Results of Strategic Review

17 December 2013

Results of Strategic Review

Petropavlovsk PLC (the "Company" or, together with its subsidiaries, the "Group") is pleased to announce the results of a Board review of the Group's strategic operational and development plans until 2025. This review takes into consideration the current gold price and the results of the exploration programme carried out by the Group.

Highlights

■ Ongoing exploration programme results in an increase of 5.7 million ounces ("Moz") of non-refractory resources estimated in accordance with the Russian Classification System for the processing at the Pioneer, Albyn and Malomir facilities

■ The increase in resources is expected to support continuing only non-refractory production until 2019

■ An anticipated step-change improvement in operating costs from 2015 due to better grades and stripping ratios at the Pioneer, Albyn and Malomir mines

■ 2014 forecast production at 620,000oz-630,000oz

■ Net debt already below US$1.0 billion ahead of target debt reduction schedule

Strategic Review

Petropavlovsk has recently completed a full review of its assets and its operational and development plans. This review has now been approved by the Board and its findings will be implemented from January 2014 onwards.

The new operational and development plans are based on the results of the 2011-2013 exploration programme on areas that are expected to provide non-refractory material for the existing processing facilities at Pioneer, Albyn and Malomir. This exploration resulted in a total increase in the Group's non-refractory resources (estimated in accordance with the internally-used Russian Classification System) of 5.7Moz.

In addition, the Group has identified further refractory mineral resources of approximately 7.2Moz also estimated in accordance with the internally-used Russian Classification System.

These increases were achieved in spite of a significant delay in the 2013 exploration work due to heavy rains. For this reason, so far only part of the new resources are currently defined in accordance with the JORC Code.

The production plan for 2014 is based on JORC-compliant reserves of non-refractory ores and provides for 620,000oz-630,000oz of gold production at estimated total cash costs of c.US$950oz, a unit cost reduction of approximately 5% of the estimated 2013 total cash costs. The decrease in production comes partially from the disposal in H2 2013 of Berelekh's high-cost alluvial assets.

Using a conservative estimate of the quantity and quality of the new non-refractory resources, the Group's production plan provides for 2015-2019 annual average production of c.600,000oz, with some year-on-year variations, at estimated total cash costs less than US$750/oz (assuming 2013 prices and foreign exchange rates). This production plan assumes no commissioning of the POX facilities during this period.

This anticipated step-change reduction in operating costs from 2015 is expected to be achieved due to an improvement in the grades of ore being processed and a decrease in stripping coefficients for the projected mining work when compared with the current mining operations.

The production plan predominantly relies on the Group's existing mining and processing facilities and therefore requires minimal capital expenditure.

The Company expects to announce detailed data on the new non-refractory reserves and resources during H1 2014 following their translation into JORC.

Development of the pressure oxidation ("POX") Hub

The increase in non-refractory resources is expected to provide the total ore requirement for the Group's processing capacities until 2019. This in turn enables the Group to postpone completion of the POX facilities at Malomir and at Pioneer.

The Group still plans to complete the POX facilities, with the timing dependent on the gold price and the availability of capital.

Capital Expenditure

The addition of new, non-refractory resources and the subsequent re-allocation of POX capital expenditure have enabled balance sheet optimisation so as to provide a decrease in net debt.

The Group's 2014 capital expenditure programme is expected to amount to approximately US$94 million. Of this figure, US$34 million is planned to be spent on the Group's exploration programme and the remainder is planned to be spent predominantly on improving and maintaining infrastructure at Pioneer and Albyn and the completion of existing contracts for the POX project. The current 2015 capital expenditure programme does not include POX plant expenditure and provides only for maintenance capital expenditure.  

Hedging

The weighted average gold price on the outstanding 309,000oz hedging contracts is US$1,439/oz.

Financing

The Board is pleased to announce that it has already achieved its stated target of reducing net debt to below US$1 billion by the year-end. A further decrease in net debt is planned in 2014, in part based on the improvement in operating costs and the resulting increase in operating cash flow.

Petropavlovsk continues to make progress in its work on restructuring the Group's finances. This work is being undertaken against the background of the newly identified non-refractory resources which enables the postponement of capital expenditure on the POX project.

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

"The current environment presents a challenge to all gold producing companies and Petropavlovsk has moved quickly to reduce costs and identify additional low-cost resources at our existing sites.

The actions we have already taken, including hedging, cost cutting and balance sheet optimisation are now having the desired effect.

The new non-refractory discoveries at our existing sites should secure the continuation of the Group's non-refractory gold production over the medium-term and better grades and lower stripping ratios should lead to a substantial reduction in operating costs from 2015 onwards".

Enquiries

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 Group's results of operations, financial position, liquidity, prospects, growth, strategies and expectations of the industry.

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

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