Launch of Refinancing

2 February 2015

THIS ANNOUNCEMENT IS NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION IN WHOLE OR IN PART DIRECTLY OR INDIRECTLY IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE RUSSIAN FEDERATION, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE IT WOULD BE UNLAWFUL TO DO SO. OTHER RESTRICTIONS ARE APPLICABLE. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THE ANNOUNCEMENT.

THIS ANNOUNCEMENT IS NOT AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE RUSSIAN FEDERATION, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE IT WOULD BE UNLAWFUL TO SO OFFER. THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS AND INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SECURITIES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT ON THE BASIS OF THE INFORMATION CONTAINED IN THE PROSPECTUS PUBLISHED IN CONNECTION WITH THE RIGHTS ISSUE AND NOT IN RELIANCE ON ANY INFORMATION IN THIS ANNOUNCEMENT. COPIES OF THAT PROSPECTUS ARE AVAILABLE FREE OF CHARGE TO ELIGIBLE PERSONS FROM THE COMPANY'S REGISTERED OFFICE. THIS ANNOUNCEMENT DOES NOT CONSTITUTE AN ADVERTISEMENT OF ANY SECURITIES IN THE RUSSIAN FEDERATION.

Petropavlovsk PLC announces launch of underwritten Rights Issue and New Convertible Bond, Trading Update for 2014, Outlook for 2015 and Board changes

Highlights

A refinancing ("the Refinancing"), which is intended to deliver a platform to secure the Group's immediate future, consisting of:

Rights Issue:

· Fully pre-emptive 157 for 10 Rights Issue at £0.05 per share to raise up to £155.1 million (US$235.4 million)

· Cash underwriting of £50.8 million (US$77.0 million) (a) arranged by founding shareholders, Peter Hambro (Chairman) and Dr Pavel Maslovskiy (Chief Executive Officer), and (b) committed to by certain Bondholders

· All but £0.4 million (US$0.6 million) of the Rights Issue is currently underwritten by the Underwriter

· Expected net debt post-completion of approximately US$700 million

Debt-for-equity exchange:

· For New Ordinary Shares not taken up in the Rights Issue or placed in the associated rump placing, certain Bondholders have committed to exchange Existing Bonds for New Ordinary Shares for up to £104.0 million (US$157.7 million)

· Any New Ordinary Shares not underwritten or taken up may be issued pursuant a Mandatory Debt-for-Equity Exchange

New Bonds:

· New, five-year US$100 million convertible bond

Bank Waivers and consents from Senior Lenders:

· The Company has signed definitive waiver documentation with VTB, ICBC and Sberbank, with the remaining waiver documentation between Sberbank and some of the Company's subsidiaries to be executed shortly. Some of the Bank Waivers are conditional on implementation of the Refinancing

· IRC is seeking an extension of the availability period under the ICBC Facility for the remaining US$52 million funds committed under the ICBC Facility the receipt of which is also a condition for implementation of the Refinancing

Related party transaction

· The equity commitment for £19.8 million (US$30 million) arranged by Dr Pavel Maslovskiy and Peter Hambro, as Directors of the Company, constitutes a related party transaction under the Listing Rules. This will be subject to a separate shareholder vote at the General Meeting

2014 Trading Update (unaudited):

· 2014 production in line with previously stated guidance: 624,500oz of gold produced

· 2014 total cash costs per ounce ("TCC/oz") expected to be less than US$900/oz

· Unaudited net debt of c.US$922 million as at 31 December 2014, reduced by c.US$26 million since 31 December 2013

· On 5 January 2015, the Company announced the extension of the maturity date of the Existing Bonds to 18 March 2015 on which date the Company expects to have completed the Refinancing

Refinancing to allow optimal operating performance from the business in 2015

· 2015 gold production target of 680,000-700,000oz, net of alluvial production

· The Group expects a significant decrease in its total average cash costs of production in 2015, to lower than US$700/oz due to its cost cutting programme and the devaluation of the Rouble

· Total capital expenditure budget set at approximately US$35 million

· Positive exploration results and analysis, including the development of underground mining plans at Pioneer which are expected to extend the mine life

Board changes

· Due to the reduced size of the Company's market capitalisation relative to its previous levels, following completion of the Refinancing the Board will be reduced to seven members. The new Board will consist of three executive Directors Mr Peter Hambro (Chairman), Dr Pavel Maslovskiy (Chief Executive Officer) and Mr Andrey Maruta (Chief Financial Officer) and four non-executive Directors, including one existing Director, Sir Roderic Lyne.

· After the Refinancing is complete, the other current Directors will retire from the Board.

· Certain existing Bondholders have a nomination right over two of the three new non-executives.

Commenting on the Refinancing, Mr Peter Hambro (Chairman) said:

"2014 was, in the opinion of the Board, a transformational year for the Group as the team implemented its plan of strategic development to adjust to a new lower gold price environment and to deleverage the Group.

However, our operational and exploration success has been overshadowed by a liquidity problem and the need to refinance our outstanding US$310.5 million convertible bonds - with the resulting uncertainty causing a sharp decline in our share price. The Refinancing is required in order for the Group to continue as a going concern.

Over the past twelve months, the Board and executive management teams have negotiated, with both our Bondholders and Senior Lenders, a refinancing deal that in our opinion is in the interest of all parties, including the Shareholders. These negotiations have been particularly challenging, taking place against a backdrop of gold-price volatility and significant uncertainty in our key markets. These factors have meant that progress with these negotiations was far slower than we would have hoped but we believe that the Refinancing package now agreed provides the best outcome for Shareholders.

The Refinancing package agreed with Bondholders and Senior Lenders gives the Shareholders the right (but not the obligation) to preserve their investment from dilution by subscribing for new equity. At the same time, by gaining the necessary equity underwriting commitment, the Group has been able to establish what we firmly believe is a stable financial platform. As part of the commitment, Pavel Maslovskiy, who has returned to resume the Chief Executive role, and I, together with one of our business partners, have jointly arranged a conditional commit to subscribe for US$30 million of new equity for the Company. Certain Bondholders have also agreed to underwrite new equity and others have voluntarily agreed to exchange their Existing Bonds for Shares if the Rights Issue is not fully taken up.

The principal purpose of the Refinancing is to address the Group's imminent obligation, if the Refinancing

were not implemented, to repay the Existing Bonds on 18 March 2015, which the Group does not have the

cash to do and to enable the Company to continue trading as a going concern. Implementation of the

Refinancing will result in the Group being in an improved financial position to continue its operations and

with a strengthened balance sheet to support the development of the Group's substantial reserves and

resources and being better placed to take advantage of the significant operating margin that it now enjoys.

In order for the proposed Refinancing to be implemented, we need to obtain approval both of our Bondholders and our Shareholders at their respective general meetings.

As far as the Bondholder meeting is concerned the position is clear. Under the terms of the Bonds, we are convening a meeting of the Bondholders to change the terms of the Bonds. The quorum required is holders of two-thirds of the principal amount of Bonds by value, and the majority needed in favour is 75% of those voting. At the time of this announcement, a group of Bondholders representing over 71% of the principal amount of Bonds have already signed up to a Recapitalisation Agreement giving their support to this Refinancing.

The next important event is the Shareholders' meeting, which is scheduled for 26 February 2015, at which the Company needs the approval of 75% of those Shareholders who vote in order to effect the Refinancing. It is thus very important that our Shareholders vote in support of both of the Resolutions. If they do not, the Refinancing will fail and it is likely that the consequent cross-default on the Group's loan facilities would mean that Shareholders will lose the entire value of their investment.

Operationally, we believe, the year has started well and we continue to build on our 2014 achievements. The success of our recent exploration programme has enabled us to increase our gold production target to 680,000-700,000oz for 2015. The effect of our cost-cutting measures, along with the depreciation of the Rouble against the US Dollar, has enabled us to reduce our 2015 TCC/oz target to lower than US$700/oz, based on the present Rouble exchange rate and assuming inflation does not increase. Furthermore, our exploration programme continues to unearth new targets that, we believe, will support the development of our business in the long term."

