ALROSA GROUP OF COMPANIES

INDEPENDENT EXPERT REPORT ON

RESERVES AND RESOURCES

OF THE DIAMOND ASSETS

RUSSIAN FEDERATION

Report Date: 15th November 2016 Effective Date: 1st July 2016

Prepared By

Micon International Co Limited Suite 10 Keswick Hall, Norwich, NR4 6TJ, United Kingdom

Contents

Page

Table of Contents

1.0 EXECUTIVE SUMMARY ...... 1 1.1 INTRODUCTION ...... 1 1.2 ALROSA GROUP OVERVIEW ...... 2 1.3 MINERAL RESOURCES AND RESERVES ...... 6 1.3.1 Russian Reserve Statements ...... 6 1.3.2 JORC Code (2012) Mineral Resource and Ore Reserve Estimates ...... 6 1.4 OPERATIONS AND PROJECTS ...... 11 1.4.1 Udachny GOK ...... 11 1.4.2 Aikhal GOK ...... 12 1.4.3 Mirny GOK ...... 13 1.4.4 Nyurba GOK ...... 15 1.4.5 Solur-Vostochnaya Placer Deposit ...... 16 1.4.6 Lomonosov GOK ...... 17 1.4.7 Almazy Anabara ...... 17 1.4.8 Nizhne-Lenskoe ...... 19 1.5 PRODUCTION SCHEDULE ...... 20 1.6 ENVIRONMENTAL, HEALTH AND SAFETY AND SOCIAL ISSUES ...... 22 1.7 ECONOMIC ANALYSIS ...... 24 1.7.1 Basis for Economic Assessment ...... 24 1.7.2 Production and Cash Flow Forecasts ...... 25

2.0 INTRODUCTION...... 28 2.1 PURPOSE AND SCOPE OF THE REPORT...... 28 2.2 CAPABILITY AND INDEPENDENCE ...... 28 2.3 LIMITATIONS AND EXCLUSIONS ...... 29 2.4 SOURCES OF INFORMATION ...... 29 2.5 REPORT STRUCTURE ...... 30 2.6 GLOSSARY AND ABBREVIATIONS ...... 30

3.0 GENERAL INFORMATION ...... 31 3.1 ALROSA GROUP REVIEW ...... 31 3.1.1 Company ...... 31 3.2 ALROSA RESOURCE AND RESERVE CLASSIFICATION. RUSSIAN RESERVE ASSESSMENT METHODS ...... 35 3.2.1 Methods for Kimberlite Pipe Reserve Estimation ...... 37 3.2.2 Methods for Placer Deposit Reserve Estimation ...... 38 3.3 MICON APPROACH TO RESOURCE AND RESERVE CLASSIFICATION ...... 39 3.4 ALROSA’S PROCESSING FACILITIES ...... 40 3.5 ALROSA APPROACH TO ENVIRONMENT, HEALTH AND SAFETY AND SOCIAL ISSUES ...... 42 3.5.1 Introduction ...... 42 3.5.2 Permitting, Regulation and Environment, Health and Safety Management in Russia ...... 42 3.5.3 Environmental, Health and Safety and Social Issues...... 44 3.5.4 Environmental Management ...... 45

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3.5.5 Health and Safety Management ...... 48 3.5.6 Social Issues ...... 49 3.6 MICON APPROACH TO ENVIRONMENTAL HEALTH AND SAFETY RISKS AND LIABILITIES ...... 50 3.6.1 General Approach ...... 50

4.0 UDACHNY ...... 51 4.1 BACKGROUND ...... 51 4.2 GEOLOGY ...... 52 4.2.1 Udachnaya Pipe ...... 52 4.2.2 Zarnitsa Pipe ...... 55 4.2.3 Verkhne-Munskoe Deposits...... 58 4.2.4 Kluch Piropovy Placer and Zakonturnaya Deluvial Placer ...... 62 4.3 MINERAL RESOURCES AND RESERVES ...... 63 4.3.1 Udachnaya Pipe ...... 63 4.3.2 Zarnitsa Pipe ...... 66 4.3.3 Verkhne-Munskoe Pipes ...... 69 4.3.4 Kluch Piropovy Placer and Zakonturnaya Deluvial Placer ...... 72 4.4 MINING ...... 74 4.4.1 Udachny Mine Design and Operation ...... 74 4.4.2 Udachny Production...... 83 4.4.3 Zarnitsa Mine Design and Operation ...... 85 4.4.4 Zarnitsa Production ...... 86 4.4.5 Kluch Piropovy Placer and Zakonturnaya Deluvial Placer Mine Design and Operation ...... 86 4.4.6 Kluch Piropovy Placer and Zakonturnaya Placer Production ...... 88 4.4.7 Verkhne-Munskoe Open Pits Design and Operation ...... 89 4.4.8 Verkhne-Munskoe Open Pits Production ...... 91 4.5 PROCESSING ...... 93 4.5.1 Overview ...... 93 4.5.2 Current and Planned Production Parameters ...... 93 4.5.3 Process Flowsheet ...... 95 4.6 INFRASTRUCTURE ...... 96 4.6.1 Transport ...... 96 4.6.2 Power and Water ...... 96 4.7 ENVIRONMENTAL, HEALTH AND SAFETY AND SOCIAL ISSUES ...... 96 4.7.1 Environmental and Health and Safety Management ...... 96 4.7.2 Key Environmental and Safety Issues ...... 97 4.7.3 Health and Safety ...... 98 4.7.4 Regulatory Compliance ...... 99 4.7.5 Permits for Nature Use ...... 99 4.7.6 Risk Categorisation ...... 101 4.8 COSTS ...... 101 4.8.1 Operating Costs ...... 101 4.8.2 Capital Costs ...... 101

5.0 AIKHAL ...... 104 5.1 BACKGROUND ...... 104 5.2 GEOLOGY ...... 104

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5.2.1 Jubilee Pipe ...... 104 5.2.2 Aikhal Pipe...... 109 5.2.3 Komsomolskaya Pipe...... 112 5.2.4 Zaria Pipe ...... 112 5.3 MINERAL RESOURCES AND RESERVES ...... 115 5.3.1 Jubilee Pipe ...... 115 5.3.2 Aikhal Pipe...... 119 5.3.3 Komsomolskaya Pipe...... 121 5.3.4 Zaria Pipe ...... 122 5.4 MINING ...... 126 5.4.1 Jubilee Mine Design and Operation ...... 126 5.4.2 Jubilee Pipe Production...... 127 5.4.3 Aikhal Pipe Design and Operation ...... 129 5.4.4 Aikhal Production ...... 132 5.4.5 Komsomolsky Mine Design and Operation ...... 134 5.4.6 Komsomolsky Open Pit Production ...... 135 5.4.7 Zaria Open Pit Design and Operation ...... 135 5.4.8 Zaria Open Pit Production ...... 135 5.5 PROCESSING ...... 139 5.5.1 Overview ...... 139 5.5.2 Current and Future Production...... 140 5.5.3 Process Flowsheets ...... 142 5.5.4 Summary ...... 144 5.6 INFRASTRUCTURE ...... 144 5.6.1 Transport ...... 144 5.6.2 Power and Water ...... 144 5.7 ENVIRONMENT, HEALTH AND SAFETY AND SOCIAL ISSUES ...... 144 5.7.1 Environmental and Health and Safety Management ...... 144 5.7.2 Key Environmental and Safety Issues ...... 144 5.7.3 Health and Safety ...... 146 5.7.4 Regulatory Compliance ...... 146 5.7.5 Permits for Nature Use ...... 146 5.7.6 Risk Categorisation ...... 148 5.8 COSTS ...... 148 5.8.1 Operating costs ...... 148 5.8.2 Capital Costs ...... 149

6.0 MIRNY...... 151 6.1 BACKGROUND ...... 151 6.2 GEOLOGY ...... 151 6.2.1 Mir Pipe ...... 151 6.2.2 International Pipe ...... 156 6.2.3 Irelyakh Placer Deposit ...... 157 6.2.4 Gornoye Placer Deposit ...... 157 6.2.5 Vodorazdelnye Galechniki Deposit ...... 157 6.3 MINERAL RESOURCES AND RESERVES ...... 157 6.3.1 Mir Pipe ...... 157 6.3.2 International Pipe ...... 159 6.3.3 Irelyakh Placer ...... 161

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6.3.4 Gornoye Placer ...... 164 6.3.5 Vodorazdelnye Galechniki Placer ...... 166 6.4 MINING ...... 168 6.4.1 Mir Pipe Design and Operation ...... 168 6.4.2 Mir Pipe Production ...... 169 6.4.3 International Pipe Design and Operation ...... 171 6.4.4 International Pipe Production ...... 171 6.4.5 Irelyakh Placer Production ...... 174 6.4.6 Gornoye Placer Production ...... 174 6.4.7 Vodorazdelnye Galechniki Placer Production ...... 174 6.4.8 Irelyakh, Gornoye and Vodorazdelnye Galechniki Production Summary ...... 174 6.5 PROCESSING ...... 178 6.5.1 Overview ...... 178 6.5.2 Current and Future Production...... 178 6.5.3 Plant No. 3 Process Flowsheet ...... 182 6.5.4 250D Dredges and KSA-150 Unit Process Flowsheets ...... 183 6.6 INFRASTRUCTURE ...... 184 6.6.1 Transport ...... 184 6.6.2 Power and Water ...... 184 6.7 ENVIRONMENT, HEALTH AND SAFETY AND SOCIAL ISSUES ...... 184 6.7.1 Environmental Health and Safety Management ...... 184 6.7.2 Key Environmental and Safety Issues ...... 185 6.7.3 Safety Performance ...... 186 6.7.4 Regulatory Compliance ...... 187 6.7.5 Permits for Nature Use ...... 187 6.7.6 Risk Categorisation ...... 187 6.8 COSTS ...... 187 6.8.1 Operating Costs ...... 187 6.8.2 Capital Costs ...... 187

7.0 NYURBA ...... 191 7.1 BACKGROUND ...... 191 7.2 GEOLOGY ...... 191 7.2.1 Nyurbinskaya Pipe ...... 194 7.2.2 Nyurbinskaya Placer Deposit ...... 194 7.2.3 Botuobinskaya Pipe ...... 194 7.2.4 Botuobinskaya Placer Deposit ...... 195 7.2.5 Maiskoye Kimberlite Body ...... 195 7.3 MINERAL RESOURCES AND RESERVES ...... 195 7.3.1 Nyurbinskaya Pipe Deposit...... 195 7.3.2 Botuobinskaya Pipe ...... 197 7.3.3 Nyurbinskaya Placer Deposit ...... 199 7.3.4 Botuobinskaya Placer Diamond Deposit ...... 201 7.3.5 Maiskoye Kimberlite Body ...... 202 7.4 MINING ...... 203 7.4.1 Nyurbinskaya Pipe and Placer Mine Design and Operation ...... 203 7.4.2 Nyurbinskaya Pipe and Placer Deposit Production ...... 205

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7.4.3 Botuobinskaya Pipe and Placer Deposit Mine Design and Operation ...... 207 7.4.4 Botuobinskaya Pipe and Placer Deposit Production ...... 208 7.4.5 Maiskoye Kimberlite Body and the Maiskoye Placer Deposit Mine Design and Operation ...... 208 7.4.6 Maiskoye Kimberlite Body Deposit Production ...... 211 7.5 PROCESSING ...... 211 7.5.1 Overview ...... 211 7.5.2 Current and Future Production...... 211 7.5.3 Process Flowsheet ...... 214 7.6 INFRASTRUCTURE ...... 215 7.6.1 Transport ...... 215 7.6.2 Power and Water ...... 215 7.7 ENVIRONMENT, HEALTH AND SAFETY AND SOCIAL ISSUES ...... 215 7.7.1 Environmental and Health and Safety Management ...... 215 7.7.2 Key Environmental and Safety Issues ...... 216 7.7.3 Safety Performance ...... 216 7.7.4 Regulatory Compliance ...... 217 7.7.5 Permits for Nature Use ...... 217 7.7.6 Risk Categorisation ...... 218 7.8 COSTS ...... 218 7.8.1 Operating Costs ...... 218 7.8.2 Capital Costs ...... 219

8.0 SOLUR-VOSTOCHNAYA ...... 221 8.1 BACKGROUND ...... 221 8.2 GEOLOGY ...... 221 8.3 MINERAL RESOURCES AND RESERVES ...... 224 8.3.1 Exploration ...... 224 8.3.2 JORC Code Mineral Resource Statement ...... 225

9.0 LOMONOSOV ...... 227 9.1 BACKGROUND ...... 227 9.2 GEOLOGY ...... 228 9.3 MINERAL RESOURCES ...... 229 9.3.1 Exploration ...... 229 9.3.2 Russian Mineral Reserve Estimate ...... 230 9.3.3 JORC Code Mineral Resource Statement ...... 232 9.3.4 JORC Code Ore Reserve Statement ...... 233 9.4 MINING ...... 234 9.4.1 Arkhangelskaya Mine Design and Operation ...... 234 9.4.2 Arkhangelskaya Open Pit Production ...... 235 9.4.3 Karpinskogo-1 Mine Design and Operation ...... 237 9.4.4 Karpinskogo-1 Mine Production...... 238 9.5 PROCESSING ...... 238 9.5.1 Overview ...... 238 9.5.2 Current and Future Production...... 240 9.5.3 Process Flowsheet ...... 240 9.6 INFRASTRUCTURE ...... 242 9.6.1 Transport ...... 242

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9.6.2 Power and Water ...... 242 9.7 ENVIRONMENTAL, HEALTH AND SAFETY AND SOCIAL ISSUES ...... 243 9.7.1 Environmental and Health and Safety Management ...... 243 9.7.2 Key Environmental and Safety Issues ...... 243 9.7.3 Safety Performance ...... 244 9.7.4 Regulatory Compliance ...... 245 9.7.5 Permits for Nature Use ...... 245 9.7.6 Risk Categorisation ...... 245 9.8 COSTS ...... 246 9.8.1 Operating Costs ...... 246 9.8.2 Capital Costs ...... 246

10.0 ALMAZY ANABARA ...... 248 10.1 BACKGROUND ...... 248 10.1.1 Ebelyakh River Placer ...... 248 10.1.2 Gusiny Stream Placer ...... 250 10.1.3 Istok Stream Placer ...... 250 10.1.4 Morgogor Stream Placer ...... 250 10.1.5 The Right Bank Morgogor Placers ...... 250 10.1.6 Olom and Ruchey Log 325 Placers ...... 250 10.1.7 Kholomolokh Placer ...... 251 10.1.8 Uchakh-Ytyrbat River and Khara-Mas River Licence Area ...... 251 10.2 GEOLOGY ...... 251 10.2.1 Ebelyakh River Placer ...... 251 10.2.2 Gusiny Stream Placer ...... 255 10.2.3 Istok Placer...... 256 10.2.4 Morgogor Placer ...... 256 10.2.5 Right Bank Morgogor Placers ...... 256 10.2.6 Olom and Ruchey Log 325 Placers ...... 257 10.2.7 Kholomolokh Placer ...... 257 10.2.8 Uchakh-Ytyrbat River and Khara-Mas River Licence Area ...... 258 10.3 MINERAL RESOURCES AND RESERVES ...... 259 10.3.1 Ebelyakh River and Gusiny Stream Placers ...... 259 10.3.2 Istok Placer Deposit ...... 262 10.7 ENVIRONMENTAL, HEALTH AND SAFETY AND SOCIAL ISSUES ...... 282 10.7.1 Environmental and Health and Safety Management ...... 282 10.7.2 Key Environmental and Safety Issues ...... 282 10.7.3 Mine Closure and Rehabilitation ...... 283 10.7.4 Health and Safety Management ...... 284 10.7.5 Regulatory Compliance ...... 284 10.7.6 Permits for Nature Use ...... 285 10.7.7 Risk Categorisation ...... 285 10.8 COSTS ...... 285 10.8.1 Operating Costs ...... 285 10.8.2 Capital Costs ...... 286

11.0 NIZHNE-LENSKOE ...... 287 11.1 BACKGROUND ...... 287

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11.2 GEOLOGY ...... 289 11.2.1 Talakhtakh River Placer ...... 289 11.2.2 Bolshaya Kuonamka Placer ...... 294 11.2.3 Billyakh Tributaries Placer ...... 294 11.2.4 Molodo River Placer ...... 295 11.3 MINERAL RESOURCES AND RESERVES ...... 298 11.3.1 Talakhtakh River Placer ...... 298 11.3.2 Bolshaya Kuonamka Placer ...... 300 11.3.3 Billyakh Tributaries Placer ...... 304 11.3.4 Molodo and Verkhnee Molodo River Placers ...... 306 11.4 MINING ...... 310 11.4.1 Design and Operation ...... 310 11.4.2 Production ...... 310 11.5 PROCESSING ...... 314 11.6 INFRASTRUCTURE ...... 314 11.6.1 Transport ...... 314 11.6.2 Power and Water ...... 315 11.7 ENVIRONMENT, HEALTH AND SAFETY AND SOCIAL ISSUES ...... 316 11.7.1 Environmental and Health and Safety Management ...... 316 11.7.2 Key Environmental and Safety Issues ...... 316 11.7.3 Mine Closure and Rehabilitation ...... 317 11.7.4 Safety Management ...... 317 11.7.5 Regulatory Compliance ...... 318 11.7.6 Permits for Nature Use ...... 318 11.7.7 Risk Categorisation ...... 319 11.8 COSTS ...... 320 11.8.1 Operating Costs ...... 320 11.8.2 Capital Costs ...... 320

12.0 ECONOMIC ANALYSIS ...... 321 12.1 BASIS FOR ECONOMIC ASSESSMENT ...... 321 12.1.1 General Provisions ...... 321 12.1.2 Structure of Cash Flow Models ...... 322 12.1.3 Forecast Macroeconomic Parameters ...... 322 12.1.4 Forecast Rough Diamond Prices ...... 323 12.1.5 Capital Costs ...... 328 12.1.6 Taxation Rates ...... 328 12.1.7 Off-Site Costs...... 330 12.1.8 Depreciation ...... 330 12.1.9 Discount Rate ...... 330 12.2 UDACHNY GOK ...... 332 12.3 AIKHAL GOK ...... 334 12.4 MIRNY GOK ...... 336 12.5 NYURBA GOK ...... 338 12.6 LOMONOSOV GOK (SEVERALMAZ) ...... 340 12.7 ALMAZY ANABARA ...... 342 12.8 NIZHNE-LENSKOE ...... 344 12.9 AGGREGATE INDICATORS ...... 346 12.10 SENSITIVITY ANALYSIS ...... 349

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12.10.1 Revenue (Product Sale Price) ...... 349 12.10.2 Operating Costs ...... 350 12.10.3 Capital Costs ...... 351 12.10.4 Discount Rate ...... 352 12.10.5 Aggregate Sensitivity Analysis ...... 353

13.0 GLOSSARY AND ABBREVIATIONS ...... 355 13.1 GLOSSARY ...... 355 13.2 ABBREVIATIONS ...... 359

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List of Tables

Table 1.1: ALROSA Group of Companies - List of Assets Covered by the Micon Assessment ...... 4 Table 1.2: ALROSA Group of Companies - Summary of Kimberlite Mineral Resources as at 1st July 2016 ...... 7 Table 1.3: ALROSA Group of Companies - Summary of Placer Mineral Resources as at 1st July 2016 ...... 8 Table 1.4: ALROSA Group of Companies - Summary of Diamond Mineral Resources as at 1st July 2016 ...... 8 Table 1.5: Summary of Proved and Probable Ore Kimberlite Ore Reserves as at 1st July 2016 ...... 9 Table 1.6: Summary of Proved and Probable Placer Ore Reserves as at 1st July 2016 ...... 10 Table 1.7: Summary of Diamond Ore Reserves as at 1st July 2016 ...... 10 Table 1.8: Key Indicators of the second half of 2016 to 2030 Production Schedule for ALROSA Operations, as Developed by Micon ...... 21 Table 1.9: ALROSA Safety Performance ...... 24 Table 1.10: ALROSA Key Production and Economic Indicators from the second half of 2016 to 2030 (Micon’s Assessment) ...... 26 Table 3.1: ALROSA Group of Companies - List of Assets Covered by the Micon Assessment ...... 33 Table 3.2: Summary of ALROSA Processing Facilities ...... 41 Table 3.3: Environment Management and Monitoring Plan Costs for the ALROSA for 2011 to 2018 ...... 47 Table 3.4: ALROSA Safety Performance Indices ...... 49 Table 4.1: Diamond Grades for the Verkhne-Munskoe Pipes ...... 62 Table 4.2: Russian Balance Reserves of the Udachnaya Pipe as at 1st January 2016 ...... 65 Table 4.3: Mineral Resources of the Udachnaya Pipe as at 1st January 2016 ...... 65 Table 4.4: Ore Losses and Dilution for the Udachnaya Pipe ...... 66 Table 4.5: Ore Reserves of the Udachnaya Pipe as at 1st July 2016 ...... 66 Table 4.6: Russian Balance Reserves of the Zarnitsa Pipe as at 1st January 2016 ...... 68 Table 4.7: Mineral Resources of the Zarnitsa Pipe as at 1st July 2016 ...... 68 Table 4.8: Exploration Results from Potential Targets of the Zarnitsa Pipe as at 1st July 2016 ...... 69 Table 4.9: Ore Reserves of the Zarnitsa Pipe as at 1st July 2016 ...... 69 Table 4.10: Russian Balance Reserves of the Verkhne-Munskoe Deposits as at 1st January 2016 ...... 71 Table 4.11: Mineral Resources of the Verkhne-Munskoe Kimberlite Pipes as at 1st July 2016 ...... 71

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Table 4.12: Mineral Resources of the Verkhne-Munskoe Placers as at 1st July 2016 ...... 71 Table 4.13: Ore Losses and Dilution for the Verkhne-Munskoe Deposit Pipes ...... 72 Table 4.14: Ore Reserves of the Verkhne-Munskoe deposit as at 1st July 2016 ...... 72 Table 4.15: Russian Balance Reserves of the Kluch Piropovy Placer and Zakonturnaya Deluvial Placer as at 1st January 2016 ...... 73 Table 4.16: Mineral Resources of the Kluch Piropovy Placer and Zakonturnaya Deluvial Placer as at 1st July 2016 ...... 74 Table 4.17: Ore Losses and Dilution for the Kluch Piropovy Placer and Zakonturnaya Deluvial Placer ...... 74 Table 4.18: Ore Reserves of the Kluch Piropovy Placer and Zakonturnaya Deluvial Placer as at 1st July 2016 ...... 74 Table 4.19: Udachny Open Pit Actual Production ...... 84 Table 4.20: Udachny Underground Mine Actual Production ...... 84 Table 4.21: Udachny Underground Mine Production Schedule ...... 84 Table 4.22: Zarnitsa Open Pit Actual Production ...... 87 Table 4.23: Zarnitsa Open Pit Planned Production Schedule ...... 87 Table 4.24: Kluch Piropovy Placer and Zakonturnaya Deluvial Placer Open Pit Actual Production ...... 88 Table 4.25: Kluch Piropovy Placer and Zakonturnaya Deluvial Placer Open Pit Production Schedule ...... 88 Table 4.26: Verkhne-Munskoe Planned Production Schedule ...... 92 Table 4.27: Plant No. 12 Actual Production1 ...... 93 Table 4.28: Plant No. 12 Planned Production ...... 94 Table 4.29: Udachny GOK Key Facilities (2016) ...... 97 Table 4.30: Udachny GOK Safety Performance ...... 99 Table 4.31: Udachny GOK Permits for Nature Use ...... 100 Table 4.32: Udachny GOK Actual Operating Costs ...... 102 Table 4.33: Udachny GOK Capital Costs Schedule (Million RUB) ...... 103 Table 5.1: Balance Reserves of the Jubilee Pipe as at 1st January 2016 ...... 117 Table 5.2: Mineral Resources of the Jubilee Kimberlite Pipe as at 1st July 2016 ...... 118 Table 5.3: Potential for Exploration for the Jubilee Kimberlite Pipe as at 1st July 2016 ...... 118 Table 5.4: Losses and Dilution Allowances for the Jubilee Pipe ...... 118 Table 5.5: Ore Reserves of the Jubilee Pipe as at 1st July 2016 ...... 119 Table 5.6: Balance Reserves of the Aikhal Kimberlite Pipe as at 1st January 2016 ...... 120 Table 5.7: Mineral Resources of the Aikhal Pipe as at 1st July 2016 ...... 120 Table 5.8: Ore Reserves of the Aikhal Pipe as at 1st July 2016 ...... 121

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Table 5.9: Balance Reserves of the Komsomolskaya Pipe as at 1st January 2016 ...... 122 Table 5.10: Mineral Resources of the Komsomolskaya Pipe at 1st July 2016 ...... 122 Table 5.11: Ore Reserves of the Komsomolskaya Pipe as at 1st July 2016 ...... 122 Table 5.12: Balance Reserves of the Zaria Pipe Deposit as at 1st January 2016 ...... 124 Table 5.13: Mineral Resources of the Zaria Pipe at 1st July 2016 ...... 125 Table 5.14: Losses and Dilution for the Zaria Pipe ...... 125 Table 5.15: Ore Reserves of the Zaria Pipe at 1st July 2016 ...... 126 Table 5.16: Jubilee Open Pit Actual Production ...... 128 Table 5.17: Jubilee Open Pit Production Schedule ...... 128 Table 5.18: Aikhal Underground Mine Actual Production ...... 133 Table 5.19: Aikhal Underground Mine Production Schedule ...... 133 Table 5.20: Komsomolsky Open Pit Actual Production ...... 136 Table 5.21: Komsomolsky Open Pit Production Schedule ...... 136 Table 5.22: Zaria Open Pit Mine Production Schedule ...... 138 Table 5.23: Plant No. 14 Actual Production ...... 139 Table 5.24: Plant No. 8 Actual Production ...... 139 Table 5.25: Plant No. 8 Planned Production ...... 141 Table 5.26: Plant No. 14 Planned Production ...... 141 Table 5.27: Aikhal GOK Key Facilities (2016) ...... 145 Table 5.28: Aikhal GOK Safety Performance ...... 146 Table 5.29: Aikhal GOK Permits for Nature Use ...... 147 Table 5.30: Aikhal GOK Actual Operating Costs ...... 148 Table 5.31: Aikhal GOK Capital Costs Schedule (Million RUB) ...... 150 Table 6.1: Balance Reserves of the Mir Kimberlite Pipe as at 1st January 2016 ...... 158 Table 6.2: Mineral Resources of the Mir Kimberlite Pipe as at 1st July 2016 ...... 159 Table 6.3: Ore Reserves of the Mir Pipe as at 1st July 2016 ...... 159 Table 6.4: Balance Reserves of the International Pipe as at 1st January 2016 ...... 160 Table 6.5: Mineral Resources of the International Pipe as at 1st July 2016 ...... 161 Table 6.6: Potential Resources of the International Pipe as at 1st July 2016 ...... 161 Table 6.7: Ore Reserves of the International Pipe as at 1st July 2016 ...... 161 Table 6.8: Balance Reserves of the of the Irelyakh Placer as at 1st January 2016 ...... 163 Table 6.9: Mineral Resources of the Irelyakh Placer Deposit as at 1st July 2016 ...... 163 Table 6.10: Dilution and Losses for the Irelyakh Placer ...... 163 Table 6.11: Ore Reserves of the Irelyakh Placer as at 1st July 2016 ...... 164 Table 6.12: Balance Reserves of the Gornoye Deposit as at 1st January 2016 ...... 165

