Replacement Half Yearly Report

25 August 2011

Half-Year Report for the period ended 30 June 2011 Replacement

This announcement replaces the Half-Year Report announcement released on 25 August 2011 at 07.00 under RNS number 0003N. In the Highlights section, Financial and operational summary figures should read as "US$m" rather than "US$'000" as previously stated, unless otherwise specified. All other details remain unchanged.

The full announcement appears below.

Petropavlovsk PLC ("Petropavlovsk", the "Company" or, together with its subsidiaries, the "Group") today issues its Half-Year Report for the period from 1 January 2011 to 30 June 2011 (the "Period").

HIGHLIGHTS

Financial and operational summary

(a) Reconciliation of Underlying EBITDA is included in note 25 to the Condensed Consolidated Interim Financial Statements.

(b) Profit during six months to 30 June 2011 vs. loss during six months to 30 June 2010.

(c) The liability component of US$380 million of convertible bonds due 18 February 2015 measured at amortised cost.

Note: Figures may be rounded. Please see page 24 for definitions of terms. The definitions used are valid throughout the document.

Financial highlights

§ Group revenue for H1 2011 increased 143% to US$475.1 million, (H1 2010 US$195.7 million) and revenue from precious metals operations increased 118% to US$394.6 million, (H1 2010 US$181.3 million). This increase was due to higher production volumes, an increase in gold sold and the higher gold price;

§ Gold sales increased 73% to 268,500oz, (H1 2010 155,300oz) and the average realised gold price rose 26% to US$1,455oz, (H1 2010 US$1,154/oz);

§ Underlying EBITDA increased 290% to US$186.2 million (H1 2010 US$47.7 million);

§ Operating profit (before exceptional items) of US$138.4 million was up from H1 2010 (US$10.7 million);

§ The Company paid a final dividend of 7 pence per share on 28 July 2011 to shareholders on the register as at close of business on 1 July 2011 and on 24 August 2011, the Board of Directors approved an interim dividend of 5 pence per share, which will be paid on 11 November 2011 to shareholders on the register as at close of business on 7 October 2011.

Operations and gold production

§ Gold production for H1 2011 was up 32% to 219,100oz(H1 2010 166,300oz);

§ Following the successful ramp-up of the second crushing and grinding line at Malomir, Malomir's plant capacity at the beginning of August has increased by 33% to 80,000t/month compared to the first half of the year;

§ The Group remains firmly on track to produce its target of 600,000oz of gold in 2011.

Cash costs

§ Total cash costs per ounce for the Group's hard rock mines were US$659/oz, in line with the Group's estimates; cash costs were affected by industry-wide inflation, higher energy costs, lower grades processed and a stronger Rouble against the US Dollar;

§ The Group expects total cash costs per ounce for its hard-rock assets to be broadly in line or slightly improve in the second half of the year as higher volumes and higher-grade ore are scheduled to be processed during this period.

JORC Reserves and Resources uplift and exploration highlights

§ The Group's exploration activities added c.1.6Moz of gold Mineral Resources including c.550,000oz of Proven and Probable gold Ore Reserves estimated in accordance with the guidelines of the JORC Code (2004). The reserves calculations were made using a long-term gold price of US$1,000/oz;

§ A significant amount of new reserves and resources is represented by non-refractory ore.

Project development

§ At the Group's fourth gold mine, Albyn, the installation of the plant equipment is ongoing and the mine remains on track to be commissioned in Q4 2011;

§ Test work on refractory bulk samples from Pioneer completed at the Group's pilot test plant in Blagoveschensk yielded an overall recovery rate higher than 85%, re-confirming the parameters developed during laboratory tests;

§ The manufacturing of the main autoclave equipment for the pressure oxidation ("POX") plant is on schedule under the supervision of Outotec (Finland) Oy ("Outotec") and the Group;

§ Work on the foundations for the POX plant at Pokrovskiy and the construction of the flotation lines at Pioneer and Malomir remains on schedule.

Performance to 15 August 2011

§ Performance at Pioneer, Pokrovskiy and Malomir during the period from 1 July to 15 August 2011 has been strong with all mines exceeding internal production estimates.

§ Since the beginning of August, the Group has achieved a significant increase in grades mined at Malomir.

Capital expenditure

§ During the Period, the Group spent US$241.0 million on its gold development and maintenance capital expenditure and US$44.8 million on its exploration capital expenditure;

§ The key areas of focus for the Group's gold projects during H1 2011 were the further development of Malomir, Albyn and Pioneer and ongoing exploration related to Pokrovskiy, Pioneer and Albyn.

 Corporate update

§ The Group terminated the Odolgo joint venture, profitably selling its investment to its former partner, OJSC Priisk Solovyevskiy, generating a US$12.0 million gain;

§ During the Period, three new Committees were established at Board level: the Strategic Committee, the Technical Committee and the Anti-Bribery Committee;

§ In January 2011, three new Executive Directors were appointed to the Board: Dr Alfiya Samokhvalova (Strategic Director), Mr Andrey Maruta (Finance Director, Russia) and Mr Martin Smith (Technical Director);

§ On 24 August 2011, Dr David Humphreys was appointed as a Non-Executive Director with immediate effect. Dr Humphreys replaces Mr Peter Hill-Wood who retired as a director following the conclusion of the Company's Annual General Meeting on 19 May 2011. Dr Humphreys has a broad range of experience within the global mining industry as a consultant, lecturer and writer. He has extensive knowledge of the Russian mining industry, having been Chief Economist at Norilsk Nickel, Russia's largest mining company, from 2004 to 2008. Prior to this, Dr Humphreys was Chief Economist of Rio Tinto for eight years.