Webcast presentation

There will be a webcast presentation followed by a question and answer session on Tuesday, 3 February 2015 at 10.00am GMT. Please log onto the Company's website, www.petropavlovsk.net, for details. A playback of the webcast will be available on the Company's website.

Enquiries

Petropavlovsk PLC

Alya Samokhvalova, Group Head of External Communications,

11 Grosvenor Place, London, SW1X 7HH

T: +44 (0) 20 7201 8900 | E: [email protected]

Bank of America Merrill Lynch

Joint Project Co-Ordinator and Corporate Broker

Simon Davy, Managing Director,

2 King Edward Street, London, EC1A 1HQ

T: +44 (0) 20 7995 3759 | E: [email protected]

Maitland

Media Contact

Neil Bennett, Chief Executive Officer

Orion House, 5 Upper St Martin's Lane, London WC2H 9EA

T: +44 (0) 20 7379 5151 | E: [email protected] 

Any defined terms used in this Announcement have the meaning given to them in the Definitions section of the Prospectus.

2014 Trading Update

Production

In 2014, the Group produced 624.5koz of gold, in line with previously stated guidance. This was lower than the 741,200oz of gold produced in 2013, in part, due to the sale of Berelekh, which operated high-cost alluvial operations in the Magadan region, during the third quarter of 2013. On a like-for-like basis, excluding gold production from these assets and from the Group's alluvial assets which are held by Koboldo, of which the Group is negotiating disposal (subject, inter alia, to Shareholder approval, if required), the Group's four hard-rock gold mines produced 595.4koz of gold in the year ended 31 December 2014 compared with 656.4koz of gold in the year ended 31 December 2013. Production from all assets in the fourth quarter of 2014 was 168,200oz (in the fourth quarter 2013: 142,000oz).

TCC/oz

Total cash costs of production for 2014 are expected to be in line with the Company's guidance of less than US$900/oz, benefiting from the cost cutting programme introduced by the Company and the devaluation of the Rouble which continued in the fourth quarter of the year.

Gold sales

In 2014, forward contracts to sell a total of 364.3koz of gold matured, contributing US$42.3 million to cash revenue. 617.2koz of gold were sold during 2014 at an average realised gold price of US$1,331/oz (including US$66/oz contribution from the Group's hedging programme).

Capital expenditure

The Group's estimated development and maintenance capital expenditure for 2014 was approximately US$64 million and the Group's estimated capital expenditure in connection with exploration for 2014 is approximately US$33 million.

Effect of Rouble price inflation and exchange rates

Consumer price inflation in Russia in 2014 was 11.4%, compared with 6.5% in 2013 (according to the Russian Federal State Statistics Service). The producer price inflation was 5.9% for 2014 compared with 3.7% in 2013 (according to the Russian Federal State Statistics Service). The increase in inflation in part reflected the decline in the Rouble against the US Dollar during 2014, the Rouble depreciated by 72% against the US Dollar during 2014, from RUB32.7292/USD as at 31 December 2013 to RUB56.2584/USD as at 31 December 2014. In particular, the significant decline in the Rouble against the US Dollar occurred in the fourth quarter of 2014, and continued further depreciating against the US Dollar at the start of 2015 with the Rouble to US Dollar exchange rate being RUB 67.8153/USD as at 28 January 2015. As the Group's operating cash expenses are substantially Rouble denominated, the Group expects that the impact of the Rouble price inflation will be mitigated by the depreciation of the Rouble against the US Dollar in 2014.

Net debt

Unaudited net debt of c.US$922 million as at 31 December 2014 is down by approximately US$26 million year-on-year ("yoy") be due to strong net operating cash flows and decreased capital spending. Cash balance as of 31 December 2014 was c.US$56 million.

2015 Outlook

Production

The Group is targeting production of 680,000oz-700,000oz of gold in 2015, which is an increase of 14-17% above the equivalent production level for 2014 of 595,400oz for the Group's four hard-rock mines. These figures exclude potential production from the Group's alluvial assets which are held by Koboldo, itself the subject of negotiations regarding a potential sale as announced on 24 November 2014, with regard to which discussions are ongoing and may be subject to, inter alia, separate shareholder approval.

TCC/oz

The Group expects a significant decrease in its total average cash costs of production in 2015 to lower than US$700/oz due to its cost cutting programme and the devaluation of the Rouble.

Gold Sales

As at 31 December 2014, the Company had outstanding forward contracts for 50,000oz at US$1,310/oz and put options for 150,000oz at US$1,150/oz acquired as part of a downside protection strategy.

Capital expenditure

In line with the Group's strategy, the Group's capital expenditure requirements are scheduled to further decrease in 2015 to an estimated US$35 million. This reduction compared to 2014 will be achieved, in part, due to the halting of all but non-essential maintenance work on the POX Hub. The planned capital expenditure of US$35 million will be split between continuing the Group's exploration programme (US$25 million) and development and maintenance (US$10 million).

Exploration, Reserves and Resources

An exploration report and a new audited JORC Mineral Resource and Ore Reserve statement are planned

for publication in H1 2015.

Group Operational Report

Pioneer

Pioneer produced approximately 263,000oz of gold in 2014 (2013: 314,830oz), equating to approximately 42% of the Group's total annual gold production in 2014.

During the second half of 2014, mining was continued at Pits 6.1 and 6.2. Head grades through the Pioneer plant averaged 1.47g/t in the second half of 2014.

In the fourth quarter of 2014, Pioneer produced approximately 79,700oz of gold (in the fourth quarter of 2013: 111,500oz). The high-grade ore came from the NE Bakhmut pits and Andreevskaya and the low-grade ore came from Pit 7 and Alexandra.

Development of an Underground Mine Proposal

Several pay shoots at Pioneer are high-grade and remain open at depth, offering the potential for significant resource and reserve expansion. At a depth of c.200-600m from the surface, a preliminary estimate by Group geologists has indicated that the site has potential of between 3Moz and 6Moz of gold resources at an average grade of 5g/t to 8g/t.

A notional economical assessment, completed internally by the Group specialists, has indicated an underground mine at Pioneer with the reserve grade of 7g/t potentially could have a high economical return at a gold price above US$800/oz. The estimate provides a sufficient level of confidence that it will be classified as an Exploration Target as defined by the JORC Code.

Subject to the availability of the necessary financing, the Group is planning an exploration programme in order to upgrade this estimate to JORC Mineral Resources and, subsequently, into Ore Reserves. Should this exploration be successful and providing availability of financing, the first commercial underground production could, theoretically, be expected to take place after 2017. Further potential is believed to exist at a depth below 600m.

Outlook

In 2015, Pioneer is expected to produce c. 290,000-295,000oz of gold equating to approximately 42% of the Group's total production for the year.

In the first quarter of 2015, mining at Pioneer is expected to be conducted at a number of pits. It is intended that stripping at Andreevskaya East will continue in preparation for mining high-grade ore later in the year. At NE Bakhmut pits 6.1 and 6.2, predominantly high-grade ore is scheduled to be mined and pit 6.1 is expected to be completed during the first quarter of 2015. The Alexandra deposit will be further opened and substantial quantities of low-grade ore are scheduled to be mined from it throughout the quarter. A small amount of higher-grade ore is expected to be mined at the Nikolaevskaya pit.

The 2015 exploration programme at Pioneer is planned to be focused on exploration targets within the Alkagan-Adamovskaya license area. The main aim is to expand the reserves and resources base at Alexandra and increase their level of confidence. Drilling and trenching is also planned at other zones of Pioneer, including the high-grade deep extensions of Andreevskaya.

Pokrovskiy

Pokrovskiy produced approximately 64,200oz of gold in 2014 (2013: 91,200oz), approximately 10% of the Group's total gold production.

During the second half of 2014, the extension to the north-western part of the main pit continued together with a small extension to the northern pit wall in Pokrovka-3. The ore mined from these two areas was blended together for processing with some ore from existing low-grade stockpiles. The high-grade ore for processing was delivered to the Pokrovskiy site from the satellite pit at Burinda. 

