US Dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, any litigation, and political and economic uncertainty. Except as required by applicable law, rule or regulation (including the Listing and Disclosure Guidance and Transparency Rules), the Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Past performance cannot be relied on as a guide to future performance. The content of websites referred to in this announcement do not form part of this announcement.

Financial Review

Note: Figures may not add up due to rounding

Financial Highlights

(a) Calculation of Total Cash Costsu ("TCC") is set out in the section Hard rock mines below.

(b) All-in Sustaining Costsu ("AISC") and All-in Costsu ("AIC") are calculated in accordance with guidelines for reporting All-in Sustaining Costsu and All-in Costsu published by the World Gold Council. Calculation is set out in the section All-in Sustaining Costsu and All-in Costsu below.

(c) Following a review of the nature of the deferred stripping costs the Group has made a reclassification of deferred stripping costs balance from the Inventory balance into the Mining assets within Property, plant and equipment. Comparative information on TCC, AISC, EBITDA and Net cash from operating activities for H1 2019 have been re-calculated accordingly to reflect the effect of the aforementioned re-classification. Please refer to note 2 in the condensed consolidated interim financial statements for further details.

(d) In the condensed consolidated interim financial statements for the six months ended 30 June 2019 the fair value of the call option over non-controlling interests, net of the remaining unpaid premium, was recognised at US$16.2 million, comprising the initial gain of US$9.6 million, a revaluation loss of US$(0.4) million and the premium paid to date of US$7.0 million, with a corresponding net gain of US$9.2 million recognised within Net other finance gains and losses in the statement of profit or loss. After further analysis and consideration of the IFRS 9 application guidance (which prohibits the recognition of day 1 gains based on valuation techniques that use unobservable inputs), this economic gain previously recognised in the period ended 30 June 2019 has been deferred for accounting purposes in the consolidated financial statements for the year ended 31 December 2019. The comparative financial information has been aligned to be on a consistent basis by restating the comparative amounts. Please refer to note 2 in the condensed consolidated interim financial statements for further details.

(a) US$500 million Guaranteed Notes due on 14 November 2022 at amortised cost.

(b) US$125 million convertible bonds due on 03 July 2024 at amortised cost.

Revenue

Group revenue during the period was US$522.7 million, 71% higher than the US$305.3 million achieved in H1 2019.

Revenue from hard rock mines was US$512.3 million, 77% higher than the US$290.0 million achieved in H1 2019. Gold remains the key commodity produced and sold by the Group, comprising 98% of total revenue generated in H1 2020. The physical volume of gold sold from hard rock mines increased by 39% from 225,031 oz in H1 2019 to 312,354 oz in H1 2020. The average realised gold priceu increased by 28% from US$1,286/oz in H1 2019 to US$1,640 /oz in H1 2020. The average realised gold priceu was not affected by hedge arrangements (H1 2019: US$(26)/oz).

There were no sales of silver in H1 2020, compared to 42,976 oz in H1 2019 at an average price of US$15/oz.

Revenue generated as a result of third-party work by the Group's in-house service companies was US$10.4 million in H1 2020, a US$(4.9) million decrease compared to US$15.3 million in H1 2019. 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$9.0 million in H1 2020 compared to US$13.0 million in H1 2019.

Cash flow hedge arrangements

In March 2020 the Group has entered into a number of gold option contracts and currency option contracts, in both cases structured as zero cost collars where the Company purchased a put option and sold a call option, in order to increase certainty in respect of a proportion of its operating cash flows.

Zero cost collars for the underlying aggregate of US$21 million (US$7 million per month for the period April to June 2020) with a RUB:USD exercise price of RUB75.00 for put options and a RUB:USD exercise price in the range of between RUB90.65 and RUB100.00 for call options matured during H1 2020 and resulted in US$0.9 million net cash settlement received by the Group. Zero cost collars for the underlying aggregate of US$126 million (US$7 million per month until December 2021) with a RUB:USD exercise price of RUB75.00 for put options and a RUB:USD exercise price in the range between RUB90.65 and RUB100.00 for call options were outstanding as at 30 June 2020.

