Petropavlovsk 2016 Results

26 April 2017

Petropavlovsk PLC

Annual Results for the Year Ended 31 December 2016

Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together with its subsidiaries, the "Group") today issued its audited annual results for the year ended 31 December 2016.

Peter Hambro, Chairman, comments: "2016 has been a transformative year for Petropavlovsk as we returned to profitability, refinanced our debt with our Russian lenders and proceeded with several major production initiatives, including our POX Hub and underground mining at Pioneer and Malomir. Looking ahead the Group is well positioned to execute on its long term corporate strategy and to create value through organic growth and delivering sustainable cash flow."

Financial Highlights

§ Underlying EBITDA of US$200.1m, a 16% improvement on 2015 primarily due to contribution from mines as a result of higher realised gold price achieved and improvement in TCC.

§ Group total cash costs (TCC) of US$660/oz, outperformed guidance and was a 12% improvement on 2015, due to cost optimisation measures and positive effect of Rouble depreciation.

§ Group all in sustaining cash costs (AISC) were in line with guidance at US$807/oz, an 8% improvement on 2015.

§ Average realised gold price of US$1,222/oz (including US$(21)/oz effect from hedging), an increase of 4% on 2015. Gold sales of c.400,000oz, 17% lower than 2015.

§ The Group had forward contracts to sell 50Koz of gold at an average price of US$1,303/oz and 547Koz of gold at an average price of US$1,253/oz as at 31 December 2016 and 26 April 2017, respectively.

§ Net profit of US$31.7m (EPS: US$0.01), compared to a net loss of US$297.5 million for 2015, which reflects improvement in underlying EBITDA, substantially lower losses from IRC Limited (IRC) and deferred tax credit (mostly due to Rouble devaluation).

§ Capital expenditure of US$29.4m, a reduction of 10% from 2015.

§ Successful refinancing of c.US$430 million of the Group's bank debt, including a revised maturity profile until September 2022 subject to certain conditions being satisfied. US$100m commodity linked loan facility remains on schedule for completion of final documentation, effective May 2017.

§ Reduction in the year end Net Debt to US$598.6m vs US$610m as at 31 December 2015. Bringing a 15% improvement in the Net Debt/ EBITDA ratio to 3:1 in comparison with the full year 2015.

Operational Highlights

§ Gold production of 416,300oz in line with revised 2016 guidance, a 17% reduction from 2015. This was predominantly due to a strategic focus on production of profitable ounces and the impact of extreme weather conditions on the mining schedule.

§ Commenced development of our maiden underground mine at Pioneer's high grade NE Bakhmut in Q2 2016. First production scheduled for Q2 2017.

§ Total of 20.2Moz Mineral Resource, including 8Moz Ore Reserves. Ore Reserves primarily impacted by mining depletion and the strategic disposal of non-core assets, while partially offset by additions of 1Moz reserves from Albyn's Elginskoye deposit and 370koz maiden underground reserve.

Notes

(1) Note 34 to the Consolidated Financial Statements

(2) Note 29 to the Consolidated Financial Statements

Development Highlights

§ Pressure Oxidation Hub (POX Hub)

o US$430m debt refinancing allows 100% self-funding of the POX Hub from internal cash flow generated by the Group's current non-refractory operations assuming an average US$1250/oz gold price throughout the construction and ramp up phase.

o Updated project economics (assuming US$1,200/oz gold and USD:RUR 60)

§ NPV: US$603m (post tax 10%)

§ IRR: 65%

o In 2016, key contracts were executed, namely industry leader, Outotec, were reinitiated as the project managers. All orders for long lead items were placed.

o POX Hub 65% construction complete, as at 31 December 2016. Full scale construction was resumed in January 2017. Staged commissioning from Q4 2108.

o Malomir Flotation Plant (Stage 1: 3.6Mtpa) 90% construction complete. Scheduled to complete and commission from Q4 2017. Production, trucking and stockpiling throughout 2018 ensuring a steady autoclave staged ramp up.

§ Pioneer Underground

o Increased underground Mineral Resource and defined first underground Ore Reserve

§ Total 460koz Resource, an increase of 194% from 2015.

§ Including 165koz Reserve @ 4.46 g/t.

o NE Bakhmut Underground

§ 100% of the defined 165koz Reserve is within NE Bakhmut, sustaining a viable 6 year life of mine.

§ 2016 drill programme results in a 300% uplift in Mineral Resource to 299Koz

§ Underground potential remains open in multiple directions, offering further potential for high grade mine life expansion.

§ Appointed underground contractor for immediate mobilisation of personnel and equipment.

§ Development and ventilation portals completed in H2 2016, with development decline progressing well, totalling 675m at 31 December 2016. First production schedule for Q2 2017.

§ Malomir (Quartzitovoye) Underground

o Increased underground Mineral Resource and defined first underground Ore Reserve

§ Total 283koz @ 6.58 g/t resource including 207koz @ 5.85 g/t reserve, sustaining a viable 6 year life of mine.

§ Orebody remains open in multiple directions, offering further potential for high grade mine life expansion.

o Appointed underground contractor for mobilisation of personnel and equipment in Q1 2017. First production scheduled for H2 2017.

2017 Targets

§ Gold production for 2017 is forecast between 420,000-460,000oz per annum, predominantly from open pit operations as underground production is scheduled to commence at Pioneer and Malomir in Q2 and H2, respectively, and ramp up gradually.

§ Total cash cost (TCC/oz) guidance of US$600-700/oz and all in sustaining cash costs (AISC/oz) of US$800-900/oz

§ Commence and ramp up underground production at Pioneer's high grade NE Bakhmut, with ongoing development. Further enhance understanding of high grade underground zones with reserve and resource infill and exploration underground drill programme.

§ Commence and ramp up underground production at Malomir's high grade Quartzitovoye, with ongoing development.

§ Complete construction of Malomir flotation plant (Stage 1) in preparation for refractory concentrate production and stockpiling at the POX Hub throughout 2018, ahead of commissioning in Q4 2018.

§ Capital expenditure for 2017 is expected to be c.US$100m-US$110m including c.US$15-20mln exploration capex and US$85-90mln development and maintenance capex. Development capex is predominantly comprised of POX Hub and Malomir flotation plant expenditures.