In the fourth quarter of 2014, Pokrovskiy, together with its satellite operation at Burinda, produced approximately 17,000oz of gold (in the fourth of 2013: 30,800oz).

Outlook

Production from Pokrovskiy in 2015 is expected to be in the range 50,000-55,000oz, constituting approximately 8% of the Group's total production for the year. 

In the first quarter of 2015, it is intended that stripping will be concentrated on the upper benches of the northwest extension of the Pokrovka-1 pit and this is expected to produce some low-grade ore. High-grade ore is expected to be mined from Burinda and transported to Pokrovskiy. Processing is planned to include some low-grade ore from the existing stockpiles at Pokrovskiy.

Exploration work at Pokrovskiy is planned mainly at satellite areas, including Bazoviy. Essential technical studies and metallurgical test work is planned for the Burinda deposit.

Malomir

Malomir produced approximately 82,200oz of gold in 2014 (compared to 115,520oz in 2013) equating to approximately 13% of the Group's total gold production for the year.

The majority of the work during the second half of 2014 took place at the Quartzitovoye 2 and Berezovaya pits, which supply the majority of ore to the plant. Some ore was recovered and processed from existing stockpiles.

In the fourth quarter of 2014, Malomir produced approximately 22,400oz (in the fourth quarter of 2013:45,300oz) of gold.

Outlook

It is expected that Malomir will produce c.90,000-95,000oz in 2015, equating to approximately 13% of the Group's total production for the year. 

Mining and stripping works are planned to be conducted mainly at Quartzitovoye 2 and Berezoviy pits with a small amount of ore coming from the Sukhonyr pits. The feed for the processing plant may be supplemented by low-grade ore from stockpiles. 

The 2015 exploration program will continue to focus on the Berezoviy and Pogranichniy areas, which lie in vicinity of the Malomir processing plant. The majority of exploration is planned at Berezoviy, where work will continue on the extensions of the known ore bodies, and also on the prospective geochemical anomalies identified during the 2014 field season. At Pogranichniy, which is at an earlier stage of development, a drilling and trenching programme is planned in order to calculate an initial Mineral Resource estimate for the area. Trenches are planned in order to verify the nature of several geochemical anomalies discovered during 2014 in order to confirm further oxide, non-refractory mineralisation.

Albyn

Albyn produced approximately 186,000oz of gold during 2014, equating to approximately 30% of the Group's total gold production.

The ore mining works at Albyn in the second half of 2014 were concentrated on the Central zone of the mine and East pits following the stripping works that took place in that area in the first six months of 2014. The Central zone typically produces higher grades than the Eastern zone. Recovery rates remained high in the second half of the year 2014 at 93 per cent.

In the fourth quarter of Albyn produced approximately 44,400oz of gold (in the fourth quarter 2013:48,800oz).

Outlook

In 2015, Albyn is expected to produce c.250,000 - 255,000oz of gold equating to approximately 37% of total production for the year.

In the first quarter of 2015, all mining and stripping works are expected to be concentrated in the main Albyn pit both in the central and eastern sections. Some high-grade ore is planned to be mined and transported from the Unglichikan satellite pit.

In 2015, exploration will continue at the Albyn satellite areas, primarily within Elginskoye and Afanasevskaya licenses. In order to further improve and expand the Unglichikan mineral resource base, intense exploration work is planned at the Unglichikanskoe deposit, which lies c.10km north of the Albyn plant. Works will include some essential permitting and metallurgical tests, including two, 25t samples. Exploration within the Elginskoye licence area will be targeting high-grade, non-refractory mineralisation at the Ulgen and Grozovoye-2 occurrences.

Alluvial operations

Production

In 2014, the Group's alluvial operations produced approximately 29,100oz of gold, approximately 5% of the Group's total gold production. This was 66% less than the previous year. This decrease in production was expected due to the sale in the last quarter of 2013 of high-cost alluvial operations operated by the Group's former subsidiary Berelekh.

Outlook

Should the Koboldo disposal be completed, the Group will no longer hold any material alluvial assets.

The Group currently has alluvial gold reserves and resources in the Amur region held through its subsidiary Koboldo. If the Koboldo Disposal which the Group is currently negotiating (subject, inter alia, to Shareholder approval (if required)) is completed, the Group will no longer hold any material alluvial gold reserves and resources under the NAEN Code. Because of high cost and the relatively small contribution to the total Group production which in 2014 was only c.5% of total Group's production, Koboldo assets are considered as "non-core".

Due to the seasonal nature of the Group's alluvial operations, the Group updates its alluvial Mineral Resource and Mineral Reserve statements annually, each January. The Group reports its alluvial Mineral Resources and Mineral Reserves in accordance with the Russian Code for the Public Reporting of Exploration Results, Mineral Resources and Mineral Reserves (the NAEN Code). The NAEN Code is recognised by ESMA. The NAEN Code shares the same template with the JORC Code: Mineral Reserves reported in accordance with the NAEN Code are inclusive of mining dilution and mining losses.

The NAEN Code allows conversion between the Russian GKZ C1, C2 into Proved and Probable Reserves and also conversion of C1, C2 and P1 into respective Measured, Indicated and Inferred Resources. 

A summary of the alluvial Mineral Resources and Mineral Reserves in accordance with the NAEN Code is presented below:

POX Hub

Following the drop in the gold price in in the second quarter of 2013, the Group decided to slow down the pace of development of its pressure oxidation hub ("POX Hub") by restricting its activities to those which are subject to existing contractual commitments, thereby relieving pressure on the Group's capital expenditure requirements. Subsequently, in December 2013, the project was put on hold.

In 2014, work was primarily focused on only conducting essential care and maintenance work. In addition, some work was conducted in order to fulfil contractual obligations, including: acid treatment of autoclave and flash tank inner lining, installation of agitators, work on the framework and cladding to the neutralisation and filtration building, the construction of the water cooling system, electrical works in the autoclave building and work on extending the air separation columns at the oxygen plant.

Exploration

Pioneer

During 2014, exploration at Pioneer continued on the Alexandra and Shirokaya zones situated north of the active Pioneer pits, as well as at Andreevskaya and Vostochnaya.

At Andreevskaya, a high-grade, non-refractory zone extensively mined by the Group in previous years, further drilling discovered extensions of the high-grade mineralisation. The best intersections in this area include 2.9m at 60.62g/t (C-5414), 7.0m at 91.7g/t (C-5400), 6.5m at 34.3g/t (C-5410).

A further 280m extension of mostly non-refractory mineralisation was established at the Vostochnaya zone, which is situated only 1.5km from the Pioneer processing plant. The best intersections from this area include: 14.2m at 1.44g/t (C-5370), 6.8m at 28g/t (C-5199) and 8.0m at 1.82g/t (C-5404).

It is expected that these results will be included in the next JORC Mineral Resource and Ore Reserve updated which is currently planned for publication during the first half of 2015.

Pre-stripping and in-fill drilling were carried out at Shirokaya to upgrade the currently estimated JORC Inferred Mineral Resources into the Measured and Indicated categories. It is likely that further non-refractory resources will be classified at Shirokaya once interpretation of technological tests is completed.

A new zone of mineralisation, Brekchievaya, located c.1.5km north-east from Alexandra, was modelled and included in the JORC resource statement. The zone remains open in both strike directions. Further drilling is being undertaken and Group geologists anticipate more substantial gold resource discoveries in this area.

Four drill profiles were completed further to the north-east of the Alexandra zone, next to known alluvial gold deposits. Potentially economical gold mineralisation was intersected in profile 920/1 with three significant intersections: 5m at 2.35g/t, 2.6m at 1.19g/t and 2.1m at 8.29g/t. The strike, length and morphology of the mineralisation are yet to be established through further exploration, but results are considered encouraging.

The area in which Shirokaya and Alexandra are situated is considered to be prospective for the discovery of further gold-bearing zones, including zones of high-grade mineralisation. As such, a new zone of mineralisation, Brekchievaya, was discovered and included into the resource statement during 2014.

