Petropavlovsk : Interim Results for the Period Ended 30 June 2021

01 September 2021

Petropavlovsk PLC

Interim Results for the Period Ended 30 June 2021

Petropavlovsk PLC ("Petropavlovsk", or the "Company" and, together with its subsidiaries, the "Group") today issues its Interim Results for the period from 1 January 2021 to 30 June 2021 ("H1 2021" or the "Period").

Denis Alexandrov, Chief Executive Officer, said:

"Petropavlovsk's financial performance in the first-half reflects the transitional period we are navigating as we shift to processing more refractory ore to supply our state-of-the-art POX plant with more of our own-mined reserves. In the first half of the year, own-mine production continued the downward trend that started in 2020, however we are now observing that trend reversing and expect higher production in the second half, supported by the recent launch of the Pioneer flotation plant. We therefore maintain our production guidance for the full year.

First-half revenue and EBITDA tracked the reduction in output and while costs did rise due, in part, to lower volumes, I am pleased to report that total cash costs for own-mined ore for the period were in the lower half of our guidance range. Furthermore, we generated cash flow from operations before changes in working capital of US$113.7 million in H1 2021, along with a net profit of US$ 48.9 million compared to a loss in the same period last year.

Looking ahead, with the Pioneer flotation plant set to unlock the potential of the mine's refractory reserves in the second half of the year, we will see the POX hub operating at closer to full capacity as the year progresses. We also continue to progress the Malomir expansion, which will further increase our capacity to produce refractory ore concentrate for the POX plant when completed in Q3 2022.

At Albyn, we continue to see the harder, more challenging ore from Elginskoye that now feeds the plant limits the throughput and recoveries we can achieve. Furthermore, based on our experience mining the deposit, we expect exploration drilling being conducted at Elginskoye this year to confirm the deposit contains more refractory ore than previously estimated. In light of this, we are currently studying options for adding flotation capacity to the Albyn hub, which would provide an additional source of concentrate for the POX hub.

We are currently in the final stage of the operational review my team and I began earlier in the year - the drafting of a new strategy and development plan for the Company that will help us realise the value of assets like Albyn and Elginskoye, support future production, and deliver improved returns to shareholders. I look forward to presenting this plan to stakeholders at our upcoming Capital Markets Day this autumn.

Financial Highlights
				H1 2021		H1 2020	% Change
	Total gold produced	koz		195.0		320.6	(39%)
	Own gold production	koz		158.3		213.7	(26%)
	3rd-party concentrate production	koz				106.9	(66%)
		36.7
	Total gold sold	koz		187.1		312.4	(40%)
	Average realised gold price♦	US$/oz				1,640	9%
		1,795
	Total cash costs (own gold)♦ 1	US$/oz		906		800	13%
	All-in sustaining costs♦	US$/oz		1,404		1,220	15%
	Group revenue	US$m		351.9		522.7	(33%)
	Underlying EBITDA♦	US$m		114.3		192.6	(41%)
	Operating profit (a)	US$m		48.3		144.3	(67%)
	Profit/(loss) for the period	US$m		48.9		(22.0)	-
	Capital expenditure♦	US$m		47.3		59.6	(21%)
	Cash generated from operations before	US$m		113.7		183.3	(38%)
	working capital changes
	Cash generated from operations	US$m		57.1		172.8	(67%)
	Net debt♦	US$m		(535.6)		(538.0)	-

1. Since the 2020 annual report operating profit is presented from the perspective of group operations excluding the results of the associate, IRC. This is more representative of how the business is viewed following the classification of IRC as held for sale and this change in classification also been applied to the comparative period.

• Gold sales were 187.1 koz in H1 2021, down 40% from 312.4 koz sold in H1 2020, which is consistent with the decrease in total gold production during the Period
• Average realised gold price♦ 2 increased 9% to US$1,795/oz, with zero impact from the
  Company's hedging programme
• Group revenue was US$351.9m, or 33% lower year-on-year, as the impact of lower sales was partially offset by higher gold prices and increased revenue from service divisions
• Underlying EBITDA* was US$114.3m, or 41% lower, in line with the reduction in sale volumes, as higher gold prices were offset by an increase in total cash costs during the period
• Profit for the period was US$48.9m or US$0.01 per share, compared to a loss of US$22m in the prior year, including some non-cash items
• Total cash costs (TCC) for gold produced from own ore in H1 2021 were US$906/oz (13% higher year-on-year), well within the Company's 2021 cost guidance range, with the increase influenced mainly by lower grades and recoveries at the mines as well as some Rouble-denominated cost inflation and higher mining taxes where certain tax incentives expired
• All-insustaining costs (AISC)♦ were 15% higher year-on-year at US$1,404/oz, reflecting the increase in TCC, higher administrative costs, and the decrease in physical ounces sold in H1 2021, partially offset by a decrease in capitalized stripping at Malomir and Pioneer
• Capital expenditure* for the period was US$47.3m (21% lower vs US$59.6 in H1 2020) reflecting the deferral of some expenses to the second half of the year