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Table 6.13: Mineral Resources of the Gornoye Deposit as at 1st July 2016 ...... 165 Table 6.14: Dilution and Losses for the Gornoye Deposit ...... 165 Table 6.15: Ore Reserves of the Gornoye Deposit as at 1st July 2016 ...... 166 Table 6.16: Balance Reserves of the Vodorazdelnye Galechniki Deposit as at 1st January 2016 ...... 167 Table 6.17: Mineral Resources of the Vodorazdelnye Galechniki Deposit as at 1st July 2016 ...... 167 Table 6.18: Ore Reserves of the Vodorazdelnye Galechniki Deposit as at 1st July 2016 ...... 167 Table 6.19: Mir Underground Mine Actual Production ...... 170 Table 6.20: Mir Underground Mine Production Schedule ...... 170 Table 6.21: International Underground Mine Actual Production ...... 173 Table 6.22: International Underground Mine Production Schedule ...... 173 Table 6.23: Irelyakh Placer Actual Production ...... 175 Table 6.24: Gornoye Placer Actual Production – Dredge No. 203 ...... 175 Table 6.25: Vodorazdelnye Galechniki Placer Actual Production ...... 176 Table 6.26: Irelyakh Placer Production Schedule ...... 176 Table 6.27: Gornoye Placer Production Schedule ...... 177 Table 6.28: Vodorazdelnye Galechniki Placer Production Schedule ...... 177 Table 6.29: Plant No. 3 Actual Production ...... 178 Table 6.30: Dredges No. 201, No. 202 and No. 203 Actual Production ...... 179 Table 6.31: Irelyakh KSA-150 Processing Schedule ...... 180 Table 6.32: Plant No. 3 Processing Schedule ...... 180 Table 6.33: Dredges No. 201, 202 and 203 Processing Schedule ...... 181 Table 6.34: Mirny GOK Key Facilities (2014) ...... 185 Table 6.35: Mirny GOK Safety Performance ...... 186 Table 6.36: Mirny GOK Permits for Nature Use ...... 188 Table 6.37: Mirny GOK Actual and Planned Operating Costs ...... 189 Table 6.38: Mirny GOK Capital Cost Schedule (Million RUB) ...... 190 Table 7.1: Balance Reserves of the Nyurbinskaya Pipe as at 1st January 2016 ...... 196 Table 7.2: Mineral Resources of the Nyurbinskaya Kimberlite Pipe as at 1st July 2016 ...... 197 Table 7.3: Ore Reserves of the Nyurbinskaya Kimberlite Pipe as at 1st July 2016 ...... 197 Table 7.4: Balance Reserves of the Botuobinskaya Kimberlite Pipe as at 1st January 2016 ...... 198 Table 7.5: Mineral Resources of the Botuobinskaya Kimberlite Pipe as at 1st July 2016 ...... 198

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Table 7.6: Ore Reserves of the Botuobinskaya Pipe as at 1st July 2016 ...... 199 Table 7.7: Balance Reserves of the Nyurbinskaya Placer as at 1st January 2016 ...... 200 Table 7.8: Mineral Resources of the Nyurbinskaya Placer as at 1st July 2016 ...... 200 Table 7.9: Ore Reserves of the Nyurbinskaya Placer as at 1st July 2016 ...... 200 Table 7.10: Balance Reserves of the Botuobinskaya Placer as of 1st January 2016 ...... 201 Table 7.11: Mineral Resources of the Botuobinskaya Placer as at 1st July 2016 ...... 201 Table 7.12: Ore Reserves of the Botuobinskaya Placer as at 1st July 2016 ...... 202 Table 7.13: Balance Reserves of the Maiskoye Kimberlite Body Deposit and the Maiskoye Placer as at 1st January 2016 ...... 202 Table 7.14: Mineral Resources of the Maiskoye Kimberlite Body and the Maiskoye Placer as at 1st July 2016 ...... 203 Table 7.15: Ore Reserves of the Maiskoye Kimberlite Body as at 1st July 2016 ...... 203 Table 7.16: Nyurbinskaya Open Pit Actual Production ...... 206 Table 7.17: Nyurbinskaya Open Pit Production Schedule ...... 206 Table 7.18: Botuobinsky Open Pit Actual Production ...... 209 Table 7.19: Botuobinsky Open Pit Production Schedule ...... 209 Table 7.20: Maiskoye Kimberlite Body Open Pit Production Schedule ...... 211 Table 7.21: Plants No. 15 and No. 16 Actual Production ...... 212 Table 7.22: Plant No 16 Production Schedule ...... 213 Table 7.23: Plant No 15 Production Schedule ...... 213 Table 7.24: Nyurba GOK Key Facilities ...... 215 Table 7.25: Nyurba GOK Safety Performance ...... 217 Table 7.26: Nyurba GOK Permits for Nature Use ...... 218 Table 7.27: Nyurba GOK Actual and Planned Operating Costs ...... 219 Table 7.28: Nyurba GOK Capital Costs Schedule (Million RUB) ...... 220 Table 8.1: Permanent Exploration Cut-Off Criteria used to Estimate Reserves at the Solur-Vostochnaya Deposit ...... 224 Table 8.2: Balance Reserves of the Solur-Vostochnaya Placer as of 1st January 2016 ...... 225 Table 8.3: Mineral Resources of the Solur-Vostochnaya Placer as of 1st July 2016 ...... 225 Table 9.1: Exploration Data for each Lomonosov Pipe (Prior to 2009) ...... 230 Table 9.2: Balance Reserves of Arkhangelskaya and Karpinskogo-1 Pipes as at 1st January 2016 ...... 230 Table 9.3: Balance Reserves of the Pionerskaya Pipe as at 1st January 2016 ...... 231 Table 9.4: Balance Reserves of the Lomonosov Pipe as at 1st January 2016 ...... 231 Table 9.5: Mineral Resources of the Arkhangelskaya Pipe as at 1st July 2016 ...... 232 Table 9.6: Mineral Resources of the Karpinskogo-1 Pipe as at 1st July 2016 ...... 232

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Table 9.7: Potential Exploration Target of the Karpinskogo-1 as at 1st July 2016 ...... 233 Table 9.8: Mineral Resources of the Pionerskaya Pipe as at 1st July 2016 ...... 233 Table 9.9: Mineral Resources of the Lomonosov Pipe as at 1st July 2016 ...... 233 Table 9.10: Ore Reserves of the Lomonosov Deposit as at 1st July 2016 ...... 233 Table 9.11: Arkhangelskaya Open Pit Actual Production ...... 236 Table 9.12: Arkhangelskaya Open Pit Production Schedule ...... 236 Table 9.13: Karpinskogo-1 Open Pit Actual Production ...... 239 Table 9.14: Karpinskogo-1 Production Schedule ...... 239 Table 9.15: Plants No. 1 and No. 2 Actual Production ...... 240 Table 9.16: Planned Production for Plants No. 1 and No. 2 ...... 241 Table 9.17: Lomonosov GOK Safety Performance ...... 244 Table 9.18: Lomonosov GOK Permits for Nature Use...... 245 Table 9.19: Lomonosov GOK Actual and Planned Operating Costs ...... 246 Table 9.20: Lomonosov GOK Capital Costs Schedule (Million RUB)...... 247 Table 10.1: Geological Exploration Work Conducted at the Ebelyakh River Placer ...... 259 Table 10.2: Cut-Off Criteria for the Ebelyakh River and Gusiny Stream Placers ...... 260 Table 10.3: Balance Reserves of the Ebelyakh River and Gusiny Stream Placers as of 1st January 2016 ...... 261 Table 10.4: Mineral Resources of the Ebelyakh River and Gusiny Stream Placers as of 1st July 2016 ...... 261 Table 10.5: Ore Reserves of the Ebelyakh River and Gusiny Stream Placers as of 1st July 2016 ...... 262 Table 10.6: Balance Reserves of the Istok Placer as at 1st January 2016 ...... 262 Table 10.7: Mineral Resources of the Istok Placer as at 1st July 2016 ...... 263 Table 10.8: Ore Reserves of the Istok Placer as at 1st July 2016 ...... 263 Table 10.9: Geological Exploration Work Conducted at the Morgogor Placers ...... 264 Table 10.10: Cut-Off Criteria for the GKZ Reserve Estimate for the Morgogor Placer ...... 264 Table 10.11: Balance Reserve Estimate for the Morgogor Placers as at 1st January 2016 ...... 265 Table 10.12: Mineral Resources of the Morgogor Placer as at 1st July 2016 ...... 265 Table 10.13: Ore Reserves of the Morgogor Placers as at 1st July 2016 ...... 265 Table 10.14: Geological Exploration Work Conducted at the Right Bank Morgogor Placers ...... 266 Table 10.15: Approved Exploration Cut-Off Criteria for the Right Bank Morgogor Placers ...... 266 Table 10.16: Balance Reserves of the Right Bank Morgogor Placers as at 1st January 2016 ...... 267

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Table 10.17: Mineral Resources of the Right Bank Morgogor Placers as at 1st July 2016 ...... 267 Table 10.18: Ore Reserves of the Right Bank Morgogor Placers as at 1st July 2016 ...... 267 Table 10.19: Cut-Off Criteria for the Olom (Istok Site) and Ruchey Log 325 Placers ...... 268 Table 10.20: 10.20: Balance Reserves of the Olom (Istok Site) and Ruchey Log 325 Placer Deposits ...... 269 Table 10.21: Mineral Resources of the Olom (Istok Site) and Ruchey Log 325 Placers ...... 269 Table 10.22: Ore Reserves of the Olom (Istok Site) and Ruchey Log 325 Placers as at 1st July 2016 ...... 269 Table 10.23: Balance Reserves of the Kholomolokh Placer as at 1st January 2016 ...... 270 Table 10.24: Mineral Resources of the Kholomolokh Placer as at 1st July 2016 ...... 271 Table 10.25: Ore Reserves of the Kholomolokh Placers as at 1st July 2016 ...... 271 Table 10.26: Geological Exploration Work Conducted at the Uchakh-Ytyrbat and Khara-Mas Placers ...... 272 Table 10.27: Reserve Estimation Cut-Off Criteria for the Uchakh-Ytyrbat and Urung-Yuryakh River Placers ...... 273 Table 10.28: Balance Reserves of the Uchakh-Ytyrbat and Urung-Yuryakh River Placers ...... 273 Table 10.29: Mineral Resources of Uchakh-Ytyrbat and Urung-Yuryakh River Placers ...... 273 Table 10.30: Ore Reserves of Uchakh-Ytyrbat and Urung-Yuryakh River Placers ...... 274 Table 10.31: Almazy Anabara Placers Actual Production ...... 276 Table 10.32: Almazy Anabara Placers Production Schedule ...... 277 Table 10.33: Almazy Anabara Production Summary for Sands Processed in 2014 to 1st July 2016 ...... 281 Table 10.34: Almazy Anabara Safety Performance ...... 284 Table 10.35: Almazy Anabara GOK Permits for Nature Use ...... 285 Table 10.36: Almazy Anabara Actual Operating Costs...... 286 Table 11.1: AO Nizhne-Lenskoe Diamond Placer Deposits ...... 287 Table 11.2: Exploration of the Talakhtakh Stream Placer ...... 298 Table 11.3: Parameters for Calculating the Reserves of Talakhtakh Stream Placer as at 1st January 2016 ...... 299 Table 11.4: Balance Reserves of Talakhtakh Stream Placer as at 1st January 2016 ...... 300 Table 11.5: Mineral Resources of the Talakhtakh River Placer as at 1st July 2016 ...... 300 Table 11.6: Ore Reserves of the Talakhtakh River Placer as at 1st July 2016 ...... 300 Table 11.7: Geological Exploration Work Conducted at the Bolshaya Kuonamka Placer ...... 301

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Table 11.8: Permanent Exploration Cut-Off Criteria for Reserve Estimation of the ...... 302 Table 11.9: Balance Reserves of the Bolshaya Kuonamka River and Talakhtakh River Upper Placers ...... 303 Table 11.10: Mineral Resources of the Bolshaya Kuonamka River and Talakhtakh River Placers ...... 303 Table 11.11: Ore Reserves of the Bolshaya Kuonamka River Placer as at 1st July 2016 ...... 304 Table 11.12: Geological Exploration Work Conducted at the Billyakh River Tributaries ...... 304 Table 11.13: Cut-Off Criteria for the Reserve Estimate of the Billyakh River Tributaries (2013) ...... 305 Table 11.14: Balance Reserves of Billyakh River Tributaries as at 1st January 2016 ...... 305 Table 11.15: Mineral Resources of the Billyakh River Tributaries Placers as at 1st July 2016 ...... 306 Table 11.16: Ore Reserves of the Billyakh River Tributaries Placers as at 1st July 2016 ...... 306 Table 11.17: Geological Exploration Work Conducted at the Molodo River Placer ...... 307 Table 11.18: Geological Exploration Work Conducted at the Verkhnee Molodo Site ...... 307 Table 11.19: Cut-Off Criteria for the Reserves Estimation of the Molodo River Placers (2008) ...... 308 Table 11.20: Balance Reserves of the Molodo River Placer (Molodo and Upper Molodo areas) ...... 308 Table 11.21: Balance Reserves of the Molodo River Placer (Molodo areas) ...... 308 Table 11.22: Mineral Resources of the Molodo River Placer (Molodo and Upper Molodo areas) ...... 309 Table 11.23: Mineral Resources of the Molodo River Placer (Molodo area) ...... 309 Table 11.24: Ore Reserves of the Molodo River Placer (Molodo and Upper Molodo area) ...... 309 Table 11.25: Ore Reserves of the Molodo River Placer (Molodo area) ...... 309 Table 11.26: Nizhne-Lenskoe Placers Actual Production ...... 311 Table 11.27: Nizhne-Lenskoe Placers Production Schedule ...... 312 Table 11.28: Nizhne-Lenskoe Production Summary for Sands Processed from 2013 to 1st July 2016 ...... 314 Table 11.29: Nizhne-Lenskoe Permits for Nature Use ...... 319 Table 12.1: Forecast of Capital Investment Deflator ...... 324 Table 12.2: List Prices - Price List of Ministry of Finance of Russia “November 2015” (US$/ct) ...... 324 Table 12.3: Forecast of Rough Diamond Sales Prices Index ...... 326

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Table 12.4: Ratio of 2016 Price Factors ...... 326 Table 12.5: Forecast Diamond Sales Prices (US$/ct) ...... 326 Table 12.6: Capital Cost Forecast Used in the Micon Estimate (000,000’ RUB) ...... 329 Table 12.7: Off-Site Unit Costs ...... 330 Table 12.8: Cost of Capital ...... 331 Table 12.9: Udachny GOK – Key Indicators of the Cash Flow Model (second half of 2016 to 2030) ...... 333 Table 12.10: Aikhal GOK – Key Indicators of the Cash Flow Model (second half 2016 to 2030) ...... 335 Table 12.11: Mirny GOK - Key Indicators of the Cash Flow Model (second half 2016 to 2030) ...... 337 Table 12.12: Nyurba GOK – Key Indicators Cash Flow Model (second half of 2016 to 2030) ...... 339 Table 12.13: Lomonosov GOK – Key Indicators of the Cash Flow Model (second half 2016 to 2030) ...... 341 Table 12.14: Almazy Anabara – Key Indicators of the Cash Flow Model (second half 2016 to 2030) ...... 343 Table 12.15: Nizhne-Lenskoe – Key Indicators of the Cash Flow Model 2016 (second half 2016 to 2030) ...... 345 Table 12.16: ALROSA Key Indicators for the Second Half of 2016 to 2030 Estimated by Micon ...... 347 Table 12.17: ALROSA Key Indicators for the Second Half of 2016 to 2030 Estimated by Micon ...... 348 Table 12.18: NPV Sensitivity to Diamonds Sale Price...... 350 Table 12.19: NPV Sensitivity to Operating Costs ...... 351 Table 12.20: NPV Sensitivity to Capital Costs ...... 352 Table 12.21: NPV Sensitivity to Discount Rate ...... 353

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List of Figures

Figure 1.1: Location of Principal Mining Divisions ...... 3 Figure 1.2: ALROSA Diamond Production - Micon Production Schedule the second half of 2016 to 2030 ...... 22 Figure 1.3: ALROSA - Aggregate Cash Flow the second half of 2016 to 2030 ...... 27 Figure 3.1: ALROSA Corporate Structure ...... 32 Figure 3.2: Location of ALROSA Principal Mining Divisions ...... 32 Figure 3.3: Comparison of the GKZ and JORC Code Resource/Reserve Classification ...... 36 Figure 3.4: General Relationship between Exploration Results, Mineral Resources and Ore Reserves ...... 39 Figure 4.1: Geological Plan of the Udachnaya Deposit Area ...... 52 Figure 4.2: Geological Profile of the Udachnaya Pipe ...... 53 Figure 4.3: Legend for Figures 4.1 and 4.2...... 53 Figure 4.4: Geological Plan of the Zarnitsa Deposit Area ...... 56 Figure 4.5: Geological Profile of the Zarnitsa Pipe ...... 56 Figure 4.6: Legend for Figures 4.4 and 4.5...... 57 Figure 4.7: Geological Map of the Verkhne-Munskoe Area ...... 59 Figure 4.8: Geological Cross-Section of the Verkhne-Munskoe Area ...... 60 Figure 4.9: Legend for Figure 4.7 and 4.8 ...... 60 Figure 4.10: Schematic Section of Mining Progress of the Udachnaya Pipe ...... 75 Figure 4.11: Location of Shafts and Capital Crosscuts of the Main Levels of Udachny Underground Mine ...... 76 Figure 4.12: Key for Figures 4.13, 4.14, 4.15, 4.16 and 4.17 ...... 77 Figure 4.13: Udachny Underground Mine - Plan View of the -320 m Elevation ...... 77 Figure 4.14: Udachny Underground Mine – Vertical Cross-Sections of the -320 m Elevation ...... 78 Figure 4.15: Udachny Underground Mine - Vertical Cross-Section of Eastern and Western Ore Bodies – Elevations -320/-365 m ...... 79 Figure 4.16: Udachny Underground Mine - Horizontal Cross-Sections of the Eastern Ore Body - Elevations -320 and -365 m ...... 81 Figure 4.17: Plan View of the Zarnitsa Open Pit Final Outline ...... 85 Figure 4.18: Cross-Section of the Zarnitsa Open Pit Final Outline ...... 86 Figure 4.19: Plan View of the Zapolarny Open Pit Final Outline ...... 89 Figure 4.20: Cross-Section of the Zapolarny Open Pit Final Outline ...... 90 Figure 4.21: Plan View of the Magnitny Open Pit Final Outline ...... 90

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Figure 4.22: Cross-Section of the Magnitny Open Pit Final Outline ...... 91 Figure 5.1: Geological Plan of the Jubilee, Aikhal, Komsomolskaya and Zaria Pipe Deposits Area ...... 105 Figure 5.2: Legend for Figure 5.1 ...... 106 Figure 5.3: Geological Profile of the Jubilee Deposit ...... 107 Figure 5.4: Legend for Figure 5.3 ...... 108 Figure 5.5: Geological Profile of the Aikhal Pipe ...... 109 Figure 5.6: Legend for Figure 5.5 ...... 110 Figure 5.7: Geological Profile of the Zaria Pipe ...... 113 Figure 5.8: Legend for Figure 5.7 ...... 114 Figure 5.9: Jubilee Open Pit Plan View as at 1st January 2016 ...... 126 Figure 5.10: Schematic Profile of Mining in the Aikhal Pipe ...... 129 Figure 5.11: Plan View of Aikhal Mine Main Excavations...... 130 Figure 5.12: Slicing Mining Method – Illustrative Cross-Sections along the Working Stope ...... 131 Figure 5.13: Panel Mining Method – Illustrative Sections along the Working Stope ...... 132 Figure 5.14: Komsomolsky Open Pit - Plan View as at 1st January 2016 ...... 134 Figure 5.15: Zaria Open Pit, - Plan View of Ultimate Pit ...... 137 Figure 5.16: Zaria Open Pit – Cross-Section View of Ultimate Pit...... 137 Figure 6.1: Geological Plan View of the Mir and International Pipe Deposit Area ...... 152 Figure 6.2: Legend for Figures 6.1 and 6.3...... 152 Figure 6.3: Geological Profile of the Mir Pipe ...... 154 Figure 6.4: Legend for Figure 6.3 ...... 154 Figure 6.5: Geological Cross-Section of the International Pipe Deposit Area ...... 156 Figure 6.6: Schematic Profile of Mining Progress of the Mir Pipe ...... 168 Figure 6.7: Schematic Profile of the International Pipe Mine ...... 172 Figure 7.1: Geological Plan of Part of Nankynsky Kimberlite Field ...... 192 Figure 7.2: Geological Cross Section along Section Line A-B ...... 192 Figure 7.3: Legend for Figures 7.1 and 7.2...... 193 Figure 7.4: Nyurbinskaya Final Open Pit Plan (Depth of 750 m) ...... 204 Figure 7.5: Nyurbinskaya Final Open Pit Section (Depth of 750 m) ...... 204 Figure 7.6: Botuobinsky Final Open Pit Plan (Depth 780 m)...... 207 Figure 7.7: Botuobinsky Open Pit Configuration at the End of Initial Waste Stripping ...... 208 Figure 7.8: Maiskoye Kimberlite Body Final Open Pit Plan (Depth 400 m) ...... 210 Figure 7.9: Maiskoye Kimberlite Body Final Open Pit Section (Depth of 400 m) ...... 210

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Figure 8.1: Geological Map of the Solur-Vostochnaya Placer Area ...... 222 Figure 8.2: Geological Section along A-B-C-D, the Solur-Vostochnaya Placer Area ...... 222 Figure 8.3: Legend for Figures 8.1 and 8.2...... 222 Figure 9.1: Geology Plan of the Lomonosov Deposit Area...... 228 Figure 9.2: Geological Profile of the Lomonosov Deposit ...... 229 Figure 9.3: Arkhangelskaya Open Pit as at 1st January 2016 ...... 235 Figure 9.4: Karpinskogo-1 Open Pit as at 1st July 2016 ...... 237 Figure 10.1: General Location Map of Almazy Anabara Placer Deposits ...... 249 Figure 10.2: Geological Map of the Almazy Anabara Placer Deposits ...... 252 Figure 10.3: Legend for Figure 10.2 ...... 253 Figure 10.4: Equipment Flow Sheet for the Sorting Complex with the DMS Unit...... 280 Figure 11.1: Location of the Nizhne-Lenskoe Deposits ...... 288 Figure 11.2: Location of the Talakhtakh River Placer and Bolshaya Kuonamka Licences ...... 290 Figure 11.3: Geological Map of the Talakhtakh River Placer and Bolshaya Kuonamka Deposits ...... 291 Figure 11.4: Legend for Figure 11.3 ...... 292 Figure 11.5: Geological Map of the Molodo Placer Deposit ...... 295 Figure 11.6: Legend to Figure 11.5 ...... 296 Figure 12.1: Real Return on US Bonds ...... 331 Figure 12.2: Udachny GOK Cash Flow (second half 2016 to 2030) ...... 332 Figure 12.3: Aikhal GOK Cash Flow (second half 2016 to 2030) ...... 334 Figure 12.4: Mirny GOK Cash Flow (second half 2016 to 2030) ...... 336 Figure 12.5: Nyurba GOK Cash Flow (second half 2016 to 2030) ...... 338 Figure 12.6: Lomonosov GOK Cash Flow (second half 2016 to 2030) ...... 340 Figure 12.7: Almazy Anabara Cash Flow (second half 2016 to 2030) ...... 342 Figure 12.8: Nizhne-Lenskoe Cash Flow (second half 2016 to 2021) ...... 344 Figure 12.9: ALROSA Aggregate Production (second half 2016 to 2030) ...... 346 Figure 12.10: ALROSA Aggregate Cash Flow the Second Half of 2016 to 2030 ...... 349 Figure 12.11: NPV Sensitivity to Revenue ...... 350 Figure 12.12: NPV Sensitivity to Operating Costs ...... 351 Figure 12.13: NPV Sensitivity to Capital Costs ...... 352 Figure 12.14: NPV Sensitivity to Discount Rate ...... 353 Figure 12.15: Sensitivity of Aggregate NPV ...... 354

ALROSA Group of Companies xx November 2016

Executive Summary

1.0 EXECUTIVE SUMMARY

1.1 INTRODUCTION

This independent expert report (Report) has been prepared by Micon International Co Limited (Micon) and was commissioned by the Public Joint Stock Company ALROSA (ALROSA). The Report comprises an independent review and valuation of the ALROSA Group of Companies’ principal diamond assets in the Russian Federation. These assets include operating mines and processing plants, and projects at various stages of development. Specifically, the Report includes an evaluation of the deposits developed by the Company’s four principal divisions, the Udachny, Aikhal, Mirny and Nyurba mining and processing divisions (GOK’s), and also by the subsidiary mining companies, PAO Severalmaz (for which Lomonosov GOK is the production division), AO Almazy Anabara and AO Nizhne-Lenskoe. Excluded from this Report are the operations of Catoca Ltd. Mining Co. in Angola, in which ALROSA has a 32.8% share.

Micon is an independent firm of geologists, mining engineers, metallurgists and environmental consultants, all of whom have extensive experience in the mining industry. The firm operates from integrated offices in Norwich and Cornwall, United Kingdom and Toronto and Vancouver, Canada.

The principal consultants responsible for the preparation of this Report are listed below:

 Stanley Bartlett, P.Geo., Vice President, Senior Geologist and Managing Director of Micon’s UK office;  Michael Khoudine, M.Sc., Micon Senior Mining Engineer;  Bruce Pilcher, B.E., EurIng., C.Eng., FIMMM, FAusIMM(CP), Micon Senior Mining Engineer;  Chris Jacobs, C.Eng., Micon Mining Economist;  Robin Bernau, PhD., MAusIMM(CP) Micon Senior Geologist;  Mark Dodds-Smith, Ph.D., Environment, Health and Safety Specialist, Associate Consultant; and,  Sandra Mahé, B.Sc., Micon Geologist, Micon.

Members of the Micon project team visited several ALROSA Group company assets of PAO Severalmaz, AO Almazy Anabara and AO Nizhne-Lenskoe, in August and September 2016. Other recent site visits to Aikhal GOK and Mirny GOK were completed in December 2015. Information provided by ALROSA was reviewed from July to October 2016. This Report includes actual production results and economic parameters achieved by the ALROSA Group of Companies for the full year of 2015 and first half of 2016. This Report also provides a statement of the mineral resources and ore reserves estimated in accordance with the guidelines of the JORC Code (2012), as at 1st July 2016.

Basic sources of information used by Micon for the present report preparation are listed below:

 Structured and informal interviews conducted during the site visits with the management and senior staff of ALROSA, its subsidiaries and associated organisations;

ALROSA Group of Companies 1 November 2016 Executive Summary

 Reports submitted by ALROSA to the regulatory authorities of the Russian Federation in accordance with routine statutory requirements;  Electronic exploration databases of deposits, wireframes of ore bodies and reserve calculation blocks, solid block models, digital data defining the current status of mining, topographic surfaces and final positions of mining excavations. Data were provided for all deposits of the company for which such data were available;  Periodic management production and cost reports prepared by ALROSA for use internally and/or for distribution to shareholders and other interested parties;  Russian TEO (feasibility study) reports outlining the cut-off criteria parameters and reserve calculations, prepared either internally by ALROSA personnel, or externally by specialist organisations under contract to ALROSA;  Annual mining plans for the last several years;  Corporate Long-Term Development Programme prepared by ALROSA from 2016 to 2030; and,  Projected capital cost schedules of ALROSA and its subsidiaries.

1.2 ALROSA GROUP OVERVIEW

Public Joint Stock Company ALROSA was established pursuant to the decree of the President of the Russian Federation No.158C of 19th February 1992. The Company became the legal successor to a number of organisations incorporated into its structure, including Yakutalmaz Scientific and Production Association (the State-owned diamond mining company in the former USSR), some departments of the Committee for Precious Metals and Gems under the Ministry of Finance of the Russian Federation (involved in sorting, pre-sale preparation and sale of diamonds) and the Almazyuvelirexport Foreign Trade Organisation.

The principal shareholders of ALROSA are the Russian Federation with 33.0256% of the shares owned by the Federal Agency for State Property Management of Russian Federation, the Republic of Sakha (Yakutia) with 25.0002% of the shares owned by the Ministry of Property Matters of the Republic of Sakha (Yakutia), eight regions (ulus) of the Republic of Sakha (Yakutia) with 8.0003% of the shares, as well as other legal entities and individuals owing 33.9739% of the shares.

Within its structure, ALROSA incorporates all the technological elements and process components of diamond mining and beneficiation. The AO Almazy Anabara was registered on 13th August 1992 in Mirny (Republic of Sakha (Yakutia) by Resolution #554 issued by the Mirny Administration District. The official business start-up date was 1st January 1993.

The ALROSA asset portfolio includes primary hardrock and placer diamond deposits located in both the Republic of Sakha (Yakutia) and the Arkhangelsk region of the Russian Federation, as shown in Figure 1.1, as well as 32.8% stock in Catoca Ltd. Mining Co. (Angola), which operates the Catoca deposit, being one of the largest kimberlite pipes in the world.

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Figure 1.1: Location of Principal Mining Divisions

Republic of 5 Sakha (Yakutia) 6 Arkhangelsk 1 Region 2 4

Russian Federation Yakutsk Arkhangelsk Mirny 3

Moscow

Source: Micon ALROSA Technical Report 2013

Legend:

Headquarters of PJSC ALROSA are located in Moscow and Mirny. Headquarters of AO Almazy Anabara and AO Nizhne-Lenskoe are in Yakutsk. Head office of PAO Severalmaz is in Arkhangelsk. 1 – Udachny GOK; 2 – Aikhal GOK; 3 – Mirny GOK; 4 – Nyurba GOK; 5 – Deposits of ‘Almazy Anabara’ and ‘Nizhne-Lenskoe’; 6 – M. V. Lomonosov Deposit.

Data for the individual diamond deposits currently being mined, or being planned for mining, by ALROSA are summarised in Table 1.1.

