Half-Year Report for the Period Ended 30 June 2012

Transcription

1 Half-Year Report for the Period Ended 2012

2 23 August 2012 Half-Year Report for the Period Ended 2012 Petropavlovsk PLC ( Petropavlovsk, the Company or, together with its subsidiaries, the Group ) today issues its Half-Year Report for the period from 1 January 2012 to 2012 ( H or the Period ). Summary Total attributable gold production for the Period of 279,100oz, up 27% on H1 (219,100oz); 7% increase in gold sold (to 286,074oz) and 13% increase in average realised gold sales price (US$1,639); Record half-year revenues of US$546.8 million, up 15% versus H1 (US$475.1 million); Total cash costs for hard-rock mines (excluding Albyn during its ramp-up phase) of US$697/oz, only 6% higher than in H1 despite inflationary pressures; Underlying EBITDA increased by 10% versus H1 to US$204.1 million, EBITDA margin of 37%; Operating profit of US$93.8 million (: US$152.4 million) and net profit of US$11.0 million (: US$108.2 million), principally impacted by higher depreciation charges, effect of foreign exchange and interest expense; Net cash from operating activities increased 152% to US$46.3 million; Interim dividend of 0.05 declared; 1Moz increase in Mineral Resources, despite depletion; Pressure oxidation project remains on track; The Group reiterates its full year production target of 700,000oz; Scheduled increase in production in H is expected to significantly improve Group s profitability versus H Six months to 2012 (unaudited) Six months to (unaudited) Variance Year ended 31 December Gold produced ( 000oz) % Gold sold ( 000oz) % Avg. realised gold price (US$/oz) 1,639 1,455 13% 1,617 Avg. total cash costs for hard-rock mines, excl. Albyn (US$/oz) Avg. total cash costs for hard-rock mines, including Albyn(US$/oz) % % 586 Group revenue (US$m) % 1,262.5 Revenue from precious metals operations (US$m) % 1,101.3 Total underlying EBITDA (a) (US$m) % Operating profit (US$m) (38%) Net profit (US$m) (90%) Earnings per share (basic, US$) (86%) 1.24 Net cash flow from operating activities (US$m) % Final dividend payable Interim dividend proposed (a) Reconciliation of underlying EBITDA is included in note 24 to the Condensed Consolidated Interim Financial Statements Note: Figures may be rounded. Please see end of section for definitions of terms, which are valid throughout the document

3 Analysis of capital expenditure Six months to 2012 (unaudited) US$m Six months to (unaudited) US$m Variance Year ended 31 December US$m Capital expenditure: development and maintenance relating to gold projects and inhouse % services (US$m) Capital expenditure: gold exploration (US$m) (22%) 99.8 Capital expenditure: IRC (US$m) % Analysis of the Group s net debt position (including IRC) At 2012 (unaudited) US$m At 31 December US$m Variance Cash (11%) Loans (974.5) (668.0) 46% Convertible bonds (345.5) (338.8) 2% Restricted bank deposit nil Net debt (1,123.8) (787.3) 43% The Group s net debt position (excluding IRC) At 2012 (unaudited) US$m At 31 December US$m Variance Net debt (1,056.1) (805.1) 31% HIGHLIGHTS Operations and gold production Total attributable gold production for the Period was 279,100oz, a 27% increase on the same period in (219,100oz); The fourth processing line at Pioneer and the second processing line at Albyn were commissioned in June 2012, ahead of schedule. Consequently, the design throughput capacity at Pioneer increased by 40% to c.6.6mtpa and has doubled at Albyn to c.3.6mtpa, contributing to an expected approximate threefold increase in Albyn s production during the second half of the year; Gold production during H is expected to be c.420,000oz, 50% higher than in H due to the full effect of the expansion of Albyn and Pioneer and a greater contribution from the Group s seasonal heap-leach and alluvial operations; Performance across the Group s mines has continued to be good from 1 July 2012 to date; and The Group is reiterating its full year production target of 700,000oz. Financial highlights Group revenue for the Period was US$546.8 million, a 15% increase compared with US$475.1 million in H1 and was at a record level for the Group s half-year results;