Zero cost collars for the underlying aggregate of 10,500oz of gold (3,500 oz of gold per month for the period from April to June 2020) with an exercise price of US$1,600/oz for put options and US$1,832/oz for call options matured during H1 2020 and expired unexercised. In H1 2019 the Group used gold forward contracts as cash flow hedge arrangements which resulted in US$(6.0) million net cash settlement paid by the Group on forward contracts to sell 99,984 oz of gold. Zero cost collars for the underlying aggregate of 63,000 oz of gold (3,500 oz of gold per month until December 2021) with an exercise price of US$1,600/oz for put options and US$1,832/oz for call options were outstanding as at 30 June 2020.

Corresponding fair values for gold and currency option contracts are disclosed in note 16 to the Group's consolidated interim financial statements for the six months ended 30 June 2020.

Underlying EBITDA¨ and analysis of operating costs

(a) Including US$(122.2) million fair value loss from re-measurement of the conversion option of the convertible bonds.

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

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

Hard rock mines 

During this period, hard rock mines generated Underlying EBITDAu of US$205.1 million compared to US$115.2 million Underlying EBITDA in H1 2019.

Total Cash Costsu for hard rock mines increased from US$774/oz in H1 2019 to US$983/oz in H1 2020.

The marginal increase in Total Cash Costs from own material from US$774/oz in H1 2019 to US$800/oz in H1 2020 primarily reflects the effect of lower grades of non-refractory ore processed at Albyn and Malomir and lower recoveries achieved at Malomir, the effect of inflation of certain Rouble denominated costs, and mining tax rates as set out below. This effect was partially mitigated by the effect of higher grades and recoveries of non-refractory ore processed at Pioneer and the effect of higher grades and recoveries of refractory ore processed at Malomir, as well as by the effect of Rouble depreciation.

Total Cash Costs from 3d parties concentrate in H1 2020 was US$1,380/oz (in H1 2019 no 3d parties concentrate was processed at POX Hub). Total Cash Costs from 3d parties concentrate is directly dependent on gold price that has significantly increased over H1 2020.

The increase in physical ounces sold from 225,031oz in H1 2019 to 312,354oz in H1 2020 resulted in US$44.7 million increase in the Underlying EBITDAu. The increase in the average realised gold priceu from US$1,286/oz in H1 2019 to US$1,640/oz in H1 2020 contributed to a further US$110.6 million increase in the Underlying EBITDAu. This effect was partly offset by the increase in TCC¨ with US$(65.4) million negative contribution to the Underlying EBITDA¨, primarily resulted from the higher TCC of the 3rd parties concentrate

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, grades of ore processed, recovery rates, cost inflation and fluctuations in the Rouble to US Dollar exchange rate.

The Rouble depreciated against the US Dollar by 6% in H1 2020 compared to H1 2019, with the average exchange rate for the period of 69.42 Roubles per US Dollar in H1 2020 compared to 65.20 Roubles per US Dollar in H1 2019, somewhat mitigating the effect of Rouble denominated costs inflation.

Refinery and transportation costs are variable costs dependent on production volume. Mining tax is also a variable cost dependent on production volume and the gold price realised. The Russian statutory mining tax rate is 6%. Under the Russian Federal Law 144-FZ dated 23 May 2016 that introduced certain amendments to the Russian Tax Code, taxpayers who are participants in Regional Investment Projects ("RIP") have the right to apply the reduced mining tax rate provided certain conditions are met. JSC Pokrovskiy Rudnik and LLC Malomirskiy Rudnik applied full mining tax rate in H1 2020, resulting in US$15.2 million mining tax expense compared to US$6.7 million in H1 2019 when 1.2% mining tax rate was applied by both LLC Albynskiy Rudnik and LLC Malomirskiy Rudnik.