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Table 1.1: ALROSA Group of Companies - List of Assets Covered by the Micon Assessment

Company Asset Company Operating Holding Udachnaya Pipe PJSC ALROSA, Udachny GOK PJSC ALROSA Underground Mining Zarnitsa Pipe PJSC ALROSA, Udachny GOK PJSC ALROSA Open Pit Mining Verkhne-Munskoe Deposit PJSC ALROSA, Udachny GOK PJSC ALROSA Prepared for Development Kluch Piropovy Placer PJSC ALROSA, Udachny GOK PJSC ALROSA Open Pit Mining Zakonturnaya Deluvial Placer (Udachnaya Pipe) PJSC ALROSA, Udachny GOK PJSC ALROSA Open Pit Mining Jubilee Pipe PJSC ALROSA, Aikhal GOK PJSC ALROSA Open Pit Mining Aikhal Pipe PJSC ALROSA, Aikhal GOK PJSC ALROSA Underground Mining Komsomolskaya Pipe PJSC ALROSA, Aikhal GOK PJSC ALROSA Open Pit Mining Zaria Pipe PJSC ALROSA, Aikhal GOK PJSC ALROSA Prepared for Development Mir Pipe PJSC ALROSA, Mirny GOK PJSC ALROSA Underground Mining International Pipe PJSC ALROSA, Mirny GOK PJSC ALROSA Underground Mining Irelyakh Placer PJSC ALROSA, Mirny GOK PJSC ALROSA Open Pit Mining / Dredging Gornoye Placer PJSC ALROSA, Mirny GOK PJSC ALROSA Dredging Vodorazdelnye Galechniki Placer PJSC ALROSA, Mirny GOK PJSC ALROSA Open Pit Mining Solur-Vostochnaya Placer PJSC ALROSA, Mirny GOK PJSC ALROSA Prepared for Development Nyurbinskaya Pipe PJSC ALROSA, Nyurba GOK PJSC ALROSA-NYURBA Open Pit Mining Nyurbinskaya Placer PJSC ALROSA, Nyurba GOK PJSC ALROSA-NYURBA Open Pit Mining Botuobinskaya Pipe PJSC ALROSA, Nyurba GOK PJSC ALROSA-NYURBA Open Pit Mining Botuobinskaya Placer PJSC ALROSA, Nyurba GOK PJSC ALROSA-NYURBA Open Pit Mining Maiskoye Kimberlite Body PJSC ALROSA, Nyurba GOK PJSC ALROSA-NYURBA Prepared for Development Arkhangelskaya Pipe, Lomonosov Deposit Lomonosov GOK PAO Severalmaz Open Pit Mining Karpinskogo-1 Pipe, Lomonosov Deposit Lomonosov GOK PAO Severalmaz Open Pit Mining

ALROSA Group of Companies 4 November 2016 Executive Summary

Table 1.1: ALROSA Group of Companies - List of Assets Covered by the Micon Assessment continued

Company Asset Company Holding Operating Pionerskaya Pipe, Lomonosov Deposit Lomonosov GOK PAO Severalmaz Prepared for Development Lomonosov Pipe, Lomonosov Deposit Lomonosov GOK PAO Severalmaz Prepared for Development Ebelyakh River Placer AO Almazy Anabara AO Almazy Anabara Open Pit Mining Gusiny Stream Placer AO Almazy Anabara AO Almazy Anabara Open Pit Mining Istok Plot of Ebelyakh River Placer AO Almazy Anabara AO Almazy Anabara Open Pit Mining Morgogor Placer AO Almazy Anabara AO Almazy Anabara Open Pit Mining Right Bank Morgogor Placers AO Almazy Anabara AO Almazy Anabara Open Pit Mining Olom and Log 325 Stream Placers AO Almazy Anabara AO Almazy Anabara Prepared for Development Kholomolokh Stream Placer AO Almazy Anabara AO Almazy Anabara Open Pit Mining Area of Uchakh-Ytybat and Khara-Mas Rivers AO Almazy Anabara AO Almazy Anabara Prepared for Development Talakhtakh River Placer AO Nizhne-Lenskoe AO Nizhne-Lenskoe Open Pit Mining Bolshaya Kuonamka River Placer AO Nizhne-Lenskoe AO Nizhne-Lenskoe Prepared for Development Tributaries of the Billyakh River Placers AO Nizhne-Lenskoe AO Nizhne-Lenskoe Open Pit Mining Molodo River Placer AO Nizhne-Lenskoe AO Nizhne-Lenskoe Open Pit Mining

ALROSA Group of Companies 5 November 2016 Executive Summary

1.3 MINERAL RESOURCES AND RESERVES

1.3.1 Russian Reserve Statements

All mineral resources and reserves in the Russian Federation are formally classified according to an established system developed and administered by the Russian State Commission for Mineral Reserves (Gosudarstvennaya Komissia po Zapasam - GKZ). The GKZ applies strict control over the estimation and reporting of mineral reserves and utilises a prescribed protocol for their calculation that is usually based upon standard sectional methods. The Russian reserves for each of the operations reviewed are provided within the body of this Report.

1.3.2 JORC Code (2012) Mineral Resource and Ore Reserve Estimates

The mineral resources and ore reserves contained within this Report have been classified following the definitions of the JORC Code (the Joint Ore Reserve Committee of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Minerals Council of Australia, 2012). Similar to the system followed by the GKZ, the JORC Code relies upon an increased level of geological knowledge and the application of mining and other modifying factors to elevate categories of mineral resources to ore reserves.

1.3.2.1 Mineral Resources in Accordance with the JORC Code (2012)

The estimate of mineral resources developed by Micon and following the guidelines of the JORC Code (2012) for the ALROSA Group of Companies, subdivided by resource category, and for each of the deposits, is summarised in Tables 1.2 for diamond mineral resources hosted by kimberlite or similar hardrock, and in Table 1.3 for diamond mineral resources that occur in the form of placer deposits, resulting from the erosion of hardrock kimberlite deposits and concentration in river valleys.

All of the mineral resources of the ALROSA Group of Companies included in the assessment were classified as either Measured, Indicated or Inferred. The mineral resources were classified following the guidelines of the JORC Code (2012) in accordance with the quantity, quality and spacing of the mineralisation, as well as the level of data validity on the diamond tonnages and grades. The mineral resources were audited and categorised by Micon registered professional geologists, all of whom qualify as Competent Persons, as defined by the JORC Code (2012).

The mineral resources are stated inclusive of the ore reserves for all the deposits evaluated. In other words, the mineral resources do not enlarge the reserves stated in the current report.

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Table 1.2: ALROSA Group of Companies - Summary of Kimberlite Mineral Resources as at 1st July 2016

Resource Contained JORC Tonnage Deposit Grade Diamonds Category (kt) (ct/t) (kct) Udachny GOK Measured 13,646 1.16 15,812 Udachnaya Pipe Indicated 83,524 1.53 127,801 Inferred 53,991 1.28 68,978 Zarnitsa Pipe Indicated 27,131 0.25 6,858 Indicated 46,914 0.65 30,616 Verkhne-Munskoe Deposit Inferred 17,168 0.57 9,857 Aikhal GOK Measured 18,420 0.86 15,815 Jubilee Pipe Indicated 88,138 0.74 65,401 Inferred 57,821 0.63 36,352 Measured 4,361 4.97 21,666 Aikhal Pipe Indicated 690 3.14 2,168 Inferred 1,716 4.06 6,966 Komsomolskaya Pipe Indicated 3,943 0.38 1,494 Indicated 12,392 0.28 3,515 Zaria Pipe Inferred 27,347 0.13 3,583 Mirny GOK Measured 20,104 3.71 74,521 Mir Pipe Indicated 16,538 3.36 55,525 Inferred 1,072 3.11 3,339 Measured 1,448 8.21 11,888 International Pipe Indicated 3,544 8.71 30,848 Nyurba GOK Measured 1,432 4.12 5,905 Nyurbinskaya Pipe Indicated 7,095 4.32 30,623 Inferred 1,217 5.56 6,767 Measured 3,172 5.30 16,827 Botuobinskaya Pipe Indicated 10,139 5.90 59,814 Inferred 2,762 5.71 15,778 Indicated 1,231 6.03 7,426 Maiskoye Kimberlite Body Inferred 1,768 2.99 5,278 Lomonosov GOK (PAO Severalmaz) Measured 18,231 0.97 17,764 Arkhangelskaya Pipe Indicated 29,689 1.08 32,184 Inferred 39,407 1.24 48,941 Measured 6,971 1.08 7,501 Karpinsky-1 Pipe Indicated 6,915 1.72 11,893 Inferred 8,615 1.16 9,993 Indicated 58,330 0.47 27,530 Pionerskaya Pipe Inferred 42,875 0.52 22,502 Indicated 32,523 0.50 16,230 Lomonosov Pipe Inferred 42,250 0.46 19,530 Total Kimberlite for ALROSA Group of Companies Measured 87,786 2.14 187,698 Indicated 428,734 1.19 509,925 All Deposits Covered by the Report Measured + 516,520 1.35 697,624 Indicated Inferred 298,008 0.87 257,863 Note: Totals may vary due to rounding.

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Table 1.3: ALROSA Group of Companies - Summary of Placer Mineral Resources as at 1st July 2016

Sands Resource Contained Resource Deposit Volume Grade Diamonds Category (k m3) (ct/m3) (kct) Udachny GOK Kluch Piropovy Placer and Indicated 1,223 0.49 599 Zakonturnaya Deluvial Placer Inferred 184 0.52 96 Verkhne-Munskoe Deposit Inferred 405 0.68 277 Mirny GOK Indicated 704 0.66 468 Vodorazdelnye Galechniki Placer Inferred 220 0.40 88 Measured 2,388 0.41 990 Irelyakh Placer Indicated 10,432 0.18 1,854 Gornoye Placer Measured 6,366 0.38 2,389 Solur-Vostochnaya Indicated 2,991 1.97 5,903 Solur-Vostochnaya Placer Inferred 479 1.80 865 Nyurba GOK Measured 93 7.85 734 Nyurbinskaya Placer Indicated 3,064 5.13 15,717 Inferred 2,381 3.01 7,158 Botuobinskaya Placer Indicated 384 0.98 377 AO Almazy Anabara Indicated 19,080 1.33 25,373 All Evaluated Deposits Inferred 4,683 0.77 3,621 AO Nizhne-Lenskoe Indicated 5,397 0.57 3,075 All Evaluated Deposits Inferred 8,034 0.58 4,661 Total Placer for ALROSA Group of Companies Measured 8,848 0.46 4,113 Indicated 43,276 1.23 53,366 All Deposits Covered by the Report Measured + 52,123 1.10 57,478 Indicated Inferred 16,386 1.02 16,766

Table 1.4 presents the grand total for both kimberlite and placer diamond mineral resources for the ALROSA Group of Companies. Volumes of placer sand in cubic metres have been converted into tonnages using a volumetric weight of dry material equal to 2 t/m3.

Table 1.4: ALROSA Group of Companies - Summary of Diamond Mineral Resources as at 1st July 2016

Tonnage Resource Grade Contained Diamonds JORC Category (kt) (ct/t) (kct) Measured 105,482 1.82 191,811 Indicated 515,285 1.09 563,291 Measured + Indicated 620,767 1.22 755,102 Inferred 330,779 0.83 274,629 Grand Total 951,546 1.08 1,029,731

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There is excellent potential to increase the mineral resources at a number of the ALROSA deposits covered by this assessment. Further growth can be achieved by additional exploration of mineralised target areas with demonstrated potential to contain diamonds. Currently, a number of such targets have been identified by ALROSA but, as of 1st July 2016, they are not sufficiently explored to be classified as mineral resources or ore reserves in accordance with the guidelines of the JORC Code. Taking into account the high qualification of local geologists, Micon considers it reasonable to assume that exploration success will yield new mineral resources and ore reserves.

1.3.2.2 Ore Reserves in Accordance with the JORC Code (2012)

Ore reserve estimates for each of the deposits are summarised in Table 1.5 (kimberlite deposits), and Table 1.6 (placer deposits). The ore reserve estimates are based on the Measured and Indicated mineral resources presented in Tables 1.2 and 1.3. They have been classified into either the Proved or Probable categories following the guidelines of the JORC Code (2012).

Table 1.5: Summary of Proved and Probable Ore Kimberlite Ore Reserves as at 1st July 2016

Diamond Contained JORC Tonnage Deposit Grade Diamonds Category (kt) (ct/t) (kct) Udachny GOK Proved 14,406 1.06 15,335 Udachnaya Pipe Probable 69,410 1.37 94,894 Zarnitsa Pipe Probable 27,303 0.25 6,857 Verkhne-Munskoe deposit Probable 46,758 0.65 30,465 Aikhal GOK Proved 18,892 0.84 15,806 Jubilee Pipe Probable 65,106 0.84 54,387 Proved 4,792 4.45 21,330 Aikhal Pipe Probable 758 2.82 2,134 Komsomolskaya Pipe Probable 4,006 0.37 1,490 Zaria Pipe Probable 12,333 0.28 3,469 Mirny GOK Proved 20,028 3.42 68,538 Mir Pipe Probable 17,715 3.12 55,315 Proved 1,568 7.55 11,840 International Pipe Probable 3,836 8.01 30,725 Nyurba GOK Proved 1,501 3.92 5,882 Nyurbinskaya Pipe Probable 7,437 4.10 30,503 Proved 3,325 5.04 16,761 Botuobinskaya Pipe Probable 10,629 5.61 59,580 Maiskoye Kimberlite Body Probable 1,327 5.46 7,242 Lomonosov GOK (PAO Severalmaz) Proved 18,315 0.97 17,735 Arkhangelskaya Pipe Probable 29,835 1.08 32,130 Proved 7,002 1.07 7,489 Karpinskogo-1 Pipe Probable 6,949 1.71 11,873 Total ALROSA Group of Companies Proved 89,829 2.01 180,717 All Deposits covered by the Report Probable 303,401 1.39 421,064 Grand Total 393,230 1.53 601,781

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Table 1.6: Summary of Proved and Probable Placer Ore Reserves as at 1st July 2016

Diamond Contained JORC Tonnage Deposit Grade Diamonds Category (k m3) (ct/t) (k m3) Udachny GOK Kluch Piropovy Placer and Probable 1,473 0.41 599 Zakonturnaya Deluvial Placer Mirny GOK Vodorazdelnye Galechniki Placer Probable 777 0.60 468 Proved 2,758 0.36 990 Irelyakh Placer Probable 11,142 0.16 1,834 Gornoye Placer Proved 6,869 0.34 2,328 Nyurba GOK Proved 94 7.79 733 Nyurbinskaya Placer Probable 3,088 5.09 15,716 Botuobinskaya Placer Probable 416 0.91 376 AO Almazy Anabara All Deposits Probable 20,700 1.23 25,373 AO Nizhne-Lenskoe All Deposits Probable 6,400 0.48 3,075 Total ALROSA Group of Companies Proved 9,721 0.42 4,052 All Deposits Covered by the Report Probable 43,995 1.08 47,441 Grand Total 53,716 0.96 51,493

Table 1.7 provides a summary of the total diamond ore reserves of the kimberlite and placer deposits of the ALROSA Group of companies. Volumes of placer sand in cubic metres have been converted into tonnages using a volumetric weight of dry material equal to 2 t/m3.

Table 1.7: Summary of Diamond Ore Reserves as at 1st July 2016

Tonnage Resource Grade Contained Carats JORC Category (kt) (ct/t) (kct) Proved 109,270 1.69 184,768 Probable 391,392 1.20 468,505 Grand Total 500,662 1.30 653,274

Under the JORC Code guidelines, the classification of ore reserves is predetermined by the category of mineral resource that forms the basis of the ore reserve. The mineral resources of the ALROSA Group of Companies were assigned to the Measured, Indicated and Inferred categories and therefore, diamond ore reserves must be assigned to either the Proved or Probable categories. Generally, by definition, Measured mineral resources once adequately engineered and demonstrated to be economically viable to exploit, are assigned to the Proved category. Indicated mineral resources with demonstrated feasibility may be assigned to the Probable category, but cannot be assigned to the higher category of Proved. Inferred resources cannot be included in the ore reserves.

The confidence level attributed to the Proved ore reserve category is higher than that attributed to the Probable ore reserve category. Actual production data resulted from the Proved reserve mining and processing shall, in general, match closer to the exploration data,

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than those obtained from the Probable ore category. Ore reserves of both the Proved and Probable categories are sufficiently well defined to conduct economic evaluations and to make decisions related to the development of the deposits.

1.4 OPERATIONS AND PROJECTS

1.4.1 Udachny GOK

The Udachny mining and processing division (Udachny GOK) is based in the town of Udachny, located 550 km north of the city of Mirny. Currently, Udachny GOK mines the Udachnaya and Zarnitsa kimberlite pipes and the Kluch Piropovy placer and Zakonturnaya deluvial placer. Preparations for the development of the Verkhne-Munskoe deposit have been initiated.

The Udachnaya pipe is located in the Daldyn-Alakit diamondiferous district. It is traced as a consistent ore body to a depth of 250 m, below which it divides into Eastern and Western ore bodies separated by a block of Upper Cambrian sedimentary rock.

The Udachny open pit commenced production in 1971 and the reserves were depleted in 2016. The pit is currently 640 m deep.

Access to the reserves of the Udachnaya pipe below an elevation of -320 m is provided by three vertical shafts located south of the open pit. Mining of underground reserves of the Udachnaya pipe will commence from the -260/-320 m level. Reserves at this level are represented by pillars left in pit walls. The mining method to be used for these reserves excavation is longhole retreat stoping. To mine the reserves localized under the pit bottom, the level caving method is proposed. Diesel long-haul-dump (LHD) units will be used on draw levels and electric units will be used on main haulage levels. The production target of Udachny underground mine for 2016 is 0.8 Mt/a of ore. It is expected that the mine will reach its full capacity of 4.0 Mt/a by 2019.

The Zarnitsa pipe belongs to the same kimberlite field as the Udachnaya pipe and lies 18 km east of Udachny. Commercial operations at the Zarnitsa open pit commenced in 1999. Currently, the pit is 90 m deep and there are plans to mine it to a depth of 200 m. The open pit utilises conventional truck and shovel equipment, and material is prepared for excavation by drilling and blasting. Production is planned to reach a rate of 3.0 Mt/a in 2016.

The Piropovy Stream erodes the Udachny kimberlite pipe, forming the Kluch Piropovy diamond-bearing placer deposit. The remaining fragment of Zakonturnaya deluvial placer is located in the middle reaches of the left bank of the Piropovy Stream, adjacent to the north and northeast limits of the Udachnaya kimberlite pipe. Mining of both placers started in 1967 and was carried out intermittently until 1989. In 2014, reserves of the deposits were re- evaluated and mining was resumed in 2015. Extraction is carried out by open pit methods and, given the high water content of the placers, the operations are run seasonally. The planned volume of sand production for the deposits is 1.0 million tonnes per year.

The Verkhne-Munskoe deposit is formed of five pipes belonging to the Verkhne-Munsky kimberlite field: Zapolarnaya, Deimos, Novinka, Komsomolskaya-Magnitnaya, and Poiskovaya. According to the actual production schedule, ALROSA has recently commenced deposit development with proposed mining production scheduled for 2017. The operation is proposed to be mined by two open pits: Zapolarny (for the Zapolarnaya pipe and

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Deimos pipe) and Magnitny (for the Novinka and Komsomolskaya-Magnitnaya pipes). The ROM ore will be hauled to Udachny for processing at the Plant No. 12. The haul distance is around 170 km and it is proposed to use SCANIA line-haul trains with a capacity of 90 t.

Ore and sands from all the deposits of the Udachny GOK are processed using the same flowsheet at Plant No. 12, located in Udachny. The plant was commissioned in 1976. The Udachny open pit was depleted in 2016 and ore feed will be replaced by the Udachny underground ore (to a maximum of 4 Mt/a) and ore from Zarnitsa, as well as by sands mined from the Kluch Piropovy placer and Zakonturnaya deluvial placer. It is anticipated that the maximum tonnage that can be achieved in 2016 is 6,500 kt. As the Udachny underground mine reaches the full design production rate of 4 Mt/a, the Zarnitsa open pit produces 3.5 Mt/a, and the Verkhne-Munskoe open pits produce 3.0 Mt/a, the total output of the Plant No. 12 will exceed 10 Mt/a.

1.4.2 Aikhal GOK

The Aikhal mining and processing division (Aikhal GOK) is based close to the town of Aikhal, 65 km southwest of Udachny and some 485 km north of the city of Mirny. Aikhal GOK was established in 1986 and currently mines the Jubilee, Aikhal and Komsomolskaya pipes, with planned development of the Zaria pipe. The Aikhal pipe has been mined by underground methods since 1997. The Jubilee and Komsomolskaya pipes are mined as open pits. Processing of ore from the Aikhal and Komsomolskaya operations is currently undertaken at a central processing plant, Plant No. 8, located close to the Aikhal mine and some 17.6 km from the Komsomolskaya pipe. Since 1996, ore from the Jubilee pit has been processed at Plant No. 14, located 4.5 km to the northeast.

The Jubilee kimberlite pipe is in the Daldyn-Alakit diamondiferous district. The morphology of the Jubilee pipe is close to classic caldera with the remnant of a cone funnel at the top. The inherent structure of the pipe, predetermined by multi-phase kimberlite intrusions, is quite complex and is formed of three morphologically independent ore shoots: the Central, Western and Eastern.

The Jubilee open pit is currently being worked to a depth of 345 m and the current mine design gives an ultimate pit depth of 720 m. The open pit utilises traditional mining technology, including drilling, blasting, loading of ore and waste by shovels and hauling by dump trucks. The open pit produced 6.45 Mt of ore in 2015.

The Aikhal pipe is situated in a zone underlain by Lower Palaeozoic carbonate rocks, the majority of which is overlain by Upper Palaeozoic terrigenous formations intercalated with trappean rocks. In form it is an inclined dyke composed of three ore shoots, each having its own feeder.

Open pit mining of the Aikhal pipe began in 1961 and, by 1997, had reached the bottom of the design level at elevation +230 m, ending open pit mining at the deposit. Underground mining first commenced in 1997, with the mine reaching the full design capacity of 0.5 Mt/a in 2012. The underground mine utilises the cut-and-fill mining method with the use of continuous miners. It is planned to extract reserves down to an elevation of -100 m via two inclined and one vertical shaft.

Mine management has accepted the proposed mining method of longhole open stoping with backfilling, and an increasing proportion of ore will be mined by this method in the future.

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The Komsomolskaya kimberlite pipe lies within the Alakit-Markha kimberlite field. It is a dyke-shaped ore body with a north-easterly orientation, and is intruded by a dolerite dyke that separates the main ore body into two major blocks. The pipe is composed of two types of kimberlite rock: an autholitic kimberlite breccia and a porphyry kimberlite, which differ from each other by texture, structure, elementary composition and by diamond grade. The central part of the diatreme (the central ore shoot) is a typical volcanic pipe, tapering with depth, which is composed of the autholitic kimberlite breccia. The eastern and western flanges of the pipe (dyke-shaped ore bodies) are composed of the porphyry kimberlite.

The open pit at the Komsomolskaya pipe deposit has been in production since 1992. The latest version of the open pit design envisages the pit bottom to be stopped at an elevation of -460 m. Conventional open pit mining methods are used. There was no ore mining during 2013 and 2014, as operations were focused on waste stripping for the last pushback. Mining is planned to reach 1.01 Mt/a in 2016, with the project life scheduled in the near future.

The Zaria kimberlite pipe was discovered in 1974. It is located 2 km southeast of the Aikhal pipe and 3 km SSE of the Plant No. 8. Morphologically, the Zaria pipe is close to a classic funnel-shaped volcanic pipe. Total thickness of the overlying rock varies from 85 m in the north-eastern flank to 144 m in the south-eastern flank of the deposit and averages in 103 m. The diamond grade is low, though the available crystal evaluation demonstrates high quality diamonds.

The Zaria deposit will be mined by open pit methods with processing of ROM ore at Plant No. 8. The final depth of the open pit is designed to be around 300 m. Selective mining is proposed to excavate the reserves from the central ore shoot. Stripping was initiated in 2016 and currently the open pit development is scheduled to enable commercial ore mining in 2021.

In order to process ores from the Sytykanskaya pipe, Plant No. 8 was modified in 1980, but in 2001 the Sytykansky open pit was withdrawn from production. In the same year, production mining began at the Komsomolskaya pipe. The ROM ore mined from the Aikhal underground mine and the Komsomolsky open pit mine are processed separately. The ore from the Zaria open pit should replace the ore from the Komsomolskaya pipe in the plant feed soon, as the Komsomolskaya deposit is forecasted to be depleted in the near future. Current annual production capacity of Plant No. 8 is 1.7 Mt/a.

The Plant No. 14 was designed in 1989 to process 10 Mt/a of ore. The only ROM ore processed by the plant is from the Jubilee pipe.

1.4.3 Mirny GOK

The Mirny mining and processing division (Mirny GOK) is based in the city of Mirny and was founded in 1957 as a result of extensive mining at the Mir kimberlite deposit. Mirny GOK currently mines the hardrock deposits of the Mir and International pipes, the Irelyakh, Gornoye and Vodorazdelnye Galechniki placer deposits, and historic tailings from Plant No. 5. The processing of diamond-bearing materials from all mining operations is currently undertaken at a central processing plant, Plant No. 3.

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The Mir pipe is located in the Malo-Botuobinsky diamondiferous district. The kimberlite pipe is a steeply dipping ore body, which is cone-shaped down to 300 m depth (+30 m elevation). The cross-sectional area of the pipe rapidly decreases from the surface to a depth of 900 m, where it evolves into a dyke. The kimberlite formed as the result of three phases of intrusion. The physical and mechanical properties of the intruded rocks vary slightly as well as diamond content.

Petroleum, bitumen and gas occurrences are associated with highly porous layers within the surrounding carbonate strata and, to a lesser degree in the kimberlite, resulting in a ‘hazardous’ categorisation for the mine. Driving of underground workings into thick carbonate strata is always preceded by the drilling of advance degassing holes.

The Mir open pit closed in 2001 and underground mining operations commenced in 2009. The mining method used is mechanised cut-and-fill. In 2015, mine production totalled 783 kt. Output is planned to increase to 989 kt/a in 2016, and to 1 Mt/a in 2016. Production stoping is performed by continuous miners with LHDs providing haulage of broken ore from work faces to one of two ore passes, which send the ore to the main haulage level at an elevation of -310 m. Sustained production of 1 Mt/a is contingent on effective water management.

The International pipe is also located within the Malo-Botuobinsky diamondiferous district. Down to a 125 m depth the pipe has a funnel shape, changing to almost circular at deeper levels and producing the ore body, which dips steeply to the south-east. The ore body is composed of autolith kimberlite breccia and porphyritic kimberlite. Both rock types are characterised by similar diamond grades with a slightly higher crystal concentration in the porphyritic kimberlite. The average diamond grade decreases with depth.

The International mine reached its full production rate of 500 kt/a in 2002, and open pit mining ceased in 2011 with the pit bottom in its final position at an elevation of +85 m. Underground mining has been designed to proceed in three phases. The first phase involves mining between the -200 m and -560 m levels. The second phase includes excavation of the ore reserve left under the pit bottom within the interval from +155 m to -200 m together with mining at deeper levels between the -560 m and -820 m elevations. The third phase should provide extraction of ore reserves within the elevations of +85 m to -155 m. Currently, the first phase of production is being conducted and exploitation of the second phase reserves is in progress. Two shafts provide access to the reserves of the first and second phases of mining production with the lowest shaft points matching the main haulage drift at the -560 m level. A third shaft is being constructed for extraction of the third phase reserves within the range of elevations of +85 m and -155 m.

The mining method used is mechanised cut-and-fill. Drifts are driven with continuous miners. Ore is hauled by LHDs to ore passes, and transferred by train along the haulage level to a second ore pass that feeds the production shaft for hoisting to the surface. Backfill is placed on retreat in the drifts. Backfill material is fed from the surface via two pipelines mounted in the production shaft to the -200 m level, from where it is transported to open stopes for backfilling.

Currently, Plant No. 3 is undergoing modification. It has already been upgraded by the installation of high pressure grinding rolls (HPGR) and two 150 t/h dense medium separation (DMS) plants. Additional modifications include the upgrading of plant automation, the fines recovery circuit and the final recovery section. Throughput capacity of the plant amounts to 2.0 Mt/a.

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Diamond production at Mirny GOK is supplemented by sands mined from the Irelyakh, Gornoye and Vodorazdelnye Galechniki placer operations.