4 The increase in revenue versus H1 is attributable to a 13% increase in the average realised gold sales price to US$1,639/oz (compared with US$1,455/oz in H1 ) and an 7% increase in physical volumes of gold sold during the Period to 286,074oz which was due to higher production volumes resulting from a strong performance at Pioneer, the commissioning of Albyn (Q4 ) and the successful expansion of operations at Malomir, Pioneer and Albyn (during the Period); Operating cash flows of US$46.3 million generated during the Period increased by 152% compared with H1 ; Underlying EBITDA for the Period increased by 10% to US$204.1 million compared with US$186.2 million in H1, reflecting the positive effect from the increased average realised gold sales price and physical volumes of gold sold; Operating profit was US$93.8 million for the Period, a 38% decrease compared with H1, primarily reflecting the following factors: - A depreciation charge of US$106.9 million, an increase of 132% in H versus H1. The H depreciation charge was in line with the charge the Group incurred in the second half of of US$86 million plus the inclusion of Albyn mine s depreciation charge of US$12 million, which occurred only in the first half of 2012; - Foreign exchange losses of US$3.4 million versus foreign exchange gains of US$17.8 million in H1. These are non-cash losses primarily arising from a revaluation of Russian Rouble denominated net monetary assets due to the depreciation of the Russian Rouble against the US Dollar. This, on the other hand, benefited the cost of production as the majority of the Group s operating costs are Rouble denominated; Net profit for the Period of US$11 million was principally affected by: - An increase in net interest expense from US$15.8 million in H1 to US$34.6 million in H1 2012, reflecting the Group s higher net debt position of US$1,123.8 million as at 2012 (of which US$67.7 million is attributable to IRC) compared with US$510.7 million as at ; - US$9.4 million of fair value losses recognised on gold option contracts traded by the Group, of which US$1.9 million is a realised loss/cash payable on the contracts exercised during the Period and US$7.5 million is a fair value change on the contracts outstanding at the Period-end; Central administration costs for the Group s precious metals operations of US$33.1 million for the Period remained broadly in line with H1 (US$31.9 million); Total tax charge for the Period comprised US$37.8 million, arising primarily in relation to the Group s precious metals operations; As at 2012, the Group had US$190.2 million in cash and US$450.3 million of available undrawn facilities (of which US$265.5 million relates to IRC); On 26 July 2012, the Company paid a final dividend for the financial year of 0.07 per share to shareholders on the register as at close of business on 29 June The Board of Directors has approved an interim dividend of 0.05 per share, which will be paid on 8 November 2012 to shareholders on the register as at close of business on 5 October Outlook for H The Group is scheduled to produce c.420,000oz (c.60% of the planned 2012 gold output) in H due to the seasonality of its alluvial and heap-leach operations and the full effect of the mill expansions at Pioneer and Albyn; 80% of the annual alluvial production and sales are scheduled for H2 2012, which is expected to bring the total cash cost down by c.30% vs. H1 2012;

5 At Albyn, more than two thirds of the mine s annual production is scheduled for H and total cash costs for Albyn are expected to decrease significantly now the mine has ramped up to its full design capacity; Heap-leach operations at the Pokrovskiy and Pioneer mines (only a marginal contribution in H1 2012) are scheduled to deliver the majority of their production in the second half of 2012; At current gold price levels, Group net debt (excluding IRC) is expected to remain broadly unchanged. IRC s net debt is projected to increase as it continues to draw down on its project loan from the Industrial and Commercial Bank of China ( ICBC ) in order to fund the construction of the K&S Project; Cash operating costs per ounce in the second half of the year are expected to remain broadly in line with H1 2012; Total depreciation charges in the second half of the year are expected to be broadly consistent with H1 2012; and Total interest costs are expected to be slightly higher in the second half of the year, in line with the Group s overall increase in net debt. Costs Total cash costs for the Group s hard rock mines (excluding Albyn) were US$697/oz, an increase of 6% compared with H1 (US$659/oz) despite inflationary pressures; Total cash costs for the Group s flagship mine, Pioneer, were US$639/oz, a 5% decrease compared to H1, achieved despite similar head grades to H1. This was due to the increased mining efficiencies following the comprehensive cost-cutting measures implemented during ; Total cash costs for Albyn were US$1,251/oz, having been affected by the mine s ramp up during the Period. Total cash costs for Albyn are expected to decrease during the second half of the year as the mine has now reached its full capacity following the commissioning of the second processing line in June 2012; Total cash costs at Malomir and Pokrovskiy for the Period were US$712/oz and US$880/oz respectively, higher than the comparative period due to a scheduled decrease in grades processed; and Total cash costs for the Group s alluvial operations are expected to be in line with FY. Exploration and JORC Reserves and Resources Exploration was focused on expanding the Group s non-refractory Ore Reserves at, or adjacent to, its existing projects, with the aim of confirming reserves suitable for processing at the Group s existing facilities; The Group s exploration programme resulted in an 1Moz increase in the Group s gold Mineral Resources to 25.42Moz, of which 10.05Moz were Proven and Probable Ore Reserves; The increase was achieved despite the depletion of c.320koz of Ore Reserves from mining activities since 1 January 2012; The majority of this new material is confirmed as, or considered to be, non-refractory; Mine-by-mine highlights: - Malomir: 74,000oz of non-refractory Reserves were identified at the Quartzitovoye and Central open pits by upgrading Inferred Resources and, to a lesser extent, by converting material previously classified as refractory as suitable for RIP processing; - Pokrovskiy: a new zone of high-grade mineralisation was delineated and included in ore reserves at Zheltunak; this zone is still open in a down-dip direction offering further exploration potential; - Pioneer: additional non-refractory Ore Reserves at NE Bakhmut have been incorporated into the mine plan;