Corporate Strategy

Petropavlovsk remains focused on optimising its current asset base. The Company continues to maximise cash generation from its four operating mines, Pioneer, Albyn, Malomir and Pokrovskiy, while creating value for equity investors by growing sustainable cash flows via expansion due to successful exploration and development of the POX Hub and underground operations at Pioneer and Malomir. It is based on the quality of our assets, our focus on operational and development excellence, and our experience, demonstrated by management's track record of driving meaningful organic growth.

 IRC Limited (POG 31.10% equity shareholder)

Petropavlovsk is a shareholder (31.1%) of IRC and is the guarantor of the US$340m project finance facility (US$234m principal outstanding, as at 31 December 2016). IRC is a vertically integrated iron ore producer and developer in the Russian Far East and North Eastern China. IRC is listed on the Hong Kong Stock Exchange (Ticker: 1029.HK).

IRC Annual Results for the year ended 31 December 2016:

§ Financials

o Net loss reduced by 96% to US$18.2 million (31 December 2015: US$509.0 million)

o Underlying results excluding impairment charges reduced by 37% to US$18.2 million (31 December 2015: US$28.9 million)

o Overall cost reduced by 67% to US$35.2 million (31 December 2015: US$106.7 million)

§ Corporate

o Successfully completed equity fundraising of US$25 million with a core investor

o Amicable settlement with CNEEC, received cash compensation of US$4.5 million and outstanding construction payment liability reduced by US$3.9 million

§ Operations

o K&S began shipments to customers in China - products well received with good market demand

o Care and maintenance process satisfactory in Kuranakh, assessing feasibility of re-opening and other options

IRC Q1 for the three months ended 31 March 2017:

§ Produced 316,770 tonnes of iron ore concentrates (Up 120% compared to Q4 2016)

§ Sold 321,886 tonnes of iron ore concentrates (Up 168% compared to Q4 2016)

§ Cash flow positive operations from K&S for the first full quarter

§ Operated at peak of c. 75% plant capacity in March, after repair of ball mill, with steady c.50% capacity achieved

§ Full processing operations now estimated to reach full capacity in 2H 2017.

Q1 2017 Production Results and Conference Call

Petropavlovsk will be publishing their Q1 2017 Production Results tomorrow, Thursday 27 April 2017, at 0700 BST.

There will be a conference call hosted after the results at 09.00 BST. Please find details below:

Call Details

UK toll free number 0800 368 0649

UK Local number 020 3059 8125

International participant + 44 20 3059 8125

To join the call, please use:

Participant Password: Petropavlovsk

About Petropavlovsk

Petropavlovsk is one of Russia's leading gold mining companies, operating some of the largest gold mines in Russia in terms of gold production, processing capacity and resource base. As at 31 December 2016, the Company had produced approximately 6.3Moz of gold.

Petropavlovsk is in the construction phase of a state of the art pressure oxidation facility to process the Company's substantial refractory resource base. The Company's combined 3,600km2 license holding has untapped resource potential. The Company is a leading employer and contributor to the development of the local economy in the Amur region, Russian Far East, where it has operated since 1994.

Petropavlovsk is a shareholder (31.1%) of IRC Limited and is the guarantor of the US$340m project finance facility (US$234m principal outstanding, as at 31 December 2016). IRC is a vertically integrated iron ore producer and developer in the Russian Far East and North Eastern China. IRC is listed on the Hong Kong Stock Exchange (Ticker: 1029.HK).

Petropavlovsk is listed on the Main Market of the London Stock Exchange (Ticker POG.LN)

Enquiries

For more information, please visit www.petropavlovsk.net and www.ircgroup.com.hk or contact:

Petropavlovsk plc

Alexandra Carse

Grace Hanratty

+44 (0) 20 7201 8900

[email protected] 

Maitland

Neil Bennett

James Isola

+44 (0) 20 7379 5151

[email protected] 

Chairman's Statement

At the end of another busy year, it is a pleasure to be able to say that Petropavlovsk has achieved in 2016 many of the goals that I set out in my Chairman's Statement for 2015, and a pleasure to introduce you to our 2016 Annual Report and Accounts. It was, indeed, a transformative year, not least because the Group returned to profitability. Our net profit increased by 111%, much of which was accomplished thanks to a 4th consecutive year of cost reduction in addition to reduction in impairment losses in IRC, and, with IRC becoming an associate to the Group, limiting exposure to their results to our ownership. We must thank the efforts of all concerned to maintain a disciplined focus on cost control, in turn enabling us to maximise the margin on which our success depends, though cost control by itself will not deliver profit. I am pleased to note that production from our established open pit operations was in line with our revised guidance, delivering the sustainable cash flow that my 2015 statement hoped for.

Following the 2015 capital restructure, our team began the refinancing process with our Russian lenders. In this task, we needed to get the banks to extend the maturity profile of their loans to us so that the new maturity profile would match our production. I am pleased to say that this was achieved successfully and that the banks, understanding the importance of our plans to restart the POX Hub project for the treatment of refractory ore, agreed to encompass the capital expenditure that this would involve in nearby years. This allows us to unlock 100% of the value otherwise encapsulated in the c.4 million ounces of gold reserves in the quartz/sulphur matrix that is refractory ore. We continue to expect that the cost per ounce to produce this will not be significantly different from those we have seen in our non-refractory operations.

The POX Hub remains our core organic growth development project and key value driver for the business. The bank refinancing, while increasing near term capex for the Company, means that we no longer needed to give away part of the value in the POX Hub. Construction is 65% complete and scheduled for commissioning in Q4 2018. In 2016, we also took our first steps underground, a natural progression for us as a hitherto open pit operation with a vast refractory reserve and resource base. Both Pioneer and Malomir licenses host sources of high grade ore and the feasibility work supported operations.

Our corporate strategy is to create value for equity investors by growing our sustainable cash flows and to do this by continuing our efficient and successful exploration and development programmes. It remains our intention to deliver a meaningful share of the cash flow to shareholders as soon as the debt burden is substantially reduced. The advent of our underground operations in the nearest future and that of our production from the refractory ores is scheduled to do this. The team needs us to maximise the benefits inherent in our high quality assets - both material and personal, using the excellence and experience that is demonstrated by management's track record.