All-in Sustaining Costsu  and All-in Costsu

AISCu increased from US$1,029/oz in H1 2019 to US$1,220/oz in H1 2020. The increase in AISCu primarily reflects increase in TCCu and increase in capitalized stripping expenditure during the period at Pioneer and Malomir. This effect was partially offset by the increase in physical ounces sold in H1 2020 with an aggregate of sustaining capital expenditures related to the existing mining operations, underground mining projects at Pioneer and Malomir, POX project, and Malomir flotation plant remaining at approximately the same level as the aggregate of sustaining capital expenditures in H1 2019.

AICu increased from US$1,091/oz in H1 2019 to US$1,325/oz in H1 2020, reflecting the increase in AISCu explained above, development expenditure in relation to Pioneer flotation plant and Elginskoye infrastructure. This effect was partially offset by decrease in Capital Expenditureu in relation to the POX project, with POX Hub commissioned in 2019 and being considered as sustaining in the period.

Corporate and other

Corporate and other operations contributed US$(12.5) million to Underlying EBITDA¨ in H1 2020 compared to US$(16.7) million in H1 2019. Corporate and other operations primarily include central administration function, result of in-house service companies and the Group's share of results of its associate IRC.

The Group has corporate offices in London, Moscow and Blagoveschensk, which together represent the central administration function. Central administration expenses decreased by US$1.3 million from US$22.0 million in H1 2019 to US$20.7 million in H1 2020.

The Group's share of profit generated by IRC is US$1.8 million (H1 2019: US$(7.9) million share of losses generated by IRC). IRC contributed US$ 10.5 million to the Group's Underlying EBITDAu in H1 2020 (H1 2019: US$5.8 million).

Impairment review

Impairment of mining assets

As at 30 June 2020 and 30 June 2019, the Group identified no impairment indicators or indicators of impairment reversal for the cash generating units related to its gold mining projects and supporting in-house service companies.

As at 31 December 2019, the Group recognised impairment reversals at the Pioneer CGU and the supporting in-house service companies of US$43.5 million (US$34.8 million post-tax) and US$9.4 million (US$7.8 million post-tax), respectively.

Impairment of exploration and evaluation assets

As at 30 June 2020, the Group performed a review of its exploration and evaluation assets and concluded no impairment was required (31 December 2019: the Group performed a review of its exploration and evaluation assets and concluded no impairment was required). Exploration and evaluation assets in the statement of financial position relate to the areas adjacent to the existing mines.

Investment and other finance income

(a) Interest income on bank deposits.

(b) Guarantee fee income under Gazprombank Guarantee arrangements, as set out in section "Corporate activities" below.

Interest expense

Interest expense for the period comprised of US$21.0 million effective interest on the Notes, US$6.5 million effective interest on the Convertible Bonds, US$6.3 million interest on prepayments on gold sale agreements and US$0.3 million interest on finance lease (H1 2019: US$20.8 million effective interest on the Notes, US$6.4 million effective interest on the Convertible Bonds, US$7.7 million interest on prepayments on gold sale agreements and US$0.3 million interest on finance lease).

As the Group continued with construction of flotation line at Pioneer, this project met eligibility criteria for borrowing costs capitalization under IAS 23 "Borrowing Costs" with US$1.0 million of interest expense capitalized within property, plant and equipment (H1 2019: US$9.4 million of interest expense was capitalised within property, plant and equipment in relation to POX Hub and Malomir flotation). With all four autoclaves of the POX Hub fully functional, interest capitalisation in relation to POX Hub ceased in December 2019, with increase in net interest expense from December 2019 onwards.

Net other finance gains/(losses)

Net other finance losses for the period totalled US$(98.9) million compared to US$(7.4) million of net other finance losses in H1 2019. Key elements of other finance gains and losses this period include:

- US$(122.2) million fair value non-cash loss from re-measurement of the conversion option of the convertible bonds, reflecting the increase in the underlying share price of the Company;

- US$20.6 million fair value gain on the call option to acquire 25% interest in the Group's subsidiary LLC TEMI from its current shareholder as set out in section "Corporate activities" below, reflecting the gold price increase;

- US$3.1 million fair value gain on gold and currency option contracts;

- US$(0.3) million net loss on other items.

