Trading update for 1Q 2018

TRADING UPDATE FOR 1Q 2018

17 April, 2018

PJSC Polyus ("Polyus" or the "Company") today releases 1Q 2018 operating results for the period ending 31st March 2018.

1Q 2018 Highlights

· Total gold output was 507 thousand ounces, compared to 580 thousand ounces in 4Q 2017, mainly due to seasonal slowdown in production at Alluvials and lower production volumes at Olimpiada and Blagodatnoye. Total gold output rose 13% compared to the first quarter of 2017 due to increased total gold output at Olimpiada, including higher gold contained in concentrate production.

· Volumes of ore mined amounted to 8,821 thousand tones, down 12% on the previous quarter. This was in line with the mining plan, as Polyus is conducting a pit cut back at Blagodatnoye. Volumes of ore mined increased 2% compared to the same period of 2017.

· Volumes of ore processed increased 9% compared to the previous quarter, to 8,492 thousand tones. This was driven by a gradual increase in processing volumes at the Natalka Mill. Polyus anticipates to fully ramp up the Natalka Mill in the second half of 2018. Volumes of ore processed rose 28% compared to the first quarter of 2017 due to processing capacity expansion at existing operations as well as the launch of the Natalka operations.

· Estimated gold sales amounted to $608 million, down 17% compared to the previous quarter with an estimated weighted-average gold selling price of $1,336/oz. Estimated gold sales were up 1% compared to the first quarter of 2017, despite a 6% decline in sales volumes over the same period of time.

· As of 31 March 2018, the estimated net debt stood at $3,079 million, compared to $3,077 million as of the end of the fourth quarter of 2017 and $3,128 million as of the end of the first quarter of 2017.

Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:

Over the course of the first quarter, Polyus remained focused on operational excellence, whilst making progress on its development projects. At Olimpiada, Polyus launched the antimony project and now processes high-grade antimony containing ore at Mill-1. At Natalka, we remain on track to complete the ramp-up in the second half of the year.

At Sukhoi Log, we have completed 30 thousand meters of the 180,000-meter drilling campaign launched in November. The Scoping Study is also nearing completion.

Based on the results of the first quarter, we confirm our 2018 full-year production guidance of 2.375-2.425 million ounces."

Health and safety update

The LTIFR rate for the first quarter of 2018 stood at 0.06, down 64% from 0.17 registered in the prior-year period.

During the reporting period, no fatalities have been recorded across all of Polyus' operations.

The Company continued to further enhance its on-site health and safety system, with pilot lock out/tag out systems installed at Kuranakh and Power Group. In 2018, these systems will be introduced across all Polyus' business units. At Verninskoye, an audit of the HSE management system was carried out to measure its compliance with corporate and state regulatory standards.

1 - LTIFR is calculated based on a 200,000 work hours factor.

Consolidated operating results

1Q 2018 Highlights

· Total gold output in the first quarter 2018 was 507 thousand ounces of gold (including 74 thousand ounces of gold contained in concentrate from Olimpiada), compared to 580 thousand ounces of gold in the fourth quarter of 2017. This decline was mainly driven by a seasonal slowdown in production at Alluvials and lower refined gold volumes at Olimpiada and Blagodatnoye. Doré volumes totaled 539 thousand ounces, down 3% compared to the previous quarter. Compared to the first quarter of 2017, volumes of doré gold total and gold output increased 22% and 13%, respectively.

· Volumes of ore processed increased 9% compared to the previous quarter reflecting higher processing volumes at the Natalka Mill. Ore processed volumes rose 28% compared to the same quarter of 2017 due to processing capacity expansion at existing operations as well as the launch of the Natalka operations.

· Average recoveries in the first quarter 2018 were 81.5%, compared to 82.7% in the fourth quarter of 2017. This was mainly a result of a temporary decrease in recoveries at Blagodatnoye as well as the ongoing ramp-up process at Natalka. The recoveries at the Group level, adjusted for the Natalka operations, amounted to 82.8%.

Olimpiada

1Q 2018 Highlights

Ø Polyus launched high-grade antimony containing ore processing at Mill-1.

Ø Total refined gold and gold contained in concentrate output was 288 thousand ounces.

Ø Volumes of ore processed were flat compared to the previous quarter.