Malomir

In 2014, at Magnetitovoye, an area near the Malomir processing plant, drilling extended known mineralisation to deeper levels. As a result of this work, Magnetitovoye mineral resources increased by c.40koz.

The Kanavinskaya Zone, an area situated between the high-grade Quartzitovoye deposit and the Ozhidaemoye deposit, was also drilled and some high-grade drill intersections were identified. Mineral Resources and Ore Reserves for the Kanavinskaya Zone were modelled, adding 93koz and 53koz respectively.

Exploration at a recently-identified target, Berezoviy, located 5-10km west of Malomir, yielded promising results with grades of up to 61.3g/t Au established by drilling, trenching and pre-stripping. The best intersections include: 19.5m at 1.69g/t (drill hole 122-7), 4.6m at 5.32 g/t (drill hole 121-8), 8.4m at 12.87 g/t (pre-strip), and 8.0m at 13.63g/t. The amount of exploration completed at this area is sufficient for inclusion in the Group's next JORC Mineral Resource and Ore Reserve estimate. As the mineralised zone dips southwards at a 35-40° angle, it would be suitable for low-cost, open-pit mining. The total length of the zone could be up to 1km.

A further three promising zones of gold mineralisation were discovered within the Pogranichniy licence area during 2014. Exploration of these areas is ongoing.

Albyn

Elginskoye

In 2014, further progress was made on the Elginskoye licence area which covers several targets: the Elginskoye deposit (a principal target) and the Grozovoye, Ulgen and Leninskoye prospects.

Drilling at 160m x 80m drill spacing defined a large, low-grade resource (c.2.15Moz at an average grade of 1.12g/t). Mineralisation at Elginskoye remains open in south-east and south-west directions, offering further exploration potential.

A new zone of mineralisation with an expected strike length of c.1km was discovered in the Leninskaya-Severnaya area in the first six months of 2014 by two trenches. Significant trench intersections include: 2m at 3.83g/t, 8m at 3.4g/t and 3m at 2.5g/t.

At the Afanasevskaya licence area, the majority of the exploration work in 2014 was focused on Unglichikanskoye, a high-grade deposit c.15km north-east of the Albyn RIP plant. A substantial amount of drilling and trenching was completed in 2013 and 2014 covering c.3km of the known strike length of the Unglichikan mineralisation. This work enabled the preparation of JORC Mineral Resource and JORC Ore Reserve estimates. The JORC resources are open towards the north-east as well as in a down dip direction; they therefore offer the opportunity to expand the mineral resource base.

The Group's geologists are of the opinion that in addition to Unglichikanskoye, the Afanasevskaya licence area covers several further highly promising prospects where only limited work has been completed so far.

Overview of the Transaction Structure

The arrangements for the Refinancing, which is conditional on, amongst other things, Shareholder and Bondholder approval, will involve:

· A fully pre-emptive (save for certain regulatory exceptions) Rights Issue to existing shareholders of New Ordinary Shares with a value of up to £155.1 million (US$235.4 million) at the Issue Price ;

· All but £0.4 million (US$0.6 million) of the Rights Issue is currently underwritten by the Underwriter. The Underwriter has offset its underwriting commitment in full by entering into agreements with certain Existing Bondholders and the Founders Entities pursuant to which those parties have committed to subscribe for any New Ordinary Shares not taken up in the Rights Issue or subscribed for by subscriber(s) procured by the Underwriter in the rump placing. These commitments require the Founder Entities to subscribe for New Ordinary Shares in cash and the Existing Bondholders to subscribe for New Ordinary Shares either in cash or by exchanging Existing Bonds for New Ordinary Shares pursuant to and in accordance with the Bond Exchange Offer and Consent Solicitation. The Founders Entities' commitment to subscribe for New Ordinary Shares has been arranged by Dr Pavel Maslovskiy and Peter Hambro and is described in more detail below. Immediately prior to the publication of the Prospectus, Existing Bondholders and the Founder Entities had provided binding commitments to subscribe in aggregate for up to 3,094,500,472 New Ordinary Shares (which have a maximum aggregate value at the Issue Price of £154.7 million (US$234.7million). This amount will be reduced by the number of New Ordinary Shares taken up in the Rights Issue or subsequently acquired by subscribers procured by the Underwriter in the rump placing;

· The Founders Entities' commitment to subscribe for New Ordinary Shares has been arranged by Dr Pavel Maslovskiy and Mr Peter Hambro and is described in more detail below. These arrangements (referred to as the Founders Arrangements) constitute a related party transaction under the Listing Rules and are conditional, therefore, upon the approval of Shareholders (other than Dr Pavel Maslovskiy and Mr Peter Hambro and their associates) at the General Meeting. The passing of Resolution 2 relating to the Founders Arrangements is conditional upon the passing of Resolution 1 which relates to the Refinancing more generally and vice versa. This conditional cash subscription commitment of £19.8 million ($30.0 million) (representing 395,491,398 New Ordinary Shares at the Issue Price) requires the Founders Group to assume greater risk of having to subscribe for New Ordinary Share than the commitment being provided by certain Existing Bondholders, as described in the Exchange Offer and Consent Solicitation Memorandum, in order to demonstrate their support for the Refinancing. The provision of this subscription commitment by the Founders Entities was a requirement of certain of the Bondholders;

· Certain Existing Bondholders exchanging Existing Bonds for up to 2,079,405,884 New Ordinary Shares (which have a maximum aggregate value at the Issue Price of £104.0 million (US$157.7 million)) in the event that some or all of those New Ordinary Shares are not taken up in the Rights Issue or subsequently acquired by subscribers procured by the Underwriter in the rump placing. These commitments have been given pursuant to the Voluntary Debt-for-Equity Exchange commitments;

· A mandatory exchange of Existing Bonds for New Ordinary Shares to be allotted and issued at the Issue Price (the Mandatory Debt-for-Equity Exchange) (as described in more detail below) will cover that portion of the Rights Issue which is not sub-underwritten or the subject of New Voluntary Debt-for-Equity Exchange commitments. Based on commitments received to date, the maximum aggregate principal amount of Existing Bonds to be exchanged for New Ordinary Shares through the Mandatory Debt-for-Equity Exchange will not exceed £0.4 million (US$0.6 million) and may be reduced as described below; and

· US$100 million in an aggregate principal amount of New Bonds being issued.

Pursuant to the Refinancing all Existing Bondholders will have the right to elect to commit to Cash Underwriting, and/or to exchange some or all of their Existing Bonds for New Ordinary Shares to be allocated and issued at the Issue Price (the New Voluntary Debt-for-Equity Exchange) (as described in more detail below) which will cover all or part of that portion of the Rights Issue which is not underwritten.

Pursuant to the terms of the Refinancing (as described in more detail below) all of the outstanding aggregate principal amount of US$310.5 million of Existing Bonds will be purchased, exchanged or redeemed for New Ordinary Shares, New Bonds or cash at their par value (with accrued interest being settled in cash from retained cash on the balance sheet of Petropavlovsk 2010) on or prior to their maturity date of 18 March 2015.

Bond Exchange Offer and Consent Solicitation

The purpose of the Prospectus is to explain the background to and the reasons for the Rights Issue and the Bond Restructuring (which is to be implemented by way of the Bond Exchange Offer and Consent Solicitation), which are inter-conditional, and to provide Shareholders with notice of the General Meeting to be held on 26 February 2015 to consider and, if thought fit, pass the Resolution. The Prospectus also explains why the Directors consider the Refinancing (and each of its constituent parts) to be in the best interests of the Company and the Shareholders as a whole, and why the Directors recommend that Shareholders vote in favour of Resolution 1 to be proposed at the General Meeting, and the Independent Directors (with Mr Peter Hambro and Dr Pavel Maslovskiy abstaining as a result of their status as related parties and their involvement in the Founders Arrangements) recommend that Shareholders also vote in favour of Resolution 2, thereby enabling the Refinancing to be implemented assuming the other conditions are satisfied.