IRC Limited ("IRC")

On 23 August 2011, IRC issued its Interim Results and the results of a mine optimisation study for K&S. Highlights were:

§ Delivery of IRC's maiden profit of US$3.6 million;

§ Total production of iron ore concentrate and ilmenite in concentrate increased by 142% compared to the previous six-month period;

§ The consolidated average realised price achieved in the first half of 2011 was c.US$147/t;

§ A ramp-up continues to achieve full-year targets of 750,000 tonnes iron ore concentrate and 52,000 tonnes ilmenite concentrate;

§ A further10% increase in Kimkan resources from the threefold, overall increase in reserves at K&S announced in March 2011;

§ Potential doubling ore throughputto 20mtpa by accelerating development of the Sutara Deposit from 2015;

§ Progress in fulfilling the relevant requirements to start the planned drawdown process from the US$340 million project finance for the K&S project

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

"It is a pleasure to report results with the Group's key performance indicators showing substantial improvements on the same period last year.

We have delivered record half-year Group revenues of US$475 million with underlying EBITDA increasing to US$186 million thanks to a 73% increase in gold sold together with the higher US$ gold price. These earnings, represent an increase of almost 290% compared to the same period last year. Our strong balance sheet together with the strong gold price environment give us confidence in our ability to finance the future expansion of our precious metals projects.

The expected increase in total cash cost per ounce was largely due to lower grades processed, increase in stripping ratios, industry-wide inflationary pressures particularly in energy inputs, and the stronger rouble. It is important to note that following a decrease in grades the Group was still capable of achieving very healthy profit margins. Cash costs of gold on a per tonne basis and operating efficiencies remain a fundamental focus of the management team. Following a number of measures implemented at the start of this year, coupled with the processing of higher volumes and higher grades scheduled for the second half of 2011, we expect our total cash costs per ounce in the second half of the year to be in line with the first half or to improve slightly.

I am especially pleased to report that the Group's performance from 1 July to 15 August 2011 was strong at all of the Group's mines, delivering production levels which are in line with the Group's internal estimates. The key highlights have been the achievement of higher mined grades at Malomir as planned and an increase in the mine's plant capacity by c.33% compared to the first half of the year, significantly improving Malomir's performance.

Our strong operational performance to date during 2011 means that we remain firmly on track to produce 600,000oz of gold, the target we gave at the start of the year.

It is in light of this strong operational and financial performance that the Board has decided to pay an interim dividend of 5 pence per share for the half year.

Looking to the future, our development plans are also very promising. The commissioning of the second crushing and grinding line at Malomir ahead of schedule sets us on the right path to achieve our targets. This line is a first step in the construction of our POX complex which includes the flotation plants at Malomir and Pioneer and the autoclave unit at the Pokrovskiy site and which is planned to be commissioned in 2013. Work on the manufacturing of the key equipment for the POX project has commenced as planned and remains under the supervision of our in-house team together with specialists from Outotec.

The work conducted to develop the POX project since the beginning of this year has re-enforced our confidence in our ability to deliver this project on time. One of the highlights of this work was the receipt of the final results of tests undertaken at our pilot test plant in Blagoveschensk, which re-confirmed the results of our laboratory studies and achieved an impressive overall recovery of 85% on bulk samples from Pioneer.

Work on the construction of our fourth gold mine, Albyn, remains on track for commissioning in Q4 of this year.

Successful exploration works during the first half of the year enabled us to increase our reserves base by 1.6Moz of gold Mineral Resources, including c.550,000oz of Proven and Probable gold Ore Reserves. All reserves are calculated at US$1,000/oz, a very conservative price in the current environment.

IRC, our non-precious metals subsidiary whose shares were listed on the Stock Exchange of Hong Kong Limited last autumn, has contributed earnings for the first time and it is a pleasure to see that these are derived not only from a strong commodity price but also from the successful delivery of goods to market. IRC is also making progress in the development of its major mine K&S.

I am also pleased to announce that Dr David Humphreys has been invited to serve as a Non-Executive Director with immediate effect. Dr Humphreys replaces Mr Peter Hill-Wood who retired as a director following the conclusion of the Company's Annual General Meeting on 19 May 2011. Dr Humphreys has a broad range of experience within the global mining industry as a consultant, lecturer and writer. He has extensive knowledge of the Russian mining industry, having been Chief Economist at Norilsk Nickel, Russia's largest mining company, from 2004 to 2008. Prior to this, Dr Humphreys was Chief Economist of Rio Tinto for eight years. We look forward to David's contribution as a member of the Board.

These results continue to demonstrate great operational progress at the Group level and our significant potential for the future.

In summary, we are pleased with our progress so far this year and are confident that we will achieve our target for the year."

CONFERENCE CALL

There will be a conference call to discuss the results today, 25 August 2011, at 10:45am (BST). The call will begin with a short presentation by management, which can be downloaded in advance of the call from the Group's website, www.petropavlovsk.net. The presentation will be followed by a question and answer session.