Reserves and Resources, tonnes and grade are the watchwords of the gold mining industry and we have updated you accordingly. 2016 exploration has brought considerable infill success, including a 340% increase in Reserves at the Elginskoye/Albyn complex, approximately a 200% increase in underground Resource at Pioneer, as well as a brand new greenfield discovery between Pokrovskiy and Pioneer.

2016 was also a significant year for IRC, the iron ore producer on the Chinese border in which our company holds a 31% stake, and whose borrowings from ICBC we guarantee. Following a challenging period, I am delighted to say that, as of its first quarter's results, it is now a cash generative operation and our shareholding in IRC is, in my view, is of significant potential value to the Company. I am very grateful to our team, the financiers at ICBC and Sinosure, and the contractor CNEEC, for the way in which the issues were finally resolved.

With the refinancing and rescheduling of our bank debt behind us and the excellent prospects for underground mining, the pressure oxidation of refractory ore and the new discoveries of gold ahead of us, I feel confident about our long term plans; particularly so at today's higher gold prices, even though we have protected ourselves by some 600,000 ounces of price hedging. Indeed so confident am I that the Board and I have felt it appropriate now to address the succession planning issues that our Board Review has highlighted.

Petropavlovsk is unique in being a British company with a London Board and with all its assets located in the Russian Federation and managed and operated by local people. Having managed the London end of this business for 23 years, with Pavel Maslovskiy running the Russian end, in good times and in bad, I have a clear understanding of what is involved and realise that passing on the baton will not be an easy task. As is usual in such matters, the Board has decided that the task of advancing succession matters should be undertaken by the Nomination Committee. This is in progress: Alex Green has joined Andrew Vickerman and Robert Jenkins on this Committee and I will retire from the committee and as its Chairman.

I should like to thank Robert Jenkins for taking over the role of Senior Independent Director from Sir Roderic Lyne and also to thank my other colleagues on the Board for the time and effort they have devoted to the company during the year. In addition, and on behalf of my colleagues, I want to thank the executives, the managers and all the teams that have contributed to the success of 2016.

Peter Hambro,

Chairman

CEO Statement

2016 was a transformational year for Petropavlovsk shaped by the refinancing of our bank debt, enabling the construction ramp up of our landmark POX Hub. The business returned to profitability as supported by a fourth consecutive year of cost reductions, and the operational progression into underground mining as we access the high grade reserve and resource potential that extends below our existing pits, further sustaining our long life of mine.

Solid Foundation

Our established, bulk tonnage, open pit non-refractory operations enabled us to deliver total annual production of 416koz, in line with revised guidance. Unexpected weather conditions experienced throughout the year intermittently impaired mining and in particular access to scheduled high grade ore at Andreevskaya. These ounces were deferred to the 2017 mine plan and require increased blending of lower grade stockpile material. This resulted in a 20% reduction in average processed grade from 2015. Cost control and operational efficiencies remain critical to our strategy. Without these we would not have been able to deliver another year of reduced costs:

· TCC of US$660/oz, a 12% reduction on 2015 and below our US$700/oz 2016 guidance

· AISC of US$807/oz, an 8% reduction on 2015 and in line with 2016 guidance.

This marked the fourth consecutive annual reduction in TCC and AISC representing a 35% reduction since 2013, due to cost optimisation measures and positive effect of Rouble depreciation.

In 2016, the Resin-in-Pulp (RIP) plants operated at full capacity with Group throughput of 16.2Mt, a 2% increase on 2015. The responsible optimisation of productivity and operational efficiency remains central to our way of working. As such, following extensive research and testing throughout the year, we implemented a dedicated resin treatment facility at Pokrovskiy designed to improve the processing efficiency of the resin sorption at the Group "RIP" plants. We expect this to significantly reduce the impact of gold in circuit, thereby increasing productivity.

In 2016, our solid and stable asset base and operational excellence have allowed us to generate positive operational cash flows and return to profitability. We achieved net profit of US$31.7m, resulted to a large extent from higher profitability of our operations and the reduced impact from IRC. Underlying EBITDA was US$200.1 million, an improvement of 16% on 2015 due to maximised margins.

Underpinning our business model is our exploration success in unlocking the abundant gold potential within our 3,600km2 license holding. Our current 20.2Moz Resource, supporting greater than a 15 year life of mine, demonstrates our value in investing our long term sustainability.

Targeted exploration on replenishing depleted ounces, resource to reserve conversion and exploring brownfield near term non-refractory potential was very successful in 2016. We converted 1.6Moz of Resources to Reserves of which the majority were at our 100% non-refractory Albyn mine, Elginskoye deposit. Instrumental to our strategic growth objectives, we defined our first underground Reserve of 370koz, underpinning an initial 6 year life of mine at both Pioneer and Malomir.

Building for the Future

It is important to remember that Petropavlovsk's foundations lie at Pokrovskiy, acquired in the early stages of exploration in 1994 and which subsequently became the backbone of the Group. As the mine nears the end of its reserve life, we made the strategic decision to develop it into the base for the POX Hub. Its excellent operational infrastructure, skilled labour, proximity to regional infrastructure and access to naturally occurring limestone drove our decision.

The refinancing of our bank debt was paramount to the achievements of 2016 and has opened up our future opportunities. With the agreement that Petropavlovsk retained 100% of the value of our core growth project, the POX Hub, my colleagues and our partners, Sberbank and VTB, successfully extended the debt maturity profile, in line with our production profile, thereby enabling us to fund development out of free cash flows (assuming a prevailing gold price of $1,250/oz).

Unlocking 4Moz refractory Reserves embedded within our existing asset base, equivalent to approximately 50% of our current Ore Reserves, represents meaningful value to Petropavlovsk. Following the refinancing, together with independent consultants, we updated our project economics, giving an IRR of 65% and NPV10 of US$603 million, adding a minimum of 200koz per annum to our production profile at a steady rate.

At Malomir, currently producing 57koz in 2016 completing the POX Hub will grow its production profile to make it the largest contributing Group asset by 2019 with a falling cost trajectory in-line with current group operating costs of c.US$700/oz.