Net impairment reversals/ (impairment losses) on financial instruments

In H1 2020, the Group recognised a US$1.3 million increase in the provision for expected credit losses under Gazprombank guarantee arrangements (H1 2019: net of US$30.1 million reversal of provision for expected credit losses under Gazprombank and ICBC guarantee arrangements and US$3.0 million revesal of impairment of financial assets).

Taxation

The Group is subject to corporation tax under the UK, Russia and Cyprus tax legislation. The statutory tax rate for H1 2020 was 19% in the UK and 20% in Russia.

The tax charge for the period primarily related to the Group's gold mining operations and is represented by a current tax charge of US$25.1 million (H1 2019: US$12.3 million) and a deferred tax charge, which is a non-cash item, of US$13.4 million (H1 2019: deferred tax credit of US$9.1 million). Included in the deferred tax charge in H1 2020 is a US$23.7 million charge (H1 2019: US$16.3 million credit) from the effect of foreign exchange which primarily arises 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 Russian Roubles, whilst the future depreciation charges associated with these assets will be based on their US Dollar carrying value. The effective tax rate is also affected by expenses that are not deductible for tax purposes which primarily relate to fair value loss on re-measurement of the conversion option of the Convertible Bonds, effect of tax losses for which no deferred income tax asset was recognised which primarily relate to interest expense incurred in the UK and Russian withholding tax on intercompany dividends.

During the period, the Group made corporation tax payments in aggregate of US$28.5 million in Russia (H1 2019: corporation tax payments in aggregate of US$16.6 million in Russia).

Earnings per share

Basic loss per share for H1 2020 was US$(0.01) compared to US$0.00 basic profit per share for H1 2019.

The total number of Ordinary Shares in issue as at 30 June 2020 was 3,310,369,237 (30 June 2019: 3,308,154,243).

Financial position and cash flows

(c) Including US$59.6 million cash CAPEX (H1 2019: US$45.0 million)¨.

Key movements in cash and Net Debtu

(d) Including US$6.3 million interest paid in relation to advance payments from Gazprombank and Sberbank.

Capital Expenditure ¨

The Group invested an aggregate of US$59.6 million in H1 2020 compared to US$45.0 million in H1 2019. The key areas of focus in this period were on Pioneer and Malomir flotation, Elginskoye mine development and development to support the underground mining at Pioneer. The Group capitalised US$1.0 million of interest expense incurred in relation to the Group's debt into the cost of the Pioneer flotation (H1 2019: US$9.4 million into the cost of the POX Hub and Malomir flotation).

(a) Including US$4.2 million of development expenditure in relation to the POX Hub which is considered to be sustaining Capital Expenditure for the purposes of calculating AISC and AIC.

(b) Including US$5.6 million of expenditure in relation to the underground mining project at Pioneer to be sustaining Capital Expenditure for the purposes of calculating AISC and AIC.

(c) Including US$ 16.1 million development expenditure in relation to the Pioneer flotation (including tailing dams) to be non-sustaining Capital Expenditure for the purposes of calculating the AISC and AIC.

(d) Including US$0.6 million of development expenditure in relation to the underground mining project at Malomir to be sustaining Capital Expenditure for the purposes of calculating AISC and AIC.

(e) Including US$4.9 million of development expenditure in relation to Malomir flotation (including tailing dams), which is considered to be sustaining Capital Expenditure for the purposes of calculating AISC and AIC.

(f) Including US$3.4M of exploration expenditure in relation to Elginskoye, US$5.8M of development expenditure in relation to road between Elginskoye and Albyn processing facilities and US$6.3M of development expenditure in relation to tailing dam for Elginskoye project, which are considered to be non-sustaining Capital Expenditure for the purposes of calculating AISC and AIC.