6 - Albyn: exploration of the non-refractory Elginskoye deposit (adjacent to Albyn) resulted in the deposit s inclusion in the Group s Resource statement for the first time. The deposit still remains at an early stage of exploration and the Group s geologists consider it to be highly prospective. Mineralised zones are open in both strike directions. Exploration is on-going to convert the Elginskoye Resources into Reserves and to establish further Resources; As per the previous estimate for 1 January 2012, Ore Reserves for Albyn and Visokoe were estimated using a gold price of US$1,200/oz and Ore Reserves for the Group s remaining assets were estimated using a gold price of US$1,000/oz. Project Development Work on the pressure oxidation plant ( POX hub ) at Pokrovskiy and the flotation plant at Malomir, including on-site construction and the manufacture and delivery of equipment, is progressing as scheduled; At Pokrovskiy, the oxygen plant is under construction and the foundations for the autoclave building are being laid. As per the schedule, some key items of equipment have already been delivered to the site. Further items, including four autoclaves and four flash tanks, are due to be delivered in September and October The Group intends to install this equipment during the winter months; At Malomir, the flotation plant building is nearing completion. The Group anticipates the plant will be completed by the end of 2012 and will be commissioned either immediately or in early 2013, depending on the exact timing of the depletion of Malomir s oxidised ore, following the extra findings during the first half of the year; and The Group continues to train personnel, simulate ramp up scenarios and define operating parameters at its unique pilot test plant in Blagoveschensk, Russia. Capital expenditure During the Period, the Group invested US$262.0 million in the maintenance and development of its gold projects and its in-house services, as planned. The key focus areas were the development of the POX hub at Pokrovskiy, the flotation plant at Malomir and the plant expansions at Pioneer and Albyn; During the Period, IRC partially drew down on its existing loan facilities and spent US$86.8 million, including US$79.1 million on the construction of the K&S project, US$5.5 million on the continued development of Kuranakh and US$2.2 million on other projects. This was an increase compared to the equivalent period in as the K&S project is approaching its expected commissioning in 2014; During the Period, the Group invested US$34.7 million on gold exploration, less than the comparable period in (US$44.8 million); and Total capital expenditure for the Group s gold operations (excluding exploration) for FY 2012 is expected to be approximately 20% higher than the guidance for the year. Operational performance post-period end From the period 1 July to date, performance across the Group s mines was good; Performance at Pioneer continued to be in line with the Group s expectations; Production from Pokrovskiy continued to be ahead of the Group s forecast as grades mined were higher than had been originally estimated; Production at Malomir continues to be in line with the Group s expectations; and The plant at Albyn is ramped up to c.3.6mtpa. IRC Limited ( IRC )

7 On 22 August 2012, IRC issued its Interim Results. For the first six months of 2012, progress was made in production, construction, development and exploration. Key highlights from IRC s Interim Results include: Re-affirming 2012 production targets of 820,000 tonnes iron-ore concentrate and 125,000 tonnes of ilmenite concentrate at Kuranakh; Construction activities at the K&S Project, which is on track for completion in mid-2014; Announcement of a low cost, direct shipment ore-style operation to bring the Garinskoye Project into production sooner; and Completion (in July 2012) of the acquisition of the remaining 51% of the Bolshoi Seym ilmenite project and acquisition of a controlling 50% plus one share stake and an option over all remaining shares in certain molybdenum exploration projects.

8 Commenting on the announcement, Peter Hambro, Chairman, said: On the key points of production, costs, sales price and cash flow generation, the Group has had an extremely good start to the year. The end of June marked the seventh consecutive quarter in which we have beaten our production target, resulting in a 27% increase in our total attributable gold production for the Period to 279,100oz, when compared to the same period in (219,100oz). At the same time, total cash costs for the Group s hard-rock assets (excluding our newest mine, Albyn, which was undergoing the ramp-up phase) increased by only 6% compared with the corresponding period last year. We anticipate that total cash costs at Albyn will decrease significantly in the second half of the year as the mine achieves full capacity. The average realised gold sales price increased by 13% to US$1,639/oz. and we achieved a 7% increase in the amount of gold sold during the Period to 286,074oz. These successes show up clearly in the financial statements where Group revenue for the Period, at US$546.8 million, increased by 15% and was at a record level for the Group s half-year results. This record revenue translated into a 152% increase in positive operating cash flows and a 10% increase in underlying EBITDA to US$204.1 million. The bottom line, however, is less satisfactory, with operating profit showing a 38% decrease compared with H1, and an even greater fall in Net Profit and Earnings per Share. This headline disappointment should be viewed against the background that it was caused mainly by non-cash items such as a US$60.8 million increase in depreciation charges and foreign exchange translation losses of US$3.4 million (compared to foreign exchange translation gains of US$17.8 million in H1 ). The increased depreciation charge is in line with the charge for the second half of and is projected to continue broadly at this level in the future. The other factors affecting this were an increase in net interest expense from US$15.8 million in H1 to US$34.6 million in H1 2012, reflecting the Group s higher net debt position of US$1,123.8 million as at 2012 (of which US$67.7 million is attributable to IRC) compared with US$510.7 million as at ; and US$9.4 million of fair value losses recognised on gold option contracts traded by the Group, of which US$1.9 million is a realised loss/cash payable on the contracts exercised during the Period and US$7.5 million is a fair value change on the contracts outstanding at the Period end. These hedging costs were offset by the 13% improvement in the average price achieved for our gold sales. We continue to expect a strong gold price environment in the second half of the year but continue to keep our hedging policy under review. The Board has resolved to maintain the level of the Interim Dividend. I am pleased by this not least because I believe that this is a concrete indication that the Group s full year results will show the benefits to be derived from the planned increase in gold production in the second half of the year. It should, of course be remembered that the cold winter and spring months are less productive than those in the warmer summer and autumn and thus we are expecting Group s profitability to be improved by increased production following the commissioning of new processing facilities at Albyn and Pioneer during the first half of the year. The Group s exploration programme continues to bring positive results, with an increase in the Group s resource base of 3%, notwithstanding the depletion of c.320,000oz of Reserves by mining activities. This was achieved despite the scheduled reduction in our exploration capital expenditure as we focused on expanding our non-refractory Ore Reserve base at, or adjacent to, existing projects. New resources at Elginskoye, a deposit located in close proximity to Albyn which is included in our Resource statement for the first time, are especially important as they confirm the possibility of a significant increase in gold output from this mine in the future. Increases in Reserves net of depletion, and particularly ones like these, also have a positive effect on depreciation charges if they do not involve additional investment. At IRC, our industrial commodities subsidiary, good progress has been made during the first six months of As Kuranakh celebrates its second year in commercial production, I am pleased to see the operation maturing at near full capacity rates and the re-affirming of the 2012 production targets. Our team recently visited the larger K&S operation and report good progress. Looking to the