♦See "The Use and Application of Alternative Performance Measures (APMs)" section for further information on our APMs

Balance Sheet and Liquidity

• Cash (unaudited) as of 30 June 2021 was US$36.5m (31 March 2021: US$7.5m, 31 December
  2020: US$35.4m) including US$2.1m in transit (see note 15 to the Financial Statements)
• Debt principal outstanding as of 30 June 2021 was US$573m (31 March 2021: US$538m, 31
  December 2020: US$538m) with the increase due to use of the Gazprombank ("GPB") revolving credit facility for day-to-day working capital requirements
• Interest-bearinggold prepays stood at US$37.1m as at 30 June 2021 (US$53.3m as at 31 March 2021, US$63.8m as at 31 December 2020), a net decrease of US$16.2m over the course of Q2 2021 and US$26.7m since the beginning of the year. The Company plans to fully settle the gold prepays by year-end
• To replace the gold prepays and support day-to-day liquidity needs, the Group secured a c.US$54m (RUB 4 billion) increase in the limit of its revolving credit facilities ("RCF") with GPB, from c.US$68m (RUB 5 billion) to a total of c.US$122m (RUB 9 billion), along with a maturity extension from May 2022 to June 2026. At interest rates of 2.8 - 4.5%, the RCF is significantly lower cost than existing borrowings. The Company intends to further increase the credit limit under the RCF going forward to support liquidity
• On 10 August 2021, the Company's wholly-owned subsidiary Petropavlovsk 2016 (the "Issuer") announced the final tender results of an offer to purchase for cash up to US$200m of the aggregate principal amount of its 8.125% guaranteed notes maturing 2022 (the "US$500m
  Notes"). The Issuer accepted for purchase an aggregate principal amount of validly tendered US$500m Notes totalling US$135,731,000.
• On 28 July 2021, the Group secured a US$200m term loan (30 June 2023 maturity), which was used for the buy-back of US$135,731,000 of the US$500m Notes in accordance with the tender offer. The term loan interest rate is significantly lower than the 8.125% coupon on the US$500 Notes

Operational Highlights

• H1 2021 gold production totalled 195.0koz, a decrease of 39% versus 320.6koz in H1 2020
• Own mined gold production amounted to 158.3koz in H1 2021 (H1 2020: 213.7koz), with the 26% year-on-year decrease being primarily due to the switch to processing ore from the Elginskoye deposit at Albyn and preparations for the launch of the Pioneer flotation plant, which entailed a shift to mining refractory ore for stockpiling and a planned temporary shutdown of the processing plant in April
• 3rd-partyconcentrate gold production decreased by 66% to 36.7koz in H1 2021 (H1 2020: 106.9koz) due to expected lower volumes of concentrate available for purchase and lower grades in the concentrates supplied

Gold production (koz)

Asset	H1 2021	H1 2020
Pioneer	46.0	60.3
Malomir	70.1	81.6
Albyn	42.3	71.8
3rd-party concentrate (POX Hub)	36.7	106.9
Total Group	195.0	320.6

Note: Numbers may not add up due to rounding effect

Pokrovskiy Pressure Oxidation (POX) Hub

• A total of 123kt of refractory gold concentrate was processed through the POX Hub in H1 2021, including 76kt from Malomir with an average grade of 28.5g/t and 38kt of 3rd-party concentrate with an average grade of 30.7g/t

• The new flotation plant at Pioneer supplied 8kt of concentrate at an average grade of 21.9g/t to the POX Hub in May and June, with 5.5koz of gold recovered for the Period (95% recovery rate)

2021 Guidance

• The Company affirms its 2021 full-yearproduction guidance of 430 - 470koz of gold, comprising own gold production of 370 - 390koz and gold production from 3rd-party concentrate of 60 - 80koz
• Total cash costs for own gold production for the year are also expected to be within the Company's guidance range of US$870 - 970 per ounce
• Capital expenditure for the year is expected to be up to US$140m, consisting of sustaining and development capex of US$120m and exploration spend of c.US$20m