Foreign currency exchange differences

The Group's principal subsidiaries have a US Dollar functional currency. Foreign exchange differences arise on 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 Rouble depreciated by 13% against the US Dollar during H1 2020, from RUB61.91: US$1 as at 31 December 2019 to RUB69.95: US$1 as at 30 June 2020. The average period-on-period depreciation of the Rouble against the US Dollar was approximately 6%, with the average exchange rate for H1 2020 being RUB69.42: US$1 compared to RUB65.20 : US$1 for H1 2019. The Group recognised foreign exchange gains of US$27.9 million in H1 2020 (H1 2019: US$14.0 million losses) arising primarily on Rouble denominated net monetary liabilities (including advance payments received from Gazprombank and Sberbank under gold sales agreements).

Corporate activities

Guarantee over IRC's external borrowings

The Group historically entered into an arrangement to provide a guarantee over its associate's, IRC, external borrowings, the ICBC Facility ('ICBC Guarantee'). Under the terms of the arrangement the Group was entitled to receive an annual fee equal to 1.75% of the outstanding amount. As at 30 June 2020 the remaining outstanding contractual guarantee fee was US$5.0 million, which had a corresponding fair value of US$4.7 million and is payable by IRC no later than 31 December 2020 (31 December 2019: outstanding contractual guarantee fee of US$5.0 million with corresponding fair value after provision for credit losses of US$4.4 million).

In March 2019, IRC has refinanced the ICBC Facility through entering into a US$240 million new facility with Gazprombank ('Gazprombank Facility'). The facility was fully drawn down during the year ended 31 December 2019. The outstanding loan principal was US$214 million as at 30 June 2020.

A new guarantee was issued by the Group over part of the Gazprombank Facility ('Gazprombank Guarantee'), the guarantee mechanism is implemented through a series of five guarantees that fluctuate in value through the eight-year life of the loan, with the possibility of the initial US$160 million principal amounts guaranteed reducing to US$40 million within two to three years, subject to certain conditions being met. For the final two years of the Gazprombank Facility, the guaranteed amounts will increase to US$120 million to cover the final principal and interest repayments. If certain springing recourse events transpire, including default on a scheduled payment, then full outstanding loan balance is accelerated and subject to the guarantee. Under the Gazprombank Guarantee arrangements, the guarantee fee receivable is determined at each reporting date on an independently determined fair value basis, which for the six months ended 30 June 2020 was estimated at the annual rate of 3.07% for 2020 by reference to the average outstanding principal balance under Gazprombank Facility. The guarantee fee charged for six months ended 30 June 2020 was US$3.4 million, with corresponding value of US$3.2 million after provision for expected credit losses (H1 2019: US$$2.4 million, with corresponding value of $2.2 million after provision for expected credit losses).

The following assets and liabilities have been recognised in relation to the ICBC Guarantee and Gazprombank Guarantee as at 30 June 2020 and 31 December 2019:

Option to acquire non-controlling 25% interest in LLC TEMI

In May 2019, the Group entered into the option contract to acquire non-controlling 25% interest in LLC TEMI, holder of licenses for the Elginskoye Ore Field and Afanasievskaya Prospective Ore Area, from its shareholder Agestinia Trading Limited for an aggregate consideration of US$60 million (adjusted to US$53.5 million if certain conditions are met). The option premium payable is US$13 million, which was paid in 2019. The exercise period of the option is 730 days from 22 May 2019.

The Group employed an independent third-party expert to undertake the valuations of the underlying 25% interest in LLC TEMI and the call option. As at 30 June 2020, the fair value of the derivative financial asset was US$31.6 million reflecting cumulative gain on re-measurement to fair value from initial recognition in the amount of US$18.6 million and the initial US$13 million cash payment.