To access the conference call please dial:

0208 817 9301  if calling from within the UK

718 354 1226 if calling from within the US

or +44 208 817 9301 for all other international calls

ENQUIRIES

FINANCIAL REVIEW

Revenue

Physical volumes of gold production and sales

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

(b) In July 2010, Omchak became a subsidiary of the Group and production from Omchak has been 100% attributable to the

Group since then, with production for 2011 included within the Group's overall alluvial production figure to reflect this change. Production from Omchak for the first half of 2010 was 50% attributable to the Group and is included in the amounts produced by joint ventures and investments.

Group revenue during the Period was US$475.1 million, 143% higher than the US$195.7 million achieved in the first half of2010.

Growth in revenue from the precious metals operations of 118% from US$181.3 million in the first half of 2010 up to US$394.6 million in the first half of 2011 contributed to a US$213.3 million increase in revenue. Gold remains the key commodity produced and sold by the Group, comprising 83% of total revenue generated during the first half of 2011. The Group's average realised gold price increased by 26% from US$1,154/oz in the first half of 2010 to US$1,455/oz in the first half of 2011, which contributed to a US$47 million increase in revenue from precious metals operations. The physical volume of gold sold increased by 73% from 155,299 ounces in the first half of 2010 to 268,460 ounces in the first half of 2011, which contributed to a further US$165 million increase in revenue from precious metals operations.

IRC contributed a further US$55.2 million increase in revenue from US$5.2 million in the first half of 2010 to US$60.4 million in the first half of 2011. This was primarily attributable to sales generated from the Kuranakh mine, which was commissioned in May 2010. In the first half of 2011, IRC sold approximately 367,000 tonnes of iron ore concentrate at an average price of US$147/t and approximately 11,000 tonnes of ilmenite, and recorded revenue of US$53.9 million from these sales. IRC's mining research institute, Giproruda, generated a further US$1.3 million increase in revenue from US$5.2 million in the first half of 2010 to US$6.5 million in the first half of 2011, reflecting increased billing for engineering services.

Revenue generated as a result of third-party work by Group's in-house services contributed a US$10.9 million increase in revenue from US$9.2 million in the first half of 2010 to US$20.1 million in the first half of 2011. This was primarily attributable to sales generated by the Group's engineering and research institute, Irgiredmet, which generated US$17.2 million in the first half of 2011 compared to US$8.5 million in the first half of 2010, primarily through procurement of materials, consumables and equipment for third parties.

Exceptional Items

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

During the Period, the following items were considered as exceptional:

§ US$12.0 million gain on the disposal of the Group's investments in Odolgo JV and Priisk Solovyevskiy, being the difference between the US$10 million aggregate proceeds and US$0.9 million cost of investment on Priisk Solovyevskiy as well as US$2.9 million net accumulated deficit of Odolgo JV;

§ US$2 million cash refund of costs incurred in relation to the 2010 listing of shares in IRC on the Stock Exchange of Hong Kong Limited. 

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

EBITDA, Operating Profit and Expenses before exceptional items

Operating profit before exceptional items, as contributed by business segments, is set out in the table below.

Precious metals

In this Period, the precious metals operations generated a segment profit before exceptional items of US$160.1 million compared to US$65.5 million in the first half of 2010.

Costs of precious metals operations

The average total cash cost per ounce for the Group increased from US$545/oz in the first half 2010 to US$684/oz in the first half of 2011, mainly due to the lower grades of ore mined and processed and due to Rouble appreciation. This was more than compensated by the increase in average gold price realised and an increase in physical volume of gold sold, resulting in a net US$112.3 million increase in operating cash profit. This net increase in operating profit was offset by a US$17.9 million increase in depreciation due to higher volumes of ore mined and processed and a reduction in the grades of ore delivered.

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

Compared to 2010, in Rouble terms electricity tariffs increased by 18%, the price of chemical reagents increased in the range between 12% and 88%, the price of diesel increased by 32%, consumables prices increased by up to 19% and wages increased by 6%. The impact of Rouble price inflation was further increased by the appreciation of the Rouble against the US Dollar by 5%, with the average exchange rate moving from 30.1 Roubles per US Dollar in the first half of 2010 to 28.6 Roubles per US Dollar in the first half of 2011.

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

The Group does not report cash costs per ounce for alluvial operations as it is not representative in the first half of the year; alluvial operations are seasonal with production skewed towards the second half of the year. The Group includes the results of all mines and operations within the precious metals operations for the total average cash cost calculation. Total cash cost per ounce comprised US$684/oz (six months to 30 June 2010: US$545/oz).

IRC

IRC generated a segment profit before exceptional items of US$7.6 million compared to a loss of US$8.9 million in the first half of 2010.

IRC sold 367,000 tonnes of iron ore concentrate at an average realised price of US$147/tonne and 11,000 tonnes of ilmenite. Average cash costs to produce iron ore concentrate were US$114/tonne. Depreciation and impairment charges excluding exceptional items for the IRC segment comprised US$4.4 million. An operating profit of US$10.5 million generated from the Kuranakh mine and Giproruda operations was partially offset by the operating losses incurred in relation to mine development projects and other non-mining projects.

Central administration expenses 

The Group has corporate offices in London, Hong Kong, Moscow and Blagoveschensk which together represent the central administration function. Central administration expenses before exceptional items increased by US$12.2 million from US$32.3 million in the first half of 2010 to US$44.5 million in the first half of 2011. IRC contributed US$8.2 million to the increase in central administration expenses primarily due to the establishment of IRC's Hong Kong headquarters, and an increase in professional fees, relating to audit, legal and consultancy services. A further increase in central administration expenses is attributed to US$1.0 million charitable donations through the Petropavlovsk Foundation for Social Investment and a US$1.4 million increase in staff costs, primarily reflecting normal inflationary salary increases.