The key elements of the Refinancing, which are inter-conditional and conditional (inter alia) on the requisite approvals from Existing Bondholders, the Senior Lenders and Shareholders are as follows:

The Rights Issue

The Rights Issue, which is conditional (inter alia) on the Resolutions being passed and the Bond Restructuring having become unconditional (save for any cross conditionality), will comprise an offer of up to 3,102,923,272 New Ordinary Shares. Qualifying Shareholders will be able to subscribe for 157 New Ordinary Shares for every 10 Shares held at the close of business on 24 February 2015 at the Issue Price of 5 pence per New Ordinary Share.

The Issue Price of 5 pence per New Ordinary Share was set by the Board, as required by certain Existing Bondholders who entered into the Lock-up Agreement and who along with the Founders Entities have entered into commitments to acquire New Ordinary Shares. Pursuant to these commitments, certain Existing Bondholders and the Founder Entities have agreed to subscribe for in aggregate up to 3,094,500,472 New Ordinary Shares (which have a maximum aggregate value at the Issue Price of £154.7 million (US$234.7 million)) in the event that some or all of the New Ordinary Shares are not taken up in the Rights Issue or subsequently subscribed for by subscribers procured by the Underwriter in the rump placing.

The Issue Price represents a 9.2 per cent. discount to the TERP of 5.51p per Share based on the Closing Price of 13.5p per Share, and a 63.0 per cent. discount to the Closing Price, in each case on 28 January 2015, the last practicable day prior to the publication of the Prospectus, and a 68.8 per cent. discount to the Closing Price on the business day prior to the issue of the Lock-up Announcement. The ability to trade Rights may, subject to market conditions, enable Qualifying Shareholders to reduce any dilution in the value of their holding resulting from the implementation of the Refinancing as they may be able to sell a portion of their Rights and use the proceeds of that sale to take up some or all of their remaining Rights.

The Rights Issue will involve the issue of up to 3,102,923,272 New Ordinary Shares, representing up to approximately 1,570 per cent. of the Company's share capital in issue as at 28 January 2015, the last practicable date prior to the publication of the Prospectus. If all of the New Ordinary Shares are allotted and issued they will represent 94 per cent. of the Enlarged Share Capital.

Underwriting and Sub-Underwriting of the Rights Issue

Although Merrill Lynch International, the Underwriter, is acting as sole principal underwriter it is only underwriting the issue of New Ordinary Shares that are the subject of binding commitments from certain Existing Bondholders and from the Founders Entities, as well as any commitments from Cash Underwriters that are granted following launch of the Rights Issue (together the Underwritten Shares). Accordingly it is the Founders Entities and those Existing Bondholders who have provided commitments who are exposed to the risk of having to acquire the New Ordinary Shares that are not taken up in the Rights Issue or subsequently subscribed for by subscriber(s) procured by the Underwriter in the rump placing. The Founder Entities' and the relevant Existing Bondholders' commitments are subject to the same conditions as the Underwriter's commitment.

Currently, the aggregate value of the binding equity commitments provided by (a) Existing Bondholders is £135.0 million (US$204.7 million) and (b) the Founders Entities is £19.8million (US$30.0 million) and, therefore, the value of the Mandatory Debt-for-Equity Exchange is £0.4 million (US$0.6 million) but could be less depending on the level of take-up in the Rights Issue and the number of New Ordinary Shares subscribed for by subscriber(s) procured by the Underwriter in the rump placing (if any) and on whether any additional Cash Underwriting or New Voluntary Debt-for-Equity commitments are received after the date of the Prospectus.

The Rights Issue is, therefore, now only partially underwritten by the Underwriter and may remain so. New Ordinary Shares which are not Underwritten Shares and which are not taken up in the Rights Issue or subscribed for by subscriber(s) procured by the Underwriter pursuant to the rump placing or subscribed for by the Founder Entities and by those Existing Bondholders who have provided binding Underwriting Commitments will not be allotted or issued under the Rights Issue but will, instead, be issued to Existing Bondholders pursuant to (a) the Mandatory Debt-for-Equity Exchange and/or (b) any New Voluntary Debt-for-Equity Exchange commitments received from Existing Bondholders after the date of the Prospectus.

As at the date of the Prospectus, 3,094,500,472 New Ordinary Shares (with an aggregate value of £154.7 million (US$234.7 at the Issue Price) are subject to binding commitments by the Founders Entities and by certain Existing Bondholders which consist of:

· £50.8 million (US$77.0 million) of Cash Underwriting. This Cash Underwriting is structured as a sub-underwriting or conditional subscription commitment and has been provided by certain Existing Bondholders and the Founders Entities (as to which see further below) pursuant to the Recapitalisation Agreement. The Cash Underwriting commitments will be called upon in the event that some or all of the New Ordinary Shares which are the subject of the Cash Underwriting are not taken up in the Rights Issue and are not subsequently acquired by subscribers procured by the Underwriter in the rump placing and will require the Existing Bondholders within the Ad Hoc Committee who have granted the Cash Underwriting commitments and the Founders Entities to subscribe for the relevant number of New Ordinary Shares in cash at the Issue Price. The Subscription Underwriting commitment granted by the Founders Entities will be called in priority to the other Cash Underwriting commitments, the Voluntary Debt-for-Equity Exchange commitments and the Mandatory Debt-for-Equity Exchange commitments; and

· £104.0 million (US$157.7 million) of Existing Voluntary Debt-for-Equity Exchange commitments. These Existing Voluntary Debt-for-Equity Exchange commitments are also structured as sub-underwriting commitments and have been provided, prior to publication of the Prospectus, by certain Existing Bondholders who are parties to the Recapitalisation Agreement. As with the Cash Underwriting commitments, the Existing Voluntary Debt-for-Equity Exchange commitments will be called upon in the event that some or all of the New Ordinary Shares which are the subject of Existing Voluntary Debt-for-Equity Exchange commitments are not taken up in the Rights Issue and are not subsequently acquired by subscribers procured by the Underwriter in the rump placing. Unlike the Cash Underwriting commitments, however, the Existing Voluntary Debt-for-Equity Exchange commitments will require the Existing Bondholders who have granted the Existing Voluntary Debt-for-Equity Exchange commitments to exchange Existing Bonds held by them for the relevant number of New Ordinary Shares with the aggregate principal amount (applying a fixed exchange rate of £1:US$1.5171) of the Existing Bonds exchanged being equal to the aggregate value (at the Issue Price) of the New Ordinary Shares that such Existing Bondholders are required to subscribe for.

As noted above, certain Existing Bondholders and the Founders Entities have entered into commitments to underwrite a portion of the Rights Issue in cash which, in the case, of the Founders Entities was required by certain of the Bondholders a request which Pavel Maslovskiy and Peter Hambro agreed to comply with. The Founders Entities have granted a conditional cash subscription commitment of £19.8 million (US$30.0 million) (representing 395,491,398 New Ordinary Shares at the Issue Price). Whilst under this agreement OJSC Asian Pacific Bank ("APB") has assumed this equity commitment, it is intended that the Founders SPV will assume this commitment under the Conditional Subscription Agreement prior to APB's subscription obligation becoming unconditional. The Founders SPV is expected to satisfy its equity commitment using funding from APB. The Founders SPV has granted a call right to the Founders Group entitling them to acquire all the New Ordinary Shares acquired by the Founders SPV at a price which is determined by reference to the Issue Price and not the then prevailing market price. At the same time the Founders Group have granted the Founders SPV a put right entitling the Founders SPV, in certain circumstances, to require the Founders Group to purchase, or procure purchasers for, all of the New Ordinary Shares acquired by the Founders SPV at a price which is determined by reference to the Issue Price and not the then prevailing market price. Any exercise of the call or put rights is subject to any restrictions on the parties' ability to deal in Shares at the relevant time. The commission payable in connection with the equity commitment under the Conditional Subscription Agreement will be payable to the Founders SPV, or to APB, but not the Founders Group. In consideration for the grant of their call right, the Founders Group have agreed to grant the put right referred to above and to fund the Founders SPV's financing costs through the put and call pricing structure.