Development progresses at full scale and is currently under budget. In 2016, Outotec contracts were reinitiated and orders for long lead items placed. Flotation concentrate production is scheduled to commence at Malomir from H1 2018 for trucking and stockpiling ahead of the POX Hub commissioning from Q4 2018.

Expanding our Expertise  

Prior to 2016, Petropavlovsk was an exclusively open pit operation. Following successful feasibility studies development of our first underground mine at Pioneer began in 2016, with development at Malomir scheduled to commence early 2017. First production is scheduled for H2 2017. We have appointed contractors and development is underway, with 675m of decline development completed at Pioneer by year end.

By and large, Petropavlovsk has utilised an owner-operator business model. However, given underground is a new mining method, with start-up execution risk, we have utilised well respected local contractors to mitigate this risk during this development growth phase. Notwithstanding, the long history of underground mining in the Amur region, access to highly skilled labour and existing expertise within the Group, we intend to bring the underground operational function in house over time.

Our extensive regional experience in gold mining not only within Russia but specifically the Amur region, gives us a competitive edge in a complex marketplace. We have established our presence as a leading employer and contributor to the local economy, nurturing the talent of its people, who in turn have built Petropavlovsk into the business it is today. Senior management, a number of whom have worked for Petropavlovsk for more than a decade, have extensive technical expertise. Together within the larger in house exploration, construction, research, engineering capabilities we have established, our strategic vision of being a fully integrated operating gold miner.

Positioning for Growth

With the development of our POX Hub and underground firmly underway, as we emerge from a period of introspection and optimistically look ahead, 2017 is set to be another pivotal building block towards achieving our vision of being a mid-tier producer of refractory and non-refractory ore from 2019.

I would like to thank the Board and our stakeholders for their guidance in 2016. Further, I would like to thank the management team for their commitment, strength of character and ability to effectively navigate the challenges of the last few years enabling us to reach this juncture.

We look forward to sharing our key milestones throughout this next phase of growth, while maintaining our devoted commitment to maximising sustainable margins, in 2017.

Pavel Maslovskiy,

Chief Executive Officer

Operational Review

Pioneer Mine

Pioneer is one of the Group's most prospective assets, providing near term growth from its underground non-refractory exploration and development potential, and its regional exploration potential (Pioneer flanks). Long term growth includes bringing forward the flotation plant (6.0Mtpa) development, currently scheduled for 2021, and the untapped greenfield exploration potential within its 1,375km2 total license area.

2016 Progress

§ Maintained total cash costs below US$650/oz.

§ Commenced development of our maiden underground mine at NE Bakhmut in Q3.

§ First ore scheduled to be mined from underground in Q2 2017.

§ Significantly increased existing underground Mineral Resource and defined first Ore Reserve at NE Bakhmut

§ Enhanced understanding of high grade underground zones and continuity of mineralisation at depth

2017 Targets

§ Commence mining from underground, ramping up to 200ktpa throughout the year

§ Progress underground development into the deeper NE Bakhmut 3 higher grade main area

§ Ongoing underground reserve and resource drilling

§ Maintain open pit mining and operating excellence.

§ Reduce Lost Time Injury Frequency Rate (LTIFR)

Operational Performance

Pioneer open pits produced 141.9koz (2015: 231.4koz), representing 34% of the Group consolidated annual gold production. Ore was mined from Alexandra, Bakhmut, Vostochnaya and taken from stockpiles. Following extensive waste stripping throughout the year, high grade ore was expected from Andreevskaya East pit in Q4 2016. However, unusual weather conditions resulted in disruptions and ultimately deferred access to the high grade zone (into 2017) resulting in average grade mined of 0.95g/t, 35% lower than 2015.

Underground development has commenced, with stope mining scheduled to start in Q2 2017. Including the ventilation decline, a total of 675m of decline development was completed in 2016.

The RIP plant processed 6.7Mtpa of ore, a 2% increase on 2015. Metallurgical recovery averaged 85.5%, inline with 2015.

The heap leach operation produced 5.3koz.

The plant performed as expected, delivering on all technological performance indicators.

Total cash costs were US$631/oz, in line with 2015. All-in sustaining costs were US$789/oz, a 5% increase from 2015.

2017 Outlook

The 2017 Pioneer production profile is expected to be in line with 2016, underpinned by open pit operations at Alexandra, Yuzhnaya, Promezhutochnaya and NE Bakhmut 4 and 5, in addition to deferred high grade material from Andreevskaya East, as a result of the mining disruptions late in 2016.

Operations are due to begin in 2017 at the maiden underground mine at NE Bakhmut, which is set to provide production upside. High grade underground mining is scheduled to commence in H2 2017. In addition, the underground exploration drilling programme is to begin at the deeper extensions below the defined Resource, where deep surface drilling has intersected high grade mineralisation.

Albyn Mine

Albyn is currently the Company's largest producing mine with a 100% non-refractory defined resource base. The highly prospective 1,100km2 license area is largely under explored, presenting potential near term upside from high grade, non-refractory resources to be discovered. The main orebodies at Albyn are open in a down dip direction beyond of the feasible depth of open pit mining, offering longer term growth potential to establish mineral resource and ore reserves for underground mining.

2016 Progress

§ Reduced total cash costs and all-in sustaining costs by greater than 20%

§ Significantly increased Ore Reserves at Elginskoye, demonstrating sustainable production and extended life of mine potential.

§ Encouraging initial results showing 3km strike extension at Yasnoye.

§ Completed infill drill programme on the southern end of Unglichikan deposit in preparation for mining to commence in 2017.

2017 Targets

§ Commence mining at Unglichikan to provide additional high grade ore for Albyn plant.

§ Drill deeper targets below Albyn pit to model and assess underground potential.

§ Exploration programme at Unglichikan and Afanasevskoye to further expand Albyn's non-refractory reserve and resource base and subsequent life of mine.

§ Sustain open pit mining and operating excellence.

Operational Performance

Albyn produced 180.0koz, representing 43% of the Group's consolidated annual gold production. This was a 14% increase on 2015. Ore was mined throughout the year from Eastern and Northern sections of the pit and processed from stockpiles. The average annual mined grade was 1.25 g/t, a 9% increase on 2015, due to reduction in dilution and mining from the thicker main zone.