Doré gold output in the first quarter of 2018 was 318 thousand ounces, up 4% compared to the previous quarter, due to higher grades in ore processed. Total gold output (refined and concentrate) decreased 12% compared to the previous quarter, to 287.5 thousand ounces, on the accumulation of gold in inventory at the refinery. Doré gold output increased 30% compared to the first quarter of 2017, while total gold output rose 16% during the same period due to higher volumes of flotation concentrate.

Mining works

Volumes of rock moved increased 18% compared to the previous quarter to 28,507 thousand tones in line with the mining plan. Polyus continued upgrading its mining fleet at Olimpiada and commisioned an additional TYHI WK-35 excavator in the reporting period. Two WK-35 excavators are currently operating on site, contributing to the higher volumes of rock moved. Stripping ratio increased 9% to 7.3 t/t compared to the previous quarter.

In the first quarter of 2018, Polyus intensified mining operations at lower-grade sites of the Vostochny pit, which had an impact both on volumes of ore mined and on average grades in ore mined. Ore mined increased to 3,420 thousand tones, up 9% compared to the previous quarter. The average grade declined 3% to 3.79 g/t during the same period.

Ore processing

Polyus launched high-grade antimony ore processing solelly at Mill-1. The Company will account for antimony sales as a by-product. Currently, Polyus' technical team is proceeding with optimization of the processing parameters at Mill-1. In the repoting period, a DK-1 crushing unit was utilized in ore processing operations at Mill-1, to optimise mill feed size.

Volumes of ore processed remained flat compared to the previous quarter, at 3,155 thousand tones. This reflects the sequence of maintenance works at Olimpiada, with Mill-2 undergoing a scheduled maintenance in the first quarter of 2018.

The average grades in ore processed at Olimpiada increased to 4.17g/t from 3.94 g/t in the previous quarter. The recovery rate stood at 80.0%.

Mining works and ore processing

Blagodatnoye

1Q 2018 Highlights

Ø Polyus launched a scheduled pit cutback.

Ø Total gold output was 91 thousand ounces.

Ø Volumes of ore mined totaled 2,241 thousand tones, compared to 3,569 thousand tones in the previous quarter.

Gold output

Doré gold output in the first quarter of 2018 was 100 thousand ounces, down 7% compared to the previous quarter, mainly due to decreased processing volumes and lower grades in ore processed. Refined gold output amounted to 91 thousand ounces, down 28% on the previous reporting period. Refined gold output decreased 16% compared to the first quarter of 2017 on the back of lower grades in ore processed.

Mining works

Polyus launched a pit cutback at Blagodatnoye in the reporting period. This resulted in a 37% decrease in volumes of ore mined in the first quarter of 2018 (2,241 thousand tones compared to 3,569 thousand tones in the fourth quarter of 2017). During the cutback phase, Polyus temporarily intensified mining activities at low-grade flank areas of the Blagodatnoye deposit, which resulted in a 12% decline in average grade in ore mined, to 1.68 g/t (from 1.90 g/t in the fourth quarter of 2017).

Ore processing

The average grade in ore processed decreased from 2.06 g/t to 1.74 g/t during the quarter reflecting lower grades in ore mined. Volumes of ore processed totaled 2,040 thousand tones, down 7% compared to the previous quarter, mainly due to scheduled maintenance works at Mill-4. The 0.5 ppts decline in recovery compared to the previous quarter was incurred due to lower grades in ore processed.

Mining works and ore processing

Verninskoye

1Q 2018 Highlights

Ø Total gold output totaled 59 thousand ounces.

Ø Grade in ore mined increased to 2.63 g/t, compared to 2.06 g/t in the previous quarter.

Ø Recovery rate stood at 89.4%.

Gold output

Doré gold output was 51 thousand ounces, down 9% on the prevous quarter, mainly due to a decrease in volumes of ore processed. Refined gold output amounted to 59 thousand ounces, compared to 46 thousand ounces, reflecting the changes in gold in inventory at the refinery. Refined gold output rose 9% compared to the first quarter of 2017 due to higher volumes of ore processed and improved recovery rate.

Mining works

In the first quarter of 2018, the Company downscaled mining activities at lower-grade areas of the deposit. This resulted in a 28% increase in average grade in ore mined to 2.63 g/t compared to 2.06 g/t in the previous quarter. The volumes of ore mined totaled 845 thousand tones, a 14% decrease during the same period, in line with the mining plan. In the reporting period, the Company introduced the Wenco mining fleet management system, allowing to improve control of mining equipment, and continued rolling out the Mine-to-Mill programme at Verninskoye.