Mr Peter Hambro and Dr Pavel Maslovskiy are Directors of the Company and are, therefore, related parties for the purposes of, and as defined in, the Listing Rules Accordingly, the Founders Arrangements constitute a related party transaction under the Listing Rules and are conditional, inter alia, upon the approval of Independent Shareholders (being Shareholders of the Company excluding Mr Peter Hambro and Dr Pavel Maslovskiy and their respective associates) at the General Meeting. As a result, these arrangements require the approval of Independent Shareholders as described below.

In addition, in connection with the Rights Issue, pursuant to the Recapitalisation Agreement, Pavel Maslovskiy and Peter Hambro, together with Shareholders associated with them, have agreed not to dispose of any interest in the Shares they currently own, comprising in aggregate 7.23 per cent. of the Existing Shares, until completion or termination of the Refinancing and have agreed to vote in favour of Resolution 1. There are no restrictions on their ability to trade the Rights attributable to these Shares and they are free to determine whether or not to exercise such Rights, which will not affect sub-underwriting obligations under the Founders Arrangements.

In the period between the date of the Prospectus and 20 February 2015, additional Cash Underwriting commitments and New Voluntary Debt-for-Equity Exchange commitments may be secured. These additional commitments will be granted on equivalent terms as those entered into by Existing Bondholders prior to the publication of the Prospectus and will (a) (in the case of additional Cash Underwriting only) increase the number of Underwritten Shares and, therefore, the number of New Ordinary Shares which are underwritten by the Underwriter, and (b) (in both cases) reduce the amount of the Mandatory Debt-for-Equity Exchange obligations described below, in each case on a pound for pound basis.

If the New Ordinary Shares the subject of additional Cash Underwriting commitments received between the date of the Prospectus and 20 February 2015 together with New Voluntary Debt-for-Equity Exchange commitments granted by Existing Bondholders exceed the number of New Ordinary Shares which are not Underwritten Shares, those additional commitments together with those Existing Bondholders who provided equity commitments prior to the publication of the Prospectus will be scaled back in accordance with the terms set out in the Exchange Offer and Consent Solicitation Memorandum. The Company will announce the level of scale-back to be applied to respective commitments prior to the General Meeting.

If the New Ordinary Shares are subscribed for pursuant to the Rights Issue or by subscribers procured by the Underwriter in the rump placing the number of New Ordinary Shares that the various different categories of subscriber or sub-underwriters are required to subscribe for will be reduced in accordance with a priority scheme detailed in the Exchange Offer and Consent Solicitation Memorandum.

Further information on the Rights Issue and the underwriting and sub-underwriting arrangements is set out in section 5 of the letter from the Senior Independent Director and in Part 2 of the Prospectus (Terms and conditions of the Rights Issue).

The Debt-for-Equity Exchange

As noted above, the number of New Ordinary Shares which are underwritten by the Underwriter (having been sub-underwritten by existing Cash Underwriting commitments and the Existing Voluntary Debt-for- Equity Exchange commitments) is currently, and may remain, less than 3,102,923,272 New Ordinary Shares, which is the maximum number of New Ordinary Shares that could be allotted and issued in the Rights Issue.

The existence of the Mandatory Debt-for-Equity Exchange and any New Voluntary Debt-for-Equity

Exchange commitments will, however, ensure that, assuming the Refinancing becomes unconditional, all the 3,102,923,272 New Ordinary Shares being offered pursuant to the Rights Issue will be issued even if there is no take-up of the Rights, if the Underwriter fails to procure any subscribers in the rump placing and if no new Cash Underwriting commitments are granted after the date of the Prospectus.

Under the Mandatory Debt-for-Equity Exchange, which is conditional (inter alia) on the Resolutions being passed and the Bond Restructuring having become unconditional (save for cross-conditionality), Existing Bondholders will, in accordance with the provisions of the Bond Exchange Offer and Consent Solicitation, have Existing Bonds held by them exchanged for up to 8,422,800 New Ordinary Shares with an aggregate value (at the Issue Price) of up to £0.4 million (US$0.6 million), applying a fixed exchange rate of £1:US$1.5171. Given the current level of underwriting commitments, the maximum aggregate principal amount of Existing Bonds which may be exchanged through the Mandatory Debt-for-Equity Exchange is US$0.6million (being approximately 0.2 per cent. of the aggregate principal amount of the outstanding Existing Bonds) and will reduce (on a pound for pound basis) if:

· the amount raised in the Rights Issue (including, for the avoidance of doubt, through the rump placing (as described above)) exceeds £104.0million (US$157.7million); and/or

· the Company receives any New Voluntary Debt-for-Equity Exchange commitments from Existing Bondholders or any additional Cash Underwriting commitments after the date of the Prospectus.

The Underwriter is not providing any underwriting commitment in respect of the Mandatory Debt-for-Equity Exchange or any New Voluntary Debt-for-Equity Exchange commitments, but the relevant Existing Bonds will be blocked as part of the transaction arrangements.

In the period between the date of the Prospectus and 20 February 2015, New Voluntary Debt-for-Equity Exchange commitments may be granted by Existing Bondholders. These New Voluntary Debt-for-Equity Exchange commitments will be granted on equivalent terms to those of the Existing Voluntary Debt-for-Equity Exchange commitments described above but are subject to different contractual arrangements as these commitments will not be underwritten by the Underwriter and they will not be settled as part of the Rights Issue. Any Existing Bondholder who enters into a New Voluntary Debt-for-Equity Exchange commitment will, in accordance with the provisions of the Bond Exchange Offer and Consent Solicitation, be required, if called upon to do so, to exchange their Existing Bonds which are the subject of these arrangements for up to such number of New Ordinary Shares as have an aggregate value (at the Issue Price) equal to the aggregate principal amount of the Existing Bonds so committed (applying a fixed exchange rate of £1:US$1.5171). As described above, if there is strong demand for New Voluntary Debt-for-Equity Exchange commitments and/or Cash Underwriting commitments after the date of the Prospectus, these applications and existing sub- underwriting commitments may be scaled back after the Mandatory Exchange Offer Bonds have been reduced to zero in accordance with the terms set out in the Exchange Offer and Consent Solicitation Memorandum.

It is intended that the number of New Ordinary Shares then underwritten and those the subject of New Voluntary Debt-for-Equity Exchange commitments and the resultant number of Existing Bonds (if any) the subject of the Mandatory Debt-for-Equity Exchange will be publicly announced by the Company prior to the General Meeting.

The Priority Election Mechanism

The priority election mechanism, which is set out in the Exchange Offer and Consent Solicitation Memorandum provides an incentive for Existing Bondholders to consider some level of voluntary participation in the Refinancing (either through a Cash Underwriting commitment or through a Voluntary Debt-for-Equity Exchange) in order to enhance the likelihood of receiving cash or New Bonds in exchange for their Existing Bonds. In addition, arrangements will be applied to deal with fractional entitlements in relation to Existing Bonds or New Bonds.

Under the priority election mechanism, those Bondholders who have committed to:

· Cash Underwriting before or after the date of the Prospectus; and/or

· An Existing Voluntary Debt-for-Equity Exchange commitment prior to the date of the Prospectus or to a New Voluntary Debt-for-Equity Exchange commitment after the date of the Prospectus,

will have priority (on the basis set out in the Exchange Offer and Consent Solicitation Memorandum) in relation to the allocation of cash and New Bonds in accordance with their elections under the Bond Exchange Offer and Consent Solicitation as to receipt of cash and/or New Bonds, subject to scaling back of their commitments in accordance with the terms set out in the Exchange Offer and Consent Solicitation Memorandum.

Waivers and consents from Senior Lenders

The implementation of the Refinancing requires consents and/or waivers in respect of certain covenants under the Financing Agreements from the Senior Lenders including ICBC. Save as set out below in this section, the Company has signed definitive documentation with the Senior Lenders for these arrangements, some of which are conditional on implementation of the Refinancing as described in paragraph 9 of Part 11 of the Prospectus (Additional Information).

Implementation of the Refinancing is conditional on the Bank Waivers becoming effective, including ICBC agreeing an extension to the drawdown period under the ICBC Facility, to enable IRC to draw down the remaining undrawn portion of that facility.