9 long-term, IRC has also advanced its exploration activities with progress at Garinskoye and the acquisition of new ilmenite exploration opportunities. During the second half of the year, we remain on schedule to produce 60% of our planned gold output for the year, some 420,000oz. Cash costs at Albyn (which was ramping up during H1 2012) are projected to decrease during the second half of the year and we expect the gold price to remain buoyant in a world of increasing financial turbulence. I am pleased to advise that we expect all our mines will achieve the full year target of minimum 700,000 ounces in production. Interest costs and depreciation are expected to remain broadly in line, while our capital expenditure requirements are covered by our existing debt facilities. Looking further ahead, we continue to focus on the sustainable growth of our business. The commissioning of our pressure oxidation hub at Pokrovskiy remains on track and, once commissioned, is expected to provide us with unique opportunities for growth in Russia. CONFERENCE CALL There will be a webcast presentation followed by a question and answer session* at today at 11:00. Please log onto the Company s website, to view. To ask a question, please dial: if calling from the United Kingdom if calling from the Russian Federation if calling from elsewhere in the world When prompted, please enter the confirmation number #. Participants without access to the internet may also dial in to listen to the presentation and question and answer session. * The question and answer session may include information relating to the Company s shares and convertible bonds ENQUIRIES Petropavlovsk PLC Alya Samokhvalova Rachel Tuft +44 (0) Merlin David Simonson Anca Spiridon +44 (0)

10 FINANCIAL REVIEW Revenue 2012 US$ million US$ million Revenue from precious metal operations Revenue generated by IRC Revenue from other operations Total Physical volume of gold production and sales 2012 oz (a) Attributed to high grades processed in December 2010 at Pokrovskiy, Pioneer and Malomir with subsequent sales in. oz Gold sold from Pokrovskiy, Pioneer, Malomir and Albyn 265, ,352 Gold sold from alluvial operations 20,452 15,108 Movement in gold in circuit and doré-bars (6,973) (49,406) (a) Total attributable production 279, ,054 Group revenue during the Period was US$546.8 million, 15% higher than the US$475.1 million achieved in H1 of. Revenue from the Group s precious metals operations grew by 19% from US$394.6 million in H1 to US$469.7 million in H1 2012, contributing to a US$75.1 million increase in revenue. Gold remains the key commodity produced and sold by the Group, comprising 86% of the total revenue generated during the Period. The Group s average gold price realised increased by 13% from US$1,455/oz in H1 to US$1,639/oz in H1 2012, which contributed to a US$49 million increase in revenue from the precious metals operations. The physical volume of gold sold increased by 7% from 268,460oz in H1 to 286,074oz in H1 2012, which contributed to a further US$29 million increase in revenue from the Group s precious metals operations. There were no sales of silver in H1 2012, compared to 115,840oz sold in H1 at an average price of US$35/oz. The aggregate 168,520oz of silver at refineries and pre-refinery stage as at 2012 are expected to be realised through sales in H IRC revenue decreased by US$3.5 million from US$60.4 million in H1 to US$56.9 million in H1 2012, primarily reflecting an approximate 17% decrease in the average selling price for the iron-ore concentrate from US$146.8/tn in H1 to US$121.8/tn in H IRC sold approximately 424,021 tonnes of iron-ore concentrate and approximately 52,966 tonnes of ilmenite, and recorded revenue of US$51.7 million from the iron-ore concentrate sales.