The RIP plant processed 4.68Mtpa of ore, a 2% increase on 2015. Metallurgical recovery averaged 93.5%, a marginal improvement on 2015.

The plant performed as expected, delivering on all technological performance indicators.

Now the Group's largest producing mine, Albyn has successfully been a key target for cost reduction. Total cash costs of US$581/oz, a 22% improvement on 2015 and all-in sustaining costs of US$719/oz, a 21% improvement on 2015. This was primarily due to higher processed grades and higher operational recoveries.

2017 Outlook

The 2017 Albyn production profile continues to be underpinned by open pit operations at Albyn, with a moderate contribution from the Unglichikan deposit, as a new pit.

Based on recent successes extending mine life at Albyn with Elginskoye, the key focus for 2017 is on further exploration at Unglichikan and Afanasevskoye, to expand the non-refractory reserve and resource base and subsequent life of mine.

Malomir

Malomir is the Group's largest asset by Reserve and Resource with approximately 90% of the reserve base categorised as refractory ore. Completing the POX Hub, which is scheduled for the end of 2018, will unlock material value embedded with the existing defined asset base and extend the expected life of mine to greater than 16 years, with untapped resource potential within the 964km2 license area.

2016 Progress

§ Reduced total cash cost by 25%

§ Completed underground feasibility study at Quartzitovoye and appointed underground contractor

§ Increased existing underground Mineral Resource and defined first Ore Reserve at Quartzitovoye.

§ Enhanced understanding of high grade underground zones and continuity of mineralisation at depth.

2017 Targets

§ Complete and commission the 3.6Mtpa (Stage 1) flotation plant, with production and stockpiling of refractory concentrate from early 2018 ahead of the POX Hub commissioning.

§ Commenced underground development at Quartzitovoye. Mining scheduled to start from H2 2017.

§ Prepare underground drill chambers ahead of exploration drill programme to delineate the extent and continuity of the high grade mineralisation

§ Sustain open pit mining and operating excellence.

§ Reduce LTIFR

Operational Performance

Malomir produced 56.8koz (2015: 59.1koz), representing 14% of the Group consolidated annual gold production. This was 4% lower than 2015. Ore was mined throughout the year from Quartzitovoye 2, Magnetitovoye, and stockpiles. The average annual mined grade was 1.11g/t, a 10% improvement on 2015. This takes into account waste stripping at Quartzitovoye 1 throughout most of the year, in order to prepare access to ore for 2017.

The RIP plant processed 3.0Mtpa of ore, a 2% increase on 2015. Metallurgical recovery averaged 68.9%, a 3% improvement on 2015. The plant performed as expected in 2016, delivering on all technological performance indicators.

Total cash costs of US$824/oz, a 25% improvement on 2015. All-in sustaining costs of US$1004/oz, a 15% improvement on 2015.

2017 Outlook

The 2017 Malomir production profile is expected to be in line with 2016, with sustainable production upside from underground mining operations commencing in H2 2017.

In Q4 2017, Malomir will begin to transition into the Group's flagship asset in line with the scheduled completion and commissioning of Stage 1 3.6Mtpa flotation plant to process refractory ore. From 2018, Malomir concentrate production and stockpiling will be continue to ensure the POX Hub commissioning, scheduled for Q4 2018, runs smoothly.

Pokrovskiy

Pokrovskiy was the license and subsequently the mine which the Group was built. Today, as it nears the end of its mine life having produced c.2.01Moz since 1999, the mine will transition into the POX Hub, currently under full scale construction. The POX Hub is an integral part of the Group's future plans and Pokrovskiy provides the ideal strategic location, not only due to the excellent onsite and regional infrastructure, but also its close proximity to Pioneer's limestone deposit, lime being a key ingredient for the pressure oxidation process.

2016 Progress

§ Maintained total cash costs

§ In line with our development strategy to transition Pokrovskiy mine into the POX Hub, there was no material exploration in 2016.

§ Completed and implemented resin cleansing facility

2017 Targets 

§ Mining at Pokrovka 1 pit

§ Begin transition to the POX Hub

o Adapt infrastructure, where appropriate

o Staged conversion of the RIP plant.

Operational Performance

Pokrovskiy produced 37.6koz (56koz) representing 9% of the Group's consolidated annual gold production. Ore was mined from Pokrovka 1, Pokrovka 2, satellite deposit Zheltunak and from stockpiles.

Despite the unusual weather conditions causing some delays to the heap leach operations, successful scheduling adjustments meant target stacking and production were achieved as planned. The heap leach operation produced 4.1koz.

The RIP plant processed 1.79Mtpa of ore, unchanged from 2015. Metallurgical recovery at the plant averaged 90.1%, a 7% improvement on 2015, despite 38% decrease in head grade from 1.04 to 0.65 g/t.

The plant performed as expected, delivering on all technological performance indicators.

Total cash costs of US$878/oz, in line with 2015. All-in sustaining costs of US$988/oz, an 8% increase on 2015.

Outlook

As Pokrovskiy is coming to the end of its reserves, RIP production is scheduled to stop at the end of 2017. The heap leach will remain operational throughout the 2018, processing remaining stockpiles. The Group is actively developing the POX Hub, which is scheduled to commence producing refractory concentrate from Q4 2018. Pokrovskiy will continue its life as the POX Hub, Petropavlovsk's strategic processing centre for refractory concentrates.

Following the successful debt restructuring in 2016, the Group resumed development of the Pressure Oxidation Facility (POX Hub) at Pokrovskiy. Utilising and adapting existing infrastructure (including the 1.8Mtpa RIP plant) has a beneficial impact on capital costs, with US$90million gross value of for buildings and equipment being incorporated directly into the POX Hub facility.

Financial Review

FINANCIAL HIGHLIGHTS

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

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

(c) Reconciliation of profit/(loss) for the period and underlying EBITDA is set out in note 34 to the consolidated financial statements.

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

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

Note: Figures may not add up due to rounding

Revenue

Physical volumes of gold production and sales

Group revenue during the period was US$540.7 million, 10% lower than the US$599.9 million achieved in 2015.