The Irelyakh placer is confined to the stream bed and terrace deposits of the Irelyakh River. The placer occurs from the Khabardin Log 26.5 km downstream to the river mouth. From 1960 the deposit has been mined by dredging, and most of the alluvial placers are depleted to date. Further operations are connected with open pit mining at the second, third and fourth river terraces. Dredges 201 and 202 operate on the Irelyakh River, processing material from the first and second phases of the reserve extraction, with 1,205 km3 of sands mined and washed in 2015. Sands mined by open pit methods are treated by mobile sorting units. Concentrates from the mobile sorting units are sent to Plant No. 3 for diamond recovery. A total of 259 km3 was mined by open pit methods in 2015.

The Gornoye placer deposit is located on the left bank of the Irelyakh River, and at the junction of the top river terraces of the Irelyakh and the Malaya Botuobiya Rivers. The deposit is being mined by Dredge No. 203, which mined 580 km3 of sands in 2015.

The Vodorazdelnye Galechniki placer deposit is located in close proximity to the Mir pipe. It is an ancient buried placer with diamonds sourced principally from the Mir kimberlite pipe, the Sputnik kimberlite pipe, and the kimberlite vein confined to the Mir pipe. The Vodorazdelnye Galechniki deposit is mined by open pit methods; the sands are processed at Plant No. 3. In 2015, the operation washed 50 km3 of sands, and this level of production can be maintained for a long period.

1.4.4 Nyurba GOK

The principal offices of Nyurba mining and processing division (Nyurba GOK) are in the city of Mirny, although the operations are based around the drive-in/drive-out settlement of Nakyn, some 200 km northwest of Nyurba and 320 km northeast of Mirny. The Nakyn settlement was founded in 2000 to support the development of the diamond deposits located within the Nakyn kimberlite field.

The Nyurbinskaya pipe and placer deposits are currently being mined, and development of the Botuobinskaya pipe began in 2014 with extraction of 250 kt of ore in 2015. Plans to develop the Maiskoye kimberlite body deposit are also in place. Processing of ore from all mining operations is currently undertaken at two central processing plants, Plant No. 15 and Plant No. 16, which were commissioned in 1999 and 2003, respectively.

The Nyurbinskaya and Botuobinskaya pipes and their associated placer deposits, as well as the Maiskoye kimberlite body, are located in the Sredne-Markhinsky Region of the Nakynsky kimberlite field. The stratigraphic profile of the area includes Upper Cambrian and Lower Ordovician rocks that host the kimberlite bodies, as well as overlying Triassic, Lower and Middle Jurassic sediments.

The Nyurbinskaya pipe is elongated north-eastwards and is an ellipsoid in plan view. The pipe gets thinner with depth and at a depth of 280 m to 320 m below the surface it separates into two ore bodies, divided by a basite intrusion. Three types of kimberlite are recognised in the Nyurbinskaya pipe: autholitic kimberlite breccia, kimberlite breccia, and porphyritic kimberlite. The major portion of the pipe is composed of autholitic kimberlite breccias and kimberlite breccias, while porphyritic kimberlite has a minor distribution in deeper levels.

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The Nyurbinskaya placer deposit is located close to the Nyurbinskaya kimberlite pipe, partially overlapping the pipe which is the source of the diamond-bearing material.

Open pit mining operations at the Nyurbinskaya pipe commenced in 2000. The open pit mines both the ore of the Nyurbinskaya pipe and the overlying sands of the Nyurbinskaya placer deposit. To date, the pit bottom is around 340 m deep with a designed depth of 450 m, although future plans could involve further extensions to a depth of 750 m.

The Botuobinskaya pipe is located within the Nakyn kimberlite field, approximately 3 km southwest of the Nyurbinskaya pipe, and is characterised by an irregular elongated shape; the pipe pitches steadily with depth. The first phase of intrusion is represented by porphyritic kimberlite, and the second phase is formed of autholitic kimberlite breccias and kimberlite tuff-breccias. The Botuobinskaya placer deposit is closely associated with the kimberlite pipe, which it adjoins on the southwestern flank.

The Botuobinskaya pipe and the associated placer deposits are in the first phases of exploitation. Overburden was removed in 2014, and production commenced in 2015. The mine capacity is planned to reach 191 kt/a ore and 100 kt sands in 2016.

The Maiskoye kimberlite dyke is located 3 km southwest of the Botuobinskaya pipe. The dyke body is elongated, and thicknesses vary from 15 m to 40 m. The dyke can be traced along the strike for around 340 m and 400 m along the dip.

Detailed exploration of the deposit was completed in 2015 and ore reserves were assessed that year. According to ALROSA’s strategic plan, the Maiskoye kimberlite dyke development is scheduled for 2022. The deposit will be operated by open pit methods with the use of the same types of mining and haulage equipment as used currently at the operational Nyurbinsky and Botuobinskaya open pits of the Nyurba GOK.

Processing Plant No. 15 was constructed adjacent to the Botuobinskaya and Nyurbinskaya kimberlite pipes, as a pilot bulk sampling facility, and operates on a seasonal basis, processing the sands from the placers being mined by the Nyurba GOK. Beginning in 2017, the scheduled throughput of the plant will be 510 kt/a.

Processing Plant No. 16 was commissioned in 2003 at a design capacity of 1.35 Mt/a ore. The flowsheet includes HGPR and DMS separation and it is a very modern plant.

1.4.5 Solur-Vostochnaya Placer Deposit

The Solur-Vostochnaya placer deposit is comprised of two spatially separated buried placers, the Solur and the Vostochnaya, and is located 25 km northwest of Mirny, between the Irelyakh and Chuonalyr Rivers. The deposit lies within the Mirny Ulus (District) in the Republic of Sakha (Yakutia), which covers the Malo-Botuobinsky diamondiferous district. This deposit is explored, but has not yet been developed.

The Vostochnaya placer, a proluvial deposit in origin, is 4.6 km straight length. The thickness of its productive seam varies from 0.1 m to 1.9 m, with 0.68 m as the average for the deposit. The Solur is a deluvial-proluvial deposit in origin; its thickness ranges between 0.5 m and 5.1 m with an average of 2.35 m.

ALROSA Group of Companies 16 November 2016 Executive Summary

The thickness of overlapping sedimentary rocks in the Vostochnaya placer varies from 12 m to 58 m, averaging 47.7 m, while the overburden rock of the Solur deposit varies from 5 m to 54 m, averaging 41.7 m.

1.4.6 Lomonosov GOK

The Lomonosovsky mining and processing division (Lomonosov GOK) is an operating facility of the ALROSA subsidiary company, PAO Severalmaz. It was created in 1992 to develop the M.V. Lomonosov deposit, which is the largest hardrock diamond deposit in Europe. The deposit is 100 km northeast of Arkhangelsk, the headquarters of the Lomonosov GOK.

Two of the six kimberlite pipes in the area are currently mined, the Arkhangelskaya and Karpinskogo-1. Processing of ore from all mining operations is currently undertaken at the centralised processing facilities comprising Processing Plant No. 1 (pilot plant) and the adjacent Processing Plant No. 2, which completed commissioning in 2014.

The Karpinskogo-1 pipe is located approximately 2 km northwest of the Arkhangelskaya pipe and the geological and mining conditions are similar. Open pit mining at the Arkhangelskaya pipe has been underway since 2005, using conventional truck and shovel methods, without drilling and blasting. Ore and waste loading is provided by crawler excavators which haul the material to the trucks.

Overburden stripping commenced at the Karpinskogo-1 mine in 2009, with mining operations beginning in 2014. The mining method and production parameters are very similar to those employed at the Arkhangelsky mine.

In 2015, the Arkhangelskaya open pit mined out 2,109 kt of the balance reserve ore; the Karpinskogo-1 open pit production for the same period was 2,145 kt of balance reserve ore.

A comprehensive dewatering system is utilised at the deposit, including mine water pumping and a system of dewatering holes drilled around both operating pits. In 2015, this system consisted of 55 holes. The use of dewatering holes not only reduces the amount of water pumped from the pits, but also improves ground conditions and the stability of pit benches. Total pumping capacity of the dewatering system is sufficient to provide dewatering of both open pits even in the periods of peak water inflow.

Ore is processed at Plant No. 1 and Plant No. 2. Plant No. 1 has a capacity of 1 Mt/a and has processed ore since 2005. Plant No. 2 has a design capacity of 3 Mt/a, which was achieved in 2015.

1.4.7 Almazy Anabara

AO Almazy Anabara operates in several uluses or districts of the Republic of Sakha (Yakutia). Its main office is located in the capital of the Sakha Republic, Yakutsk. This report presents statements on the mineral resources and ore reserves for several Company licence areas that are located in the Anabar diamondiferous region in the north-western area of the Sakha Republic (Yakutia). Almazy Anabara has operated its assets in the region since 1998.

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The deposits controlled by Almazy Anabara include the Ebelyakh River placer, the Gusiny Stream placer, an area of the Istok of Ebelyakh River, the Morgogor River placer, an area of the Right Bank of the Morgogor River, the Olom and Log 325 Stream placers, the Kholomolokh Stream placer, and an area of the Uchakh-Ytyrbat River and Khara-Mas River basins. The deposits are located approximately 100 km south of the local administrative centre of Saskylakh, Anabarsky National Ulus (District).

No permanent settlements are located in close proximity to the deposits. Accommodation is provided by the use of drive in/out camps, constructed in close proximity to the areas of mining. Currently, the Company utilises the camps of Mayat and Morgogor, located on the rivers with these names.

The Ebelyakh River placer deposit is a large placer deposit that includes sediments from the river bed, lower and upper floodplains, four floodplain terraces and re-deposited parts of the weathered surface layers. The commercial part of the deposit is 82 km length with an average width of 80 m which fluctuates from 50 m to 345 m. The deposit has been exploited by Almazy Anabara since 2014. In 2015, 1,203 km3 of sands were mined and washed.

The Gusiny Stream placer is alluvial in origin. There are three zones in the stream valley with commercial diamond grades: Upper Quaternary sediments, Neogene-Late Quaternary formations, and re-deposited weathering crust. The commercial portion of the deposit is 8.7 km long with the width varying from 42 m to 262 m, averaging 130 m. The deposit has been operated since 2014. In 2015, 503 km3 of sands were mined and washed.

The alluvial placer in the Istok area covers a segment of the upper reaches of the Ebelyakh River. The placer is classified as an alluvial deposit by origin. Depending on the diamond grade, the placer can be divided into three parts: Upper Quaternary sediments, Neogene-Late Quaternary formations, and re-deposited weathering crust. The length of the commercial section of the placer is 14.4 km. The width ranges between 41 m to 133 m, averaging at 79 m for the Upper Quaternary sands and 101 m for the Mid and Upper Quaternary sediments. The placer is characterised by the comparably persistent thickness of the production seam averaging at around 1.8 m. The deposit has been in operation since 1997 with a large portion of its reserves mined out. In 2015, 302 km3 of sands were mined and washed in 2015.

The diamond-bearing placer deposit within the Morgogor River is located in a right tributary valley of the Ebelyakh River. The confluence of the Morgogor River and the Ebelyakh River is 65 km upstream from the Ebelyakh River mouth. The Morgogor placer is an alluvial valley placer of Upper Quaternary and recent age. The commercial contour of the placer is some 24.6 km in length with an average width of 115 m. The average thickness of the productive seam is approximately 3 m. Exploitation of the Morgogor River placer has been conducted since 2006.

The area of the Right Bank of the Morgogor River includes three separate placers, localised along tributaries of the river, including Hotugu-Balagannakh, Kamenisty and Bystry. The commercial layers of the three placers are confined to the channel facies of Upper Quaternary alluvial rocks and, inconspicuous, to the first flood plain terrace. Exploitation of the Right Bank of the Morgogor River has been conducted since 2014.

In 2015, the total amount of sands mined and washed for the placers of the Morgogor River and the Right Bank of the Morgogor River was 603 km3.

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The alluvial placers of the Olom and Log 325 Streams form part of the Mayat River basin and belong to alluvial placers by origin. The diamond-bearing sands are exclusively Upper Quaternary in age. The length of the commercial section of the Olom Stream is 5.3 km. The width of the placer varies from 20 m to 120 m, averaging 51 m. The average thickness of the productive seam is approximately 1.8 m. The Log 325 Stream placer is comparably smaller with a length of only 1.92 km and is around 30 m in width.

The Kholomolokh placer deposit is confined to the Upper Quaternary U-shaped valley of the Kholomolokh Stream which is a left tributary for the Ebelyakh River. There is a detached re-deposited weathering crust, in-channel eroded alluvials, and recent beds within the reserve outline of the placer. The commercial section of the deposit stretches to 8.8 km within the overall placer length of 17.6 km. Its width varies from 20 m to 260 m along exploration profiles with an average of 109 m for the placer. The thickness of the productive seam is steady; it is around 2.38 m on average. Between 2004 and 2007 the deposit had been operated by Anabar GOK of ALROSA. To date, it is operated by Almazy Anabara.

Exploitation of all the AO Almazy Anabara deposits utilise open pit methods and similar techniques.

Overburden stripping and sand mining are performed during the winter season using bulldozers or drilling and blasting, if needed. Loosened waste is then pushed by bulldozers to waste piles directly, or is loaded by front loaders to trucks and hauled to the waste piles.

From March until late May the frozen sands are loosened and loaded to dump trucks and then transported to stockpiles (thawing areas) located at the mobile sorting and processing complexes for treatment during the summer period from mid-June to mid-September.

Primary treatment of sands is performed at the mobile sorting and DMS units. The concentrate is transported to seasonal processing plants for final diamond recovery, which is performed with the help of X-ray sorters.

1.4.8 Nizhne-Lenskoe

AO Nizhne-Lenskoe was established in 1995 and became part of the ALROSA Group in 2013. The Company is headquartered in Yakutsk, and operates a number of placer diamond deposits in several different districts of Yakutia.

The first group of Nizhne-Lenskoe deposits, which are located in the Anabar River basin within the Anabar Ulus of the Sakha Republic (Yakutia), are the Billyakh River placer, Upper Billyakh placer and tributary placers of the Billyakh River. They belong to the same Anabar diamondiferous district as all the deposits of Almazy Anabara. The second group of deposits includes the Talakhtakh River and the Bolshaya Kuonamka River placers, which are located in Oleneksky Ulus of the Sakha Republic and belong to the Kuonamsky and Anabar diamondiferous districts. The third group includes areas of the Molodo River placer, which are located in the Bulunsky Ulus of the Sakha Republic and belong to the Prilensky diamondiferous district.

The Talakhtakh River, a tributary of the Bolshaya Kuonamka River, hosts the Talakhtakh diamond-bearing placer. The placer is comprised of Quaternary alluvial sediments in the top

ALROSA Group of Companies 19 November 2016 Executive Summary

river terraces, as well as the floodplain and recent channel sediments. Exploitation of the placer began in 2015, with an annual production volume of 319 km3.

The Bolshaya Kuonamka alluvial placer covers the valley of the lower and middle reaches of the Bolshaya Kuonamka River, a left tributary of the Anabar River. The deposit is a long alluvial placer, with the commercial contour including sediments in the channel bed as well as in the lower floodplain terrace, top floodplain terrace, and the first terrace above the floodplain. The deposit is distinguished from the other northern Yakutia placers by its high average weight and, therefore, diamond value. The exploitation of the deposit commenced in 2016. Pay gravel production of 350 km3/a is planned for 2016 with a further increase to more than 1,000 km3/a.

Buried Upper Quaternary diamond placers of the Billyakh River tributaries are associated with the left tributary valleys formed by the Lagerny and Shlikhovoy Streams, and the right tributary valley of the Tiglikit Stream. These placers are characterised by comparably short strike lengths (5.7 km, 7.4 km and 1.8 km) and average widths (77.7 m, 67.2 m and 64.2 m), with low productive seam thicknesses (1.38 m, 1.41 m and 1.66 m), respectively. In 2015, 402 km3 of sands were mined and processed.

The Molodo River placer is associated with the left tributary valley of the Lena River. Diamond content is associated with Quaternary alluvial rocks within a long stretch of the mid reach of the river valley. However, commercial diamond concentrations have been explored in several separate areas of the placer. The deposit has been exploited since 2002, with 1,262 km3 of sands produced in 2015.

All of these deposits are operated as open pit mines. The mining and processing methods employed are similar to those used at the Almazy Anabara operations.

1.5 PRODUCTION SCHEDULE

Using the data and documents provided by ALROSA, adjusted to conform to Micon’s ore reserve estimates, Micon has compiled mining and processing production schedules for each of the Company’s deposits included herein, for the period from the second half of 2016 to 2030. The production schedule is summarised in Table 1.8. Many of the deposits will have ongoing production after 2030 due to sufficient reserves. The sections of the Report relating to specific operations contain comments on the remaining reserves and life of mine schedules.

The life of mine period for each property has been predetermined by the reserve declaration date and by the ALROSA schedule until 2030.

The production schedule compiled by Micon is based on the ore and sand reserve assessments made for each property in compliance with JORC Code requirements and limiting factors.

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Table 1.8: Key Indicators of the second half of 2016 to 2030 Production Schedule for ALROSA Operations, as Developed by Micon

Operation/Deposit Measure 2016, 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Development Unit H2 Ore-Sands Processing (kt) Udachny GOK kt 2,400 6,300 7,610 9,815 10,350 10,350 10,350 10,377 10,193 7,000 7,000 7,000 7,000 7,000 7,000 119,745 Aikhal GOK kt 3,975 6,710 6,010 5,510 4,971 5,725 5,725 6,425 6,025 6,225 6,925 6,330 5,825 6,525 6,525 89,431 Mirny GOK kt 850 1,728 1,728 1,903 1,900 1,920 1,950 1,729 1,650 1,650 1,650 1,405 1,150 1,049 1,000 23,262 Mirny GOK, Dredges km3 864 1,770 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 799 650 650 266 16,248 Nyurba GOK kt 773 2,010 1,980 2,010 2,010 2,010 2,010 1,658 1,500 1,500 1,500 1,500 1,500 1,500 1,500 24,961 Lomonosov GOK kt 2,000 3,760 3,980 4,000 4,000 4,000 4,000 4,000 4,000 4,000 3,733 3,679 3,000 2,000 2,000 52,152 Almazy Anabara km3 1,295 2,798 2,813 1,800 1,726 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 668 0 20,700 Nizhne-Lenskoe km3 1,511 1,521 1,050 1,350 968 0 0 0 0 0 0 0 0 0 0 6,400 Total1 kt 17,336 32,686 31,534 32,038 31,120 28,905 28,935 29,089 28,268 25,275 25,708 23,911 22,175 20,709 18,557 396,247 Diamonds Contained in the Processed Ore-Sands (ct/t, ct/m3) 2 Udachny GOK ct/t 0.48 0.74 0.71 0.78 0.77 0.77 0.77 0.76 0.78 1.02 1.02 1.02 1.02 1.02 1.02 0.85 Aikhal GOK ct/t 1.34 1.49 0.98 1.00 1.06 0.97 0.97 0.95 0.96 0.96 0.94 0.85 0.69 0.70 0.70 0.96 Mirny GOK ct/t 4.35 4.32 4.04 3.70 3.71 3.58 3.64 3.76 4.22 4.22 4.28 5.07 2.91 3.11 3.22 3.90 Mirny GOK, Dredges ct/m3 0.22 0.24 0.28 0.27 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.15 0.12 0.12 0.12 0.21 Nyurba GOK ct/t 4.10 3.54 3.75 3.31 3.53 3.95 3.98 4.22 4.21 4.46 4.50 4.32 4.33 4.33 4.34 4.01 Lomonosov GOK ct/t 0.49 0.61 1.07 1.20 1.21 1.14 1.15 1.16 1.17 1.17 1.13 0.96 1.02 1.05 0.69 1.05 Almazy Anabara ct/m3 1.09 1.14 1.02 1.14 1.16 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 - 1.23 Nizhne-Lenskoe ct/m3 0.68 0.63 0.32 0.32 0.32 ------0.48 Total 3 ct/t 0.98 1.11 1.06 1.08 1.12 1.20 1.21 1.17 1.19 1.32 1.30 1.31 1.16 1.18 1.23 1.50 Diamonds Recovered (kct) Udachny GOK kct 1,111 4,530 5,225 7,394 7,649 7,649 7,649 7,665 7,667 6,907 6,907 6,907 6,907 6,907 6,907 97,979 Aikhal GOK kct 5,190 9,702 5,683 5,312 5,121 5,382 5,382 5,910 5,608 5,759 6,279 5,222 3,891 4,418 4,418 83,278 Mirny GOK kct 3,777 7,627 7,090 7,136 7,067 6,893 7,118 6,529 6,983 6,983 7,070 7,036 3,311 3,237 3,166 91,023 Nyurba GOK kct 3,088 6,941 7,236 6,476 6,914 7,726 7,782 6,819 6,149 6,521 6,579 6,316 6,327 6,327 6,338 97,539 Lomonosov GOK kct 958 2,224 4,117 4,670 4,703 4,407 4,467 4,513 4,524 4,538 4,101 3,423 2,980 2,034 1,341 53,002 Almazy Anabara kct 1,351 3,063 2,742 1,964 1,914 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 866 0 24,359 Nizhne-Lenskoe kct 976 924 327 420 301 0 0 0 0 0 0 0 0 0 0 2,949 Total kct 16,452 35,011 32,419 33,373 33,669 33,614 33,955 32,993 32,489 32,266 32,493 30,462 24,973 23,790 22,170 450,130

1 Cubic metres converted into tonnes assuming an average bulk weight of sand of 2.0 t/m3. 2 This grade represents diamonds of sizes meeting established cut-off criteria. 3 Cubic metres converted into tonnes assuming an average bulk weight of sands of 2.0 t/m3

ALROSA Group of Companies 21 November 2016 Executive Summary

Figure 1.2 represents the diamond production profile from all ALROSA operations covered by the analysis.

It should be noted, that the production parameters used in Micon’s assessment may vary from the ALROSA long term development plan, due to the constraint of using reserves classified as at 1st July 2016 in accordance with the guidelines of JORC Code (2012). Reserves of individual deposits with regard to JORC Code guidelines could grow significantly in the future, after further exploration, technical and economic feasibility studies. Respective comments have been included into the reserve statements for some of the ALROSA deposits.

Figure 1.2: ALROSA Diamond Production - Micon Production Schedule the second half of 2016 to 2030

1.6 ENVIRONMENTAL, HEALTH AND SAFETY AND SOCIAL ISSUES

ALROSA has developed a strong centralised organisational structure for the management of environmental and health and safety aspects of the group’s operations. Based in Mirny, this centralised management group is responsible for all of the ALROSA activities (excluding Severalmaz, Nizhne-Lenskoe and Almazy Anabara, which operate independently), including not only the mining operations, but also the other subsidiary companies involved in areas such as transport, public utilities, construction, media and agriculture. At the corporate level, the management of these diverse operations is undertaken in an integrated manner. Micon notes that the widely different impacts and risks associated with these diverse activities impose a significant burden on corporate management.

Micon has visited key sites described in Table 1.1 of this Report, has held interviews with key ALROSA personnel at both a corporate and operational level, including both management and technical specialists, and has reviewed documents and data supplied by ALROSA.

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Using the data obtained, Micon has assessed the risks and liabilities associated with the current and/or proposed operations.

Micon has reviewed the following key environmental and safety issues at each of the operations:

 Inflows from groundwater and rainfall;  Air quality;  Waste rock management;  Tailings and water management;  Management of hazardous substances;  Dust control;  Safety management; and,  Mine closure and rehabilitation.

The safety performance, regulatory compliance and permits for nature use were also reviewed. Micon did not identify significant breaches of the conditions attached to the operating permits and, where limits were exceeded, these were covered by excess fee payments, as is standard Russian practice.

Environmental management within ALROSA is driven largely by the need to comply with the Federal law on environmental protection, and associated legislation at both the Federal and Regional levels. In order to achieve this objective, ALROSA has developed an environmental management system that was certified in 2014 to the Russian standard GOST R 14001-2007, which includes the Russian derivative of the International Standard ISO 14001:2004.

Historically, health and safety management by ALROSA has been strongly influenced by the need to comply with statutory requirements, such as the Unified Safety Rules for Open Pit Mining (PB 03-498-02) and Safety Rules for Blasting Operations (PB 13-407-01). More recently, however, there has been increasing acceptance within ALROSA that this approach alone is unlikely to achieve the best possible safety outcomes. Consequently, ALROSA has developed a health and safety management system that combines accepted Russian practice and regulatory requirements with the key elements of international practice.

The methodology used to record safety incidents does not readily support reliable comparison with international norms. Nevertheless, between 2006 and 2015, the approach adopted by ALROSA resulted in a steadily improving safety performance, with recorded accidents per 1,000 employees declining from 1.28 in 2006 to 0.28 in 2015 and fatalities per 1,000 employees declining from 0.16 in 2006 to 0.05 in 2015. This trend of improvement in safety performance has taken place during a period when an increasing development of underground mining has changed the risk profile of the company’s operations (Table 1.9).

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Table 1.9: ALROSA Safety Performance (Number of Incidents (Number per 1,000 Employees)

Parameter 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Recorded Incidents 17 13 9 11 9 8 6 13 4 3 Mining Operations (1.17) (0.90) (0.63) (0.79) (0.68) (0.62) (0.46) (0.98) (0.31) (0.23) Key Support 15 16 13 7 8 9 12 7 4 3 Functions (1.42) (1.53) (1.28) (0.78) (0.97) (1.13) (1.45) (0.84) (0.49) (0.36) 32 29 22 18 17 17 18 20 8 6 Total (1.28) (1.16) (0.90) (0.78) (0.79) (0.81) (0.84) (0.92) (0.38) (0.28) Fatal Incidents 2 1 3 2 2 3* 3 2 0 Mining Operations 0 (0.0) (0.14) (0.07) (0.21) (0.15) (0.15) (0.23) (0.23) (0.15) (0.00) Key Support 2 1 1 1 1 1 1 1 0 1 Functions (0.19) (0.10) (0.10) (0.11) (0.12) (0.13) (0.12) (0.12) (0.00) (0.12) 4 2 1 4 3 3 4 4 2 1 Total (0.16) (0.08) (0.04) (0.17) (0.14) (0.14) (0.19) (0.18) (0.09) (0.05) Note: 1. “Mining operations” includes data from Aikhal GOK, Mirny GOK, Nyurba GOK and Udachny GOK; data from Almazy Anabara, Nizhne-Lenskoe and Severalmaz is not included due to the incompatibility of the data; 2. “Key support functions” includes data from subsidiary companies/divisions related to diamond sorting centres, maintenance and repair, construction, procurement and exploration; 3. Safety data from other ALROSA group companies/divisions, including the airline, entertainment and sports centres, holiday and leisure facilities, media, agriculture, diamond sales and public utilities have been excluded since these functions are peripheral to core activities and outside the scope of this review; and, 4. *Includes one “group incident” in which two fatalities occurred at the Udachny underground mine; a total of five fatalities were recorded in 2012.

ALROSA fully acknowledges the responsibilities that its status confers in the regions in which it operates and acknowledges, also, that the development of a favourable socio-economic climate in the region is fundamental to the ability of ALROSA to attract and retain a high quality, well-motivated workforce. Total social funding by ALROSA between 2010 and 2018 was predicted to range from some 2,000 million roubles to more than 4,000 million roubles per annum (excluding voluntary payments into pension funds). In 2015, the total investment in social programmes amounted to 2.5 million roubles. Some 80 million roubles of additional funding was allocated independently by Almazy Anabara, Nizhne-Lenskoe and Severalmaz.

As a result of its review of environmental, health and safety risks, Micon concluded that while the operations of Lomonosov GOK carry low risk (i.e. the risk is no greater than that normally associated with mining operations of a similar size and type, worldwide), all of the other operations carry low to moderate or moderate risk (i.e. the risk is considered greater than that normally associated with such operations, largely due to the environmental context of the operations, but is manageable with the application of good practice without unduly constraining the operations).

1.7 ECONOMIC ANALYSIS

1.7.1 Basis for Economic Assessment

Micon has conducted an economic analysis of the mineral resources and operating assets of the ALROSA Group of Companies by conventional discounted cash flow techniques, to calculate their net present values (NPV). The presented approach is common for international mining practice.

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Separate cash flow models have been prepared for each of the company’s production divisions, Udachny, Aikhal, Mirny and Nyurba GOKs, and the Lomonosov GOK of PAO Severalmaz, as well as the Solur-Vostochnaya, Almazy Anabara and Nizhne-Lenskoe placer deposits. The data from each mining and processing operation has then been used to compile an aggregate economic assessment of assets owned by ALROSA and its subsidiaries in the Russian Federation.

The assessment covers the period from the second half of 2016 to 2030, and is based upon the reserve declaration date of 1st July 2016, as well as on mining and ore processing schedules developed by Micon for each production division. These schedules match the mining plans for the deposits and the ore reserve statements contained in the present report. Mining plans were developed by Micon using the available plan information from ALROSA and its subsidiaries, applying respective adjustments and corrections to match the tonnages and grades indicated in the ore reserve statements.