Interest Income and Expense

The Group earned US$1.2 million interest income on the loan to Venezuela Holdings Limited, a subsidiary of Rusoro Mining Limited ("Rusoro"), as well as US$0.9 million interest income primarily on the cash deposits with banks.

Interest expense increased by US$6.8 million from US$11.1 million in the first half of 2010 to US$17.9 million in the first half of 2011. Interest expense for the Period was comprised of US$13.7 million effective interest on the convertible bonds and US$7.9 million interest on other facilities. A further US$4.7 million of interest expense was capitalised as part of mine development costs within property, plant and equipment (2010: US$9.1 million).

Taxation

The Group pays corporation tax under UK, Russia and Cyprus tax legislation.

The total tax charge for the Period comprised US$26.2 million, arising primarily in relation to the Group's precious metals operations. During this Period, the Group enjoyed the effect of US$17.8 million foreign exchange gains and a US$12 million gain on disposal of interests in joint ventures and available for sale investments not subject to tax as well as US$8 million foreign exchange effect resulting in a reduction of deferred tax liabilities. The effect of the above was partially offset by the current Period tax losses primarily represented by central administration costs and operating tax losses of IRC for which no deferred income tax asset was recognised, altogether still resulting in a relatively low effective tax rate of 19%.

This Period, the Group made corporation tax payments in aggregate of US$22.4 million in Russia.

Earnings per Share

Basic earnings per share for the first half of 2011 were US$0.57 compared to a loss per share of US$0.31 in the first half of 2010. The key factor affecting the basic earnings per share was the increase in net profit for the Period attributable to equity holders of Petropavlovsk PLC from the loss of US$56.2 million in the first half of 2010 to US$106 million profit in the first half of 2011 somewhat offset by the increase in the weighted average number of Ordinary Shares in issue during the Period from 181,094,131 in the first half of 2010 to 186,478,361 in the first half of 2011. This increase in the weighted average number of shares was due to the time apportionment of 5,780,326 Ordinary Shares issued during 2010. The total number of Ordinary Shares in issue as at 30 June 2011 was 187,860,093 (30 June 2010: 187,860,093).

Financial Position and Cash Flows

Key movements in cash and debt are set out below.

(a) Including US$7.6 million of interest expense, net of interest payments. 

Net cash generated from operations comprised US$18.4 million, primarily reflecting US$186.2 million total EBITDA offset by US$133.1 million used to finance working capital and a further US$14.4 million interest payments and US$22.4 million income tax payments.

The Group's investment in working capital of US$133.1 million is analysed as follows:

§ US$78.0 million was invested in inventories, out of which US$25.2 million was attributed to stores and spares as a result of the commencement of operations at Kuranakh and the expansion of Malomir and Pioneer and US$24.9 million was attributed to the increase in work in progress primarily as a result of the expansion of Malomir and Pioneer.

§ Accounts receivable increased by US$73.1 million, such increase was primarily attributed to trade receivables following the commencement of sales at Kuranakh and VAT recoverable.

§ The effect of the above was partially offset by the US$18.0 million increase in trade and other payables, primarily attributed to the increase in trade payables.

As at 24 August 2011, the Company had committed but undrawn loan facilities of US$150 million and IRC expects to fulfil all conditions shortly to allow commencement of drawdown on the US$340 million facility with the Industrial and Commercial Bank of China ("ICBC").

Capital Expenditure

The Group spent an aggregate of US$354.6 million on its gold and iron projects compared to US$210.9 million invested in the first half of 2010. The key areas of focus this year were on the further development of Malomir, Albyn, Pioneer and K&S projects and ongoing exploration related to the Pokrovskiy, Pioneer and Albyn projects.

Foreign Currency Exchange Differences

The 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 Russian Rouble and GB Pounds Sterling.

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

The Group recognised foreign exchange gains of US$17.8 million in the first half of 2011 (six months to 30 June 2010: foreign exchange losses of US$6.7 million) arising primarily on Russian Rouble denominated net monetary assets and GB Pounds Sterling denominated net monetary liabilities.

Subsequent Events

On 24 August 2011, the Board of Directors approved an interim dividend of 5 pence per share which is expected to result in the aggregate payment of £9.4 million. The interim dividend will be paid on 11 November 2011 to the shareholders on the register at the close of business on 7 October 2011.

Going Concern  

As set out in Note 2 to the Condensed Consolidated Interim Financial Statements, at the time when the Condensed Consolidated Interim Financial Statements are authorised, there is a reasonable expectation that the Group has sufficient liquidity and adequate resources to continue operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the Condensed Consolidated Interim Financial statements.

OPERATIONS AND GOLD PRODUCTION

Gold production and cash costs

a. Production from joint ventures and other investments includes production from the Omchak Joint Venture prior to its acquisition in H2 2010. Following the termination of the Odolgo Joint Venture in 2011, the Group no longer operates any joint ventures.

The Group does not report cash costs per ounce for alluvial operations as it is not representative in the first half of the year; alluvial operations are seasonal with production skewed towards the second half of the year. The Group includes the results of all mines and operations within the precious metals operations for the total average cash cost calculation. Total cash cost per ounce comprised US$684/oz (six months to 30 June 2010: US$545/oz).