Partial conversion of US$125 million Convertible Bonds

During the period after 30 June 2020, the Company has received Conversion Notices in respect of the exercise of conversion rights under the US$125 million Convertible Bonds. The principal amount of the Convertible Bonds in respect of which the Conversion Notices have been served amounted to an aggregate of US$86.8 million, which, at a fixed exchange price of US$0.1350 per ordinary share, resulted in the issue and allotment of an aggregate of 642,962,951 new ordinary shares.

Going concern

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

The Group performed an assessment of the forecast cash flows for the period of 12 months from the date of approval of the Half Year Report for the period ended 30 June 2020. As at 30 June 2020, the Group had sufficient liquidity headroom. The Group is also satisfied that it has sufficient headroom under a base case scenario for the period to December 2021. The Group has also performed projections under a layered stressed case that is based on:

- a gold price, which is approximately 10% lower than the upper quartile of the average of the market consensus forecasts;

- processing of third-party concentrate through POX facilities is approximately 10% lower than projected and oxide gold production from underground operations at Pioneer and Malomyr approximately 10% lower than projected; and

- Russian Rouble: US Dollar exchange rate that is approximately 10% stronger than the average of the market consensus forecasts.

Following the removal of the majority of the non-executive directors and all executive directors at the Company's annual general meeting on 30 June 2020 and the requisitioned general meeting held on 10 August 2020, and the subsequent appointment of the interim CEO, the Company has encountered a lack of co-operation from certain senior employees and ex-employees in some of the Company's material Russian subsidiaries. While the directors believe that these factors have had no material adverse impact on the Group's financial position and its operations to date, the Group has further stressed its cash flow projections to reflect potential operational inefficiencies for a three-month period from November 2020, including the following:

- production from gold mining operations being approximately additional 10% lower;

- operating cash costs for gold mining operations being approximately additional 10% higher.

The results of this analysis indicate sufficient liquidity for a period of at least 12 months, including if there is underperformance at IRC Ltd (in which the Group holds a 31.1% interest). In selecting the assumptions in its cash flow stress testing, the directors have also considered the potential impact of Covid-19.

As at 30 June 2020, the Group had guaranteed the outstanding amounts owed by IRC Ltd to Gazprombank under a credit facility. The outstanding loan principal was US$214 million as at 30 June 2020 and the facility is subject to a $160 million guarantee given by the Group (see note 21). The directors have considered whether there is any material uncertainty that IRC will be able to repay this facility as it falls due in its overall going concern assessment. IRC projections demonstrate that IRC expects to have sufficient liquidity over the next 12 months and expects to meet its obligations under the Gazprombank facility.

As at 30 June 2020, the Group has outstanding debt issued under US$125 million Convertible Bonds and US$500 million Guaranteed Notes (see note 19). If the Group fails to comply with its obligations (including interest payment obligations) under the Convertible Bonds, Guaranteed Notes or Gazprombank guarantee arrangements then, if not remedied by the Group, this would result in events of default which, through cross-defaults and cross-accelerations, could cause all of the Group's indebtedness to become repayable on demand. The assessment of whether there is any material uncertainty that the Group will be able to meet its repayment and compliance obligations under debt or guarantee arrangements as they fall due is another key element of the Group's overall going concern assessment.

Since the requisitioned general meeting held on 10 August 2020, the Group has made changes to the boards of directors of certain material subsidiaries of the Company in Russia and reversed changes to those subsidiaries' constitutional documents which were instituted by the Group's former CEO during June and July 2020 and which had the effect of entrenching the previous management of those subsidiaries. Those changes have been challenged by certain employees and ex-employees of the Group in legal proceedings in Russia. In the view of Company legal advisors, these actions are entirely baseless and without merit. However, it may take several months for these issues to be resolved and until such time it may be difficult for the Directors to appoint new management and for the newly appointed management of the relevant subsidiaries to interact successfully with 3rd parties as a result of injunctions granted by the Russian courts pending resolution of the proceedings.