Revenue from hard-rock mines was US$490.0 million, 14% lower than the US$568.7 million achieved in 2015. Gold remains the key commodity produced and sold by the Group, comprising 90% of total revenue generated in 2016. The physical volume of gold sold from hard-rock mines decreased by 17% from 481,884 ounces in 2015 to 399,858 ounces in 2016. The average realised gold price increased by 4% from US$1,178/oz in 2015 to US$1,222/oz in 2016. Average realised gold price includes US$(21)/oz effect from hedge arrangements (2015: US$20/oz).

Hard-rock mines sold 98,231 ounces of silver in 2016 at an average price of US$16/oz, compared to 68,075 ounces in 2015 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$50.7 million in 2016, a US$19.5 million increase compared to US$31.2 million in 2015. This revenue is substantially attributable to sales generated by 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$44.8 million in 2016 compared to US$28.6 million in 2015.

Cash flow hedge arrangements

In order to increase certainty in respect of a significant proportion of its cash flows, the Group has entered into a number of gold forward contracts.

Forward contracts to sell an aggregate of 134,545 ounces of gold matured during the year and resulted in US$(8.5) million net cash settlement paid by the Group (2015: US$12.6 million contribution to cash revenue from forward contracts to sell an aggregate of 178,449 ounces of gold).

The Group constantly monitors gold price and hedges some portion of production as considered necessary. Forward contracts to sell an aggregate of 50,006 ounces of gold at an average price of US$1,303 per ounce were outstanding as at 31 December 2016. In February - March 2017, the Group entered into forward contracts to sell an aggregate of 549,994 ounces of gold during the years 2017 - 2019 at an average price of US$1,252/oz, thus, satisfying bank debt refinancing conditions. Forward contracts to sell an aggregate of 546,968 ounces of gold at an average price of US$1,253 per ounce are outstanding as at 26 April 2017.

Underlying EBITDA and analysis of operating costs

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

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

Hard-rock mines

This period, hard-rock mines generated underlying EBITDA of US$224.7 million compared to US$206.9 million underlying EBITDA in 2015.

Total cash costs for hard-rock mines decreased from US$749/oz in 2015 to US$660/oz in 2016, primarily reflecting the effect of cost optimisation measures undertaken by the Group in response to the lower gold price environment as well as the positive effect of Rouble depreciation. The increase in the average realised gold price from US$1,178/oz in 2015 to US$1,222/oz in 2016 and the improved total cash costs had US$53.2 million positive contribution to underlying EBITDA in 2016. This effect was offset by the decrease in physical ounces sold which resulted in a US$35.2 million decrease in underlying EBITDA.

The key components of the operating cash expenses are wages, electricity, diesel, chemical reagents and consumables, as set out in the table below. The key cost drivers affecting the operating cash expenses are stripping ratios, production volumes of ore mined and processed, grades of ore processed, recovery rates, cost inflation and fluctuations in the Rouble to US Dollar exchange rate.

Compared with 2015 there was no significant inflation of Rouble denominated costs, in particular, electricity costs increased by up to 3% in Rouble terms (decreased by up to 6% in US Dollar terms) while the cost of diesel remained at the same level (decreased by up to 9% in US Dollar terms). The impact of Rouble price inflation was mitigated by the 10% average depreciation of the Rouble against the US Dollar, with the average exchange rate for the period increasing from 61.30 Roubles per US Dollar in 2015 to 67.18 Roubles per US Dollar in 2016.

Refinery and transportation costs are variable costs dependent on the production volume. Mining tax is also a variable cost dependent on production volume and the gold price realised. The mining tax rate is 6%. Since the second half of 2016, the Group applies two-year mining tax concession.

(a) Excluding deferred stripping

All-in sustaining costs and all-in costs

AISC decreased from US$874/oz in 2015 to US$807/oz in 2016, reflecting the reduction in TCC as well as lower sustaining capital expenditure related to the existing mining operations.

AIC decreased from US$932/oz in 2015 to US$838/oz in 2016, reflecting the decrease in AISC explained above, reversal of impairment of refractory ore stockpiles due a higher gold price and decrease in exploration expenditure.

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

Corporate and other

The Group has corporate offices in London, Moscow and Blagoveschensk which together represent the central administration function. Central administration expenses increased by US$2.2 million from US$30.4 million in 2015 to US$32.6 million in 2016.

During 2016, other operations contributed US$(24.6) million to underlying EBITDA vs. US$(34.1) million in 2015. Included in result of corporate in other operations in 2016 is a US$3.6 million share in losses generated by IRC.

Impairment review

The Group undertook an impairment review of the tangible assets attributable to its gold mining projects, exploration assets adjacent to the existing mines and supporting in-house service companies and concluded no impairment was required as at 31 December 2016, with exception of an individual licence impairment referred to below.

The forecast future cash flows are based on the Group's current mining plan that assumes POX Hub completion in the year 2018. The other key assumptions which formed the basis of forecasting future cash flows and the value in use calculation are set out below:

(a) Being the post-tax real weighted average cost of capital, equivalent to a nominal pre-tax discount rate of 10.1% (2015: 10.1%)

Following the decision to suspend exploration at Kharginskoye ore field, an immediate extension of the Albyn deposit, and to surrender the license, a US$9.2 million impairment charges were recorded against associated exploration and evaluation costs previously capitalised within exploration and evaluation assets.

As at 31 December 2016, all exploration and evaluation assets on the balance sheet related to the areas adjacent to the existing mines.

Impairment of ore stockpiles

The Group assessed the recoverability of the carrying value of ore stockpiles and recorded impairment charges/(reversals) of impairment as set out below:

Interest income and expense

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

Interest expense for the period was comprised of US$11.9 million effective interest on the Convertible Bonds and US$48.9 million interest on bank facilities (2015: US$13.6 million and US$57.7 million, respectively). There no interest expense was capitalised as part of mine development costs within property, plant and equipment

Other finance gains and losses

Other finance gains for the period comprised US$11.9 million compared to US$9.1 million in 2015. Included in other finance gains is financial guarantee fee of US$4.5 million (2015: US$2.2 million) charged in connection with the ICBC facility and US$7.4 million (2015: US$6.4 million) fair value gain on revaluation of the embedded option for the bondholders to convert into the equity of the Company. The Group also recognised US$1.5 million loss on bank debt refinancing.