Operating costs used in the assessment have been forecasted by Micon, based on the actual operating costs incurred by the studied companies and provided by ALROSA. Capital investment plans provided by ALROSA for each of the GOKs and the subsidiaries have also been used. Micon has used only data that has a direct relation to the development and maintaining of the production facilities for the capital cost estimates.

Bain & Company Russia, LLC (Bain) was commissioned by AWDC (Antwerp World Diamond Centre) to prepare forecasts of certain macroeconomic factors in relation to the global diamond market. In preparing this economic assessment for the assets of ALROSA, Micon has relied upon the forecasts contained within the Bain Diamond Industry Report, 2015 (The Global Diamond Industry 2015).

Micon has also relied on Bain’s base case scenario for supply and demand to develop a diamond price index for the period from the second half of 2016 to 2030.

The analysis of cash flow models is made on the basis of NPV values and diagrams of basic parameters for each of the ALROSA divisions and for the group of companies as a whole.

The economic analysis in this Report is presented in terms of constant US dollars with 2015 values. Costs expressed in roubles have been converted to US dollars at a rate of US$1.00 = RUB 64.18, the official exchange rate as of 1st July 2016 (date of the mineral resource and ore reserve declarations).

Micon has considered several values of discount rate when calculating the net present value. The base rate has been taken as 7%, which is estimated to be ALROSA’s weighted average cost of capital from the Capital Asset Pricing Model.

1.7.2 Production and Cash Flow Forecasts

The cash flow models for each of the studied ALROSA’s divisions have allowed to assess NPV values and to make economic projections of future operations.

A summary of principal production and economic indicators of the models made for each ALROSA asset being analysed is given in Table 1.10.

ALROSA Group of Companies 25 November 2016 Executive Summary

Table 1.10: ALROSA Key Production and Economic Indicators from the second half of 2016 to 2030 (Micon’s Assessment)

Udachny Aikhal Mirny Nyurba Lomonosov Almazy Nizhne- Indicator Unit Total GOK GOK GOK GOK GOK Anabara Lenskoe Mining Diamonds Contained in Mined Ore1 kt 118,637 89,431 61,740 24,961 51,473 41,399 12,800 400,441 Average Diamond Grade ct/t 0.85 0.96 1.52 4.01 1.05 0.61 0.24 1.16 Diamonds in Mined Ore kct 100,599 85,988 93,999 100,124 54,103 25,373 3,075 463,262 Processing Diamonds Contained in Processed Ore1 kt 119,745 89,431 55,758 24,961 52,152 41,399 12,800 396,247 Average Diamond Grade ct/t 0.85 0.96 1.69 4.01 1.05 0.61 0.24 1.17 Diamonds in Processed Ore kct 101,346 85,988 93,999 100,124 54,642 25,373 3,075 464,548 Diamonds Recovered kct 97,979 83,278 91,023 97,539 53,002 24,359 2,949 450,130 Diamonds Recovered % 96.7 96.8 96.8 97.4 97.0 96.0 95.9 96.9 Price and Sales Average Price US$/ct 134.9 154.3 185.9 130.7 68.6 60.2 141.2 135.0 Total Revenue from Sales US$ M 13,221.7 12,852.7 16,400.9 12,753.2 3,637.7 1,467.1 416.3 60,749.6 Operating Costs Total Operating Costs US$ M 8,557.0 4,671.8 5,496.1 4,519.9 1,597.5 787.0 202.4 25,831.9 Operating Cost US$/t 71.5 52.2 98.6 181.1 30.6 19.0 15.8 65.2 Operating Cost US$/ct 87.3 56.1 60.4 46.3 30.1 32.3 68.6 57.4 Capital Costs Total Capital Costs US$ M 1,008.5 635.9 778.9 439.0 165.3 251.9 37.5 3,317.1 Capital Cost US$/t 8.4 7.1 14.0 17.6 3.2 6.1 2.9 8.4 Capital Cost US$/ct 10.3 7.6 8.6 4.5 3.1 10.3 12.7 7.4 Profit Tax Profit Tax US$ M 719.2 1,445.2 1,911.3 1,564.0 353.9 92.1 41.1 6,127.0 Free Cash Flow and NPV Free Cash Flow US$ M 2,768.8 6,086.7 8,214.5 6,230.3 1,441.3 351.9 153.9 25,247.4 NPV @ 7% Discount Rate US$ M 1,174.9 3,524.0 5,033.0 3,558.9 793.9 200.1 135.0 14,420.0

1 Cubic metres converted into tonnes assuming an average bulk weight of sand of 2.0 t/m3.

ALROSA Group of Companies 26 November 2016 Executive Summary

For more detailed information on the basic production and economic parameters of the ALROSA Group of Companies for the period from the second half 2016 to 2030 see Section 12.0.

Figure 1.3 presents an accumulative cash flow diagram resulted from totalling the data of all the cash flow models of the ALROSA assets.

Figure 1.3: ALROSA - Aggregate Cash Flow the second half of 2016 to 2030

Micon has also completed a sensitivity analysis of the NPV generated by individual assets and consolidated NPV of all the ALROSA assets in respect to some positive and negative fluctuations from the base case values of such criteria as the revenue, operating costs, capital costs and discounting rate. The most relative effect on the NPV is produced from the revenue fluctuation. The Udachny GOK, exhibited a 20% negative revenue (sales) assumption which resulted in a negative NPV value. For all the other assumptions the NPV values remained positive, which testifies to the high stability of all ALROSA assets in respect to potential fluctuation of the studied criteria.

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2.0 INTRODUCTION

2.1 PURPOSE AND SCOPE OF THE REPORT

This independent expert report (Report) has been prepared by Micon International Co Limited (Micon) and was commissioned by the Public Joint Stock Company ALROSA (ALROSA). The Report comprises an independent review and valuation of the ALROSA Group of Companies’ principal diamond assets in the Russian Federation. These assets include operating mines and processing plants, and projects at various stages of development. Specifically, the Report includes an evaluation of the deposits developed by ALROSA’s four principal divisions, the Udachny, Aikhal, Mirny and Nyurba mining and processing divisions (GOK’s), and also by ALROSA’s subsidiary mining companies, PAO Severalmaz (for which Lomonosov GOK is the production division), AO Almazy Anabara and AO Nizhne-Lenskoe. Also included is a review of the Solur-Vostochnaya project, which is not yet in production. The operations of the Catoca Ltd. Mining Co. in Angola, in which ALROSA has a 32.8% interest, have been excluded from this Report with the approval of ALROSA.

Micon has previously prepared a series of similar reports for ALROSA. The previous report, entitled “Alrosa Group of Companies. Independent Expert Report on Reserves and Resources of the Diamond Assets” dated 25th February 2016. The mineral resources and ore reserves of the deposits owned by the ALROSA Group in that report were estimated and declared as of 1st January 2015.

2.2 CAPABILITY AND INDEPENDENCE

Micon is an independent firm of geologists, mining engineers, metallurgists and environmental consultants, all of whom have extensive experience in the mining industry. The firm operates from integrated offices in Norwich and Cornwall, United Kingdom and Toronto and Vancouver, Canada. Micon offers a broad range of consulting services to clients involved in the mineral industry. The firm maintains a substantial practice in the geological assessment of prospective properties, the independent estimation of resources and reserves, the compilation and review of feasibility studies, the economic evaluation of mineral properties, due diligence reviews, and the monitoring of mineral projects on behalf of financing agencies.

Micon’s practice is worldwide and covers all of the precious and base metals, the energy minerals (coal and uranium) and a wide variety of industrial minerals. The firm’s clients include major mining companies, most of the major United Kingdom and Canadian banks and investment houses, and a large number of financial institutions in other parts of the world. Micon’s technical, due diligence and valuation reports are typically accepted by regulatory agencies such as the London Stock Exchange, the US Securities and Exchange Commission, the Ontario Securities Commission, the Toronto Stock Exchange, and the Australian Stock Exchange.

Micon is internally owned and is entirely independent of ALROSA and its affiliated companies. The personnel responsible for this review and the opinions expressed in this Report are Micon’s full-time employees or Micon associates. For its services in preparing this Report, Micon is receiving payment based upon time and expenses and will not receive any capital stock from ALROSA or any of its affiliated companies.

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The principal consultants responsible for the preparation of this Report are listed below. Each consultant has extensive experience in the mining industry and the appropriate professional qualifications:

 Stanley Bartlett, P.Geo., Vice President, Senior Geologist and Managing Director of Micon’s UK office;  Michael Khoudine, M.Sc., Micon Senior Mining Engineer;  Bruce Pilcher, B.E., EurIng., C.Eng., FIMMM, FAusIMM(CP), Micon Senior Mining Engineer;  Christopher Jacobs, C. Eng, Micon Mining Economist;  Robin Bernau, PhD., MAusIMM(CP) Micon Geologist;  Mark Dodds-Smith, Ph.D., Environment, Health and Safety Specialist, Associate Consultant; and,  Sandra Mahé, B.Sc., Micon Geologist, Micon.

Members of the Micon project team visited several ALROSA Group company assets of PAO Severalmaz, AO Almazy Anabara and AO Nizhne-Lenskoe, in August and September 2016. Other recent site visits to Aikhal GOK and Mirny GOK were completed in December 2015. Information provided by ALROSA was reviewed from July to October 2016. This Report includes actual production results and economic parameters achieved by the ALROSA Group of Companies for the full year of 2015 and first half of 2016. This Report also provides a statement of the mineral resources and ore reserves estimated in accordance with the guidelines of the JORC Code (2012), as at 1st July 2016.

2.3 LIMITATIONS AND EXCLUSIONS

Micon has reviewed ALROSA’s exploration and mining licences, permits and entitlements of property, in so far as terms and conditions of these documents may influence the exploration and development of the mining assets. But Micon has not undertaken a legal confirmation of title for mining assets mentioned in the Report. Thus, it should be noted that inclusion of exploration and mining properties within this Report does not imply Micon’s endorsement of title.

In preparing this Report, Micon has relied upon information provided by ALROSA, which describes the legal title, infrastructure, exploration history, geology and mineralisation, resources, reserves, mining and metallurgical design, and capital and operating cost budgets proposed for its projects. Micon has not independently verified the statements and data contained in the supplied information and has assumed that the information provided is representative and materially complete.

2.4 SOURCES OF INFORMATION

 Structured and informal interviews conducted during the site visits with the management and senior staff of ALROSA, its subsidiaries and associated organisations;  Reports submitted by ALROSA to the regulatory authorities of the Russian Federation in accordance with routine statutory requirements;

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 Electronic exploration databases of deposits, wireframes of ore bodies and reserve calculation blocks, solid block models, digital data defining the current status of mining, topographic surfaces and final positions of mining excavations. Data were provided for all deposits of the company for which such data were available;  Periodic management production and cost reports prepared by ALROSA for use internally and/or for distribution to shareholders and other interested parties;  Russian TEO (feasibility study) reports outlining the cut-off criteria parameters and reserve calculations, prepared either internally by ALROSA personnel, or externally by specialist organisations under contract to ALROSA;  Annual mining plans for the last several years;  Corporate Long-Term Development Programme prepared by ALROSA for the period 2016 - 2030; and,  Projected capital cost schedules of ALROSA and its subsidiaries.

2.5 REPORT STRUCTURE

This Report is structured as follows:

 Section 2.0: Introduction.  Section 3.0: General Information, including a description of the methodologies used by ALROSA in estimating reserves under the Russian classification system, and by Micon, in estimating mineral resources and ore reserves under the guidelines of the JORC Code (2012).  Sections 4.0 to 11.0: Description of each of the seven production divisions operated by ALROSA and its subsidiaries in the Russian Federation, including statements of the Russian reserves, and the mineral resources and ore reserves estimated by Micon within the guidelines of the JORC Code (2012).  Section 12.0: Economic analysis of each production division individually and of ALROSA’s operations in the Russian Federation in total.  Section 13.0: Glossary and Abbreviations.

2.6 GLOSSARY AND ABBREVIATIONS

Quantities are generally stated in SI units, as utilised by the international mining industry, including: metric tons (tonnes, t), thousand metric tonnes (kt), million metric tonnes (Mt), kilograms (kg), grams (g) and carats (ct) for weight; kilometres (km), metres (m), centimetres (cm) or millimetres (mm) for distance; cubic metres (m3), thousand cubic metres (k m3), litres (l), millilitres (ml) or cubic centimetres (cm3) for volume, square kilometres (km2) or hectares (ha) for area, carats per metric tonne (ct/t) for diamond grade, and tonnes per cubic metre (t/m3) for density. Thousands of tonnes and carats are abbreviated as kt and kct, respectively.

A glossary of technical terms and list of abbreviations used in this Report are contained within Section 13.0. All currency amounts are stated either in US dollars (US$) or Russian roubles (RUB).

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3.0 GENERAL INFORMATION

3.1 ALROSA GROUP REVIEW

3.1.1 Company

The Joint Stock Company ALROSA was established pursuant to the decree of the President of the Russian Federation No. 158C of 19th February 1992. The Company became the legal successor to a number of organisations incorporated in its structure, including Yakutalmaz Scientific and Production Association (State-owned diamond mining company in the former USSR), some departments of the Committee for Precious Metals and Gems under the Ministry of Finance of the Russian Federation (involved in the sorting, pre-sale preparation and sale of diamonds) and the Almazyuvelirexport Foreign Trade Organisation.

Within its structure, ALROSA incorporates all the technological elements and process components of diamond mining and beneficiation. The Joint Stock Company Almazy Rossii – Sakha was established on 13th August 1992 in Mirny, the Republic of Sakha (Yakutia), by the Mirny District Administration. The Company officially commenced activity on 1st January 1993.

The ALROSA asset portfolio includes primary and placer diamond deposits located in Yakutia and the Arkhangelsk region of the Russian Federation. In parallel, ALROSA is mining diamonds in the Republic of Angola, where it is a co-founder of the Catoca Ltd. Mining Co – the largest diamond miner of Angola.

The register of the shareholders is maintained, in conformity with the Federal Laws of the Russian Federation, by the Mirny subsidiary of OJSC Republican Specialised Registry ‘Yakutsk Depositary Centre’ (Licence #10-000-1-00309 issued on 19th March 2004 by Federal Committee for Securities). The statutory auditor of the Company is OJSC Finansoviye i Bukhgalterskie Konsultanty (FBK), a member of Pannel Kerr Foster (an international association of auditing companies). The audit of the consolidated financial statements of ALROSA, prepared in accordance with the International Financial Reporting Standards, is carried out by Pricewaterhouse Coopers.

In accordance with the Equity Issue Resolution and State Register of Stock Issue #1-03-40046-N, dated 25th August 2011, the authorised capital of ALROSA totals 3,682,482,815 roubles, divided into 7,364,965,630 ordinary registered shares with a share par value of 50 kopecks.

The shareholders of ALROSA are the Russian Federation, represented by the Federal Agency for Management of State Property, with 33.0256%; Yakutia, represented by the Ministry of Property Relations of the Republic of Sakha (Yakutia), with 25.0002%; administrations of eight municipal districts (Uluses) of Yakutia with 8.0003%, and other legal entities and individuals, with 33.9739%.

Figure 3.1 shows ALROSA’s corporate structure and presents an overview of its divisions and dependent companies. The locations of the ALROSA principal operating divisions are shown in Figure 3.2.

Data for the individual diamond deposits currently being mined, or being planned for mining, by ALROSA and subsidiaries are summarised in Table 3.1.

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Figure 3.1: ALROSA Corporate Structure

PJSC ALROSA

PJSC Dependent Diamond Mining and Processing Udachny GOK Severalmaz Mining Companies Divisions

JSC Other Dependent Aikhal GOK Almazy Anabara Companies

PJSC Mirny GOK Alrosa - Nyurba

JSC Nizhne - Nyurba GOK Lenskoe

Catoca Ltd . Mining Industrial Infrastructure Botuobinskaya Exploration Divisions Co. Units Expediton

Yakutniproalmaz Amakinskaya Marketing and Sales Divisions (Research and Design Expedition Institute )

Capital Construction Mirninskaya Social Facilities Divisions Expedition

Supplies and Logistics Representative Offices Arctic Expedition Division

NIGR Other Divisions (Research center )

Source: ALROSA 2013

Figure 3.2: Location of ALROSA Principal Mining Divisions

Republic of 5 Sakha (Yakutia) 6 Arkhangelsk 1 Region 2 4

Russian Federation Yakutsk Arkhangelsk Mirny 3

Moscow

Source: Micon ALROSA Technical Report 2013

Legend: Moscow, Mirny – Head Offices. Yakutsk – Head Office of ‘Almazy Anabara’ and ‘Nizhne-Lenskoe’ Arkhangelsk – Head Office of ‘Severalmaz’ 1 – Udachny GOK 4 – Nyurba GOK 2 – Aikhal GOK 5 – Deposits of ‘Almazy Anabara’ and ‘Nizhne-Lenskoe’ 3 – Mirny GOK 6 – M. V. Lomonosov Deposit

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Table 3.1: ALROSA Group of Companies - List of Assets Covered by the Micon Assessment

Company Asset Company Operating Holding Udachnaya Pipe PJSC ALROSA, Udachny GOK PJSC ALROSA Underground Mining Zarnitsa Pipe PJSC ALROSA, Udachny GOK PJSC ALROSA Open Pit Mining Verkhne-Munskoe Deposit PJSC ALROSA, Udachny GOK PJSC ALROSA Prepared for Development Kluch Piropovy Placer PJSC ALROSA, Udachny GOK PJSC ALROSA Open Pit Mining Zakonturnaya Deluvial Placer (Udachnaya Pipe) PJSC ALROSA, Udachny GOK PJSC ALROSA Open Pit Mining Jubilee Pipe PJSC ALROSA, Aikhal GOK PJSC ALROSA Open Pit Mining Aikhal Pipe PJSC ALROSA, Aikhal GOK PJSC ALROSA Underground Mining Komsomolskaya Pipe PJSC ALROSA, Aikhal GOK PJSC ALROSA Open Pit Mining Zaria Pipe PJSC ALROSA, Aikhal GOK PJSC ALROSA Prepared for Development Mir Pipe PJSC ALROSA, Mirny GOK PJSC ALROSA Underground Mining International Pipe PJSC ALROSA, Mirny GOK PJSC ALROSA Underground Mining Irelyakh Placer PJSC ALROSA, Mirny GOK PJSC ALROSA Open Pit Mining / Dredging Gornoye Placer PJSC ALROSA, Mirny GOK PJSC ALROSA Dredging Vodorazdelnye Galechniki Placer PJSC ALROSA, Mirny GOK PJSC ALROSA Open Pit Mining Solur-Vostochnaya Placer PJSC ALROSA, Mirny GOK PJSC ALROSA Prepared for Development Nyurbinskaya Pipe PJSC ALROSA, Nyurba GOK PJSC ALROSA-NYURBA Open Pit Mining Nyurbinskaya Placer PJSC ALROSA, Nyurba GOK PJSC ALROSA-NYURBA Open Pit Mining Botuobinskaya Pipe PJSC ALROSA, Nyurba GOK PJSC ALROSA-NYURBA Open Pit Mining Botuobinskaya Placer PJSC ALROSA, Nyurba GOK PJSC ALROSA-NYURBA Open Pit Mining Maiskoye Kimberlite Body PJSC ALROSA, Nyurba GOK PJSC ALROSA-NYURBA Prepared for Development Arkhangelskaya Pipe, Lomonosov Deposit Lomonosov GOK PAO Severalmaz Open Pit Mining Karpinskogo-1 Pipe, Lomonosov Deposit Lomonosov GOK PAO Severalmaz Open Pit Mining

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Table 3.1: ALROSA Group of Companies - List of Assets Covered by the Micon Assessment continued

Company Asset Company Holding Operating Pionerskaya Pipe, Lomonosov Deposit Lomonosov GOK PAO Severalmaz Prepared for Development Lomonosov Pipe, Lomonosov Deposit Lomonosov GOK PAO Severalmaz Prepared for Development Ebelyakh River Placer AO Almazy Anabara AO Almazy Anabara Open Pit Mining Gusiny Stream Placer AO Almazy Anabara AO Almazy Anabara Open Pit Mining Istok Plot of Ebelyakh River Placer AO Almazy Anabara AO Almazy Anabara Open Pit Mining Morgogor Placer AO Almazy Anabara AO Almazy Anabara Open Pit Mining Right Bank Morgogor Placers AO Almazy Anabara AO Almazy Anabara Open Pit Mining Olom and Log 325 Stream Placers AO Almazy Anabara AO Almazy Anabara Prepared for Development Kholomolokh Stream Placer AO Almazy Anabara AO Almazy Anabara Open Pit Mining Area of Uchakh-Ytybat and Khara-Mas Rivers AO Almazy Anabara AO Almazy Anabara Prepared for Development Talakhtakh River Placer AO Nizhne-Lenskoe AO Nizhne-Lenskoe Open Pit Mining Bolshaya Kuonamka River Placer AO Nizhne-Lenskoe AO Nizhne-Lenskoe Prepared for Development Tributaries of the Billyakh River Placers AO Nizhne-Lenskoe AO Nizhne-Lenskoe Open Pit Mining Molodo River Placer AO Nizhne-Lenskoe AO Nizhne-Lenskoe Open Pit Mining

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3.2 ALROSA RESOURCE AND RESERVE CLASSIFICATION. RUSSIAN RESERVE ASSESSMENT METHODS

All mineral resources and reserves in Russia are formally classified according to an established system developed and administered by the Russian State Commission for Mineral Reserves (Gosudarstvennaya Komissia po Zapasam - GKZ). The GKZ applies strict control over the estimation and reporting of mineral reserves and utilises a prescribed protocol for their calculation that is usually based upon standard methods.

Preliminary mineral reserve estimates, as completed by the licence holder, are submitted to the GKZ for approval in the form of a TEO (feasibility study), which justifies the cut-off grade criteria. The approved cut-off criteria are then used to generate the mineral reserves that are submitted to the GKZ for approval.

In many respects, the Russian system is similar to western classification systems, in that it is based on assessing the level of confidence in the quantity and quality information that is used to define the mineral resources and ore reserves. One of the systems commonly adhered to in western countries is the JORC Code (the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, prepared by the Joint Ore Reserve Committee of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Minerals Council of Australia), which was released in 1989 and last updated in 2012.

In Micon’s experience, the level of detail required to support a submission of mineral reserves to the GKZ is more systematic and comprehensive than is required under the JORC Code, in almost all respects. The data submitted for approval to the GKZ are subject to rigorous review, including consideration of the geological complexity of the deposit, the distribution and complexity of the ore mineralogy, the degree of knowledge obtained from exploration activities (such as the density of drilling), the extent of any underground development, the computation of resource estimates and cut-off grades, as well as numerous other economic, technological, mining and metallurgical characteristics. The GKZ analyses the approach undertaken for calculations, as well as the mineral resource and cut-off grade estimates.

The JORC Code and GKZ reserve reporting systems share a very important fundamental principle, which is that the economic viability of a reserve base must be demonstrated. For this reason, both systems utilise a similar set of geological, economical and technical factors within a sequential classification scheme which reflects the increasing degree of knowledge and confidence in the integrity of the reserves. Figure 3.1 illustrates Micon’s understanding of the correlation between the two systems.

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Figure 3.3: Comparison of the GKZ and JORC Code Resource/Reserve Classification

Using the GKZ system, mineral resources and reserves are recognised as either prognosticated resources, which include those resources that are of an inferred, potential or speculative nature, or mineral reserves, which can be effectively subdivided into those that demonstrate economic significance (balance mineral reserves) and those with only potential economic significance (off-balance mineral reserves). Off-balance reserves have not been used by Micon to estimate mineral resources or ore reserves in accordance with the JORC Code (2012). Mineral resources described by low data consistency can be upgraded by further exploration and then they can be transferred into ore reserves.

Balance mineral reserves comprise that part of the mineralisation that has been demonstrated to a sufficient level of confidence to contain a metal or commodity whose economic viability has been approved by the GKZ. They may not however, include adjustment for technical and economic matters such as mining dilution and losses.

The JORC (2012) classification term "mineral resources" approximately corresponds to the term "geological reserves" in the Russian GKZ system. The JORC (2012) term "ore reserves" approximately corresponds to the term "exploitation reserves" in the Russian GKZ system. In accordance with the JORC Code (2012), estimated ore reserves must include appropriate allowances for dilution and ore losses which are expected to occur during deposit mining.

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The GKZ categories for balance mineral reserves (A, B, C1 and C2) can be correlated by definition with mineral resources as defined under the JORC Code. Categories A and B are generally reported as Measured resources, whilst category C1 generally constitutes Indicated mineral resources, with C2 category constituting Inferred mineral resources. Under the GKZ system, C2 category mineral reserves can be included in mine planning studies, but it should be noted that, under the terms and conditions of reporting to Western standards, Inferred mineral resources cannot be included as ‘ore reserves’ or used for formal valuation purposes.

By contrast, the Russian classification of prognosticated resources (P1, P2, and P3) refers to resources that range from Inferred mineral resources, to potential and speculative resources. These are not generally recognised as quantifiable in Western terms and can only be regarded as indicators of the mineral potential of an area or region. Such resources may be subsequently upgraded to recognised categories of reserves and resources by successful exploration work, or excluded if the work is unsuccessful.

3.2.1 Methods for Kimberlite Pipe Reserve Estimation

Typically, the Russian balance reserves (officially approved by the GKZ) for ALROSA’s hardrock mineral deposits were estimated, using the approved cut-off criteria, by the method of geological blocks, bounded by two horizontal sections, which cut a portion of an ore body (kimberlite pipe or ore shoot inside the pipe) associated with two key elevations. A set of the key elevations predetermines the set of horizontal sections, which represent the evaluated ore body. In some cases, the block geometry can be determined by different methods.

Often, the geometric block volume was calculated using average values for the horizontal section area and its height. The average area was defined as a mean value for the upper and lower levels bounding the block. In some cases, an additional computation was made with the use of intermediate horizontal sections located in between the key elevation points which state the block height. Contouring of the ore bodies and measuring of the sectional areas were conducted using level plans showing exploration hole intercepts. In some areas, reserves were delineated by geological interpretation between two points of contact intersection located above and below key elevations. In individual cases, the volume was determined from the formulas describing a prism, conical frustum, wedge, or pyramid.

Block ore reserve tonnage was calculated from the block volume and the kimberlite specific gravity, as determined from core samples. The average specific gravity of kimberlite was defined for each hole as a mean value. These values were used to determine a weighted average for each block, the weighting being a function of the number of measurements made.

The diamond grade in core samples was defined as a ratio of the weight of diamonds recovered to the weight of material processed. The average diamond grade in reserve blocks was calculated as a ratio of the total weight of diamonds recovered (from all samples taken from the block) to the total weight of these samples.

In ALROSA’s experience, core sampling is not sufficiently representative for estimating the grade of coarse size diamonds (+4 mm) and, partially, for medium size diamonds (-4 mm to +12 mm). An adjustment factor, based on experience, was typically applied to the sampling results, when estimating the grade of +2 mm stones. The adjustment factor is determined as the ratio of the total weight of diamonds recovered to the weight of fine size diamonds being representative from the core sampling data. The factor is computed based upon the deposit operation data or from bulk sampling data. Therefore, it is assumed that

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given set of diamond class sizes is constant for a particular pipe and that it does not vary with depth. The diamond grade value for a block is computed for each class size being representative from the core sampling data (considering the only weight of a particular class size recovered), and then the grade value is multiplied by the adjustment factor mentioned above. Micon considers that the use of adjustment factors is reasonable and admissible.

The value of diamonds contained in a block is produced by multiplying the ore weight by the average diamond grade.

Reserve estimates were subject to the control of high outlier grades. The estimation method recommended by the GKZ uses top-cut grades for specific samples within a drill hole which contribute more than 20% of the grade of the intersection, or which contribute more than 10% of the grade of a geological block. Other methods for identification of outlier grades are also used.

3.2.2 Methods for Placer Deposit Reserve Estimation

In majority of cases, the Russian balance reserves of ALROSA owned placer deposits were also evaluated based on the geological block approach using the GKZ-approved cut-off criteria. However, the geometry of reserve blocks and the methodology of outlining the geometry differ dramatically from those used for kimberlite ore bodies.

In plan view, the boundaries of the majority of the reserve blocks located along the strike of any placer deposit (along the river valley) are the two neighbour exploration lines produced by exploration workings, which are oriented across the strike (across the river valley). The width of a reserve block is determined from the sampling data taking into account the cut-off criteria. Boundaries of the reserve blocks between the exploration lines are outlined along geological, geomorphological, and/or topographical components, or in parallel thereof. As a rule, these boundaries are represented by the curves, which follow the shape of the river channel.

Volumes of waste or sands for each block are the products of the block area multiplied by the value of the average thickness of waste or sands. The thicknesses of the productive seam (sands) and overburden (waste) were measured directly in each exploration working when logging and sampling (a pit is the commonly used type of exploration workings). Average values of waste and sands thicknesses are computed as average weighted values.