Ore processing

In the reporting period, the average grade in ore processed was 2.64 g/t. Volumes of ore processed amounted to 674 thousand ounces, an 11% decrease compared to the previous quarter. This decline was attributable to maintenance works at the Verninskoye Mill, completed in March 2018. Hourly throughput capacity of the Verninskoye Mill reached its historical high in the reporting period.

The recovery rate increased 0.6 ppts to 89.4%, reaching a record level. As part of the Verninskoye Mill expansion project, the Company commissioned an oxygen plant module and installed new CIL agitators to expand the leaching capacity.

Mining works and ore processing

Alluvials

1Q 2018 Highlights

Ø Due to the seasonality of placer deposits no gold was produced at Alluvials in the first quarter of 2018.

Ø As usual, the washing season ended in November 2017 and was resumed in April 2018.

Ø Maintenance and preparation work was performed at the deposits.

Sands washing

Kuranakh

1Q 2018 Highlights

Ø Annualised throughput reached 5 million tonnes.

Ø Refined gold output was 47 thousand ounces, down 4% compared to the previous quarter.

Gold output

Doré gold output in the first quarter of 2018 was 44 thousand ounces. Refined gold output decreased 4% compared to the previous quarter, to 47 thousand ounces. Refined gold production rose 9% compared to the first quarter of 2017 due to higher volumes of ore processed.

Mining works

In the first quarter of 2018, volumes of ore mined increased 15% compared to the previous quarter, to 1,635 thousand tones, as Polyus shifted mining activities to the areas with a lower stripping ratio. Polyus increased share of lower-grade material in ore mined ahead of leaching season, with average grade decreasing to 1.14 g/t in line with the mining plan.

Ore processing

Volumes of ore processed at mill increased to 1,255 thousand tones, up 7% compared to the previous quarter, as Polyus advanced with the Kuranakh Mill throughput capacity expansion project. This was supported by improved utilization of equipment at the grinding circuit in the reporting period. Lower grades in ore processed (1.23g/t compared to 1.32g/t in the fourth quarter of 2017) resulted in a 0.3 ppts decline in recovery, to 88.3%.

Heap leaching

Due to the seasonality of heap leaching operations, leaching activities were temporarily suspended in 3Q 2017 and will be resumed in 2Q 2018.

Mining works and ore processing

Natalka

1Q 2018 Highlights

Ø Processing circuits are fully operational.

Ø The Company anticipates full ramp-up in 2H 2018.

Ø Processing volumes reached 1,368 thousand tones.

Ø Recovery stands at 62.9% with grades in ore processed averaging at 1.02 g/t.

Mining works

In 1Q 2018, volumes of rock moved totaled 6,674 thousand tones, while volumes of ore mined amounted to 663 thousand tones. Average grades in ore mined were 0.93 g/t, as mining works were concentrated on lower grade zones of the ore body according to the mine plan.

During the quarter, Polyus delivered 8 Komatsu E730 trucks and a PC4000 excavator to the site. 3 Komatsu E730 trucks are already operating, while assembling of other mining equipment is underway. The Company plans to purchase additional large-scale mining equipment over the course of 2018.

Ore processing

In the reporting period, the average grade in ore processed was 1.02 g/t, an 82% increase on the previous quarter, in line with the Company's plan to gradually increase grades during the ramp-up period. Ore treatment volumes reached 1,368 thousand tones. Natalka currently operates in a ramp-up mode at above 50% of design capacity, processing above 15 thousand tones of ore on a daily basis. Polyus anticipates to complete the Natalka Mill ramp-up in the second half of 2018.

The construction works at the Natalka Mill's auxiliary facilities are ongoing with a freight elevator, ventilation system, and fire extinguishing systems being installed. Polyus continues to expand tailings facility and works on "Ust-Omchug - Omchak" power grid construction.

Mining works and ore processing 

Sukhoi Log

In November 2017, Polyus launched a 180 thousand meter drilling campaign, which will last 2 years. The Company is currently carrying out verification drilling and will then complete with in-fill, deep-level and flanks drilling. As at the end of the first quarter of 2018, Polyus had completed 75% of the planned 40 thousand meters of verification drilling.

