Q4 and FY 2019 Sales & Production Report

23 January 2020

Petropavlovsk PLC

Q4 and FY 2019 Sales & Production Report

Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together with its subsidiaries, the "Group") today issues its sales and production results and corporate update for the period from 1 October 2019 to 31 December 2019 (the "Period" or "Q4") as well as its full year sales and production results ("FY 2019").

Operational Highlights

Gold sales

§ 39% increase in total FY 2019 gold sales to 514.0koz (FY 2018: 369.6koz1) due to the processing of refractory concentrates in the first year of operations at the POX Hub

§ 471.6koz of the total FY 2019 sales amount represents gold sold from the Company's own mined production, an increase of 28% on FY 20181 and in line with the Company's guidance of 450 - 500koz

§ Gold sales from third-party concentrates totalled 42.4koz for FY 2019

§ Average realised gold price of US$1,395/oz (Q4 2018: US$1,244/oz) in Q4 including a US$88/oz loss from hedging, and US$1,346/oz (2018: US$1,263/oz) for the year including a US$61/oz loss from hedging

Note: Numbers may not add up due to rounding effect

Pokrovskiy Pressure Oxidation (POX) Hub

§ A total of 132.0koz of gold were recovered in FY 2019 from the processing of 155kt of Malomir refractory concentrates, with recoveries averaging 88.6% for the year during ramp-up, increasing to 92.2% in Q4

§ A total of 13.3kt of Malomir refractory concentrate containing c.13Koz of gold was carried over to the 2020 financial year

§ Commencing 5 July, a total of 61.2koz of gold were recovered in 2019 from 32.5kt of third-party refractory concentrates, with recoveries averaging 94.9%

Gold hedging

§ All outstanding gold hedging contracts matured as at 31 December 2019, and the Company is now unhedged and exposed to spot gold prices

Responsible Business

§ In FY 2019, there was a 36% reduction in LTIFR to 1.61 million hours worked as a result of several Company initiatives, including an increase in health and safety training and stricter onsite safety monitoring procedures

§ The intensity of GHG emissions, water and energy consumption declined in Q4 and FY 2019 as a result of increased gold production and the efficiency of the POX plant

§ Zero environmental incidents were reported during 2019

Note: Intensity of use figures for GHG, water and energy consumption are calculated per ounce of gold produced in each period

§ During Q4, the Company joined the United Nations Global Compact Initiative on Corporate Sustainability. This reflects the Company's commitment to aligning its operations and strategies with ten universally accepted principles in the areas of: human rights, labour, environment and anti-corruption

§ During Q4, the Company appointed two new Independent Non-Executive Directors which increased the diversity and skills of the Board. As a result, female representation on the Board has increased to c.22%

Development Update

Update on the construction of a new flotation facility at Pioneer

§ The construction of a new flotation facility at Pioneer will double the Company's refractory ore processing capacity from 3.6Mtpa to 7.2Mtpa

§ Construction remains on schedule for the plant to be fully operational in Q4 2020

2020 Outlook

§ Gold production is expected to range from 620koz to 720koz, including third-party concentrate processing

§ Capex: US$65 million - US$75 million which includes Pioneer flotation plant development capital and Group sustaining and exploration expenditure

IRC

On 23 January 2020 IRC released its trading update for the three months ended 31 December 2019 (the "fourth quarter"), with the following highlights:

§ c.US$10.1 million was paid to Gazprombank in the fourth quarter, as principal repayment and interest in accordance with the facility's repayment schedule

§ Fourth quarter production increased 25% on the same period in 2018 to 695,431 tonnes, with FY 2019 production up 15% to 2,576,325 tonnes

§ The K&S plant successfully operated at 100% capacity for the month of October and averaged 87% in the fourth quarter

§ IRC has also provided an update on the expected timing for the completion of the Amur River Bridge, which is now scheduled for the end of 2020

Corporate Update

§ Danila Kotlyarov will be appointed as Chief Financial Officer on 1 February 2020 to replace Mr Alexey Dubynin who will be leaving the Company for personal reasons on 31 January 2020. Mr Kotlyarov holds a BA in Management from Moscow State University and a MA in International Economics from the Moscow State Institute of International Relations (MGIMO). He is a fellow member of the Association of Chartered Certified Accountants (ACCA), Chartered Financial Analyst (CFA) and a member of Hong Kong and Russia Associations of Financial Analysts