An average diamond grade in a sample was computed as the mass of diamonds recovered (ct) divided by the sample solid volume. An average diamond grade in a working (“through sample”) is an average weighted by the lengths of individual samples in the working. An average diamond grade for an exploration line and for a block is an average weighted by the length of the working influence zone.

Diamonds contained in a block were computed as the product of sands volume multiplied by the value of average diamond grade in the block.

Reserve estimates for the placer deposits were also subject to the control of high outlier grades. The removal of the outlier grades was required to be justified.

The Russian reserve data are presented in this Report for each of the studied assets. The Russian reserves do not match with the international classification criteria; they are provided for information only.

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3.3 MICON APPROACH TO RESOURCE AND RESERVE CLASSIFICATION

The classification of the mineral resources and ore reserves contained within this Report has been completed in accordance with the guidelines of the JORC Code (2012). The JORC Code relies upon an increased level of geological knowledge and the application of mining and other modifying factors to elevate categories of resources to reserves, as summarised in Figure 3.4.

The JORC Code is similar in most respects to those systems adopted in North America and in Europe, in particular the system of resource definition established by the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) and recognised under the guidelines of Canadian National Instrument (NI) 43-101.

Figure 3.4: General Relationship between Exploration Results, Mineral Resources and Ore Reserves (in accordance with the guidelines of the JORC Code 2012)

In developing the independent mineral resource estimates in this Report in accordance with the guidelines of the JORC Code (2012), Micon has used two different approaches depending upon the availability of digital data, which describe the mineral resources. In all cases Micon has used the geological block definitions as defined in the GKZ approved mineral reserve estimates.

For vast majority of the kimberlite pipes, ALROSA has provided Micon with the following digital data:

 Primary sampling database describing detailed exploration and exploitation sampling drill holes, ore intercepts and sampling results;  Ore body wireframes (for pipes and ore shoots), triangulation survey based surface models, contours of existing open pit workings and open pit limits in final positions; and,  Block models of the ore bodies.

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Micon has analysed the digital data using specialised software (Datamine and Surpac). The analysis was performed for each of the deposits and focused on the following:

 Verification of the ALROSA models with the available sampling database;  Evaluation of reserve block parameters (volume, tonnage, average grades) using available models and, if needed, using the original sampling database; and,  Comparison of the reserve block resources, generated by digital models, with the GKZ approved Russian balance reserves for the same blocks. The results of the analyses varied for different deposits, but in all cases they have verified the Russian balance reserves with acceptable discrepancies.

In default of the digital data, for all studied placer deposits, Micon has reviewed the materials on Russian reserve assessments, including TEO reports, exploration reports, reserve assessment reports, and initial field data. Having applied the initial field data, Micon could confirm the methodological validity and consistency of the Russian balance reserve assessments for a series of deposits.

Upon Micon’s request data was provided on a comparative assessment of results obtained from detailed exploration, exploitation exploration, and operating production reports for deposits being discussed in the present report. In all cases, the data of the actual balance reserves were confirmed by the production data with sufficient accuracy.

The analyses mentioned above and focused on the verification of Russian balance reserves was performed in 2013 to 2015. Exact dates, when the balance reserves were “verified” for particular deposits differ widely for over 30 deposits covered by this Report. In order to gain the up to date information, Micon has analysed the detailed data on actual ore and sands mining (including losses and dilution) for each of the studied deposits from 2011 to the first half of 2016. These data enabled confirmation of the reported depletion of Russian balance reserves and to use the balance reserve values as of 1st July 2016. For a series of deposits reserve depletion has been confirmed by the use of digital surface models, simulating the current status of open-pit mining.

3.4 ALROSA’S PROCESSING FACILITIES

As summarised in Table 3.2, ALROSA has a number of processing facilities serving the various assets and projects that are currently being mined by ALROSA within the Russian Federation. Typically, the mines of each production division feed one or two centrally located processing plants.

Micon has inspected all of these plants and has reviewed production and metallurgical data for all of them. In Micon’s opinion, all processing plants operate efficiently, are fit for purpose, and are capable of delivering the planned production targets.

In addition to the processing plants listed in Table 3.2, ALROSA has three dredges and two mobile sorting and washing plants operating on the Mirny GOK alluvial deposits. Almazy Anabara, ALROSA’s subsidiary company, uses ten mobile sorting plants, most of which are combined with dense media separation units. Final processing of these concentrates is completed at seasonal processing plants. ALROSA’s other subsidiary company, Nizhne- Lenskoe, which has seven mobile sorting units, uses the same processing and diamond extraction methods as Almazy Anabara.

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Table 3.2: Summary of ALROSA Processing Facilities

Ore and Sands Actually Start of Designed Capacity Utilisation in 2015 Processing Facility Location Processed in 2015 Operations (Mt/a) (%) (Mt/a) Processing Plant No. 3 Mirny (Yakutia) 1966 2.0 1.80 90.2 Processing Plant No. 12 Udachny (Yakutia) 1978 12.0 5.38 44.8 Processing Plant No. 8 Aikhal Settlement (Yakutia) 1968 1.7 0.79 46.2 Processing Plant No. 14 Aikhal Settlement (Yakutia) 1996 10.0 8.36 83.6 Processing Plant No. 15 Nakyn Settlement (Yakutia) 1999 0.5 0.51 101.0 Processing Plant No. 16 Nakyn Settlement (Yakutia) 2003 1.4 1.54 109.6 Processing Plant No. 1 Svetly Settlement 2005 1.0 3.99 99.7 Processing Plant No. 2 (Arkhangelsk Region) 2014 3.0

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3.5 ALROSA APPROACH TO ENVIRONMENT, HEALTH AND SAFETY AND SOCIAL ISSUES

3.5.1 Introduction

This section introduces permitting and environmental, and health and safety regulation in Russia, as it would normally be applied to the operations of ALROSA; Russian environmental and health and safety management practice and a general comparison with international practice and standards; the corporate approach adopted by ALROSA to environmental, health, safety and social issues; and Micon’s approach to the identification of risks and liabilities associated with these issues.

3.5.2 Permitting, Regulation and Environment, Health and Safety Management in Russia

3.5.2.1 Sub-Soil Licences and Land-Use Permits

The primary legislation governing the exploitation of mineral deposits in the Russian Federation is the 1992 Federal Law on Sub-Soil (as amended), which establishes the basis for the issuing of licences and defines the concept of the rational use of resources. Sub-Soil licences (individual mining operations may encompass more than one licence area) impose a number of obligations on the licence holder; in addition to a broad reference to compliance with all relevant Federal and local regulations, the conditions include the following requirements:

1. Maintenance of an environmental monitoring programme approved by the local office of the Federal Sub-Soil Use Agency. 2. The re-vegetation of disturbed lands in accordance with a design that shall be submitted for approval not less than six months before planned decommissioning. 3. Development of appropriate instructions for occupational safety and provision of personal protective equipment. 4. Maintenance of civil liability insurance to cover damage caused to life, health and property of third parties arising as result of an emergency at designated hazardous production facilities. 5. Organisation of professional training programmes for local people to enhance their employment prospects. 6. Submission of annual reports on the results of environmental monitoring.

There is a discernible trend for more detailed conditions to be included in recent licences. The licence holder can be penalised if these conditions are not met and, in theory at least, the licence can be suspended and ultimately withdrawn.

Licensees also need to obtain land-use rights from the current land-owner for all surface activities, although, in most mining locations, the land-owner is a federal or regional authority (such as the Forest Fund) and rights are readily leased for a defined number of years.

Surface facilities associated with mining operations may be located outside the licence area itself (these may include process plants, tailings facilities and power generation) and under

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these circumstances are not covered by the sub-soil licence conditions, but are subject to separate conditions under other legislation.

3.5.2.2 Environmental Permitting and Regulation

Historically, the permitting procedure for mining projects in Russia consists of three distinct phases: “exploration”, “project initiation”, (which includes various stages of feasibility study, technical design, planning and construction), and “project operation”. Environmental regulation, which is applied throughout these three phases, is established in primary legislation, principally the 2002 Federal Law on Environmental Protection (as amended), which is administered by the Ministry of Natural Resources and Environment of the Russian Federation. Detailed procedural measures, permitting requirements and the basis for quality standards are provided in subsidiary legislation, such as the 1999 Federal Law on Atmospheric Air Protection (as amended) and a series of “codes”, such as the 1995 Water Code, the 1997 Forest Code and the 2001 Land Code (all as amended). The 1999 Federal Law on the Sanitary Epidemiological Wellbeing of the Population (as amended) provides the basis for the regulation of issues such as ambient air quality, noise, vibration and other hazards that may impact upon local populations. The 1997 Federal Law on the Safety of Hydrotechnical Facilities (as amended) regulates the design and operation of tailings facilities and water-storage dams. The law requires such facilities to have been issued with a declaration of industrial safety prior to use, and requires the operator to undertake regular monitoring and inspections and to develop emergency response procedures.

The design documentation, covering all technical, environmental and economic aspects of a proposed project is submitted to an expert panel appointed by the Ministry of Natural Resources and Environment, whose approval is required before the project can proceed (the State Expert Review process).

Throughout the permitting procedure, reference is made to an extensive system of environmental standards that comprise a series of maximum acceptable concentrations (MACs) covering the workplace atmosphere and ambient air quality, water quality (including drinking water, industrial, agricultural and recreational water use and fisheries protection), soil and river sediment quality, vegetation and accumulations of snow and ice. MACs are specified in a series of normative documents.

Direct comparison between Russian MACs and international environmental quality standards is not always straightforward, since the chemical speciation that is adopted, monitoring practices and analytical protocols can all differ significantly. Nevertheless, where comparison is feasible, Russian MACs are usually at least as stringent as international environmental quality standards, such as those adopted by the World Bank Group, World Health Organisation and European Union. It is Micon’s experience that, where environmental degradation has occurred in Russia, this has been related to an apparent failure to apply rigorously the Russian standards and regulatory procedures, rather than to any inherent weaknesses in these standards and procedures.

During “project operation” regulation is provided through the maintenance of a series of licences and permits. Monitoring is undertaken to assess compliance with the detailed conditions attached to licences and permits. A series of fees are payable for “use” of natural resources based, for example, on actual emissions to atmosphere, discharges to water bodies and waste disposal. Exceeding the permit limits does not necessarily constitute a legal offence, nor does it necessarily result in an adverse environmental impact. Minor

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transgressions merely incur additional fee payments based on a higher unit rate for the excess (typically 10 times to 25 times the standard rate).

3.5.2.3 Health and Safety Regulation and Accident Reporting

The legal basis for health and safety in Russia is provided by the 1997 Federal Law on Safety of Dangerous Industrial Units (as amended), which defines operations considered to be dangerous including mining, ore processing and the storage and use of explosive materials.

In principle, Russian regulation and management practices in health and safety are broadly compatible with the approach adopted internationally and are consistent with the International Labour Organisation’s Convention on Safety and Health in Mines, 1995, although Russia has not ratified this convention. The regulatory authorities promote the development of, and issue approvals, for safe working practices. Appropriate training is scheduled for each employee, emergency response procedures are formulated and a systematic programme of inspections is developed to monitor compliance. Accidents are recorded and investigated and remedial measures are implemented. Third party insurance is mandatory.

Industrial accidents in Russia are classified as light, serious or fatal; a serious accident being defined by the medical nature of the trauma. An accident involving a trauma not specifically listed in the appropriate regulation and verified as such by a qualified doctor is considered light, regardless of the working time lost. Accidents involving more than one person (group accidents) are also recorded separately.

Accidents that do not result in a medical trauma requiring examination by a doctor, often called micro-traumas in Russia, are not routinely recorded and are not, therefore, included in accident statistics. All serious and fatal accidents are investigated by a State-appointed committee (or single representative) to determine the cause and identify appropriate remedial action. Compensation is payable to the victims of accidents (or their families).

Direct comparisons of safety records of Russian and international mining companies are generally not possible, due to the widely different accident reporting practices. Most importantly, it should be noted that the formal Russian reporting system records “incidents”, rather than “injuries”. Thus an incident that resulted in two fatalities (such as occurred in Udachny in 2012) is recorded as a single “incident” (and also as a “group incident”). Direct conversion of statistics for serious and light incidents into the internationally recognised measure of “lost-time injuries” is, therefore, not possible without a detailed review of all incidents.

Nevertheless, it is Micon’s experience that whilst, in principle, Russian safety practice is capable of supporting a good safety record, poor application and enforcement, combined with an adverse “safety culture” within the country as a whole, often results in actual practices on site that do not conform in all areas with accepted good practice and regulatory requirements.

3.5.3 Environmental, Health and Safety and Social Issues

3.5.3.1 Background

The older ALROSA operations were developed prior to much of the current environmental legislation. However, the technical basis for environmental and health & safety management of the more recent operations has been established in the relevant TEO documentation and

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the subsequent detailed design documentation. These documents are prepared in accordance with statutory requirements and are submitted to the relevant authorities for approval.

Based upon these documents, most of ALROSA’s production divisions have adopted a formalised “Regulation on Industrial Environmental Control,” and a “Regulation on Production Control for Compliance with Safety Requirements at Hazardous Facilities,” both of which were developed by the site environmental and safety personnel. These internal regulations adapt the corporate environmental management and health and safety management systems to local circumstances and are aimed principally at ensuring compliance with relevant Federal and local regulations.

ALROSA has developed a strong centralised structure for the management of environmental and health and safety aspects of the group’s operations. Based in Mirny, this centralised structure is responsible for all of ALROSA’s activities, including not only the mining operations, but also the other subsidiary companies.

ALROSA’s corporate environmental and health and safety management personnel are aware of the challenges presented by the historical approach and attitude towards these issues in Russia and have been working towards developing ALROSA’s internal procedures and performance to a level above that required for strict compliance with the legislation. In 2014, ALROSA prepared an annual Social and Environmental Report in accordance with Global Reporting Initiative G4 Guidelines on Reporting for Sustainable Development. Micon understands that ALROSA are in the process of producing a comparable report for 2015, but this is not yet been finalised. Micon further acknowledges ALROSA’s efforts to increase transparency in environmental and sustainability matters, through publication and external third party auditing of annual reports.

Currently, the subsidiary companies of ALROSA, Lomonosov (head office in Arkhangelsk) and Almazy Anabara and Nizhne-Lenskoe (head office in Yakutsk), manage their environmental and health and safety aspects largely independently of the ALROSA corporate structure but are guided by similar policies and corporate support.

3.5.4 Environmental Management

Environmental management within ALROSA is driven by the need to comply with the Federal law “On Environmental Protection” and associated legislation at both the Federal and regional level. In order to achieve this objective, ALROSA has developed an environmental management system that was certified in 2014 to the Russian standard GOST R 14001-2007, which includes the Russian derivative of the International Standard ISO 14001:2004.

During the last 10 years, ALROSA has developed many initiatives within the framework of the environmental management system aimed at improving the environmental performance of operations developed pre-2000, some of which were utilising practices that did not comply with current good practice in areas such as water management. These initiatives, which have now largely been completed, focused on the following areas:

 Elimination of routine water discharges from tailings facilities and elimination of routine discharge of mineralised minewater. All mineralised minewater is now re-injected into fissures within the permafrost and all tailings facilities are now operated on a zero discharge basis;

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 Improvements to waste rock dumping, including better dump design to minimise land-take and improve stability; and,  Construction of sewage treatment facilities at all settlements.

Current environmental improvement initiatives are undertaken in accordance with the ALROSA Complex Environmental Actions Programme for 2011 to 2018. These are focussed on the following areas:

 Achieving the objectives set-out in the environmental policy and the developing environmental management system;  Developing guidelines for the calculation of carbon dioxide emissions from the Company’s facilities;  Improving energy conservation and efficiency. The company are also developing management systems to conform to ISO 50001 Energy management;  Continued modernisation of process equipment to reduce environmental impacts;  Improving environmental awareness amongst ALROSA employees and local communities;  Analysis of the impact of ALROSA’s activities on the environment;  Increased water recycling and reduced total water consumption;  Reduction in emissions to atmosphere (gases, dusts etc.);  Reduction in the operational land-take required;  Development of the most appropriate means for treatment and discharge of accumulated waters on some of the older tailings facility;  Construction of new and refurbishment of older sewage treatment works;  Improvements to facilities for the disposal of solid wastes (landfill) at settlements and sites for disposal of industrial wastes;  Development of measures to reduce emissions to air, land and water, and hence reduce payments for “nature usage”;  Improvements to the techniques utilised in the rehabilitation of disturbed lands; and  Promoting research to support improvements in environmental performance.

Operational expenditures, incurred and planned by OJSC ALROSA and its subsidiaries on environmental issues, over the period 2011 to 2018 are summarised in Table 3.3. Capital expenditure on environmental projects in 2014 amounted to 2,900 million roubles. Statutory payments for nature use by ALROSA (excluding Lomonosov, Almazy Anabara and Nizhne Lenskoe) amounted to RUB128.9 million in 2014.

Approximately 80% of ALROSA’s historical environmental expenditure has been incurred in the environmental management of its current operations. Another 7% represents payments for the use of natural resources. The remaining costs are shared by land rehabilitation and research work.

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Table 3.3: Environment Management and Monitoring Plan Costs for the ALROSA for 2011 to 2018

Cost (RUB Million) Activity Actual Plan Forecast 2011 2012 2013 2014 2015 2016 2017 2018 Development, Audit and Certification of Environmental Management System to ISO 14001 - 4.6 2.4 2.1 2.3 2.3 2.3 2.3 EMS Related Personnel Training - 1.2 3.1 4.9 2.0 2.0 2.0 2.0 R&D for Environmental Monitoring Activity:  Engineering and Geotechnical survey 78.8 131.2 137.8 151.5 29.5 62.0 65.0 68.0  Scientific and Research 34.0 34.3 32.9 28.9 46.7 40.0 34.0 34.0  Analytical and Operational QA/QC 94.7 137.3 166.9 161.9 162.0 169.0 176.0 183.0  New Laboratory Equipment 2.3 1.4 1.6 2.2 2.2 2.3 2.4 2.5  Accreditation and Inspections - 0.7 - 1.6 - 1.7 1.8 1.9 Waste Management - 7.8 - - - 4.0 4.0 4.0 Environmental Monitoring (air quality, hydrology, lithology, plants, animals and sub-soils) 7.2 35.8 70.9 24.3 24.3 25.4 26.5 27.6 Rehabilitation of Disturbed Lands. 40.4 102.0 41.2 25.1 100.0 100.0 100.0 100.0 Nature Conservation:  Diamonds of Yakutia Nature Park 2.9 2.5 2.5 3.5 3.5 3.7 3.8 4.0  Impact Assessment and Fish Restocking - 2.3 1.5 2.3 2.5 2.6 2.7 2.8 Corporate Public Relations 0.5 0.2 2.6 0.3 0.3 0.3 0.3 0.3 Environmental Protection Projects 493.8 484.0 3,501.0 1,713.3 1,426.1 1,608.5 578.2 400.0 Waste Water Treatment Systems Construction and Modification in Lensk, Udachny and Aikhal 23.4 171.0 403.2 1,182.7 964.1 369 - - TOTAL 778.0 1,116.3 4367.6 3,304.7 2,765.5 2,392.7 999.0 832.4 Note: Excludes costs for Severalmaz, Almazy Anabara and Nizhne Lenskoe.

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3.5.5 Health and Safety Management

Historically, health and safety management in ALROSA has been strongly influenced by the need to comply with statutory requirements, such as the Unified Safety Rules for Open Pit Mining (PB 03-498-02) and Safety Rules for Blasting Operations (PB 13-407-01). More recently, however, there has been an increasing acceptance within ALROSA that this approach alone is unlikely to achieve the best possible safety outcomes. Consequently, ALROSA has developed a health and safety management system that combines accepted Russian practice and regulatory requirements with the key elements of international practice.

The health and safety management system is based upon risk identification, risk assessment and risk management, which is undertaken in accordance with good international practice. Routine practice at all ALROSA operations now includes obligatory medical examination and safety training with refresher training every six months and repeat examination every 12 months. Use of appropriate personal protective equipment is mandatory.

All production managers and specialists receive special training and certification from Rostechnadzor (the Federal Environmental, Industrial and Nuclear Supervision Agency), and routine inspection of each workplace is required at least once per shift by the shift foreman and once per day by the section manager.

This approach has resulted in a much improved safety performance, with recorded incidents per 1,000 employees declining from 1.28 in 2006 to 0.28 in 2015, as summarised in Table 3.4. Detailed evaluation of the safety statistics suggests that this improvement is mostly accounted for by reductions in the number of “light” incidents; the number of serious incidents and fatalities has remained more or less consistent, albeit at a generally low level. The safety statistics also illustrate that the safety performance at the mining operations is often better than at the comparatively lower risk support functions. This counterintuitive finding is consistent with Micon’s experience in other parts of the Russian mining industry and may, in part, reflect the common observation that whilst a tight control is exerted over the more “risky” mining-related activities, standards remain relatively lax at the perceived less “risky” support functions, especially those utilising higher numbers of contract personnel or less well-trained, semi-skilled employees (such as construction). This observation is consistent with a review undertaken by Micon of the causes of recorded incidents in the support functions.

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Table 3.4: ALROSA Safety Performance Indices (Number of incidents per 1000 employees)

Index 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Registered Injuries 17 13 9 11 9 8 6 13 4 3 Mining Companies (1.17) (0.90) (0.63) (0.79) (0.68) (0.62) (0.46) (0.98) (0.31) (0.23) Key Ancillary 15 16 13 7 8 9 12 7 4 3 Companies (1.42) (1.53) (1.28) (0.78) (0.97) (1.13) (1.45) (0.84) (0.49) (0.36) 32 29 22 18 17 17 18 20 8 6 Total (1.28) (1.16) (0.90) (0.78) (0.79) (0.81) (0.84) (0.92) (0.38) (0.28) Registered Fatalities 2 1 3 2 2 3* 3 2 0 Mining Companies 0 (0.0) (0.14) (0.07) (0.21) (0.15) (0.15) (0.23) (0.23) (0.15) (0.00) Key Ancillary 2 1 1 1 1 1 1 1 0 1 Companies (0.19) (0.10) (0.10) (0.11) (0.12) (0.13) (0.12) (0.12) (0.00) (0.12) 4 2 1 4 3 3 4 4 2 1 Total (0.16) (0.08) (0.04) (0.17) (0.14) (0.14) (0.19) (0.18) (0.09) (0.05) Notes:  The “Mining Companies” include Aikhal GOK, Mirmy GOK, Nyurba GOK, and Udachny GOK. Similar data from Almazy Anabara, Nizhne-Lenskoe, and Severalmaz have not been included in the Table due to data incompatibility.  The “Key Ancillary Companies” include the subsidiaries, which deal with diamonds sorting, maintenance and repair, construction, purchasing, and exploration.  The safety statistics for other ALROSA companies/divisions, including the airline company, entertainment and sport complexes, leisure centres, mass media, agricultural companies, diamonds selling companies and municipal services have not been included, as far as they do not belong to the principal business and are beyond the framework of the present Report.  * Includes one group incident with two fatalities at Udachny underground mine; total 5 fatalities registered at ALROSA operations in 2012.

There is limited scope for direct comparisons with major international diamond mining operations. At the corporate level, ALROSA reports a Lost Time Injury Frequency Rate (LTIFR) per 200,000 hours worked of between 0.05 and 0.13 for the years 2010 to 2014. Superficially, these figures compare favourably with other international diamond mining operations. In 2014, Diavik Canada reported a LTIFR of 0.28, Debswana a LTIFR of 0.16 and Argyle Diamonds a LTIFR of 1.88. However, significant differences exist between countries in the reporting methodology and culture surrounding lost-time incidents, and a high proportion of ALROSA’s workforce is employed in non-mining related divisions. Nevertheless, despite these differences, the number of fatalities at ALROSA operations, which between 2006 and 2015, averaged 0.13 per 1,000 employees, appears slightly greater than other international diamond mining operations, where fatality rates tend to average around 0.01 per 1,000 employees, with several mines consistently reporting zero fatalities each year.

3.5.6 Social Issues

ALROSA occupies a unique status in the Republic of Sakha through its ownership structure, its importance to the economy and infrastructure of the region, and through the practicalities of development in remote locations that have ensured that the Company played a major role in the construction and maintenance of infrastructure and civil amenities. ALROSA fully acknowledges the responsibilities that this status confers and, furthermore, acknowledges that the development of a favourable socio-economic climate in the region is fundamental to ALROSA’s ability to attract and retain a high quality, well-motivated workforce.

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The ALROSA policy for supporting the socio-economic development of the region is based upon the principle of partnership between the Company, federal and regional government, business partners and local communities. In 2015, the total investment in social programmes amounted to over 2.5 million roubles. As part of this investment, a trust fund has been established to manage the Company’s financial contribution to the socio-economic development of the Republic of Sakha. The ALROSA subsidiary companies also operate independent social support programmes. Expenditures in 2014 were RUB 50 million by Almazy Anabara, RUB 30 million at Nizhne-Lenskoe, and RUB 2 million at Lomonosov, which has a different definition of social support.

3.6 MICON APPROACH TO ENVIRONMENTAL HEALTH AND SAFETY RISKS AND LIABILITIES

3.6.1 General Approach

Micon has visited key sites discussed in this Report, has held interviews with key ALROSA personnel at both a corporate and operational level, including both management and technical specialists, and has reviewed documents and data supplied by ALROSA. Based upon the findings of this process, Micon has, for each site:

 Reviewed the environmental and social context;  Identified the key environmental, health & safety and social issues;  Reviewed the licences and permits and assessed the degree of compliance;  Reviewed the environmental and health and safety management practices, together with the recent environmental and safety performance; and,  Considered the approach taken to community engagement and social support.

On the basis of this information, Micon has assessed the risks and liabilities associated with the current and/or proposed operations, under the following categories:

 “Low”: The risk is no greater than that normally associated with mining operations of a similar size and type worldwide;  “Moderate”: The risk is considered greater than that normally associated with such operations, but is still manageable with the application of good practice, without unduly constraining the operations; or,  “High”: The risk may not be manageable without unduly constraining the operations and may, therefore, impose a technical or financial constraint that could significantly change future production and/or cash flows.

Overall, none of the environmental risks identified by Micon are unique to ALROSA. All are amenable to good management, using industry standard techniques which are well understood by the ALROSA corporate environment, health and safety personnel. For these reasons the risks at individual operations are rated as either low or moderate.

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4.0 UDACHNY

4.1 BACKGROUND

The Udachny mining and processing division (Udachny GOK) is based in the town of Udachny (population circa 15,000), which is located 550 km north of the city of Mirny. There is limited non-mining related industrial and commercial activity in the town. The population comprises a mix of ethnic Russian and Yakut peoples. There are no traditional settlements of indigenous peoples in the area of operations.

The climate of Udachny is extreme continental, with an average annual temperature of -14°C. The long cold winters (average January temperature -40°C) are interspersed with short, but mild summers (average July temperature +20°C). Precipitation is approximately 200 mm/a. Snow cover lasts from late September through to late May. Permafrost is continuously distributed throughout the area and extends up to 1,100 metres (m) below surface; the depth of the seasonal thaw ranges from 0.2 m to 2.0 m.

The town of Udachny is located on a tributary of the Markha River. The topography is gently undulating with altitudes varying between 280 m and 500 m above sea level. The dominant vegetation type is boreal forest with limited commercial value. Localised exploitation for construction and fuel wood is common. Hunting and fishing are practised locally. Agricultural production is greatly limited by the severe climate. There are no nature- protected areas in the immediate vicinity of Udachny.

Currently, the Udachny GOK mines two hardrock diamond deposits, the Udachnaya and the Zarnitsa kimberlite pipes, in addition to the Kluch Piropovy placer and Zakonturnaya deluvial placer. The Verkhne-Munskoe deposit is currently at a preliminary development phase.

The Udachnaya kimberlite pipe is a unique hardrock diamond deposit, due to its size and the average diamond grade. Discovered in 1955, it is one of the largest kimberlite pipes in the Republic of Sakha, and is located within the Daldyn kimberlite field, north of Udachny town. The open pit was commissioned in 1971. At full capacity, the mine produced 12 Mt/a. Reserves in the open pit were exhausted in 2016.

Mining of the Udachnaya pipe below the open pit is carried out by the Udachny underground mine. The first phase of mine development was completed in 2014 and production commenced in 2016. The mine is predicted to reach a maximum production capacity of 4 Mt/a by 2019.

The Zarnitsa kimberlite pipe is located some 16 km east of Udachny town. Discovered in 1954, the deposit was first mined in 1998, with peak production of some 4.47 Mt of ore being recorded in 2008. The deposit is characterised by a relatively low average diamond grade, which has served as a limiting factor for its exploitation. Mining operations were suspended in 2010, but resumed in 2011 at a rate of 1 Mt/a, with the impending depletion of the Udachny open pit reserves.