11 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. This period, the following item was considered as exceptional: A US$1.6 million gain on the disposal of the Group s wholly-owned subsidiary SeverChrome, being the difference between US$7.8 million cash consideration received and US$6.2 million net assets disposed. The effect of exceptional items on operating profit and profit for the period is set out in the table below Exceptional Total Before Exceptional items exceptional items Before exceptional items items US$ million US$ million US$ million US$ million US$ million US$ million Underlying EBITDA Operating profit Profit for the period Total Underlying EBITDA, operating profit and expenses before exceptional items 2012 US$ million US$ million Underlying EBITDA before exceptional items Depreciation, amortisation and impairment (106.9) (51.6) Foreign exchange (losses)/gains (3.4) 17.8 Total Operating profit and underlying EBITDA before exceptional items, as contributed by business segments, is set out below. Underlying EBITDA before exceptional items Operating profit before exceptional items US$ million US$ million US$ million US$ million Precious metals IRC (0.3) 7.6 Other 0.6 (1.8) (0.4) (2.6) Contribution by business segment Central administration (a) (46.8) (44.5) (46.8) (44.5) Foreign exchange (losses)/gains (3.4) 17.8 Total (a) Including central administration expenses of IRC Limited of US$13.6 million (H1 : US$12.6 million) Precious metals

12 This Period, the precious metals operations generated a segment profit before exceptional items of US$143.1 million compared to US$160.1 million in H1 and contributed US$241.9 million to the total underlying EBITDA compared to US$206.1 million in H1. The average total cash cost per ounce for the Group increased moderately from US$684/oz in H1 to US$796/oz in H1 2012, primarily reflecting the scheduled decrease in grades processed at Malomir and Pokrovskiy, ramp up of the RIP plant at Albyn and cost inflationary trends, partially offset by increased mining efficiencies at Pioneer. This was more than compensated by the increase in the average gold price realised and an increase in physical volume of gold sold, resulting in a net US$35 million increase in operating cash profit and underlying EBITDA. This was offset by a US$58.3 million increase in depreciation charges compared with H1. The H depreciation charge (US$98.8 million) was in line with the charge the Group incurred in the second half of (US$78.1 million), plus the inclusion of Albyn mine s depreciation charge of US$12.4 million, which occurred only in the first half of There were no impairment charges in H compared to US$5.5 million in H1. The key components of the operating cash expenses are wages, electricity, diesel, chemical reagents and consumables, as set out in the table below. The key cost drivers affecting the operating cash expenses are production volumes of ore mined and processed, cost inflation and fluctuations in Rouble to US Dollar exchange rate. Compared with H1, Rouble price inflation of key cost components was as follows: electricity costs increased by 1%, cost of chemical reagents increased by 27%, cost of diesel increased by 22% and consumables prices increased by up to 10%. The impact of Rouble price inflation was decreased by the depreciation of the Rouble against the US Dollar by 7%, with the average exchange rate for the period going from 28.6 Roubles per US Dollar in H1 to 30.6 Roubles per US Dollar in Refinery and transportation costs are variable costs dependent on the production volume and comprise about 0.5% of the gold price. Royalties, comprising 6% of the gold price, are also variable costs dependent on the production volume and the gold price realised. Six months to 2012 US$ million US$ million Staff costs Materials Fuel Electricity Other external services Other operating expenses Movement in work in progress and bullion in process attributable to gold production (109.2) (60.7) Total operating cash expenses

13 Hard-rock mines Pioneer Pokrovskiy Malomir Albyn US$ million US$ million US$ million US$ million Alluvial Operations US$ million Other US$ million Six months to 2012 Total US$ million Six months to Total US$ million Revenue Gold Silver Other external sales Expenses Operating cash expenses Refinery and transportation Other taxes Royalties Deferred stripping costs Depreciation and amortisation Impairment Operating expenses Share of results in joint ventures (0.8) Result of precious metals operations before exceptional items Segment EBITDA before exceptional items Physical volume of gold sold, oz 137,525 38,001 69,298 20,798 20, , ,460 Cash costs Operating cash expenses Refinery and transportation Other taxes Deduct: co-product revenue (4.0) Operating cash costs Operating cash cost per oz, US$ , Royalties Deferred stripping costs Total cash costs Total cash costs per oz for hardrock mines, US$ Total cash costs per oz for hardrock mines excl. Albyn, US$ Total average cash costs per oz, US$ , The Group does not report cash costs per ounce for alluvial operations as it is not representative for 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.

14 IRC IRC generated a segment loss before exceptional items of US$0.3 million compared to a profit of US$7.6 million in H1. IRC produced approximately 432,000 tonnes of iron-ore concentrate. Total site operating expenses and service costs for Kuranakh for the Period amounted to approximately US$47.1 million (H1 : US$44.0 million), of which approximately US$19.2 million was railway tariffs and related transportation costs (H1 US$15.1 million). Depreciation charges for IRC comprised US$7 million. There were no impairment charges in H 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 during the Period were US$46.8 million, broadly in line with US$44.5 million in H1. Finance income and expenses 2012 US$ million US$ million Investment income The Group earned US$1.5 million interest income on the cash deposits with banks US$ million US$ million Interest expense Less interest capitalised (3.9) (4.7) Other Total Interest expense increased by US$18.2 million, from US$17.9 million in H1 to US$36.1 million in H Interest expense for the period was comprised of US$14.3 million effective interest on the convertible bonds and US$25.5 million interest on bank facilities. A further US$3.9 million of interest expense was capitalised as part of mine development costs within property, plant and equipment (H1 : US$4.7 million) US$ million US$ million Other finance losses Included in Other finance losses is a US$9.4 million fair value loss on gold option contracts traded by Petropavlovsk PLC, out of which US$1.9 million is a realised loss on the contracts exercised during the Period and US$7.5 million is a fair value change on the contracts outstanding as at the Periodend.