§ On 9 October 2019, S&P upgraded Petropavlovsk's Outlook to Positive, affirming its B- rating and highlighting the progress the Company has made over the past 12 months

§ Mirzaaziz (Aziz) Musakhanov, a nominee of Aeon Mining Limited, the Group's c. 22% shareholder, was appointed as a Non-Executive Director

Dr Pavel Maslovskiy, CEO, comments:

"I am pleased to report an excellent year in our Company's development which comprised strong corporate and operational progress as well as laying a solid foundation for the future. All operations, including open-pit and underground mines, performed well and either met or exceeded expectations despite the extreme weather events last summer that caused multiple floods in the region.

A strong Q4 concluded the first successful year of processing refractory gold at the POX Hub which, alone, accounted for one third of gold sales in 2019. The time taken for the POX plant to reach its design rate has set a record for the industry and demonstrates the quality of Petropavlovsk's engineering capabilities. Furthermore, productivity, gold recovery and utilisation-hours for key equipment items exceeded design rate and all four autoclaves have been shown to operate at stable rates at full capacity.

The processing of third-party concentrates ramped up further in the Q4 with recoveries averaging 95%, in line with expectations. The successful processing of concentrates from different suppliers proves the effectiveness of the plant's design parameters and enables a wide range of concentrates with different metallurgical and mineralogical qualities, including double refractory concentrates with a high carbon content, to be treated. Our team of scientists and engineers are working to continuously improve the efficiency and versatility of the plant with the aim of treating refractory concentrates of any technological complexity.

Looking forward, these results make the Board confident the Company can significantly increase production to between 620koz to 720koz in the coming year, including treatment of third-party concentrates. Given a high level of fixed costs at the POX plant, increasing throughput will help reduce cash costs per ounce which will drive additional cash generation from the business. As part of the POX project, the construction of a new flotation plant at Pioneer is ongoing and remains on schedule to begin contributing from Q4 2020. 

Most importantly, a new comprehensive ESG programme is being developed and implemented to raise the Company to a new level of responsible mining with a focus on sustainable development and excellence in governance. Of the various areas involved, I highlight that health and safety remains a key priority for the Group and, while I am pleased to report we significantly reduced the LTIFR in 2019, the basis of our strategy is continual improvement with zero harm as our ultimate target. Health and safety is one of the commitments that has been undertaken as part of our participation in the United Nations Global Compact Initiative on Corporate Responsibility which forms part of our new programme with the aim of becoming a leader in the implementation of ESG best practice in the Russian gold mining sector.

Following an increase in focus from investors on worldwide tailings storage facilities, detailed audits were carried out at all our hydrotechnical facilities in FY 2019 which reconfirmed the quality of design and construction as well as the reliability of the control and monitoring systems in place. As a fail-safe, the location of these facilities ensures zero risk of harm and minimal environmental impact in the event that an unforeseen natural event were to cause any failure.

Finally, 2019 was our 25th anniversary as a Company and I wish to thank all of Petropavlovsk's employees for their diligence and hard work which contributed to making this year one of our most successful to date."

Operations Report

JSC Pokrovskiy Mine

The JSC Pokrovskiy mine is a holder of several licences, including licences for the Pokrovskiy and Pioneer deposits. The Pokrovskiy deposit ceased operations in Q1 2018 with its site and processing facilities now home to the new POX Hub where concentrates from the Malomir flotation plant (which is reported as part of the Malomir production table) and third-party concentrates are processed.

Note: Numbers may not add up due to fluctuation of gold in circuit

Third-party concentrate processing continued during the quarter, achieving recoveries of 94.9% in line with expectations. In total, the Company has processed 32.5kt of third-party concentrate at 61.6g/t to produce 45.7koz of gold since processing of third-party concentrates began in July 2019.

Pioneer

Pioneer is currently focused on mining non-refractory ores from several conventional open pits and underground operations. The construction of new flotation facilities at Pioneer will lead to a transition starting in Q4 2020 from mining non-refractory to mainly refractory ores for processing at the POX Hub.