Note: Figures may be rounded.

Pioneer

Pioneer produced a total of 116,600oz of gold during the first six months of 2011, a c.30% increase on the amount produced in the comparative period in 2010 (89,900oz). This increase was in particular due to Pioneer's strong performance in Q2 2011, where production totalled 80,000oz, up c.48% compared to the same period in 2010 (54,100oz). This can be attributed to the enlarged plant capacity and improved mining and plant efficiencies, which were the result of a set of measures implemented at the mine in Q1.

During the first six months of the year there was a c.63% increase in the volume of ore mined (2,781,000t vs. 1,706,000t) and a c.84% increase in total material moved (14,177,000m3 vs. 7,707,000m3) compared with the first six months of 2010. This was primarily achieved due to the final additions to the mining fleet at the start of 2011. The total material moved included pre-stripping to enable access to the ore scheduled for processing during H2 2011.

Mining and processing at Pioneer during August 2011 was in line with the Group's expectations and plan of stripping works on schedule.

Exploration conducted during the Period resulted in the addition of c.193,000oz of Mineral Resources, including c.135,000oz of Proven and Probable gold Ore Reserves (both figures are before depletion).

The management reiterates the Pioneer's production target for the year at 323,500oz.

Pokrovskiy

Pokrovskiy produced 41,900oz of gold during the first six months of 2011. This was ahead of the Group's target, although less than the 59,400oz produced during the same period in 2010 due to a planned decline in grades.

The total material moved during the first six months of the year increased by c.16% compared to the same period in 2010 (3,274,000m3 vs. 2,828,000m3). This included stripping, which is ongoing and on-schedule with the mine plan. During the Period, the ore mined was extracted from deep horizons of the main Pokrovskiy pit as well as from the Pokrovka-2 deposit.

Production from the heap-leach facility at Pokrovskiy commenced in April 2011 as planned, yielding 4,500oz of gold. The resin-in-pulp ("RIP") plant worked steadily, achieving a recovery rate of 81.9%.

From 1 July to 15 August 2011, performance at Pokrovskiy was strong with production ahead of the Group's expectations.

Successful exploration allowed the Group to replenish Pokrovskiy gold ore reserves and gold mineral resources to compensate for the depletion of c. 55,000oz of gold processed in H1 2011.

Pokrovskiy's strong performance during the year so far indicates that it remains on track to achieve its 2011 production target of c.96,200oz.

Malomir

During the Period, Malomir produced c.37,900oz, in line with the Group's estimates despite grades being marginally lower than anticipated.  

The total material moved (3,710,000m3) during the Period, was in line with the Group's mine plan. This included mining operations, which were focused on the main Quartzitovoye pit, as well as the pre-stripping at the central pit.

In mid-July the second crushing and grinding line at Malomir was commissioned, ahead of schedule. After successful ramp up the plant's capacity at the beginning of August reached 80,000t/month representing an increase of 33% compared to the first half of the year. Since the beginning of August, the Group also achieved a significant increase in grades mined at Malomir and the mine's performance was strong with production exceeding the Group's expectations.

Exploration conducted during the Period resulted in the addition of c.512,000oz of gold Mineral Resources, including c.183,000oz of Proven and Probable gold Ore Reserves (both figures are before depletion).

The Group's 2011 production estimate for Malomir remains unchanged at c.93,300oz.

Alluvial production

During the Period, the Group's alluvial operations produced c.23,000oz of gold and continued to perform steadily throughout July. As alluvial production is seasonal, with the bulk of production occurring from July to October, the Group's management remains confident in the full-year production target for these operations of c.87,000oz.

Tokur

During the Period, c.400oz of gold from the Tokur deposit was processed through the mill at Malomir.

Production from Tokur also continues with placer extraction, beneath and adjacent to the waste stockpiles from mining activities conducted during the Soviet era. This production is combined with the overall production figure for the alluvials. The Board is continuing to evaluate the development of Tokur and plans to finalise a full feasibility study by September 2011.

PROJECT DEVELOPMENT

Albyn

Albyn remains on track to be commissioned in Q4 2011, as previously announced.

During the Period, the buildings which will house the mine's crushing and grinding facilities were constructed, along with fuel and explosives storage facilities, administrative offices and dormitory blocks. The 110kV power supply and the internal 6kV power supply are in the final stages of installation. The installation of equipment in the crushing, grinding and sorption buildings is ongoing.

POX processing hub

As announced on 21 June 2011, the Group completed an internal feasibility study for the construction of a POX processing hub, which will enable the Group to process refractory ores. The POX hub will consist of flotation lines at Malomir and Pioneer and a POX plant at the Pokrovskiy mine which will process the flotation concentrate.

During the Period, the Group continued to confirm the optimal processing parameters for the future plant. Test work on refractory bulk samples from Pioneer were completed at the Group's pilot test plant in Blagoveschensk, re-confirming the parameters developed during laboratory tests and yielding an overall recovery rate of more than 85%.

During the first six months of 2011, the Group entered into key equipment contracts with Outotec. The manufacturing of this equipment is on schedule and remains under the supervision of Outotec and the Group. Orders for all further project equipment are ongoing and on schedule.

Work on the foundations for the plant at Pokrovskiy and the construction of the flotation building at Pioneer and Malomir remain on schedule.

