Polyus Gold releases its preliminary operating results for 2009.

OJSC Polyus Gold (RTS, MICEX and LSE - PLZL), Russia's largest gold producer, today releases its preliminary operating results for the year 2009.

In the period under review the Group produced 1,261 thousand ounces of refined gold, compared to 1,222 thousand ounces in the year 2008, showing a 3.2% year-on-year growth. The growth in production is primarily a result of the launch of the Titimukhta project in Krasnoyarsk region, as well as acquisition in the third quarter of 2009 of a controlling stake in KazakhGold Group Limited, one of the leading gold producers in Kazakhstan.

A number of factors significantly complicated the Group's production units operations in the reporting year. Firstly, due to depletion of high-grade oxide ores in 2008 and transition to the processing of refractory sulfide ores, there was a decrease in average gold grade of ore processed. Secondly, there were substantial volumes of ore at stock-piles accumulated during 1996-2007 years that needed to be processed to ensure stable chemico-mineralogical composition and physical-mechanical properties of the feed in future. As a result, the feed supplied to the mills was of various technological types that required re-adjustment of mills' operational schedules and additional time for technological process stabilization. At Mill-1, for example, ores of three different types were processed (Olenie deposit ore, mixed-type ore from Olimpiada deposit at the beginning of the year, and Titimukhta deposit ore during the rest of the year). At Mills 2 and 3, at the beginning of the year stockpiled, partly oxidized ores were processed, whereas in the second half of the year those mills were switched to newly mined ore.

Other significant factors influencing the Group's operating results in the reporting period were: the final stage of Olimpiada mine expansion project being implemented in the conditions of running production; modernization of the mill of Kuranakh mine.

Nevertheless, in order to offset the negative impact of the above factors, additional measures have been developed aimed at raising operating efficiency of Olimpiada mine.

In the year 2009 the volume of total rock moved at the Group's production units and projects amounted to 48.7 million cubic meters, compared to 50.8 million cubic meters in the previous year. In the reporting period the Group mined 18.4 million tonnes of ore, compared to 6.6 million tonnes mined in 2008. The multiple growth of ore mining resulted from transfer to sulfide ores at Olimpiada mine, as well as commencement of mining works at the Group's new projects: Titimukhta, Blagodatnoye and Verninskoye.

Ore processing in the reporting period amounted to 13.9 million tonnes, compared to 10.8 million tonnes in 2008. The increase in ore processing resulted from Mill-3 of Olimpiada mine reaching its designed capacity.

Total volume of drilling in the reporting period, according to preliminary estimates, amounted to 141.4 thousand meters, compared to 332.1 thousand meters in 2008. Planned reduction in drilling works is related to most exploration projects reaching their final stages.

According to preliminary estimates, the Group's revenues in 2009 amounted to USD 1,204 million, compared to USD 1,062 million in 2008. Weighted-average gold selling price, according to preliminary estimates, amounted to USD 974 per ounce, compared to USD 867.3 per ounce in 2008.

According to preliminary estimates, the Group's EBITDA in 2009 amounted to around USD510 - 540 million, compared to USD 436 million in 2008. EBITDA margin grew to 44%. Total cash costs (TCC), according to our estimates, demonstrated only a 5-6% year-on-year increase, which is lower than expected inflation in the Russian Federation. TCC are expected at the level of USD 410-420 per ounce of the metal, compared to USD 392 in 2008.

According to preliminary estimates, total volume of capital expenditures in 2009 amounted to approximately USD 326 million. Substantial portion (about 47%) of that amount was spent on the Group's currently largest investment project - construction of Blagodatnoye mine in Krasnoyarsk region. In addition to that, significant volume of investments (about 12%) was spent on exploration. About 12% of the investment budget was spent on the upgrade of Olimpiada mine. In the reporting period modernization programme carried on at the Kuranakh mine in the Sakha Republic (Yakutia) (approx. 3%), aimed at increasing the plant's capacity to 4.5 million tonnes of ore per annum. In addition, works carried on at the Group's other key development projects: Natalka (about 7%), Titimukta (about 5%), Verninskoye (about 5%).