15 Taxation 2012 US$ million US$ million Tax charge The Group pays corporation tax under the UK, Russian and Cypriot tax legislation. The statutory tax rate is 25% in the UK and 20% in Russia (H1 : 27% in the UK and 20% in Russia). Total tax charge for the Period comprised US$37.8 million, arising primarily in relation to the Group s precious metals operations. Compared to profit before tax, total tax charge reflects the US$9.3 million foreign exchange effect on deferred tax balances as well as unutilised current period tax losses represented by certain central costs. This Period, the Group made corporation tax payments in aggregate of US$36.1 million (H1 : US$22.4 million) in Russia. Earnings per Share 30 June 2012 US$15.1 million 30 June US$106.0 million Profit for the period attributable to equity holders of Petropavlovsk PLC Weighted average number of Ordinary Shares 186,508, ,478,361 Basic earnings per ordinary share US$0.08 US$0.57 Basic earnings per share for H were US$0.08 compared to US$0.57 in H1. The key factor affecting the basic earnings per share was the decrease in net profit for the period attributable to equity holders of Petropavlovsk PLC from US$106.0 million in H1 to US$15.1 million in H The total number of Ordinary Shares in issue as at 2012 was 187,860,093 ( : 187,860,093). Financial position and cash flows December US$ million US$ million Cash and cash equivalents Borrowings (1,320.0) (1,006.8) Restricted bank deposit Net debt (1,123.8) (787.3)

16 Key movements in cash and debt Cash Debt Restricted Net Debt bank deposit US$ million US$ million US$ million US$ million As at 1 January (1,006.8) 6.0 (787.3) Net cash generated from operations before working capital changes Change in working capital (97.8) - - Capital expenditure (383.5) - - Amounts drawn down under bank facilities, net (308.2) - Interest accrued - (39.8) - Interest paid (31.3) Proceeds from disposal of subsidiaries, net of liabilities settled Proceeds from disposal of available-for-sale investments Corporation tax paid (36.1) - - Other cash and non-cash movements, net (0.8) As at (1,320.0) 6.0 (1,123.8) Net cash generated from operations before working capital changes primarily reflects US$204.1 million total EBITDA. The US$97.8 million increase in working capital is analysed as follows: US$108.2 million is attributed to an increase in inventories, including: - US$68.0 million increase in ore stockpiles, primarily reflecting US$12.8 million in the balance of ore stockpiles at Malomir attributed to refractory ore and a US$48.2 million increase in the balance of ore stockpiles at Pioneer as a result of the increased cost of mining; - US$28.4 million increase in work in progress, reflecting the increase in the scale of production; and - US$22.0 million increase in stores and spares, reflecting the expansion of mining operations and seasonality of alluvial operations. Accounts receivable increased by US$5.5 million, primarily attributable to VAT on advances for property, plant and equipment and other debtors, again reflecting the expansion of operations, partially offset by a decrease in advances to suppliers and VAT recoverable. The effect of the above was partially offset by a US$15.9 million increase in trade and other payables, primarily attributable to the increase in other payables. As at 2012, the Group had committed, but undrawn, facilities of US$450.3 million in aggregate, including US$257.5 million available under IRC s facility with ICBC.

17 Capital expenditure During the Period, the Group spent an aggregate of US$383.5 million on its gold and iron-ore projects compared to the US$354.6 million invested in H1. The key areas of focus this Period were on the further expansion of Albyn and Pioneer, the development flotation plant at Malomir and the POX hub at Pokrovskiy and ongoing exploration related to the Pokrovskiy, Pioneer and Albyn projects. For IRC, the key area of focus was the continuous development of K&S project. Exploration expenditure Development expenditure and other CAPEX Foreign currency exchange differences The principal subsidiaries have a US Dollar functional currency. Foreign exchange differences arise from the translation of monetary assets and liabilities denominated in foreign currencies, which for the principal subsidiaries of the Group are the Russian Rouble and GB Pounds Sterling. The following exchange rates to the US Dollar have been applied to translate monetary assets and liabilities denominated in foreign currencies December GB Pounds Sterling (GBP: US$) Russian Rouble (RUR : US$) The Group recognised foreign exchange losses of US$3.4million in H (H1 : foreign exchange gains of US$17.8 million), arising primarily from Russian Rouble denominated net monetary assets and GB Pounds Sterling denominated net monetary liabilities. Total US$ million US$ million US$ million Pokrovskiy and Pioneer Malomir Pressure oxidation Albyn Guyana projects Yamal Krasnoyarsk projects Alluvial operations PPE upgrade of in-house services Other Total invested in precious metals operations and in-house services Kuranakh K&S Other Total invested in IRC Total