Mine development is planned at the Verkhne-Munskoe deposit, which is located in a unpopulated and non-developed area without any infrastructure facilities available. Udachny town is situated 160 km to the southwest of the deposit. The Verkhne-Munskoe property comprises five kimberlite pipes: Zapolarnaya, Deimos, Novinka, Komsomolskaya- Magnitnaya, and Poiskovaya. The kimberlite pipes were discovered in 1956 and geological exploration has been conducted in a series of campaigns from 1956 to 2014. Test mining was conducted from 2011 to 2014. The deposit is planned to be mined by two open pits, with a

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total annual production rate of 3.0 Mt/a of ore. Run-of-mine (ROM) ore and sands will be transported to Plant No. 12 for processing. Construction of a 174 km long access road to the property has recently commenced.

The Kluch Piropovy placer and Zakonturnaya deluvial placer were discovered in 1956 and are in close vicinity to the Udachnaya kimberlite pipe. Both placers have been mined in several phases between 1967 and 1989. Mining was restarted there in 2015 to provide additional feed to Udachny GOK's central processing plant, Plant No. 12, which was commissioned in 1976.

4.2 GEOLOGY

4.2.1 Udachnaya Pipe

The Udachnaya pipe is located within the area of the Anabar anticline and Tunguss syncline intersection. Geological surveying of the area dates from 1952 and the whole area is now covered by geological survey and detailed prospecting maps.

The area is composed of basement rock represented by crystalline schist and Archaean gneissose granite. The sedimentary mantle is formed by Ordovician and Silurian terrigenous- carbonate and carbonate rocks, Upper Palaeozoic terrigenous sediments, Upper Permian and Lower Triassic igneous and igneous-sedimentary rock, and Quaternary sediments. The Udachnaya pipe transects the terrigenous-carbonate formation of Vendian-Palaeozoic rocks that constitute the sedimentary mantle, and the pipe is confined within the intersection of near east to west trending fault system and a northwest trending fault. Figure 4.1 is a geological map of the Udachnaya deposit area. Figure 4.2 is a geological cross-section, while Figure 4.3 provides the legend for Figures 4.1 and 4.2.

Figure 4.1: Geological Plan of the Udachnaya Deposit Area

Udachnaya pipe

B Source: ALROSA 2011

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Figure 4.2: Geological Profile of the Udachnaya Pipe Geological Section Line A-B

Metres SSW Udachnaya Pipe NNE

-500 -0 -500 -1,000

Source: ALROSA 2011

Figure 4.3: Legend for Figures 4.1 and 4.2

Modern section of channel flood plain – alluvium loam, loamy sand, sand, gravel, silt, peat.

Alluvial loam, loamy sand, and gravel of the 1st bench above the flood plain.

System

Quaternary Quaternary Upper Section Upper Section Alluvial loam, loamy sand, and gravel of the 2nd bench above the flood plain.

Package 4 – dolomite and limestone, often in thick formations with interbeds of clayey pseudo-oolitic limestone and conglomerate. Package 3 – thick-sheet dolomite, pseudo-oolitic clayey interbeds of sand, friable

Suite Suite limestone, conglomerate, and limestone. System

Ordovician Ordovician Packages 1 and 2 are poorly defined, dolomite and clayey limestone with Lower Section Lower Section Oldondinskaya interbeds of sandstone and conglomerate. Upper sub-suite – clayey limestone, friable limestone with interbeds of limestone, dolomite, and conglomerate. Rock is saturated with petroleum. Suite Suite Lower sub-suite – clayey limestone with interbeds of sandstone, dolomite,

Morkokinskaya conglomerate, and limestone.

Upper sub-suite – dolomite, limestone, often algal limestone with thin interbeds

Upper Section Upper Section of clayey limestone and conglomerate. Rock is saturated with petroleum.

Suite Suite Lower sub-suite – oolite, stromatolite, sandy dolomite, limestone with interbeds of boudinaged clayey limestone conglomerate. Markhinskaya Medium and upper sections are poorly defined. The Chukukskaya suite includes calcareous and sandy dolomite saturated with petroleum with interbeds of clayey limestone. Medium section – Lagunno-sabkhovaya series includes porous and cavernous Cambrian System System Cambrian salt-saturated dolomite with rare interbeds of clayey limestone and limestone

Lower and medium sections are poorly defined. Udachninskaya suite includes reef epiphyton limestone, fragmental limestone, thin dolomite interbeds. Dolomite series – silicified and calcareous porous and cavernous dolomite, poorly saturated with petroleum. Kumakhskaya series – lumpy limestone and dolomite, poorly saturated with petroleum, calcareous units.

Lower Section Lower Section Emyaksinskaya suite – mottled clayey limestone, algal calcareous limestone.

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Poorly defined Vendian – Lower Cambrian. Manykayskaya suite – algal limestone saturated with petroleum with

Interbeds of conglomerate. Vendian Starorechenskaya suite includes calcareous dolomite, stromatolite dolomite, and limestone with friable limestone interbeds.

Archaean crystalline schist and gneissose granite.

Non-differentiated and poorly differentiated dolerite sills and cross-cutting sills.

Early Early Triassic Intrusive Dolerite dykes. Formations Formations

Medium Palaeozoic kimberlite pipes, dykes, and veins.

Borders between different-aged formations: a) visible b) inferred c) borders between facial and lithological sub-sections of the same age. Lines of tectonic faults: a) proven b) inferred.

Intensively fractured zones.

Oktyabrsky fault zone.

Hydrogeological holes drilled by Amakinskaya exploration expedition in 1979 to 1991.

Hydrogeological holes drilled in 1990 to 1996.

Petroleum exploration holes drilled in 1981 to 1983 by Vilyuiskaya petroleum exploration expedition.

Geological section line.

Drill holes with numbers a) located within the section plane; b) projected onto the section plane Figures (1300, 2480) – ultimate depth in metres.

Source: ALROSA 2011

The Udachnaya pipe is traced as a consistent ore body to a depth of 250 m. Below this level it splits into two independent ore bodies, West and East, separated by a block of Upper Cambrian sedimentary host rocks. The distance between the ore bodies increases significantly with depth, from about 100 m at the level of the existing open pit bottom (-320 m) to 325 m at -1,080 m elevation.

The western ore body is ellipsoid in shape, slightly elongated in a north-westerly direction. The contact between the ore body and host rock is generally well-marked and distinct. The western ore body varies in dip from 60° to vertical. The ore body contains caverns that are filled with breccias, brines and gas.

The eastern ore body is also ellipsoid in plan and is elongated in a north-westerly direction, with a dip of 80° to vertical. The contact with the host rock is generally distinct. Like the western ore body, it is mainly formed by an autolith kimberlite breccia, with some relics of

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porphyritic kimberlite occurring within the diatreme selvage. The eastern ore body contains few major caverns and is less fractured than the western ore body.

The development of the upper levels of the deposit provided sufficient data for a thorough study of the material composition, diamond size distribution and quality of diamonds in the kimberlites. However, many raw material characteristics at the deeper levels were assessed on the basis of the core drilling data, which may not be sufficiently representative.

The hydrogeological environment exerts a major influence on the exploitation of the Udachnaya deposit, which is infiltrated by water from two interrelated Upper and Middle Cambrian aquifer complexes with vertical thicknesses of 80 m and 90 m, respectively. The groundwater is comprised of calcium-chloride brines (300 g/l to 400 g/l), which are corrosive to both metal and concrete. Caverns and fault zones also host gas-saturated brines containing hydrocarbons (mostly methane), nitrogen, hydrogen, carbon dioxide, helium and argon.

Uneconomic petroleum and bitumen occurrences have been identified in host rocks and host rock xenoliths within the kimberlite.

4.2.2 Zarnitsa Pipe

The Zarnitsa pipe occurs within Upper Cambrian carbonate rocks and the ore body extends to the top of the bedrock where it is overlain by a thin layer of clay-rich sediments. The carbonate host rocks include limestone that is often dolomitised and clay-rich, with interbedded friable limestone. The contact with these rocks is distinct and steep, the dip varying from 77° to 90°. The exo-contact zone is often characterised by fracturing of the host carbonate rock and by kimberlite veins within the host rock.

The pipe is approximately circular at the surface, 520 m by 540 m, and this shape remains almost constant with depth. Figure 4.4 is a geological map of the Zarnitsa deposit area. Figure 4.5 is a geological cross-section, and Figure 4.6 provides the legend for Figures 4.4 and 4.5.

Three petrographic types of kimberlite are distinguished within the Zarnitsa pipe, including autolith kimberlite breccia, kimberlite breccia and fine-porphyritic kimberlite (vein type). The kimberlite often contains carbonate host rock xenoliths, as well as ultrabasic rock from deep levels and metamorphic rock from the basement area. The kimberlite of the Zarnitsa deposit is characterised by a high concentration of heavy minerals (about 10 kg/t), including magnetite (40.6%), picroilmenite (37.7%), pyrite (11.0%), andradite (5.0%), hydrous iron oxide (1.1%), chrome spinel (0.4%) and olivine (0.2%).

The diamond content of the Zarnitsa kimberlite pipe is not high (circa 0.2 ct/t), but the diamonds are notable for their high quality, with approximately 40% classified as gemstones or near-gem-quality stones. In addition the average weight of individual crystals is also relatively high. These factors determine a relatively high average price for the diamonds from this deposit.

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Figure 4.4: Geological Plan of the Zarnitsa Deposit Area

Zarnitsa pipe

2 km 0 km 2 km 4 km

Source: ALROSA 2011

Figure 4.5: Geological Profile of the Zarnitsa Pipe

Metres SW Zarnitsa pipe NE 500 400 300 200 100 0 -100 -200 -300 -400 -500

Source: ALROSA 2011

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Figure 4.6: Legend for Figures 4.4 and 4.5

Geochronological scale

Age Stage Epoch Epoch Period

Modern section. Alluvial (a) gravel, sand, channel and flood plain loam; lacustrine-boggy (lb) silt, loamy sand, loam, peat: technogenic (t) rock waste dumps, processing tailings. Modern

Upper section, stage IV – modern section. Alluvial gravel, sand, loamy sand, loam of bench I above the flood plain.

Upper section, stage III. Alluvial gravel, sand, loamy sand, loam, silt of bench II above the Quaternary Quaternary Late Late flood plain. Pleistocene Pleistocene Neopleistocene Neopleistocene Upper section, stage II. Aqueoglacial gravel, boulder loam, siltstone-clayey material.

Early Early Daldyn-Alakitsky kimberlite complex

Carboniferous Carboniferous Late Devonian - Early Carboniferous Intrusive Formations: volcanic pipes, dykes and veins of porphyritic kimberlite, kimberlite breccia, autolith kimberlite breccia.

Late Late Devonian Devonian

Lower package – friable limestone, limestone, dolomite, interbeds of pseudo-oolitic limestone, stromatolite dolomite, and flat-gravel Suite Suite conglomerate. -Akhskaya Onkhoiyury Batyrbaisky

Upper sub-suite – clayey-siltstone dolomite and limestone, interbeds and lenses of oolite, pseudo-oolite and stromatolite dolomite and limestone, limestone conglomerate, friable limestone, siltstone, sandstone.

Suite Suite Lower sub-suite – limestone, dolomite, friable limestone, siltstone. Aksaisky Interbeds of limestone conglomerate and poorly-sorted conglomerate, Morkokinskaya oolite and algal limestone, sandstone, mudstone. Package IV. Rhythmic interbedding of limestone and dolomite with friable limestone, mudstone, clayey limestone and dolomite. Interbeds of Late Late

Saksky stromatolite and fragmental limestone and dolomite. Cambrian Cambrian Package III. Dolomite, petroleum-saturated limestone, friable limestone, interbeds and lenses of lumpy limestone and dolomite. Package II. Dolomite and limestone, often clayey and bituminous, Lenticular interbeds of friable limestone, mudstone, stromatolite dolomite, and flat-gravel conglomerate. Markhinskaya Suite Markhinskaya Suite Ayusokansky Package I. Dolomite, calcareous dolomite, interbeds of clayey, oolite and

stromatolite limestone, friable limestone and fragmental dolomite. Limestone-dolomite series. Dolomites are porous-cavernous with rock salt, gypsum, anhydride and liquid bitumen, interbeds of fragmental-oolite

dolomite, carbonate sandstone, granule sandstone, conglomerate, algal and

Maisky bituminous limestone, clayey dolomite and friable limestone.

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4.2.3 Verkhne-Munskoe Deposits

The Verkhne-Munskoe deposit area is characterised by gently undulating even topography, with flat and swampy watershed areas. Maximum elevations are between 290 m to 400 m. The upper surfaces of the kimberlite pipes also occur between 290 m to 400 m above sea level.

In total, 14 kimberlite pipes have been discovered within the Verkhne-Munskoe diamond field, five of which are of commercial value and comprise the Verkhne-Munskoe deposit: Zapolarnaya, Deimos, Novinka, Komsomolskaya-Magnitnaya and Poiskovaya. The pipes intersect the homoclinal terrigenous-carbonate Cambrian sediments comprised of dolomite with marlaceous clay, aleurolite and argillite deposits, in addition to mottled clayey limestone. The majority of the kimberlite bodies in the deposit are controlled by deep faults striking towards the northwest.

A geological plan of the Verkhne-Munskoe deposit area is presented by Figure 4.7 with a geological cross-section in Figure 4.8. Figure 4.9 provides the legend for Figures 4.7 and 4.8.

4.2.3.1 Zapolyarnaya Pipe

The Zapolarnaya kimberlite pipe is located almost in the centre of the Verkhne-Munskoe kimberlite field. The upper surface of the pipe is between 350 m to 355 m above sea level. To a depth of 400 m the pipe transects the following rocks from the bottom upwards: clay-enriched mottled marlstone and marl interbedded with Middle Cambrian limestone from the Zelenotsvetnaya suite (230 m to 280 m thick); and limestone, calcareous dolomite and clayey limestone from the Chukukskaya suite (Middle to Upper Cambrian, 170 m thick). The pipe is overlain by thin Quaternary residual and talus debris.

The pipe is dumbbell-shaped in plan view, striking northwest to southeast. The pipe is 445 m along its long axis and its transversal size varies from 55 m to 190 m. At a depth of 200 m, the pipe splits into two separated ore chimneys, the northwestern and the southeastern ore bodies.

The northwestern ore body is an ellipsoid, elongated in a north-westerly direction, with dimensions of 150 m by 140 m. The northwestern ore body is composed of two rock types: porphyritic kimberlite, formed at an early phase of kimberlitisation, and a later autolith kimberlite breccia. The porphyritic kimberlite forms up to 80% of the ore body material in the upper portion, decreasing gradually to 50% at a depth of 400 m.

The southeastern ore body is dumbell-shaped in plan and strikes northwest to southeast. Its dimensions at the surface are 295 m by 55 m to 95 m by 190 m. There are two petrological rock types in the southeastern ore body: porphyritic kimberlite and autolith kimberlite breccia. The porphyritic kimberlite occurs in the northeast portion of the diatreme and exists around its perimeter; the proportion of this rock type in the ore body material decreases from 45% at the surface, to 30% with depth. Autolith kimberlite breccia generally occurs in the central portion of the ore body.

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Figure 4.7: Geological Map of the Verkhne-Munskoe Area

Zapolyarnaya Pipe

Komsomolskaya-Magnitnaya Pipe

Poiskovaya Pipe

Deimos Pipe Novinka Pipe

А

Source: Alrosa 2015

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Figure 4.8: Geological Cross-Section of the Verkhne-Munskoe Area Along Line A-B

Komsomolskaya-Magnitnaya Pipe

Source: Alrosa 2015

Figure 4.9: Legend for Figure 4.7 and 4.8

Age Symbol Description Floodplain sediments. Pebble, clayey loam, often boggy. Quaternary Upper Section. Sediments of bench I above the floodplain. Gravel (predominately fine), clayey loam.

Mesozoic – Ulakh-Munsk suite. Ferrous conglomerate. Cenozoic Upper Section. Markhinsk suite. Clayey loam and silty loam with interbedding of algal and oolite variations and marl. Upper-middle section. Chukutsk suite. Limestone, loamy dolomite, and oolite variations in bottom layers of the suite. Upper sub-suite. Limestone, oolite-limestone, clayey limestone with dolomite and marl intercalation. Cambrian Lower sub-suite. Mottled clayey limestone, rarely – marl with dolomitic-limestone interbeds, often silicified. Olensk suite. Clayey limestone intercalated with dolomitic limestone, often silicified.

Middle-Lower section. Kuonamsk suite. Clayey limestone with argillite interbeds, kerogenic.

Lower section. Emiaksinsk suite. Mottled clayey limestone with interbeds of algal limestone, marl, aleurolite and argillite. Middle Palaeozoic kimberlite bodies.

Boundaries between occurrences of different ages: а) proven; b) inferred

Tectonic faults.

Diamonds areas in alluvial rock. Exploration targets. Survey base stations with their numbers.

Verkhne-Munskoe deposit site outline (Licence ЯКУ 15160 КЭ) Source: Alrosa 2015

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4.2.3.2 Deimos Pipe

The Deimos kimberlite pipe is located 110 km southeast of the Zapolarnaya pipe. It strikes north-westerly, at 300°. The diatreme is oval in plan, with a surface area of 115 m by 85 m. At a depth of 200 m, the cross-sectional shape of the ore body elongates into an ellipsoid 120 m by 55 m.

The Deimos pipe is composed of porphyritic kimberlite, and the rock is characterised by a high specific gravity of 2.56 g/cm3. The kimberlite is characterised by a porphyritic structure and massive texture. The Deimos pipe differs from the nearby Zapolarnaya pipe by its very high grade of unaltered olivine and general lack of pyrope.

4.2.3.3 Novinka Pipe

The Novinka kimberlite pipe is located 5 km west of the Zapolarnaya and Deimos pipes. Down to an explored depth of 320 m below the surface, the Novinka pipe transects the same rock types as the Zapolarnaya and Deimos pipes: Middle and Upper Cambrian terrigenous-carbonate rock from the Zelenotsvetnaya and Chukukskaya suites.

Similar to the Zapolarnaya pipe, the Novinka kimberlite body is dumbbell-shaped in plan view, elongated north-westerly. The pipe dimensions in its upper sections are 305 m by 55 m, to 125 m by 205 m. At the surface, the body forms a single pipe which splits into two individual ore chimneys (western and eastern ore bodies) at a depth of 140 m.

4.2.3.4 Komsomolskaya-Magnitnaya Pipe

The Komsomolskaya-Magnitnaya kimberlite pipe is located close to the Novinka pipe (85 m). The diatreme down to the explored depth of 300 m is hosted by Middle and Upper Cambrian terrigenous-carbonate rocks. The Komsomolskaya-Magnitnaya pipe is dumbbell shaped in plan view with a northwest strike. In the upper sections, the pipe is 280 m by 60 m, to 115 m by 115 m in area.

The diatreme is comprised of two ore bodies, which can be traced through the currently explored length of the pipe. The western ore body is predominately composed of porphyritic kimberlite, while autholitic kimberlite breccia dominates the eastern ore body.

4.2.3.5 Poiskovaya Pipe

The Poiskovaya pipe is situated 2.5 km east of the Zapolarnaya and Deimos pipes, and is composed of three individual formations: western, central, and eastern ore bodies. The eastern ore body is “blind”, in that it does not outcrop at the current surface. The dimensions of the ore bodies are: western 100 m by 73 m, central 160 m by 97 m, and eastern 80 m by 50 m. The central and western ore bodies taper sharply with depth, while the eastern formation has an almost vertical contact with the host rock, creating a slightly wider cross-sectional area in the bottom portion.

The reserves of the Poiskovaya pipe and the reserves of the alluvial sediments overlapping the pipe have both been classified as “off-balance reserves”. Neither development nor mining has been planned to take place in this area.

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4.2.3.6 Sediments

The sedimentary rocks overlapping the Zapolarnaya, Novinka Komsomolskaya-Magnitnaya and Poiskovaya pipes are comprised of a debris-clay rich material generated from the weathering of kimberlite. These sediments are diamondiferous and it is expected the material will be mined together with the excavation of the respective ore bodies. The thickness of the sedimentary layer varies from 1.5 m to 11 m.

4.2.3.7 Diamond Quality and Grade

The kimberlite pipes of the Verkhne-Munskoe ore field are notable for their relatively low diamond content, as summarised in Table 4.1.

Table 4.1: Diamond Grades for the Verkhne-Munskoe Pipes

Average Diamond Grade Average Diamond Grade From Core Analysis From Bulk Analysis Pipe Ore Body Class +0.5mm Class +0.5mm (ct/t) (ct/t) Northwest Block 0.85 0.83 Zapolyarnaya Southeast Block 0.46 0.42 Deimos - 0.43 0.58 Western Block 0.37 0.44 Novinka Eastern Block 0.64 1.05 Komsomolskaya- Western Block 0.52 0.56 Magnitnaya Eastern Block 0.33 0.39 Western Block 0.35 Poiskovaya Central Block 0.30 0.330 Eastern Block 0.23

The diamonds in all the Verkhne-Munskoe deposit kimberlite pipes (except for the Poiskovaya pipe), however, are characterised by high quality and value. The vast majority of the large crystals (+4 mm) are clear and transparent, and they can be attributed to jewellery or to near-jewellery quality.

4.2.4 Kluch Piropovy placer and Zakonturnaya Deluvial Placer

The Kluch Piropovy placer and Zakonturnaya deluvial placer were discovered in 1956 and are situated close to the Udachnaya pipe. These placers are geologically independent placers, but due to their close proximity to each other it is likely they will be mined together.

The Piropovy Stream is a right tributary of the Daldyn River. In middle-stream area, the Piropovy Stream washes out the primary diamond deposit (Udachnaya pipe), producing the Kluch Piropovy diamondiferous placer.

The Kluch Piropovy placer can be traced 3.2 km along the stream. The width of the economical portion of the placer ranges from 150 m in its upper area to 400 m in the central area.

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A residual fragment of the Zakonturnaya Deluvial placer is localised on the left bench of the Piropovy Stream in its middle-stream area. This is associated with the north and northeast edges of the Udachnaya kimberlite pipe, which seems to be the source for the placer.

In the valley portion of the Kluch Piropovy placer, the diamond grade decreases with increasing distance from the Udachnaya pipe. The grade distribution is very irregular within the placer with diamond grades varying from zero to 1.24 ct/m3. The average diamond grade of the “balance reserve” of the Kluch Piropovy placer is 0.55 ct/m3, varying from 0.39 ct/m3 to 0.70 ct/m3 in different geological blocks.

The diamond content in the productive layer of the Zakonturnaya deluvial placer decreases from the southwest towards the northeast, as the distance from the Udachnaya pipe increases. The average diamond grade in the remaining reserve of the northeast block (20-C1) is 0.52 ct/m3.

4.3 MINERAL RESOURCES AND RESERVES

4.3.1 Udachnaya Pipe

4.3.1.1 Exploration

The Udachnaya kimberlite pipe was discovered in 1955. Detailed exploration, including both surface and underground workings down to 400 m below surface, was undertaken between 1956 and 1960. Further exploration of deeper levels was undertaken between 1968 and 1972 (from 400 m to 900 m), and between 1990 and 1997 (to a depth of 1,400 m).

The deeper levels of the Udachnaya pipe were explored through a system of inclined holes that intersected the ore body at key elevations -480 m, -680 m, -880 m, and -1,080 m. Core samples were taken from all types of kimberlite, as well as host rocks within the exo-contact zone, and major xenoliths of sedimentary rock. Diamond core sampling was conducted throughout the ore bodies, with sampling primarily at 10 m intervals according to the type of kimberlite rock. Kimberlite breccias and porphyritic kimberlite were sampled separately.

Core samples were processed at the Sample-Processing Plant No. 10. Geotechnical samples were also included in the testwork. Loading, transportation and recording of core samples were conducted under the control of the geological survey service. Samples were processed using standard equipment, including crushers, classifiers, jigs, screens, grease separators and flotation separators. The samples were processed using a conventional flowsheet, recovering +0.2 mm diamonds in the following sequence: weighing, crushing to -16 mm, selective recovery, de-sliming, jigging, drying, screening, X-ray fluorescence separation, grease separation, and flotation.

The laboratory analysis included descriptions of diamonds recovered from core samples, geotechnical studies on kimberlite and host rock, their mineralogy, research on mineralogical characteristic and physical properties of diamonds, as well as evaluation of rough diamond quality.

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The last stage of exploration provided the basis for the evaluation of reserves for the Udachnaya pipe from 800 m to 1,400 m depth. This work was used to prepare the cut-off grade criteria feasibility study (TEO) and to estimate reserves for underground mining. The reports passed the state expert examination and were reviewed at the GKZ meeting held on 3rd October 2001.

4.3.1.2 Russian Mineral Reserve Estimate

The most recent Russian reserve estimate for the Udachnaya pipe was undertaken in 2000 and was conducted in order to establish the basis for designing the underground mine. The estimation was based on reserves between 800 m and 1,400 m and relied on information gathered during the 1990 to 1997 exploration phase and the exploration cut-off criteria defined in 1998 and 1999.

The following cut-off criteria were used for estimating the deposit balance reserves:

 Balance reserves were estimated within the range of -280 m and -1,080 m elevations;  Diamond balance reserves estimate included +0.5 mm diamonds;  The reserves of -0.5 mm to +0.2 mm diamonds were estimated for information purposes only and these were not assigned to either the balance or off-balance categories;  The minimum economic diamond grade in a reserve block for balance reserves within the range of -280 m to -580 m elevations (Stage I) was defined as 0.86 ct/t for the western ore body and 0.72 ct/t for the eastern ore body;  Within the range of -580 m to -1,080 m elevations (Stage II), the minimum economic diamond grade in a reserve block was defined as 0.91 ct/t for the western ore body and 0.82 ct/t for the eastern ore body; and,  The delineation of reserves was completed within the geological boundaries of the kimberlite pipe.

The reserves were estimated using the method of geological blocks bounded by horizontal sections associated with a set of given key elevations, as described previously in Section 3.2. The average diamond grade, as well as the bulk density of ore, was defined for 200 m high blocks, and the average values were then applied to two adjacent 100 m high blocks. In total, 14 reserve blocks were delineated.

In total, 730 core samples were used for reserve estimation. In the course of processing these samples, 7,314 diamond crystals with the total weight of 20,063.9 mg (100 ct) were recovered. An adjustment factor of 1.565 was applied to total the weight of -2 mm to +5 mm diamonds, in order to estimate the total weight of diamonds and, hence, the average grade of the deposit. The adjustment factor was confirmed by the experience of mining the upper levels of the pipe. Micon applied the adjustment factor to estimate the Udachnaya pipe reserves.

The State balance reserves of the Udachnaya pipe, as at 1st January 2016, are presented in Table 4.2.

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Table 4.2: Russian Balance Reserves of the Udachnaya Pipe as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Tonnage Tonnage Grade Diamonds Grade Diamonds (kt) (kt) (ct/t) (kct) (ct/t) (kct) For Open-Pit Mining +0.5 mm Class

C1 5,672 1.17 6,652 - - -

C2 ------For Underground Mining +0.5 mm Class (down to -1,080 m Elevation)

C1 90,900 1.50 136,638 - - -

C2 53,991 1.28 68,978 6,328 0.72 4,556 Total for the Deposit

C1 96,572 1.48 143,290 - - -

C2 53,991 1.28 68,978 6,328 0.72 4,556

4.3.1.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has developed independent mineral resource estimates in accordance with the guidelines of the JORC Code (2012) for the West and East ore bodies of Udachnaya pipe.

Micon has assessed both the in-situ mineral resources and the Udachny open pit ore stockpile. The material contained in the stockpile was included in the mineral resource statement as Measured material, in accordance with the guidelines of the JORC Code (2012).

The mineral resources for the Udachnaya pipe, estimated in accordance with the guidelines of the JORC Code (2012), are summarised in Table 4.3. Mineral resources, as reported herein, are inclusive of the reserves.

Table 4.3: Mineral Resources of the Udachnaya Pipe as at 1st January 2016

Diamond Grade Contained Diamonds Tonnage JORC Category Description +0.5 mm +0.5 mm (t) (ct/t) (ct) Measured Stockpile of Mined Ore 880 0.85 747 Measured For open pit mining 5,657 1.18 6,675 For UG mining, in-Situ Measured 7,109 1.18 8,390 above -320 m For UG mining, in-Situ Indicated below -320 m and above 83,524 1.53 127,801 -680 m Total Measured and Indicated 97,169 1.48 143,613 Inferred 53,991 1.28 68,978

4.3.1.4 JORC Code Ore Reserve Statement

Micon has estimated the ore reserves of the Udachnaya pipe within the guidelines of the JORC Code (2012), the ore based on the Measured and Indicated mineral resources stated in Table 4.3. Inferred resources were excluded from the reserve estimation process. Ore reserves are evaluated to the -580 m elevation which represents current depth of the access to the ore.