Taxation

The Group is subject to corporation tax under UK, Russia and Cyprus tax legislation. The average statutory tax rate for 2016 was 20% in the UK and 20% in Russia.

The tax charge for the period arises primarily in relation to the Group's gold mining operations and is represented by a current tax charge of US$29.8 million in 2016 (2015: US$31.8 million) and a deferred tax credit, which is a non-cash item, of US$34.5 million (2015: deferred tax charge of US$17.1 million). Included in the deferred tax credit in 2016 is a US$26.0 million foreign exchange effect 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 Rouble whilst the future depreciation charges associated with these assets will be based on their US Dollar carrying value.

During the period, the Group made corporation tax payments in aggregate of US$35.3 million in Russia (2015: corporation tax payments in aggregate of US$32.9 million in Russia).

Profit/(loss) per share

Basic profit per share for 2016 was US$0.01 compared to US$0.07 basic loss per share for 2015. The key factor affecting the basic profit/(loss) per share was the increase of net profit for the period attributable to equity holders of Petropavlovsk PLC from the net loss of US$190.2 million for 2015 to US$33.7 million net profit for 2016.

The total number of Ordinary Shares in issue as at 31 December 2016 was 3,303,768,532 (31 December 2015: 3,300,561,697).

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

Financial position and cash flows

(b) Including US$29.4 million cash CAPEX and US$19.2 million proceeds from disposal of subsidiaries

Key movements in cash and net debt from continuing operations

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

The increase in working capital reflects US$25.8 million increase in trade and other receivables and US$37.7 million reduction in trade and other payables.

As at 31 December 2016, there were no undrawn facilities available to the continuing operations.

Capital expenditure

The Group invested an aggregate of US$29.4 million on its gold projects compared to US$32.6 million invested in 2015. The key areas of focus this year were on fulfilling existing contractual commitments in relation to the POX Hub project, exploration to support the underground mining at Pioneer, expansion of tailing dams at Pioneer and Albyn and ongoing exploration related to the areas adjacent to the ore bodies of the Group's main mining operations.

(a) Including US$1.9 million of development expenditure in relation to the POX Hub which is considered to be non-sustaining capital expenditure for the purposes of calculating all-in sustaining costs and all-in costs.

(b) Including US$5.5 million of exploration expenditure in relation to the underground mining project at Pioneer to be non-sustaining capital expenditure for the purposes of calculating the all-in sustaining costs and all-in costs.

Foreign currency exchange differences

The Group's principal subsidiaries have a US Dollar functional currency. Foreign exchange differences arise on translation of monetary assets and liabilities denominated in foreign currencies, which for the principal subsidiaries of the Group are the Russian Rouble and GB Pounds Sterling.

The following exchange rates to the US Dollar have been applied to translate monetary assets and liabilities denominated in foreign currencies.

The Rouble recovered by 17% against the US Dollar during 2016, from RUB72.88 : US$1 as at 31 December 2015 to RUB60.66 : US$1 as at 31 December 2016. The average year-on-year depreciation of the Rouble against the US Dollar was approximately 10%, with the average exchange rate for 2016 being RUB67.18 : US$1 compared to RUB61.30 : US$1 for 2015.

As a result of the significant volatility of the Russian Rouble, the Group recognised foreign exchange losses of US$5.2 million in 2016 (2015: US$12 million) arising primarily on Rouble denominated net monetary assets.

Refinancing of the Group's bank debt

In December 2016, the Group refinanced US$430 million outstanding principal of the Group's US$530 million bank debt, including a revised maturity profile and renegotiation of the financial and operational covenants.

Results of the bank debt refinancing are set out below.

Cash settled call option was issued in relation to 3.6 per cent. of the outstanding aggregate ordinary share capital in the Company and is exercisable between December 2019 and March 2023 at strike price of £0.068.

Transaction costs of US$4.9 million were further capitalised.

The Group is currently completing the final documentation to refinance the remaining US$100 million bank debt. Once this has been completed, the Group's entire bank debt of US$530 million has been refinanced.

Disposal of subsidiaries

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

Investment agreement with the Russian Ministry of Far East Development

On 14 December 2015, the Group entered into an investment agreement with the Russian Ministry of Far East Development (the 'Investment Agreement'). The Investment Agreement involves provision of RUB5.5 billion (an equivalent to c.US$91 million as at 31 December 2016) funding towards the construction of the electricity power line in the North-East of the Amur Region of Russia, where the Group's Albyn and Malomir mines and adjacent licence areas are operated, during the period 2015 - 2019. The funds are advanced to the Group and then should be transferred to the joint-stock company Far East Grid Distribution Company ('DRSK'), who is to engage a contractor to build the relevant power supply infrastructure. The Group's responsibility under the Investment Agreement will be to monitor the progress and to report to the Russian Ministry of Far East Development. The Group will be taking ultimate responsibility for the construction of the power line. Upon completion, the Group will get access to the enhanced capacity of the power supply infrastructure in the region. Under the terms of the Investment Agreement, the Group has certain capital commitments, including further development of Albyn and Malomir mines.

As at 31 December 2015, the Group received RUB1.1billion (an equivalent to US$15.1 million) funds under the Investment Agreement. During 2016, the Group received further RUB2.0 billion (an equivalent to US$30.8 million) under the Investment Agreement and transferred an aggregate RUB3.1 billion (an equivalent to US$47.7 million) to DRSK.

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 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 covenant compliance and enable management to develop appropriate and timely mitigation strategies. The Group meets its capital requirements through a combination of sources including cash generated from operations and external debt.