18 Subsequent events On 11 July 2012, the Group, through its subsidiary IRC Limited, acquired a 50% plus one share equity interest in Caedmon Limited ( Caedmon ), the holder of exploration and mining licenses of a molybdenum exploration project in the Amur Region. The total consideration was satisfied through the issuance and allotment of 57,352,941 ordinary shares of IRC Limited with a nominal value of HK$0.01 each. In addition, IRC Limited also acquired the related shareholder indebtedness and an option to acquire the remaining 50% minus one share equity interest in Caedmon (the Option ). The Group may exercise the Option any time over a two-year period commencing on the date of completion of the transaction. US$180,000 and US$320,000 are payable for the grant of Option and the shareholder indebtedness, respectively within six months of the completion of the transaction. On 24 July 2012, the Group, through IRC Limited and its subsidiaries, acquired the remaining 51% interest in its associate LLC Uralmining ( Uralmining ), the holder of the exploration and mining licenses of Bolshoi Seym ilmenite deposit. The total consideration was satisfied through the issuance and allotment of 74,681,360 ordinary shares of IRC Limited with a nominal value of HK$0.01 each. Uralmining changed from an associate to a subsidiary of the Group thereof. On 22 August 2012, the Board of Directors approved an interim dividend of 0.05 per share which is expected to result in the aggregate payment of 9.4 million. The interim dividend will be paid on 8 November 2012 to the shareholders on the register at the close of business on 5 October 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.

19 OPERATIONS AND GOLD PRODUCTION MINE-BY-MINE: GOLD PRODUCTION AND CASH COSTS SUMMARY Hard-rock mines Pioneer Six months to 2012 Variance Year ended 31 December Gold production ( 000oz) % Total cash costs (US$/oz) (5%) 530 Pokrovskiy Gold production ( 000oz) (11%) 91.8 Total cash costs (US$/oz) % 759 Malomir Gold production ( 000oz) % 88.5 Total cash costs (US$/oz) % 615 Average total cash costs for Pioneer, Pokrovskiy and Malomir mines % 586 Albyn Gold production ( 000oz) n/a 1.1 Total cash costs (US$/oz) 1,251 n/a n/a n/a Total average cash costs (US$/oz) for the Group s mines, including Albyn Alluvial operations Gold production ( 000oz) % 89.6 Total gold production ( 000oz) % 630.1

20 PIONEER Production at the Group s flagship mine was up 7% for the Period to 125,300oz compared to H1 (116,600oz). The production increase is attributable to higher than previously budgeted grades, an increase in the quantity of ore mined and the introduction of new mining machinery (a new Hitachi 15m 3 excavator and four Belaz 140-tonne capacity dump trucks). These factors contributed to a 5% reduction in total cash costs for Pioneer compared to the same period in (H1 2012: US$639/oz compared to H1 US$673/oz), despite similar head grades. Cash costs were also positively affected by increased mining efficiencies following the comprehensive cost-cutting measures introduced during. Mining During the Period, the volume of material moved increased by 41% compared to H1 (19,967,000m 3 vs. 14,177,000m 3 ) and the quantity of ore mined increased by 48% (4,120Kt vs. 2,781Kt) compared with the first six months of. The ore mined was sourced primarily from the NE Bakhmut and Yuzhnaya open pits. Both gold grades and tonnages of ore at Yuzhnaya were higher than originally anticipated. As a result, production from Yuzhnaya was higher than predicted by the Group s JORC Reserve estimate. Processing In June 2012, the Group successfully commissioned a fourth processing line at Pioneer s RIP plant. This line has now ramped up as expected, increasing the Pioneer plant s design throughput capacity by 40% to c.6.6mtpa. During the Period, the Group s heap-leach operations produced 1,300oz of gold. As heap-leaching is seasonal, the contribution from this facility is expected to increase significantly during the second half of During the Period, the recovery rate for Pioneer s heap-leach facility was 15% as the facility ramps up following its recommencement in Q In July 2012 the recovery rate was 47%, which is average for this type of facility. Units 2012 Pioneer: Mining Total material moved m ,967 14,177 Ore Mined t 000 4,120 2,781 Grade g/t Gold oz Pioneer: Processing RIP plant Total milled t 000 2,476 2,364 Average grade g/t Gold content oz Recovery rate % Gold recovered oz Heap-leach operations Ore stacked t Average grade g/t Gold content oz Recovery rate % Gold recovered oz Total gold recovered oz

21 ( POKROVSKIY In total, Pokrovskiy produced 37,400oz of gold during the Period, outperforming the Group s original forecast of 33,000oz for the Period. Total cash costs at Pokrovskiy for the Period were US$880/oz, in line with the Group s forecast and higher than the comparative period in (US$707/oz) mainly due to higher stripping charges. Total material moved during the first six months of the year increased by 20% compared to the same period in. The ore came from Pokrovka 2, and, to a lesser extent, Zheltunak. No ore was mined from the main pit due to the expansion of the pit towards the south. Pokrovskiy: Mining Units 2012 Total material moved m ,927 3,274 Ore Mined t Grade g/t Gold oz Pokrovskiy: Processing Resin-in-pulp plant Total milled t Average grade g/t Gold content oz Recovery rate % Gold recovered oz Heap leach operations Ore stacked t Average grade g/t Gold content oz Recovery rate % Gold recovered oz Total gold recovered oz