AMC has been engaged to supervise the drilling program and review the results in compliance with JORC standards.

The Company expects to upgrade the classification of a portion of the Sukhoi Log Resources estimates from Inferred Mineral Resource to Measured & Indicated Resources before the end of 2018.

Polyus engaged Hatch for Scoping Study development and SRK for results' quality assurance. As of the end of the first quarter of 2018, the scoping study was on its final stage.

FINANCIAL UPDATE

Gold sales

In the first quarter of 2018, the Company sold a total of 459 thousand ounces of gold, a 23% decrease on the previous quarter. Total gold sales include 13 thousand ounces of gold contained in the concentrate from Olimpiada.

Estimated gold sales in the reporting period decreased 17% to approximately $608 million, compared to $734 million in the previous quarter and $600 million in the first quarter of 2017.

Debt management

In the first quarter of 2018, Polyus used proceeds from the recent bond issuances and additional $225 million commercial bank loans to prepay $1.0 billion out of $1.25 billion credit facility, maturing in 2023. These initiatives resulted in an increase of fixed rate instruments share within the Company's debt portfolio to 96% from 69% as of the end of the previous quarter.

The Company's gross debt decreased to $4,174 million, compared to $4,281 million as of the end of the fourth quarter of 2017. Polyus' debt portfolio remains predominantly comprised of US dollar denominated instruments in regards to currency allocation. The Company's debt profile remains smooth with limited debt maturities outstanding till the end of 2018.

As of 31 March 2018, the Company's estimated cash position was $1,095 million (31 December 2017: $1,204 million) and its estimated net debt position amounted to $3,079 million (31 December 2017: $3,077 million).

Debt capital markets activities

In January 2018, the Company completed 2 bond offerings ($250 million convertible bonds and $500 million Eurobonds):

· Polyus completed the offering of $250 million principal amount of senior unsecured guaranteed convertible bonds due 2021, issued by Polyus Finance PLC and guaranteed by PJSC Polyus and Joint Stock Company Polyus Krasnoyarsk. The Bonds carries a coupon of 1.00% per annum payable semi-annually in arrears. The initial conversion price has been set at $50.0427 per GDR, representing a conversion premium of 30% above the reference price of $38.4944.

· Polyus priced an issuance of $500 million notes due 2024 with a coupon of 4.70% per annum. The Notes are guaranteed by Joint Stock Company Polyus Krasnoyarsk, a subsidiary of the Company.

2 - Net of non-cash IFRS adjustments

CONFERENCE CALL INFORMATION

Polyus will host an analyst conference call on 17th April 2018 at 1 pm London time (3 pm Moscow time) to present and discuss the 1Q 2018 operating results.

To join the conference call, please dial:

Conference ID: 9966178

UK

+44 (0)330 336 9105 (Local access)

0800 358 6377 (Toll free)

USA

+1 323-794-2093 (Local access)

866-548-4713 (Toll free)

Russia

+7 495 213 1767 (Local access)

8 800 500 9283 (Toll free)

To access the replay, please dial:

Passcode: 9966178

UK+44 (0) 207 660 0134 (Local access)

0 808 101 1153 (Toll free)

USA

+1 719-457-0820 (Local access)

888-203-1112 (toll free)

Russia

810 800 2702 1012 (Toll free)

Enquiries: 

Investor contact

Victor Drozdov, Investor Relations Director

+7 495 641 33 77

[email protected] 

Media contact

Victoria Vasilyeva, Director Public Relations

+7 (495) 641 33 77 

[email protected]

Forward looking statements

This announcement may contain "forward-looking statements" concerning Polyus and/or Polyus Group. Generally, the words "will", "may", "should", "could", "would", "can", "continue", "opportunity", "believes", "expects", "intends", "anticipates", "estimates" or similar expressions identify forward-looking statements. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Forward-looking statements include statements relating to future capital expenditures and business and management strategies and the expansion and growth of Polyus' and/or Polyus Group's operations. Many of these risks and uncertainties relate to factors that are beyond Polyus' and/or Polyus Group's ability to control or estimate precisely and therefore undue reliance should not be placed on such statements which speak only as of the date of this announcement. Polyus and/or any Polyus Company assumes no obligation in respect of, and does not intend to update, these forward-looking statements, except as required pursuant to applicable law.