Responsible Business

• Zero fatal accidents have occurred at Petropavlovsk's operations this year to date, neither among the Group's employees nor its contractors
• An increase in the number of reported incidents and, consequently, LTIFR during the period is partially attributable to an improved reporting methodology implemented this year. The severity of reported injuries has decreased during the period, and we have seen a positive trend in the monthly reduction of injuries since the beginning of the year. The availability and in-depth analysis of robust data are the first steps towards improving health and safety reporting, in alignment with international best practices
• A strengthened health and safety leadership team, led since April by Head of Health & Safety Roman Dertinov, has resulted in the drafting of a new and improved set of Fundamental Safety Rules, which have been approved by the Board of Directors and are now being rolled out across the Group to promote safer working practices
• The Group is also implementing several new long-term injury prevention projects, including initiatives specifically aimed at addressing falls from height and electrical safety
• Zero environmental incidents were reported in H1 2021

	Metric		Units		H1 2021		H1 2020
	LTIFR		Per 1m hrs		1.75		1.23
		worked
	Environmental incidents		Number		0		0

Note: Environmental incidents defined as moderate or serious

• Due to recent severe flooding in the Amur region, the Company is carrying out daily environmental monitoring of local rivers and streams. No material environmental pollution has been identified
• Attention is drawn to the update on principal risks and uncertainties presented later in this release

COVID-19 Update

• No material COVID-19 outbreaks have occurred at our sites this year to date, and the Company continues to implement strict quarantine and safety measures across its operations
• In Q2 2021, the Company launched an on-site vaccination programme at each of its mines, accompanied by a supporting informational campaign via corporate and social media and other communications channels
• As of 23 August 2021, 47.3% of employees at the Group's operating subsidiaries have been fully vaccinated (2 doses) and an additional 32.4% have exhibited Covid antibodies
• At the time of reporting, the Group's supply chains remain fully functional

Development and Exploration Update

Progress on Development Projects

• On 31 May 2021, the Company launched the Pioneer flotation plant, with the capacity to process 3.6Mtpa of ore, thereby doubling the Group's total processing capacity for refractory gold ore from its own mines to 7.2Mtpa (including the existing Malomir plant)
• The Pioneer flotation plant is expected to produce up to 60kt of flotation concentrate this year, and up to 100kt in 2022, reducing the Company's reliance on 3rd-party concentrate to feed the Pokrovskiy POX plant
• The construction of a third line at the Malomir flotation plant progressed throughout H1 2021 and will add an additional 1.8Mtpa of flotation capacity upon completion in Q3 2022, bringing the total combined Group capacity to 9.0Mtpa

Exploration

• Pioneer - A review of reserves is underway using updated parameters that better reflect prevailing gold prices. As a result, notable increases are expected in reserves of gold contained in refractory and non-refractory ore for both open pit and underground mining (excluding mining activities)
• Malomir - Work in H1 2021 focused on the evaluation of high-grade ores in underground workings along the eastern flank of the Quartzitovoye deposit. Scattered older wells drilled in the area have exhibited grades of up to 20.2-28.4 g/t per 2.1-3.8 m
• Osipkan - Exploration work on the northern, un-delineated section of the deposit, suitable for heap leaching, is being accelerated. Alongside poorer ores with grades of 0.7-1.3 g/t, drilling on the targeted area has revealed ore sections with visible gold and grades of up to 67.05 g/t per 1.7 m
• Tokur - Exploration work at the site has been temporarily suspended
• Albyn - Geologists are currently reviewing the potential for underground mining of an estimated 30 tonnes of un-delineated ore resources at depth below the depleted Albyn open pit
• Elginskoye - Exploration drilling on the deposit planned for this year is nearing completion. The programme was designed to better delineate the deposit and new technological mapping of the drilled-out area has been completed. Metallurgical studies have found the ore responds well to processing by gravity-flotation
• Unglichikanskoye - Technological studies of samples for processing via gravity-flotation are nearing completion

Corporate Events

• On 12 July 2021, the Board of Directors appointed Mr. Evgeny Potapov as a non-executive director. Mr. Potapov was nominated by Uzhuralzoloto Group of Companies ("UGC"), the Company's largest shareholder, pursuant to the relationship agreement in place between the
  Company and UGC. Mr Potapov replaced Mr. Maxim Kharin, who resigned from the Board

IRC Update

• Petropavlovsk is a major shareholder in IRC (31.1%), a Hong-Kong-listed producer and developer of industrial commodities. On 27 August 2021, IRC released its interim results for the six months ended 30 June 2021. The results are available to view on the IRC website at http://www.ircgroup.com.hk
• Petropavlovsk continues to act as guarantor in relation to the obligations of IRC Limited's subsidiary K&S under two loan facility agreements with Gazprombank. IRC continues to pay down the debt in line with the repayment schedule. In addition, K&S made an early repayment of US$20m to GPB in July and US$30m in August. Therefore, the outstanding loan principal amount as of the end of August 2021 amounted to c.US$143.5m.