The Group has launched a comprehensive training programme for specialists to work at the future plant. Training is being conducted in the Group's pilot test plant in Blagoveschensk and at its mining college in Zeya.

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

Following an extensive exploration programme conducted by the Group during the first six months of 2011, the Group reports an update to its gold reserves and resources figures as at 1 January 2011, which were reported on 22 March 2011. This unaudited update of gold reserves and resources as at 1 July 2011 has been prepared in accordance with the guidelines of the JORC Code (2004).

In spite of the depletion of c.250,000oz of gold in the first half of the year due to production at Pokrovskiy, Pioneer and Malomir, the Group achieved an increase of c. 4% in Proven and Probable Ore Reserves on the previously-reported figure and a 6% increase in the Group's Total Mineral Resources.

A summary is shown in the tables below.

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

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

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

Note: Numbers may not add up due to rounding

The Group's unaudited Proven and Probable Ore Reserves estimated following the guidelines of the JORC Code (2004) using a US$1,000/oz long-term gold price as of 1 July 2011 are 257Mt of ore containing 9.43Moz of gold at an average grade of 1.14g/t Au (the economic cut-off grade differs for each deposit). This increase is attributable to the success of the Group's 2011 exploration programme to date, particularly at Pioneer, Malomir and Albyn. The Group's Total Mineral Resources stand at 24.4Moz of gold at an average grade of 0.99g/t Au in 770Mt of ore. Of the 24.4Moz, 14.0Moz are Measured and Indicated and 10.4Moz are Inferred Mineral Resources.

In addition to the Ore Reserves and Mineral Resources estimated in accordance with the JORC Code (2004), the Group also holds significant alluvial gold reserves and resources classified in accordance with the Russian Classification System. Due to the seasonality of these operations, the Group reports its alluvial reserves and resources annually; consequently the next update is expected to be announced in March 2012.

EXPLORATION REPORT

During the Period, the Group spent US$45 million on exploration of its gold deposits. The majority of the Group's exploration capital expenditure was spent at Pokrovskiy, Pioneer and Albyn, contributing to the overall upgrade of the Group's reserves and resources.

Pioneer

Exploration at Pioneer conducted during the first six months of the year was focused both in the old Pioneer licence area and new Alkhagan-Adamovskaya licence area yielding positive results at both areas. The main highlight of exploration was the discovery of a new, previously unknown, high-grade mineralised zone at NE Bakhmut, which has now been incorporated into the Group's resource estimate. The zone contains intersections of up to 17.0g/t across a thickness of 20m of both refractory and non-refractory ore and remains open in a down-dip direction. The Group is currently incorporating the discovery into its mine plan.

A further mineralised zone, Zvezdochka, was delineated to the north-west of the Bakhmut zone and parallel to the high-grade Andreevskaya and NE Bakhmut deposits. Zvezdochka contains refractory and non-refractory ore located close to the surface.

Exploration drilling continued to follow north-east extensions of Andreevskaya with core logging from the most recent drill holes, completed in mid-July, indicating that the trend continues and may hold another high-grade pay shoot (ore column).

Pioneer remains among the most prospective assets in the Group's portfolio. The Group's geologists anticipate that the continued exploration of Pioneer during the remaining months of the year will return further positive results.

Pokrovskiy

During the Period, exploration at Pokrovskiy focused on satellite deposits close to the existing RIP plant, in particular Zheltunak, Pokrovka-2 and Pokrovka-4.

Drilling and pre-stripping at Zheltunak resulted in the upgrade of part of the resource to the Indicated category, as well as an overall resource increase at the deposit from 18,000oz to 35,000oz of gold. Zheltunak mineralisation is non-refractory and suitable for processing through the existing Pokrovskiy RIP plant. It is currently being incorporated into the mine plan extending the mine life of Pokrovskiy mine and improving the production schedule for 2012.

The Group anticipates that exploration results from Pokrovka-2 will be added to its mineral resources estimate for 1 January 2012. Exploration at Pokrovka-4 has been following the mineralised north-west striking trend with further results expected in the second half of the year.

Malomir

Exploration conducted at Malomir during the Period identified potential new areas of non-refractory resources and reserves, suitable for processing through the existing RIP plant at Malomir. The success of this exploration increased non-refractory gold reserves at Malomir from 284,000oz to 360,000oz, despite the depletion of c. 50,000oz of RIP reserves during the first six months of the year.

During the Period, trenching and drilling on an 80x80m spacing was conducted on more than 540m of the strike length of the Kanavinskaya zone. The intersections received to date include 8.5m at 3.61g/t, 29.0m at 2.81g/t, 8.9m at 1.43g/t, 4.2m at 1.65g/t and 5.3m at 1.13g/t. The zone has been incorporated into the new resources estimate for Malomir. Laboratory tests have indicated that the zone is non-refractory and may become a source of additional ore for the existing RIP plant. The zone remains open in a down-dip direction and it is planned that it will be explored further during the remaining months of 2011 and subsequently included in the ore reserve and mine plan.

In addition, refractory resources suitable for processing through the future POX hub were identified at Zone 26, an area north of the Malomir deposit. Intersections include 3.9m at 6.29g/t, 6.0m at 1.78g/t, 15m at 1.71g/t and 17.0m at 1.67g/t. The zone remains open in a down-dip direction.