Note: Numbers may not add up due to fluctuation of gold in circuit

(1) Due to the seasonal nature of the heap leach operations and the extended duration of the leaching process, quarterly gold recovery figures are not always representative of the overall recovery. As such, the annual recovery figure provides a more accurate representation

Pioneer's 2019 production was defined by the processing of harder ores from the bottom of the pits which resulted in a c.12% decrease in ore processed. As a result, despite achieving higher recoveries and grades, overall production was slightly lower year-on-year.

LLC Malomirskiy Rudnik

LLC Malomirskiy Rudnik is the holder of a licence for the Malomir deposit, a conventional open-pit mine and underground operation transitioning towards mainly refractory ore processing using the onsite flotation plant. The resulting concentrate is shipped for processing to the Pokrovskiy POX Hub. The Malomir deposit has extensive refractory reserves and resources and both near-mine and surrounding areas are considered highly prospective for the discovery of further refractory gold ounces.

Note: Numbers may not add up due to fluctuation of gold in circuit

Malomir performed well in FY 2019 on the back of stable operations during the year. Following the commissioning of the flotation plant in 2018, the mine has been transitioning from mining non-refractory to mainly refractory ores for processing at the POX Hub. This resulted in a decrease of non-refractory volumes through the mill as milling and crushing facilities were switched over to refractory ores. The flotation plant exceeded its design and recovery rates allowing for processing of the lower grade material through the plant.

Mining of non-refractory ore in Q4 was performed mainly from the underground workings with some non-refractory gold coming from transitional ores in the upper horizons of the Central open pit.

Mining of refractory ore in Q4 was from the main body of the Central open pit.

POX plant recovery rates of 88.6% through the ramp-up period in FY 2019 were significantly improved to 92.2% in Q4 for Malomir concentrates.

LLC Albynskiy Rudnik

LLC Albynskiy Rudnik is a holder of the licence for the Albyn deposit, the Group's principal non-refractory asset which operates as a conventional open pit mine and RIP processing circuit. The mine life of the Albyn deposit is expected to cease in 2020. Thereafter, the Company intends to use Albyn's current processing facilities to treat ore from the nearby Elginskoye deposit and potentially from the earlier-stage Unglichikanskoye deposit in the future.

These deposits contain JORC Measured, Indicated and Inferred Mineral Resources of 4.00Moz Au which include 1.95Moz of JORC Proved and Probable Ore Reserves. During 2020, the Elginskoye pit will developed to replace the Albyn pit as the main source of non-refractory ore from 2020 and a road between Elginskoye and the Albyn processing plant was completed in August 2019.

Note: Numbers may not add up due to fluctuation of gold in circuit

Albyn was a strong performer in 2019 due to increased volumes of higher-grade ore coming from the lower sections of main orebody and the southern flank of associated orebodies.

In Q4, production from the Albyn pit was slightly above budget in terms of mining, processing and production, with mining taking place in the lower horizons of the open pit.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014

About Petropavlovsk

With a Premium Listing on the London Stock Exchange, Petropavlovsk (LSE: POG) is a major integrated Russian gold producer with JORC Resources of 20.52Moz Au which include Reserves of 8.21Moz Au.

The Company's key operating mines (Pioneer, Malomir and Albyn) are in the Amur Region in the Russian Far East and the Company has produced a total of c.7.6Moz of gold since operations began in 1994. Petropavlovsk has a strong track record of mine development, expansion and asset optimisation.

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

Petropavlovsk is committed to implementing international best practices across all areas of sustainable development and is one of the region's largest employers and contributors to the local economy.

For more information

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

Cautionary note on forward-looking statements

This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward looking statements include all matters that are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the future price of gold, the Group's results of operations, financial position, liquidity, prospects, growth, estimation of mineral reserves and resources and strategies, and exchange rates and the expectations of the industry. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances [outside the control of the Group. Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, any forward- looking statements contained in this release. In addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward looking statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors could cause results and/or developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, demand, supply and prices for gold and other long-term commodity price assumptions (and their effect on the timing and feasibility of future projects and developments), trends in the gold mining industry and conditions of the international gold markets, competition, actions and activities of governmental authorities (including changes in laws, regulations or taxation), currency fluctuations (including as between the US Dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, any litigation, and political and economic uncertainty. Except as required by applicable law, rule or regulation (including the Listing and Disclosure Guidance and Transparency Rules), the Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Past performance cannot be relied on as a guide to future performance. The content of websites referred to in this announcement does not form part of this announcement.