The Group performed an assessment of the forecast cash flows and covenant compliance in relation to bank facilities for the period of 12 months from the date of approval of the 2016 Annual Report and Accounts. As at 31 December 2016, the Group had sufficient liquidity headroom and complied with related financial covenants. Following the successful completion of the bank debt refinancing, the Group is also satisfied that it has sufficient headroom under a base case scenario for the period to May 2018 and expects to comply with related financial covenants. In the meantime, the Group's projections under a reasonable downside scenario indicate that, unless mitigating actions can be taken including accessing deposits not currently in the Group's mining plan, there will be insufficient liquidity and non-compliance with certain financial covenants under a reasonable downside scenario for the relevant period to May 2018. If a missed debt repayment occurs or financial covenant requirements are not met, this would result in events of default which, through cross-defaults and cross-accelerations, could cause all other Group's debt arrangements to become repayable on demand. The Directors are confident that, should it be required, relevant mitigating actions could be successfully implemented.

The Group has guaranteed the outstanding amounts IRC owes to ICBC. The outstanding loan principal was US$234 million as at 31 December 2016. The assessment of whether there is any material uncertainty that IRC will be able to repay this facility as it falls due is another key element of the Group's overall going concern assessment. IRC has agreed with ICBC to restructure and reschedule two repayment instalments under the ICBC Facility Agreement, which are originally due for payment on 20 June 2017 and 20 December 2017, with next repayment instalment due on 20 June 2018. IRC also obtained waivers from ICBC in respect of obligations to maintain certain cash deposits with ICBC until 30 June 2018 and obligations to comply with certain financial covenants until 31 December 2017 (inclusive).

Having taken into account the aforementioned factors, and after making enquiries and considering the uncertainties described above, the Directors 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 2016 Annual Report and Accounts. Accordingly, they continue to adopt the going concern basis of accounting in preparing these consolidated financial statements.

2017 Outlook

The Group is confident to achieve 2017 production guidance of 460Koz. The Group's operating cash expenses are substantially Rouble denominated. The Group expects its total average cash costs of production in 2017 to be c.US$700/oz at current exchange rate. Net debt is expected to decrease to c.US$550 million by the end of 2017, assuming an average gold price of US$1,200/oz for the remainder of 2017.

Risk Review

Petropavlovsk's principal risks and uncertainties continue to fall with four main categories: operational, financial, health and safety and legal risk.

The 2016 review was supported by the robust risk management and internal control systems and procedures outlined within our Annual Report and Accounts. Broadly our principal risks have remained unchanged or improved.

The below list should not be regarded as complete of comprehensive list of all potential risk and uncertainties that the Group may face:

§ Production related risk

§ Exploration related risk

§ Project related risks

§ Financial risks

§ Gold price risk

§ Currency risk

§ IRC related risks

§ Health, safety and environmental risk

§ Legal and regulatory risks

Further details on the Risks to Our Performance, including internal processes around Risk Management can be found in our 2016 Annual Report and Accounts

Reserve & Resources

Since 2008 and in accordance with best industry practices, Petropavlovsk has been reporting its Mineral Resources and Ore Reserves in accordance with JORC Code. Following the strategic disposal of the non core projects Visokoye, Yamal and Nimanskaya in 2016, all the Group's remaining mining assets are located in the Amur Region.

Total Mineral Resource ounces (including Reserves) as of 31 December 2016 amounted to 20.2Moz, compared to 23.3Moz in 2015, with a total reserve of 7.95Moz compared to 8.41Moz the previous year. The decrease was mainly driven by the disposals of capital intensive non-core assets and to a lesser extent by mine depletion.

A total of 1.22Moz of Ore Reserves were disposed of with Visokoye, whilst 3.55Moz of Mineral Resources (including Ore Reserves) were disposed of with the Visokoye and Yamal projects. Full Mineral Resource and Ore Reserve statements for Visokoye and Yamal can be found in the Petropavlovsk Annual Report and Accounts 2015.

During 2016, the Group made exceptionally good progress developing reserves at Elginskoye, one of the significant satellite orebodies within the Albyn project area. Successful exploration and a feasibility study resulted in an increase in JORC Ore Reserves at Elginskoye from 0.28 to 1.24Moz (a 340% increase), providing a solid foundation for Albyn's long term production. We also achieved a remarkable 76% increase in Mineral Resources for underground mining from 0.42 to 0.74Moz, and received our first maiden underground Ore Reserve estimate amounted to 0.37Moz.

This includes a new Pioneer NE Bakhmut underground Ore Reserve of 0.17Moz @ 4.46g/t, and 0.21Moz @ 5.85g/t at Malomir Quartzitovoe 1. The new Ore Reserve will support 6 year life of mine for both mines with strong potential for resource, reserve and consequent life of mine expansion.

Overall, we successfully converted c.1.55Moz of Resources into Reserves during 2016.

Pioneer, Albyn, Malomir and Pokrovskiy Mineral Resource and Ore Reserve statements were prepared by Wardell Armstrong International in April 2017 in accordance with JORC Code (2012). A summary of their technical audit can be found on the company web site.

The tables below provide a summary and an asset-by-asset breakdown of Mineral Resources and Ore Reserves.

Total Ore Reserves for open pit and underground extraction (as at 31 December 2016, in accordance with JORC Code)

Note: Figures may not add up due to rounding.

Total Ore Reserves for open pit extraction (as at 31 December 2016, in accordance with JORC Code)

Note: Figures may not add up due to rounding.

Total Ore Reserves for underground extraction (as at 31 December 2016) (WAI April 2017, in accordance with JORC Code 2012)

Note: Figures may not add up due to rounding.

Total Mineral Resource for potential open pit and underground extraction (as at 31 December 2016) (in accordance with JORC Code)

Total Mineral Resource for potential open pit extraction (as at 31 December 2016) (in accordance with JORC Code)

Total Mineral Resource for potential underground extraction (WAI April 2017, as at 31 December 2016) (in accordance with JORC Code 2012)

Note: Mineral Resources are reported inclusive of Ore Reserves. Figures may not add up due to rounding.

Summary of Ore Reserves by asset (as at 31 December 2016)

Pioneer

(WAI, April 2017, in accordance with JORC Code 2012)

Albyn

(WAI, April 2017, in accordance with JORC Code 2012)

Note: All Albyn Ore Reserve is for open pit extraction.

Malomir

(WAI, April 2017, in accordance with JORC Code 2012)

Pokrovskiy & Burinda

(WAI, April 2017, in accordance with JORC Code 2012)