Albyn and the surrounding areas

The focus of exploration in the Albyn area during the Period was at Kharginskoye, the licence area acquired by the Group in 2010 which lies to the east and south of the Albyn licence area and contains geological extensions of the Albyn ore bodies. During the Period, alteration zones with a thickness of 3m to 5m, similar to those found at the Albyn deposit, were identified. Exploration of this area remains at an early stage but the Group's geologists already consider it to be highly prospective. The Group plans to continue its exploration of the area during 2011 and 2012.

The Group also continued exploration of the main Albyn licence area, where Mineral Resources increased by c.105koz and the Ore Reserves improved by c.160,000oz. The uplift in the reserves is due to an upgrade of some of the Inferred resources to the Measured and Indicated categories.

During the Period, the Group acquired a new, 325km2 licence area, Elginskoye, located 22km to south west of Albyn. Initial exploration conducted at Elginskoye yielded some positive results. The first three trenches completed in the area have identified wide, shallow dipping zones of quartz-feldspar alteration. The first assay results received to date indicated a 33m wide intersection at an average grade of 1.23g/t. The Group intends to continue exploration of this area during the remaining months of 2011.

Other exploration areas highlights

Burinda (Taldan licence)

Burinda is situated in the west of the Amur region, in a geological environment similar to Pokrovskiy. Interpretation of the exploration results conducted during the first six months of 2011 has enabled Burinda to be included in the Group's reserve and resource estimate for the first time.

The Group's geologists have estimated that there are c.340,000oz of Inferred Mineral Resources at an average grade of 1.5 g/t Au within Burinda and are currently evaluating the best approach to develop this asset.

Metallurgical tests demonstrated that Burinda mineralisation is non-refractory and amenable for simple RIP process.

Visokoe

Visokoe is situated in the centre of the Krasnoyarsk region in a rich gold-mining area. The Group acquired the Visokoe licence in 2010.

During the Period, intensive exploration continued at Visokoe in order to upgrade the Inferred category resources into the Measured and Indicated categories. Although this work is still in progress, the results received to date allowed the Indicated resources at Visokoe to increase by 154%, from c.500,000oz to c.1,280,000oz of gold. The total resource, including Inferred category resources, also increased from c.2,000,000oz to c.2,500,000oz of gold.

The Group's geologists consider Visokoe to be highly prospective and anticipate that exploration during the remaining months of 2011 will continue to yield positive results.

Metallurgical tests demonstrated that Visokoe mineralisation is non-refractory and amenable for simple heap leach, RIP or gravity processing.

PERFORMANCE TO 15 AUGUST 2011

Performance at Pioneer, Pokrovskiy and Malomir from 1 July to 15 August 2011 has been in line with the Group's internal estimates.

The Pioneer mine's performance has been significantly improved with a c.15% increase in the total amount of mining volumes per day compared to the first half of the year. According to the Group's schedule, the mining works also moved to high-grade areas currently producing c.4.0g/t ore compared to c.1.7 g/t in the first half of the year.

At the Malomir mine, work has moved to the lower levels of the ore body delivering high-grade material. Together with a 33% increase in capacity of the plant to 80,000t/month compared to the first half of the year, this has reconfirmed the Group's confidence in achieving its targets for the year.

CORPORATE UPDATE

On 24 August 2011, the Board declared an interim dividend of 5 pence per share, which will be paid on 11 November 2011 to shareholders on the register as at close on 7 October 2011.

Following shareholder approval at the Company's Annual General Meeting held on 19 May 2011, the Company paid a final dividend of 7 pence per share on 28 July 2011 to shareholders on the register as at close on 1 July 2011.

During the Period, the Group terminated the Odolgo Joint Venture with Priisk Solovyevskiy with the Group's share sold to its former joint venture partner. This has generated a US$12.0 million gain on the disposal of the Group's investments in the Odolgo Joint Venture and Priisk Solovyevskiy.

During the Period, three new committees were established at Board level: the Strategic Committee, the Technical Committee and the Anti-Bribery Committee. The Anti-Bribery Committee was formed in response to recent implementation of the UK Bribery Act 2010 and is responsible for the development, implementation and communication of the Group's anti-bribery policies and procedures to employees, suppliers, customers, joint venture partners and any other third parties with whom the Group conducts business. Membership of the Anti-Bribery Committee comprises the Company Chairman, the Chief Executive, the Chief Financial Officer, the Strategic Director, the Head of Legal, the Deputy General Director of MC Petropavlovsk and the Company Secretary.

During the first six months of the year, three new Executive Directors were appointed to the Board: Mr Andrey Maruta (Finance Director, Russia), Dr Alfiya Samokhvalova (Strategic Director) and Mr Martin Smith (Technical Director).

New Non-Executive Director

On 24 August 2011, Dr David Humphreys was appointed as a Non-Executive Director with immediate effect. Dr Humphreys replaces Mr Peter Hill-Wood who retired as a director following the conclusion of the Company's Annual General Meeting on 19 May 2011. Dr Humphreys has a broad range of experience within the global mining industry as a consultant, lecturer and writer. He has extensive knowledge of the Russian mining industry, having been Chief Economist at Norilsk Nickel, Russia's largest mining company, from 2004 to 2008. Prior to this, Dr Humphreys was Chief Economist of Rio Tinto for eight years.