One of the key events of the year was the acquisition of a 50.1% stake in KazakhGold Group Limited, one of the leading gold producers in Kazakhstan with a huge potential for further growth. The Group is currently working on a new long-term strategy to develop the assets of KazakhGold and expects to present it to the market in February 2010. At the same time, the Group has already began to invest into modernization of the production facilities of KazakhGold as well as into exploration in the Republic of Kazakhstan, and has allotted on that approximately USD7 million during the last 5 months of 2009.

In 2009 the Group has successfully completed one of the new projects within its long-term development strategy: the development of the production facilities to mine the Titimukhta deposit in Krasnoyarsk region. Modernization of Mill-1 of Olimpiada mine to process the Titimukhta ores was completed in the beginning of 2009. But as there were stockpiles of similar type ores (oxide ore of Olimpiada deposit, ore of Olenie deposit), the capacities of Mill-1 were used to process that ores during the first several months of the reporting period. The plant commenced processing the Titimukhta ores in the second quarter of 2009. Technology adjustment works continued during the second half of the year. The volume of the metal produced from the Titimukhta ores in 2009 amounted to 39 thousand ounces.

Developing the Group's mineral resources base in 2009

In the reporting year the Group continued to strengthen its mineral resources base. Following the successful completion of the exploration programme at Bamskoye deposit, 108 tonnes (3.5 m oz) of reserves were approved by the State reserves committee (GKZ Rosnedra) and listed on the state balance (including 39.0 tonnes for open pit mining and 68.5 tonnes for underground mining). The reserves growth under categories B+C1+C2 amounted to 94.3 tonnes of gold (3.0 m oz). In addition to that, GKZ Rosnedra listed on the state balance 302 tonnes of silver as by-product.

Also, in the reporting year the reserves of Nezhdaninskoye gold deposit have been approved by GKZ Rosnedra in the amount of 628.6 tonnes (20.2 m oz) of gold (including 611.6 tonnes for underground mining and 16.8 tonnes for open pit). The reserves growth amounted to 151.5 tonnes (4.9 million ounces). In addition, 2,229 tonnes of silver of Nezhdaninskoye deposit were listed on the state balance.

Reserves recalculation has been done on the Olimpiada deposit, which lead to expected growth of reserves under categories B+C1+C2 in the amount of 111.7 tonnes (3.6 m oz).

Total reserves growth in 2009 under categories B+C1+C2 is expected at the level of 370 tonnes (11.9 m oz).

The Group's reserves under categories B+C1+C2 as at January 1^st 2010 are expected at the level of 3,274 tonnes (105 m oz) of gold.

Production units

 Olimpiada mine

 In 2009 the Group's largest production unit - Olimpiada mine - produced 839 thousand ounces of gold, compared to 873 thousand ounces in 2008.

The reduction in output resulted from the switch to the processing of refractory sulfide ores, working with various types of feed, which required re-adjustments of the production schemes and additional time required to stabilize the technological process, as well as the final stage of Olimpiada expansion being done in the conditions of running production.

Nevertheless, in order to offset the negative impact of the above factors, additional measures have been developed aimed at raising operating efficiency of Olimpiada mine. In particular, additional blending was arranged at the mine, measures were taken to raise the mills' efficiency, within a programme designed for 2009-2010. As a result of those measures, technical parameters of the mills were improved at the end of 2009. The mills' technological efficiency will continue to be improved, as long as the programme goes on.

The increase in ore processing is a result of Mill-3 gradually reaching its designed capacities.

Kuranakh mine

The reduction in production volumes at Kuranakh mine is a result of modernization programme continued in the reported period. The modernization shall be completed in the second half of 2010.  

Zapadnoye mine

In the reporting period Zapadnoye mine showed stable operating results. The metal production was kept at the level of the previous year and amounted to 24 k oz.

Alluvials

The 7.2% year-on-year production increase at alluvial deposits resulted from the acquisition of a new alluvial production unit.

Table 1. Refined gold production in 2008 - 2009.

Table 2. Ore mined and processed in 2008-2009 (not including KazakhGold)