The Company relies on cash flows from certain Russian subsidiaries to secure repayments under its debt obligations and other ongoing expenses as they fall due. The lack of co-operation from some employees and ex-employees in certain of the Russian subsidiaries as described above has led to delays in receiving cash from those subsidiaries in circumstances where those subsidiaries have not complied fully with the requests of the Company for funds. The Company has received sufficient cash to enable it to meet its October 2020 payment obligations under US$125 million Convertible Bonds and expects to receive cash required to meet its November 2020 payment obligations under US$500 million Guaranteed Notes. The Company is seeking additional external funding sources to meet its obligations in the event that future funding from the Russian subsidiaries is not received.

Having taken into account the aforementioned factors and after making enquiries and considering the matters described above, the Directors have concluded that they do not constitute material uncertainties that may cast significant doubt about the ability of the Group to continue as a going concern and have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future, being at least the next 12 months from the date of approval of the Half Year Report for the period ended 30 June 2020. Accordingly, they continue to adopt the going concern basis of accounting in preparing these condensed consolidated financial statements.

Principal Risk 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 Principal Risks and Mitigation section on pages 26 to 41 of the 2019 Annual Report, which is available on the Group's website, http://www.petropavlovsk.net. This also includes a description of the potential impact of such risks on the Group together with measures in place to manage or mitigate against each specific risk where this is within the Group's control.

The Board's view of the principal risks and uncertainties that could impact the Group for the remainder of the current financial year remains substantially unchanged save as set out below and/or in Note 2 Going concern to these financial statements.

There may be additional risks unknown to the Group and other risks, currently believed to be immaterial, which could turn out to be material. These risks, whether they materialise individually or simultaneously, could significantly affect the Group's business and financial results. The Group will continue to monitor internal and external areas of uncertainty and threat closely as well as remain vigilant on internal controls, and incorporate any further developments as part of the full-year assessment of principal risks and uncertainties.

The principal risks relate to the following:

Corporate

§ Legal dispute between the Company and a number of employees and ex-employees

§ Lack of co-operation of certain employees with the interim CEO and the Board

Covid-19

§ Impact of Covid-19 on the Group's employees and its operations

Operational

§ Production

§ Exploration

§ Decline in operational efficiency resulting from the Corporate matters referred to above

§ Disruption in Group reporting processes

Processing

§ Mechanical failure of POX Hub

§ Processing of third party concentrate being lower than expected

§ Availability of underground oxide ore at Pioneer and Malomir

Financial

§ Lack of funding and liquidity including resulting from the Corporate matters referred to above

§ Gold price

§ Exchange rate

§ Guarantee of IRC's debt

Health, safety and environmental

§ POX

§ Underground mining

§ Contamination

Loss of key personnel

§ The Company is dependent on long-serving members of the senior executive and site teams

§ There have been a large number of recent changes in the senior executive team

Country/Compliance

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

§ Russian sovereign risks

Director's Responsibilities Statement

We confirm that to the best of our knowledge:

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

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

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

By order of the Board,

James W Cameron Jr Danila Kotlyarov

Chairman Chief Financial Officer

29 October 2020

Independent Review Report to Petropavlovsk PLC (Auditors)

Introduction

We have been engaged by Petropavlovsk plc (the Company) to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 which comprises the Condensed Consolidated Statement of Profit or Loss, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows 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 for the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our 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 Guidance 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 enquiries, 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 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 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

MHA MacIntyre Hudson

Statutory Auditor

London

29 October 2020 

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Profit or Loss

Six months ended 30 June 2020

(a) See note 2 for details regarding the restatement.

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2020

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Financial Position

At 30 June 2020

(a) See note 2 for details regarding the restatement.

These condensed consolidated financial statements for Petropavlovsk PLC, registered number 4343841, were approved by the Directors on 29 October 2020 and signed on their behalf by

James W Cameron Jr Danila Kotlyarov

Chairman Chief Financial Officer

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2020

(a) See note 2 for details regarding the restatement.

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2020