Upon execution of the remaining definitive documentation between Sberbank and some of the Company's subsidiaries (and satisfaction of any conditions precedent relating to the same) which is due to take place prior to the commencement of dealing in the Nil Paid Rights and upon ICBC agreeing the extension of availability period as set up above, the Group would have received all consents required from the relevant Senior Lenders for implementation of the Refinancing. These Bank Waivers, certain of which are conditional on the Refinancing being implemented, provide and/or will provide certain waivers in respect of the financial covenants as at the end of 2014 and during 2015. Further information on the Bank Waivers is set out in Part 11 of the Prospectus (Additional Information).

Use of Proceeds

It is currently expected that pursuant to the Refinancing 3,102,923,272 New Ordinary Shares will be issued. Although it is possible that all of these New Ordinary Shares will be issued for cash, the Company expects that only a portion will be and the remainder will be issued in exchange for Existing Bonds pursuant to the Bond Exchange Offer and Consent Solicitation. At least 1,015,094,588 New Ordinary Shares will be issued for cash raising net cash proceeds of £50.8 million (US$77.0 million) as a result of Cash Underwriting commitments secured by the Company from certain of the Existing Bondholders and Founder Entities.

These net cash proceeds of the Rights Issue will be applied as follows:

· approximately £16.4 million (US$24.9) million of the cash proceeds will be used to pay fees and expenses relating to the Rights Issue and Bond Restructuring; and

· the balance of the cash proceeds will be applied in funding the cash element of the Bond Exchange Offer and Consent Solicitation. For the reasons noted above, the quantum of Existing Bonds to be redeemed for cash will not be known until the results of the Rights Issue and the rump placing are known.

Any Existing Bonds not redeemed for cash will either be exchanged for New Ordinary Shares or New Bonds, in each case pursuant to the Bond Exchange Offer and Consent Solicitation.

Following completion of the Rights Issue and the Refinancing, the Company will have the following capital structure:

Following completion of the Rights Issue and the Refinancing it is expected thatthe Group's net debt will be reducedto around US$700 million.

Board Changes

On 5 November 2014, Dr Pavel Maslovskiy returned to the Board and the Group as Chief Executive Officer.

The Board recognises that given the reduced size of the Company's market capitalisation relative to its previous levels, following completion of the Refinancing, the size of the Board will be reduced to seven members.

The reduced Board will consist of three executive Directors: Mr Peter Hambro (Chairman), Dr Pavel Maslovskiy (Chief Executive Officer) and Mr Andrey Maruta (Chief Financial Officer) and four non-executive Directors. The non-executive Directors will comprise Sir Roderic Lyne and three other Directors, two of whom will be selected by the Nomination Committee from a list of candidates put forward Norman Broadbent, independent external consultants. Existing Bondholders may propose candidates to be included or select candidates from a list put forward by Norman Broadbent, and shall have the right to nominate up to two non-executive Directors for consideration by the Nomination Committee. In the event that the Nomination Committee does not recommend appointment to the Board in relation to one or both non-executive Directors proposed by the Existing Bondholders, the Existing Bondholders, shall be entitled to propose further candidates until two non-executive Directors who are nominated or selected by Existing Bondholders are appointed to the Board. The Board changes will be notified to the market as soon as they have been implemented. The composition of the Board Committees will also be reviewed.

The Bond Restructuring

The Company and the Participating Bondholders have agreed to a restructuring of the Existing Bonds with the following principal terms:

· The Bond Restructuring will be implemented by way of the Bond Exchange Offer and Consent Solicitation pursuant to which eligible holders of the Existing Bonds will receive an offer to exchange their Existing Bonds for a combination of New Bonds and/or cash, with New Ordinary Shares to be issued to Existing Bondholders who have agreed or agree to the Cash Underwriting and/or the Voluntary Debt-for-Equity Exchange and to the extent that the Mandatory Debt-for-Equity Exchange is applied. All Bondholders, whether or not they participate in the Cash Underwriting (which all non-US Existing Bondholders will be given the opportunity to do), and/or Voluntary Debt-for-Equity Exchange will receive the nominal value of their Existing Bonds either in cash and/or New Ordinary Shares (only if they participate in the Cash Underwriting, the Voluntary Debt-for-Equity Exchange and/or the Mandatory Debt-for-Equity Exchange is applied), valued at the Issue Price on the basis of a fixed £1:US$1.5171 exchange rate of and/or the issue of New Bonds even if they do not accept the Bond Exchange Offer and Consent Solicitation. The allocation of the different forms of consideration will depend on the application of the priority election mechanism set out in the Exchange Offer and Consent Solicitation Memorandum, the level of exercise of Rights pursuant to the Rights Issue and the number of subscribers procured by the Underwriter in the rump placing, if any; and

· The Bond Restructuring is conditional on, amongst other things (i) the Bondholder Resolution (to approve the Refinancing and make certain amendments to the Existing Bonds Trust Deed and the Terms and Conditions of the Existing Bonds, the Existing Bonds Agency Agreement and the Existing Bonds Deed Poll in connection therewith) being passed by at least 75 per cent. of the votes cast by holders of the Existing Bonds with the requisite quorum for such meeting being not less than two-thirds of the principal amount of Existing Bonds outstanding (or at any adjourned meeting, not less than one- quarter), (ii) the Rights Issue becoming unconditional. A group of Bondholders (the Participating Bondholders) representing more than 71 per cent. of the principal amount of the outstanding Existing Bonds have undertaken, through the execution of the Recapitalisation Agreement, to vote in favour of the Bondholder Resolution. The Participating Bondholders include an ad hoc committee of six institutions, holding or representing approximately 52 per cent. of the principal amount of the outstanding Existing Bonds, as well as an additional four institutions, themselves holding or representing approximately 19 per cent. of the principal amount of the outstanding Existing Bonds.

The Bond Restructuring is not able to be terminated after Admission.

It is proposed that an early bird consent fee of 0.25% will be payable on closing of the Refinancing to any Bondholders who agree to vote in favour of the Bondholder Resolution by the Early Bird Deadline Date, to be set in the Exchange Offer and Consent Solicitation Memorandum, in respect of the outstanding principal amount of the Existing Bonds in relation to which such agreement to vote is made.

Terms of the New Bond

The following is a summary of certain principal terms of the New Bonds, further information on which is set out in Part 10 of the Prospectus (Summary of the Bond Restructuring and the Terms And Conditions of the New Bonds):

· The Issuer will be Petropavlovsk 2010 Limited;

· The Guarantor will be the Company;

· The New Bonds will have an issue price of 100 per cent. of their principal amount;

· The New Bonds will rank as senior unsecured bonds;

· The New Bonds will not have a credit rating;

· Unless previously purchased and cancelled, redeemed or converted, the New Bonds will be redeemed on 18 March 2020 at their principal amount;

· The New Bonds will have an aggregate nominal value of US$100 million;

· Interest will be at a rate of 9 per cent. per year, payable quarterly in arrear;

· The Exchange Price for the New Bonds will be 8.26 pence per share which equates to a 50 per cent. premium to the TERP. The conversion period will commence 41 days after the issue date and will terminate on the sixth day prior to the final maturity date. The Exchange Price will be adjusted in certain circumstances. At the option of the Issuer, the settlement on conversion will be the resultant new Shares or cash of an equivalent value;

· The Issuer will have a right to redeem the New Bonds then in issue (i) at any time on or after 19 March 2018, if the Aggregate Value (as defined in the terms and conditions of the New Bonds), for not less than 20 dealing days in any period of 30 consecutive dealing days, ending not more than 14 days prior to the giving of the relevant optional redemption notice, exceeds US$1,500; or (ii) if, at any time, prior to the date the relevant Optional Redemption Notice (as defined in the terms and conditions of the New Bonds) is given, the right to convert the New Bonds into Preference Shares of Petropavlovsk 2010 shall have been exercised and/or purchases and/or redemptions effected in respect of 90 per cent. or more in principal amount of the New Bonds originally issued;

· The New Bonds will be listed in London and admitted to trading on the PSM;