Women on Boards

Lord Davies's report on 'Women on Boards' asked Chairman of all FTSE350 companies to consider this issue with their fellow directors and announce their aspirational targets for 2013 and 2015 by September 2011.

The Nomination Committee and the Board of the Company have recently considered the matter and believe that this is part of the wider diversity debate and that the skills, nationality and expertise of a potential Board member also need to be taken into consideration.

In this connection it should be noted that Dr Alfiya Samokhvalova was appointed as a Director of the Company in January 2011, due to her technical ability, knowledge and expertise in the field of mining and of our business. Her nationality and understanding of the Russian culture are also extremely valuable in managing our operations within Russia.

The Nomination Committee continues to work with its external consultants to appoint a further Non-Executive Director and due account will be taken of Lord Davies's views.

IRC

Petropavlovsk holds a 65.6% stake in IRC. IRC is a developer and producer of industrial commodities.

On 23 August 2011, IRC Limited issued its Interim Results. Highlights were:

§ Total production of iron ore concentrate and ilmenite in concentrate from Kuranakh increased by 142% compared to the previous six-month period;

§ All 2011 production targets are on track to be achieved;

§ The consolidated average realised price achieved in the first half of 2011 was c.US$147/t. Pricing is attained at a formula related to spot, and is agreed on a monthly basis; and

§ Construction works at K&S are ongoing;

 `

On 23 August 2011, IRC also issued the results of a mine optimisation study for K&S. The highlights were:

§ A further10% increase in Kimkan resources from the threefold, overall increase in reserves announced in March 2011;

§ Doubling ore throughput to 20mtpa by accelerating development of the Sutara deposit from 2015;

§ Near doubling of concentrate production to 6.3 mpta from 3.2mtpa from 2015;

§ Maintaining production of premium quality concentrate at approximately 65% Fe content;

§ Total estimated capital investment of approximately US$400m, including new mining works, processing plant expansionand ore conveying; and

§ Industry leading capital intensity for a new project,at US$129/t of saleable concentrate per annum.

The Reserves and Resources in accordance with the JORC Code (2004) for K&S are now as follows:

Further information, including the full Interim Report for IRC Limited and the mine optimisation study for K&S, may be found on the website www.ircgroup.com.hk.

DEFINITIONS AND NOTES

Underlying EBITDA

Underlying EBITDA is profit for the period before fair value changes, financial income, financial expenses, foreign exchange gains and losses, taxation, depreciation, amortisation and impairment (see note 25 to the Consolidated Interim Financial Statements).

Total Attributable Gold Production

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

Production from alluvial operations for H1 2011 includes production from the assets previously held by the Omchak Joint Venture, which was a 50/50 joint venture prior to the acquisition of 32.5% and 7.5% of the issued capital of the Omchak Joint Venture from Susumanzoloto and Shkolnoye respectively in H2 2010. Production from these assets is now 100% attributable to the Group.

Production from joint ventures and other investments includes production from the Omchak Joint Venture prior to its acquisition in H2 2010. Following the termination of the Odolgo Joint Venture in 2011, the Group no longer operates any joint ventures.

Exceptional Items

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

IMPORTANT INFORMATION

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

Forward-looking statements

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

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

Basis of reporting reserves and resources

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

The content of this announcement have been approved for release by Dr. P. Newall, BSc, PhD, CEng, FIMMM, of Wardell Armstrong International. Dr. P. Newall has consented to the inclusion of the material in the form and context in which it appears.

RESPONSIBILITY STATEMENT

Principle risk and uncertainties

The Group is exposed to a variety of risks and uncertainties which could significantly affect its business and financial results. The Group's view of the principal risks that could impact it for the remainder of the current financial year are substantially unchanged from the ones set out in the 2010 Annual Report. A comprehensive review of the key risks facing the Group is set out on pages 66 to 73 of the 2010 Annual Report which is available on the Group's website www.petropavlovsk.net. A summary of these key risks is set out below:

§ Operational risks:

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

- Adverse weather conditions

§ Financial risks:

- Commodity prices

- Exchange rate fluctuations

- Funding and liquidity

- Capital programme controls

§ Health, safety and environmental risks:

- Health and safety issues

§ Legal and regulatory risks:

- Licences and permits

- Restatement of Reserves and Resources

- Non compliance with applicable legislation

§ Legal and Regulatory risks

- Country-specific risks

§ Human Resources

- Ability to attract key senior management

- Lack of skilled labour

This should not be regarded as a complete or comprehensive list of all potential risks that the Group may experience. In addition, there may be additional risks currently unknown to the Group and other risks, currently believed to be immaterial, which could turn out to be material and significantly affect the Group's business and financial results.

Responsibility Statement

We confirm that to the best of our knowledge:

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

Reporting";

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

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

By Order of the Board

Peter C P Hambro Brian Egan

Director Director

Independent Review Report to Petropavlovsk PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 which comprises the condensed consolidated interim income statement, the condensed consolidated interim statement of recognised income and expense, the condensed consolidated interim statement of changes in equity, the condensed consolidated interim balance sheet, the condensed consolidated interim cashflow statement and related notes 1 to 25. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London

24 August 2011

PETROPAVLOVSK PLC

Condensed Consolidated Interim Income Statement

The accompanying notes are an integral part of this condensed consolidated interim financial information.

PETROPAVLOVSK PLC

Condensed Consolidated Interim Statement of Recognised Income and Expense

The accompanying notes are an integral part of this condensed consolidated interim financial information.