22 MALOMIR During the Period, Malomir produced 66,100oz of gold, a 74% increase on the amount produced during the first six months of (37,900oz). This was due to the contribution of the second milling line (commissioned July ) and the expansion of the sorption circuit in Q1 2012, which increased annual design processing capacity to c.1.7mtpa. During the first six months of 2012, the volume of material moved compared to H1 increased by 89% (7,009,000m 3 vs. 3,710,000m 3 ) while the quantity of ore mined compared to H1 increased by 144% (1,783Kt vs. 732Kt), reflecting the increased scale of this mine. The majority of ore processed came from the non-refractory Quartzitovoye ore body with some additions from the oxidized upper levels of the refractory ore body in the Central pit. Total cash costs at Malomir for the Period were US$712/oz, an increase on the comparative period in due to a scheduled decrease in grades processed. The recovery rate for the Malomir RIP plant for the Period was 72% compared to 85% for the comparable period due to lower head grades and the processing of the oxidized cap of the refractory ore body at the Central pit. Malomir: Mining Units 2012 Total material moved m ,009 3,710 Ore Mined t 000 1, Grade g/t Gold oz Malomir: Processing Resin-in-pulp plant Total milled t Average grade g/t Gold content oz Recovery rate % Gold recovered oz Total gold recovered oz

23 ALBYN Albyn produced 24,100oz during the Period as the plant (commissioned in Q4 ) and the second 1.8Mtpa processing line (commissioned in June 2012), were ramping up. Albyn reached its design throughput capacity of c.3.6mtpa in August Consequently, gold production from Albyn during the second half of the year is expected to be approximately three times the H production level. The ramp up of the plant during the Period contributed to Albyn s high total cash costs of US$1,251/oz. Total cash costs for Albyn are expected to decrease significantly during the second half of the year as the mine reaches its full capacity. Albyn: Mining Units 2012 Total material moved m , Ore Mined t Grade g/t Gold content oz Albyn: Processing Resin-in-pulp plant Total milled t Average grade g/t Gold content oz Recovery rate % 89 - Gold recovered oz Total gold recovered oz ALLUVIAL PRODUCTION The Group s alluvial operations produced 26,200oz during the Period, an increase of 15% compared to the same period in. As alluvial production is seasonal, with operations typically running from April to November, the majority of the Group s full-year gold production from its alluvial operations will fall in the second half of the year. PROJECT DEVELOPMENT POX HUB AND MALOMIR AND PIONEER FLOTATION PLANTS During the Period, work on the pressure oxidation plant ( POX hub ) at Pokrovskiy and the flotation plant at Malomir was progressing. At Pokrovskiy, the oxygen plant is under construction and is progressing according to schedule. The layout of the autoclave facility was finalised and the foundations for the autoclave building are currently being laid. As per the schedule, some key items of equipment have already been delivered to the site. Further items, including four autoclaves and four flash tanks, are due to be delivered in September and October The Group intends to install this equipment during the winter months. At Malomir, the flotation plant building is nearing completion. During the Period, construction of the flotation plant at Malomir continued and is progressing well. The main structure of the building is almost complete and 16 flotation tanks have been installed. The Group anticipates the plant will be completed by the end of 2012 and will be commissioned either immediately or early 2013, depending on the exact timing of depletion of Malomir s oxidised ore. The Group continues to test various processing parameters, confirming its earlier laboratory tests, in its pilot test plant in Blagoveschensk. The test plant facility is also still being used to train operating personnel.

24 UPDATE ON JORC CODE (2004)-COMPLIANT GOLD ORE RESERVES AND MINERAL RESOURCES Following exploration work conducted during the Period, the Group reports an updated Mineral Resources and Ore Reserve Statement. This unaudited update, as at 1 July 2012, has been prepared in accordance with the guidelines of the JORC Code (2004). The Group s exploration programme during the Period focused on non-refractory areas, at or adjacent to, its existing mines, resulting in the majority of the new reserves and resources identified being nonrefractory material, suitable for conventional processing through the Group s existing RIP and heapleach facilities. As per the previous estimate at 1 January 2012, Ore Reserves for Albyn and Visokoe were estimated using a gold price of US$1,200/oz and Ore Reserves for the Group s remaining assets were estimated using a gold price of US$1,000/oz. A summary of the Group s Mineral Resources and Ore Reserves as at 1 July 2012 is shown in the tables below. Summary of Mineral Resources in accordance with the JORC Code (2004) for hard rock gold assets Category Tonnage (Mt) Grade (g/t) Gold (Moz) Measured Indicated Measured & Indicated Inferred 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 Category Tonnage (Mt) Grade (g/t) Gold (Moz) Proven Probable Proven & Probable Note: Numbers may not add up due to rounding 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 Q