· There are restrictions on the granting of security by Petropavlovsk 2010, the Company (as guarantor) or any of its Principal Subsidiaries (as defined in the terms and conditions of the New Bonds), subject to limited exceptions, including in relation to refinancing indebtedness;

· There are restrictions on the incurrence of financial indebtedness unless the consolidated leverage ratio is 2.5 to 1 or lower, subject to limited exceptions;

· There are restrictions on the payment of dividends by Petropavlovsk 2010, the Company (as guarantor) or any of its Principal Subsidiaries (other than dividend payments to a member of the Group) unless the consolidated leverage ratio does not exceeding 2.0 to 1;

· There are restrictions on certain affiliate transactions unless (i) the affiliate transaction is on arm's length terms; (ii) if such affiliate transaction involves an aggregate consideration in excess of US$10 million, the Company shall deliver a director's certificate; and (iii) if such affiliate transaction involves an aggregate consideration in excess of US$20 million, the Company shall deliver a fairness opinion provided by an independent appraiser;

· There are restrictions on certain asset sales unless consideration received for such asset sales is at least equal to the fair market value of such assets (such fair market value to be tested by an independent appraiser if the book value of such asset exceeds 5 per cent of consolidated total assets, or US$100 million, whichever is greater);

The Company has information obligations to holders of the New Bonds in respect of certain events;

· Petropavlovsk 2010 and the Company undertake to use reasonable endeavours to make sure that (amongst others) senior bank facility documents shall not contain provisions pursuant to which a default would arise solely as a result of the fact that any sanction has been imposed.

Further details in relation to the principal terms of the New Bonds are set out in Part C in Part 10 of the Prospectus (Summary of the Bond Restructuring and the terms and conditions of the Bonds).The Trust Deed constituting the New Bonds contains no material changes to the provisions of the Trust Deed constituting the Existing Bonds save for provisions required to implement the terms above.

The Bond Exchange Offer and Consent Solicitation documentation is being made available to eligible Bondholders who request copies, concurrently with the despatch of the Prospectus to Shareholders.

Important Notice

This announcement is for information purposes only and does not constitute an invitation or offer to buy, sell, issue, underwrite, acquire or subscribe for, or the solicitation of an offer to buy, sell, issue, acquire or subscribe for any Nil Paid Rights, Fully Paid Rights and New Ordinary Shares (the "Securities"), nor shall there be any sale of any Securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions.

In particular, this announcement does not constitute or form part of any offer to buy, sell, issue, acquire or subscribe for, or the solicitation of an offer to buy, sell, issue, acquire, or subscribe for, any Securities in Australia, Canada, Japan, the Russian Federation (or to the benefit of an Russian person, except as may be permitted by Russian law), the Republic of South Africa or any other jurisdiction into which such offer or solicitation would be unlawful. No public offering of any Securities referred to herein is being made in Australia, Canada, Japan, the Russian Federation, the Republic of South Africa or any other jurisdiction where such a public offering would be unlawful.

This announcement is not an offer of any Securities for sale in the United States. The Securities referred to above have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the "US Securities Act") or under any securities laws of any state or other jurisdiction of the United States and may not be offered or sold in the United States except pursuant to an applicable exemption from or in a transaction not subject to the registration requirements of the United States in the US Securities Act and the rules and regulations thereunder. There has not been and will not be a public offer of the Securities in the United States.

Acquiring investments to which this announcement relates may expose an investor to a significant risk of losing all of the amount invested. Persons considering making such investments should consult an authorised person specialising in advising on such investments.

The distribution of this announcement in certain jurisdictions may be restricted by law. No action has been taken that would permit an offering of any Securities or possession or distribution of this announcement or any other offering or publicity material relating to such Securities in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required to inform themselves about, and to observe, such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement, to the extent it constitutes an invitation or inducement to engage in investment activity for the purposes of section 21 of the Financial Services and Markets Act 2000 (as amended), is only directed at persons outside the United Kingdom and persons in the United Kingdom (i) having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order"), (ii) who are high net worth entities falling within Article 49(2)(a) to (d) of the Order, or (iii) other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as "relevant persons"). This announcement must not be acted or relied on in the United Kingdom by persons who are not relevant persons.

In addition, if and to the extent that this announcement is communicated in, or an offer of the Securities to which it relates is made in, any EEA Member State that has implemented Directive 2003/71/EC as amended by Directive 2010/73/EU (together with any applicable implementing measures in any Member State, the "Prospectus Directive") before the publication of a prospectus in relation to the Securities which has been approved by the competent authority in that Member State in accordance with the Prospectus Directive (or which has been approved by a competent authority in another Member State and notified to the competent authority in that Member State in accordance with the Prospectus Directive), this announcement is only addressed to and directed at persons in that Member State who are "qualified investors" within the meaning of Article 2(1)(e) of the Prospectus Directive (or who are persons to whom the offer may lawfully be addressed) and must not be acted on or relied on by other persons in that Member State.

Merrill Lynch International, which is authorised in the United Kingdom by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority, is acting exclusively for the Company and no-one else in connection with the Refinancing. It will not regard any other person as its clients in relation to the Refinancing and will not be responsible to anyone other than the Company for providing the protections afforded to its client, nor for providing advice in relation to the Refinancing, the contents of this announcement or any transaction, arrangement or other matter referred to herein. SIB (Cyprus) Limited ("SIB"), which is an investment firm authorised and regulated in the Republic of Cyprus by the Cyprus Securities and Exchange Commission (License KEPEY 066/06 dated 15 June 2006) is acting in the role of joint Project Co-ordinator exclusively for the Company and no-one else in connection with the Refinancing. It will not regard any other person as its clients in relation to the Refinancing and will not be responsible to anyone other than the Company for providing the protections afforded to its client, nor for providing co-ordination in relation to the Refinancing, the contents of this announcement or any transaction, arrangement or other matter referred to herein. Sberbank CIB is a marketing name for investment banking business of SIB and its affiliates worldwide which are appropriately licensed in accordance with the regulatory requirements of applicable jurisdictions. Sberbank CIB deal team members may be employees of SIB or of any its affiliates. SIB is an affiliate of Sberbank of Russia, one of the Senior Lenders.

Each of Merrill Lynch International and Sberbank CIB is a full service financial institution engaged, either directly or indirectly, in a broad array of activities, including trading, commercial and investment banking, financial advisory, market making and trading, investment management (both public and private investing), investment research, principal investment, financial planning, benefits counselling, risk management, hedging, financing, brokerage and other financial and non-financial activities and services globally. In the ordinary course of their various business activities, each of Merrill Lynch International and Sberbank CIB and funds or other entities in which Sberbank CIB invests or with which Sberbank CIB co-invests may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for its own account and for the accounts of customers and clients. In addition, each of Merrill Lynch International and Sberbank CIB may at any time communicate independent recommendations and/or publish or express independent research views in respect of such assets, securities or instruments. Any of the aforementioned activities may involve or relate to assets, securities and/or instruments referred to herein and may conflict with the interests of persons into whose possession this announcement comes. In addition, Sberbank CIB may provide investment banking, commercial banking, underwriting and financial advisory services to such other entities and persons. Each of Merrill Lynch International and Sberbank CIB does not intend to disclose the extent of any such investment, transactions or arrangements otherwise than in accordance with any legal or regulatory obligations to do so.

This announcement has been issued by and is the sole responsibility of Petropavlovsk PLC. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Merrill Lynch International, SIB by any of their respective subsidiary undertakings, affiliates or any of their respective directors, officers, employees, advisers, agents or any other person as to, or in relation to, the truth, accuracy, completeness or fairness of the information or opinions in this announcement (or whether any information has been omitted from this announcement) or any other information, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available to or publicly available to any interested party or its advisers or for any loss howsoever arising from any use of this announcement or its contents or otherwise arising in connection therewith, and any liability therefore is expressly disclaimed. No reliance may or should be placed by any person for any purposes whatsoever on the information contained in this announcement or on its completeness, accuracy or fairness.

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

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

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

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

Capitalised terms not otherwise defined in this announcement have meanings given to them in Part 14 of the Prospectus.