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Resources for open pit mining are converted into reserves for underground mining as open pit mining of the deposit was completed in the first half of 2016. Micon included the volume of material that was blasted in the pit for subsequent extraction by underground methods.

Ore reserves have been estimated incorporating allowances for mining dilution and ore losses that will occur in future operation; the adjustment factor values are contained in Table 4.4. Actual 2016 production data were used for the open pit, and corresponding factors from the mine design documentation (2015) – for the underground mine.

Table 4.4: Ore Losses and Dilution for the Udachnaya Pipe

Mining Unit Dilution Losses (%) (%) Open Pit Reserves 8.61 0.01 Underground Mine Reserves West, -260 m/-320 m 6.80 6.80 East, -260 m/-320 m 4.70 4.70 West, -320 m/-365 m 15.00 10.00 East, -320 m/-365 m 6.30 6.30 West, -365 m/-580 m 14.56 8.81 East, -365 m/-580 m 8.56 8.31

Ore reserves of the Udachnaya pipe, classified in accordance with the guidelines of the JORC Code (2012), are presented in Table 4.5.

Table 4.5: Ore Reserves of the Udachnaya Pipe as at 1st July 2016

Diamond Grade Contained Diamonds Tonnage JORC Category Description +0.5 mm +0.5 mm (kt) (ct/t) (kct) Proved Stockpile of Ore 1,108 0.67 747 Proved Underground 13,298 1.10 14,588 Total Proved 14,406 1.06 15,335 Probable Underground 69,410 1.37 94,894 Total Proved and Probable 83,815 1.32 110,229

4.3.2 Zarnitsa Pipe

4.3.2.1 Exploration

The Zarnitsa kimberlite pipe was discovered in 1954 and was the first hardrock diamond deposit to be discovered in Russia. Between 1955 and 1958, preliminary exploration of the pipe was conducted via a system of exploration holes and trenches. Exploration reached a depth of 20 m. The grid density was 40 m by 40 m. Due to limitations in the processing technology of the day, the average diamond grade in the pipe was estimated at only 0.05 ct/t and, consequently, the deposit was considered to have no economic value at that time.

Between 1977 and 1980, the diamond-bearing potential of the deposit was re-evaluated. A total of 34 core holes were drilled on an 80 m by 80 m grid to a depth of 30 m (1,020 m in total), and 17,975 m3 of trenches were excavated. A 20,900 t bulk sample of kimberlite was collected and testing returned an average diamond grade of 0.218 ct/t, which provided sufficient justification for continued exploration.

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Between 1981 and 1984, detailed exploration of the pipe was undertaken to a depth of 700 m (down to -280 m elevation). Exploration comprised 23 exploration core holes intersecting the key elevations used for ore body delineation at +220 m, +20 m and -280 m. These exploration results were approved by the GKZ and the ore reserves were included within the State Balance of Russian Federation (1985). However, mining has shown that the exploration data from 1981 to 1984 resulted in overestimation of diamond grades.

Since mining commenced in 1999, a programme of operational exploration drilling has been conducted. A drilling grid of 80 m by 80 m was implemented initially, with further infill drilling at 80 m by 56 m and 40 m by 40 m. The total length of operational exploration drilling was 17,091 m.

Further exploration was conducted between 2012 and 2014. The aim was to re-assess the ore reserve of the Zarnitsa pipe and to undertake a feasibility study for mining to a target depth of 200 m (+220 m elevation). Core drilling on an 80 m by 80 m grid was the main exploration technique employed using a sampling interval equal to the planned mining bench height of 10 m. A total of 18 holes were drilled to a depth of 150 m, amounting to 7,171.5 m of drilling. Nine additional inclined exploration holes without sampling were drilled to a depth of 200 m. A total of 239 samples were obtained, and these were processed at Plant No. 10, with external QA/QC conducted at the Plant No. 6.

4.3.2.2 Russian Mineral Reserve Estimate

The diamond reserves of the Zarnitsa pipe were initially estimated using permanent cut-off criteria approved by the USSR GKZ in 1984. At that time, the reserves for open pit mining to a depth of 400 m were estimated at 160,441.5 kt, with an average grade of 0.38 ct/t, giving a diamond reserve of 60,968 kct.

More recently, ALROSA has re-estimated the reserves for the Zarnista pipe, because of reconciliation differences between predicted and actual mined diamond grades. The Russian reserves re-estimated by ALROSA were officially approved by the GKZ on 18th December 2015. The re-estimation was based on all the exploration and operation data from the deposit, including data from the most recent exploration phase undertaken between 2012 and 2014.

The revised cut-off parameters used in the latest Russian reserve estimate are as follows:

 The reserve assessment was conducted within the shell of the designed open pit down to a depth of 200 m below the surface (+220 m elevation);  Minimum diamond grade of 0.165 ct/t for +0.5 mm class crystals for classification as off-balance material for material outside the open pit shell;  The reserve assessment was conducted within geological kimberlite pipe outline for range of elevations +220 m - +20 m;  Minimum diamond grade of 0.117 ct/t for +0.5 mm class crystals within the open pit limits for classification as off-balance material;  The residual mineralised material in the open pit walls should be excluded from the reserve assessment due to low diamond content (0.082 ct/t);  Minimal commercial diamond grade of 0.243 ct/t; and,  Diamonds contained were assessed using +0.5 mm class crystals.

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The Zarnitsa pipe reserve estimation was conducted using the geological block methodology described in Section 3.2. The kimberlite specific gravity (SG) has been defined from core 3 samples taken at 10 m intervals. For Block I-C1, the average SG is 2.33 t/m (705 samples).

The block volumes were calculated from the average plan area and the block height. Pipe volumes were depleted for material already mined.

The State balance reserves of the Zarnitsa pipe, as at 1st January 2016, are presented in Table 4.6.

Table 4.6: Russian Balance Reserves of the Zarnitsa Pipe as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Tonnage Tonnage Grade Diamonds Grade Diamonds (kt) (kt) (ct/t) (kct) (ct/t) (kct) Within the Open Pit Outline (+360 m - +220 m) +0.5 mm Class

C1 28,571.4 0.253 7,228.7 29,926.5 0.099 2,962.7

C2 ------Outside the Open Pit Outline (+220 m - +20 m) +0.5 mm Class

C1 ------

C2 69,950.0 0.380 26,581.2 - - - Total for the Deposit

C1 28,571.4 0.253 7,228.7 29,926.5 0.099 2,962.7

C2 69,950.0 0.380 26,581.2 - - -

4.3.2.3 JORC Code Mineral Resource Statement

By applying the methodology and sources of information described in Section 3.3, Micon has developed independent mineral resource statements in accordance with the guidelines of the JORC Code (2012) for the Zarnitsa pipe. Micon’s analysis confirmed the reserve values indicated on the State Balance of the Russian Federation for the Zarnitsa pipe. These values formed the basis which Micon adjusted to account for depletion of diamond bearing material during first six months of 2016.

As summarised in Table 4.7, only C1 Russian balance reserves within a designed pit outline can be classified as a mineral resource in accordance with the guidelines of the JORC Code (2012). The resources stated in Table 4.7 are inclusive of the reserves. Material below the +220 m elevation represents the resource potential of the deposit, but the degree of confidence does not allow this material to be classified as mineral resources. Table 4.8 presents the potential values for this material.

Table 4.7: Mineral Resources of the Zarnitsa Pipe as at 1st July 2016

Diamond Grade Contained Diamonds Tonnage JORC Category Block No. +0.5 mm +0.5 mm (kt) (ct/t) (kct)

Indicated Ia-C2 27,131 0.25 6,858

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Table 4.8: Exploration Results from Potential Targets of the Zarnitsa Pipe as at 1st July 2016 (Potential Resources are not classified within the guidelines of the JORC Code (2012))

Diamond Grade Contained Tonnage Block No. +0.5 mm Diamonds (kt) (ct/t) +0.5 mm (kct)

II-C2 69,950 0.38 26,581 III 90,164 0.07 6,311

4.3.2.4 JORC Code Ore Reserve Statement

The statement of Zarnitsa pipe reserves is based on the mineral resources classified in accordance with the guidelines of the JORC Code as stated in Table 4.7, modified to include allowances of 0.648% for dilution and 0.016% for ore losses. These values correspond to actual production statistics reported in 2016. The ore reserves are summarised in Table 4.9.

Table 4.9: Ore Reserves of the Zarnitsa Pipe as at 1st July 2016

Diamond Grade Contained Diamonds Tonnage JORC Category +0.5 mm +0.5 mm (kt) (ct/t) (kct) Probable 27,303 0.25 6,857

4.3.3 Verkhne-Munskoe Pipes

4.3.3.1 Exploration

The Verkhne-Munskoe kimberlite pipes were discovered in the mid-1950’s. Prospecting and exploration included three phases: 1956 to 1959 by surface trenches, exploration pits and short drill holes; 1988 to 1989 by prospecting and evaluation from vertical drilling; and 2001 and 2006 by inclined drilling and kimberlite bulk sampling. The Zapolarnaya pipe was studied to a depth of 400 m, the Novinka and Komsomolskaya-Magnitnaya pipes to between 300 m to 320 m, and the Poiskovaya and Deimos pipes to 200 m. In total, 142 exploration holes totalling 28,891 linear metres, five hydrological wells and three geotechnical boreholes were drilled.

The kimberlites and host rocks within the metamorphic contact zone were studied by core drilling. Core samples were taken over the full length of the identified ore intercepts, including those located beyond the resource blocks. In total, 2,626 core samples were taken from the kimberlite bodies and host rocks, including 2,334 core samples from kimberlites, of which 2,250 were within resource blocks. On average, core samples were taken at 10 m intervals for each individual ore type. Normally, a core length of 0.3 m to 0.5 m from each 10 m interval was sent for analysis.

Eight trenches were excavated during the exploration phase from 2001 to 2006: two trenches at the Zapolarnaya, Novinka, and Komsomolskaya-Magnitnaya pipes, and one trench at each of the Poiskovaya and Deimos pipes. In order to assess the diamond potential in the associated placer deposits, placers, one “sands” bulk sample, 5 m3 to 10 m3, was taken from each trench.

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All the exploration samples were processed at Plant No. 10 and at the mobile modular plant. The diamond bearing rough concentrate produced by the mobile modular plant was transported to Plant No. 10 for X-ray separation, grease separation, and electromagnetic separation.

Reserves were assessed based on the exploration programme results and the reserve estimate was approved by the GKZ in 2007.

From 2011 to 2014, pilot scale mining was conducted within the Verkhne-Munskoe licence area, in order to assess processing methods and verify diamond reserves. Seven trenches were mined within the pilot mining programme: two trenches at the Zapolarnaya, Novinka and Komsomolskaya-Magnitnaya pipes and one at the Deimos pipe. In total, 10,898 t of kimberlite bulk samples were taken and were processed at Plant No. 10 and the mobile modular plant.

4.3.3.2 Russian Mineral Reserve Estimate

The original Verkhne-Munskoe deposit diamond reserve estimate was completed using data from the 2001 to 2006 exploration phase and was included into the State Balance reserves in 2007.

The Verkhne-Munskoe deposit reserve assessment was updated by ALROSA in 2015, using data from the pilot scale operation (2011 to 2014) and the information available from all previous studies, and by the geological block methodology described in Section 3.2. The updated reserve estimate for Verkhne-Munskoe was approved by the GKZ on 26th April 2016.

The following cut-off parameters have been used in the latest reserve estimate:

 The reserve assessment for kimberlite hard rock material was conducted within the geological outlines of the kimberlite pipes;  Cut-off grades for +0.5 mm diamonds in the last sample for delineating the balance reserves in eluvial-diluvial sediments will be 0.10 ct/m3 within the open pit limits;  +0.5 mm class represents the minimal commercial diamond grade, with a total for the deposit of 0.53 ct/t;  Balance reserves were assessed within the open pit limits justified in the TEO;  The diamond mass contained in the reserve was evaluated from the +0.5 mm class;  The minimal commercial diamond grade in an access passing block is 0.25 ct/t; and,  Any reserve located beyond the open pit limits and all the reserves of the Poiskovaya pipe were classified as off-balance reserves.

Table 4.10 summarises the Russian state balance reserves of the deposit for the kimberlites and the eluvial placers above the pipes.

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Table 4.10: Russian Balance Reserves of the Verkhne-Munskoe Deposits as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Tonnage Grade Diamonds Tonnage Grade Diamonds (t) +0.5 mm +0.5 mm (t) +0.5 mm +0.5 mm (ct/t) (kct) (ct/t) (kct) Kimberlite

С1 46,914 0.653 30,616.2 1,487 0.400 594.8

С2 17,168 0.574 9,856.9 4,317 0.303 1,307.6 Placers Diamond Contained Diamond Contained Volume Grade Diamonds Volume Grade Diamonds Category (k m3) +0.5 mm +0.5 mm (k m3) +0.5 mm +0.5 mm (ct/m3) (kct) (ct/m3) (kct)

С2 404.7 0.685 277.1 54.2 0.483 26.2

4.3.3.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described previously in Section 3.3, Micon has developed a mineral resource statement for the Verkhne-Munskoe deposit in accordance with the guidelines of the JORC Code (2012). Micon’s analysis confirmed the reserve values indicated on the State Balance of the Russian Federation. The mineral resources of the Verkhne-Munskoe kimberlite pipes, are presented in Table 4.11, while Table 4.12 provides the mineral resources of the Verkhne-Munskoe deposit placer sediments. The resources stated in Tables 4.11 and Table 4.12 are inclusive of reserves.

Table 4.11: Mineral Resources of the Verkhne-Munskoe Kimberlite Pipes as at 1st July 2016

Diamond Grade Contained Diamonds Tonnage JORC Category +0.5 mm +0.5 mm (kt) (ct/t) (kt) Indicated 46,914 0.65 30,616 Inferred 17,168 0.57 9,857

Table 4.12: Mineral Resources of the Verkhne-Munskoe Placers as at 1st July 2016

Diamond Grade Contained Diamonds Volume JORC Category +0.5 mm +0.5 mm (k m3) (ct/m3) (kt) Inferred 405 0.68 277

4.3.3.4 JORC Code Ore Reserve Statement

Micon has estimated the ore reserves of the Verkhne-Munskoe deposit within the guidelines of the JORC Code (2012), based on the Indicated mineral resources stated in Table 4.11. Inferred resources were excluded from the reserve estimation process.

While estimating the reserves of the Verkhne-Munskoe deposit Micon applied allowances for mining losses and dilution estimated in the TEO study completed and reported for the deposit in 2015 by Yakutniproalmaz. The applied values are presented in Table 4.13.

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Table 4.13: Ore Losses and Dilution for the Verkhne-Munskoe Deposit Pipes

Losses Dilution Kimberlite Pipe (%) (%) Zapolyarnaya 0.519 0.191 Deimos 0.502 0.121 Novinka 0.384 0.138 Komsomolskaya - Magnitnaya 0.576 0.123

The ore reserves for the Verkhne-Munskoe deposit, classified in accordance with the guidelines of the JORC Code (2012), are presented in Table 4.14.

Table 4.14: Ore Reserves of the Verkhne-Munskoe deposit as at 1st July 2016

Diamond Grade Contained Diamonds Tonnage JORC Category Kimberlite Pipe +0.5 mm +0.5 mm (kt) (ct/t) (kt) Probable Zapolyarnaya 26,030 0.68 17,745 Probable Novinka 11,418 0.69 7,874 Komsomolskaya - Probable 9,310 0.52 4,846 Magnitnaya Total Probable Reserve 46,758 0.65 30,465

4.3.4 Kluch Piropovy Placer and Zakonturnaya Deluvial Placer

4.3.4.1 Exploration

The Kluch Piropovy placer and Zakonturnaya deluvial placer were discovered in 1955 – 1956. Geological exploration has been completed in two phases. From 1956 to 1960, both placers were studied within the proposed open pit perimeter of the Udachnaya pipe. Then, from 1961 to 1963, the initial exploration area was expanded to include areas located beyond the open pit limits.

Detailed exploration of both placers was carried out using 2.0 m2 exploration pits on a 400 m by 20 m grid. A total of 216 exploration pits were excavated within the remaining reserves at the Kluch Piropovy placer, including 144 exploration pits within the resource block outlines. Four pits were excavated within the Zakonturnaya deluvial placer resource block.

The exploration programme resulted in 348 bulk samples, of which 172 samples were accepted for the reserve estimate. The bulk samples were taken to the full depth of the excavated pits. The lengths of the sampling intervals varied from 0.5 m to 8.9 m, maintaining the minimal volume of sample required to be representative.

Surface trenching within the central area of Block 22-C1 at the Kluch Piropovy placer and Block 20-C1 at the Zakonturnaya deluvial placer was undertaken in 2014. Two bulk samples from productive layers at both deposits were collected to assess the diamond distribution and to evaluate their potential market value. Both bulk exploration samples were processed at Plant No. 10.

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4.3.4.2 Russian Mineral Reserve Estimate

The most recent reserve estimate for the Kluch Piropovy placer and Zakonturnaya deluvial placer was completed in 2014, using the geological block method described previously in Section 3.2. The estimate was based on data obtained from earlier exploration work, including the 2014 bulk sampling, but using the updated cut-off parameters are listed below:

 Minimum commercial diamond grade in a resource block was of 0.39 ct/m3;  Minimum diamond grade in a block located among other blocks delineated for reserve estimation was of 0.30 ct/m3;  Minimum diamond grade in the last sample for contouring the deposit in plan was 0.156 ct/m3;  Thickness of each productive layer was outlined within its geological boundaries;  Reserve assessment was made for +0.5 class crystals;  Off-balance reserves in each resource block were accounted for as diamonds with grades below the minimal commercial cut-off, but exceeding the value of the marginal grade in the last sample used for contouring the deposit;  Any ore located within 200 m of the Daldyn River water conservation zone was attributed to off-balance reserves.

The Russian reserve summary, as at 1st January 2016, is contained in Table 4.5.

Table 4.15: Russian Balance Reserves of the Kluch Piropovy Placer and Zakonturnaya Deluvial Placer as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Volume Grade Diamonds Volume Grade Diamonds (k m3) +0.5 mm +0.5 mm (k m3) +0.5 mm +0.5 mm (ct/m3) (kt) (ct/m3) (kt) Zakonturnaya Deluvial Placer

С1 211.0 0.519 109.5 - - - Kluch Piropovy Placer

С1 1,001.9 0.488 489.3 - - -

С2 454.1 0.520 236.3 73.4 0.277 20.3

С2 (Water conservation zone) - - - 487.6 0.306 149.3

4.3.4.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described previously in Section 3.3, Micon has developed a mineral resource estimate in accordance with the guidelines of the JORC Code (2012) for the Kluch Piropovy placer and Zakonturnaya deluvial placer, as summarised in Table 4.16, including the “sands” reserves. Micon’s analysis confirmed the reserve values indicated on the State Balance of the Russian Federation as a basis for its estimate, which took into account the depletion of diamond bearing material during the first six months of 2016.

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Table 4.16: Mineral Resources of the Kluch Piropovy placer and Zakonturnaya Deluvial Placer as at 1st July 2016

Diamond Grade Contained Diamonds Volume JORC Category +0.5 mm +0.5 mm (k m3) (ct/m3) (kt) Zakonturnaya Deluvial Placer Indicated 211 0.52 110 Kluch Piropovy Placer Indicated 1,012 0.48 489 Inferred 184 0.52 96 Total Indicated 1,223 0.49 599 Total Inferred 184 0.52 96

4.3.4.4 JORC Code Ore Reserve Statement

The statement of ore reserves for the Kluch Piropovy placer and Zakonturnaya deluvial placer, estimated in accordance with the guidelines of the JORC Code (2012), has been prepared incorporating data provided within the 2014 TEO. The ore reserves are based on the Indicated mineral resources presented in Table 4.16, modified by the average values for ore losses and dilution justified within the 2014 TEO and corrected according to the actual values reported for the first six months of 2016. Adopted values of losses and dilution are presented in Table 4.17.

Table 4.17: Ore Losses and Dilution for the Kluch Piropovy placer and Zakonturnaya Deluvial Placer

Losses Dilution Placer Deposit (%) (%) Kluch Piropovy 0.011 9.33 Zakonturnaya 0.006 18.38

Ore reserves of the Kluch Piropovy placer and Zakonturnaya deluvial placer, classified in accordance with the guidelines of the JORC Code (2012), are presented in Table 4.18.

Table 4.18: Ore Reserves of the Kluch Piropovy Placer and Zakonturnaya Deluvial Placer as at 1st July 2016

Diamond Grade Contained Diamonds Volume JORC Category Placer Deposit +0.5 mm +0.5 mm (k m3) (ct/m3) (kt) Probable Kluch Piropovy 233 0,47 109 Probable Zakonturnaya 1,240 0,39 489 Total Probable 1,473 0.41 599

4.4 MINING

4.4.1 Udachny Mine Design and Operation

In 2015 and in the beginning of 2016, open pit operations targeted the extraction of ore pillars in the pit walls and production mining was carried out in the Western ore body. Open pit

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mining at the deposit was completed in the first half of 2016, and extraction of the remaining reserves will be carried out by underground mining. The construction of the first stage of the underground mine was completed in 2014 and development of the underground workings is in progress. Underground production started in 2016. Figure 4.10 schematically presents the current status of mining operations at the Udachnaya pipe.

Figure 4.10: Schematic Section of Mining Progress of the Udachnaya Pipe

Source: ALROSA 2013

4.4.1.1 Udachny Open Pit

The Udachny open pit commenced production in 1971 and operations ceased in 2016. The final depth of the pit is 640 m, ranging from a surface elevation of +320 m to the pit bottom at -320 m.

Traditional surface mining methods have been used throughout the mine’s life, including drilling, blasting, loading, and hauling by trucks for dumping on the surface. As mining in the open pit has finished, no detailed description of the operation is provided in this Report.

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4.4.1.2 Udachny Underground Mine

The construction of the Udachny underground mine started in 2004 and is ongoing. The initial phase of the mine was put into operation on 27th June 2014. Access to the kimberlite pipes below the pit bottom is provided by three vertical shafts located to the south of the open pit: a skip shaft, a cage shaft and a ventilation/auxiliary shaft (Figure 4.11).

Figure 4.11: Location of Shafts and Capital Crosscuts of the Main Levels of Udachny Underground Mine

Cage Shaft

Skip Shaft

Level -380 m

Level -480 m

Level -580 m Ventilation Auxiliary Shaft

Source: Micon ALROSA 2013

The ventilation shaft is 8 m in diameter and was sunk to the -655 m elevation (approximately 1,000 m depth). The shaft is equipped with a cage, which has capacity for 75 people, and a skip with a capacity of 30 t. This shaft will be mainly for downcast ventilation and for an emergency second means of egress. For the period up to the completion of the mine construction, the skips in this shaft will be used to hoist all material to the surface.

The cage shaft is 8 m in diameter and designed to transport personnel and large equipment underground. Currently, the shaft is not included into the mine ventilation system. It will be equipped with a 5 t winch hoist with a two-deck cage and capacity for 75 people per deck. The shaft has been sunk to elevation -655 m.

The production skip shaft will provide hoisting of ore and exhaust ventilation from the mine. This shaft has a diameter of 9 m and was sunk to elevation -655 m. It will be equipped with two multi-rope hoists, each of which will be fitted with 30 t capacity skips.

Fresh air is supplied to the underground mine excavations through the ventilation / auxiliary shaft by the main ventilation unit. The fresh air is then distributed over the -380 m, -480 m, - 580 m, and -650 m elevations. The exhaust air from the mine passes through the ventilation channel of the skip shaft. In winter, the fresh air is heated.

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Underground mining of the deposit started from level -260/-320 m. The material on this level is contained in the pillars left in the pit walls. The mining method used is a variation of uphole longhole retreat stoping. A part of the block reserves will be left on the pit bottom after blasting to form an ore pad (Eastern ore body) and a mixed ore-and-waste pad (Western ore body) which will protect underground mining below the pit bottom and the -320 m level.

Figure 4.13 shows a plan view of the underground workings of the -320 m elevation. Figure 4.14 is a cross-section illustrating design features of the mining method that will be used to excavate the reserves of the -260/-320 m level. Figure 4.12 provides the legend for Figures 4.13 and 4.14, and subsequent illustrations.

Figure 4.12: Key for Figures 4.13, 4.14, 4.15, 4.16 and 4.17

Symbol Description

Blasted Waste

Ore In Situ

Blasted Ore

Figure 4.13: Udachny Underground Mine - Plan View of the -320 m Elevation

Incline #4 (Level -290 m to Level -315 m) Incline to Level -320 m Ventilation Raise (-320 m / -365 m) Northern Incline Ventilation Raise No.1 to EOB Northern Incline to WOB (-320 m / -365 m)

Blast Holes

Western Ore Body Eastern Ore Body

Central Cross-Cut

Ventilation Raise Southern Incline (-320 m / -365 m) No.1 to EOB Southern Incline to WOB Ventilation Raise (-320 m / -365 m) 100 m 0 m 100 m 200 m Blast Holes

Source: ALROSA 2015

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Figure 4.14: Udachny Underground Mine – Vertical Cross-Sections of the -320 m Elevation

A - A B - B Pit Wall Blasted Ore (-260 m/-320 m level) Blasted Ore Waste Fill (-260 m/-320 m level) Blast Holes Blast Holes B -260 m level 5-8 m

Up to 60 m -320 m level -334 m level

-380 m level

Drilling and Mucking Drives B 100 m 0 m 100 m 200 m

Source: ALROSA 2015 Note: A-A sectional line for Figure 4.14 is indicated in Figure 4.13

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Figure 4.15: Udachny Underground Mine - Vertical Cross-Section of Eastern and Western Ore Bodies – Elevations -320/-365 m

Eastern Ore Body Pit Wall -260 m Level -260 m Level

Blasted Ore (-260 m /-320 m Level) Blasted Ore (-320 m /-365 m Level - protecting pillow)

Blast Holes Blasted Pillar - temporary Pillar Above Drive inactive reserves -320 m Level -320 m Level

A 5-8 m A 30 m >30 m

B -365 m Level -365 m Level B 20 m 20 m Ventilation Raise (-365 m/-380 m) -380 m Level -380 m Level

Panel 0-1 Panel 1-2 Panel 2-3 Panel 3-4 Panel 4-5 Panel 5-6 Panel 6-7 Ore Passes (-365 m/-380 m)

40 m 40 m 40 m 40 m 40 m

Source: ALROSA 2015

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Figure 4.15: Udachny Underground Mine - Vertical Cross-Section of Eastern and Western Ore Bodies – Elevations -320/-365 m (continued)

Western Ore Body Blasted Ore Blast Holes (-260 m /-320 m Level) Pillar Above Drive Protecting Ore and Waste Pillow -260 m Level Pit Wall -260 m Level

Blasted Pillars - temporary inactive Waste Pillow up to 60 m 60 m Pillow up to Waste reserves -320 m Level Pit Bottom -320 m Level 5-8 m 30 m >30 m

-365 m Level -365 m Level 20 m 20 m

-380 m Level -380 m Level

Panel 14-15 Panel 13-14 Panel 12-13 Panel 11-12 Panel 10-11 Panel 9-10 Panel 8-9 Panel 7-8 Ore Passes (-365 m/-380 m)

40 m 40 m 40 m 40 m 40 m 40 m

Source: ALROSA 2015

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Figure 4.16: Udachny Underground Mine - Horizontal Cross-Sections of the Eastern Ore Body - Elevations -320 and -365 m

A - A B - B

Panel 2-3 Panel 3-4 Panel 4-5 Panel 2-3 Panel 3-4 Panel 4-5 Ring Drive of 40 m 40 m Ring Drive of Eastern Ore Body Eastern Ore Body Panel 5-6 Panel 5-6 Panel 1-2 Panel 1-2

Blast Holes Panel 6-7 Blast Holes Panel 6-7

Loading Drives Loading Drives Ventilation Raise Panel 0-1 Ventilation Raise Panel 0-1 (-320 m/-365 m) (-320 m/-365 m) >40 m Ventilation Raise Ventilation Raise (-320 m/-365 m) (-320 m/-365 m)

Delivery Cross-Cut Delivery Cross-Cut of Eastern Ore Body of Eastern Ore Body

Ventilation Raise (-365 m/-380 m) Ore Passes 100 m 0 m 100 m 200 m (-365 m/ -380 m)

Source: ALROSA 2015 Note: Cross-section lines for Figure 4.16 are presented on Figure 4.15

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Mining operations under the pit bottom will commence as soon as the excavation front at the -320 m level advances in relation to the below lying level.

The uphole longhole retreat mining method entails sub-dividing the ore body into 40 m wide panels in plan. The extraction of the reserves will be by sub-panels with lengths of 40 m and a width of 40 m. A continuous, single-stage (no pillars) method extraction within panels has been adopted. Pillars will be left only above the excavations with drawpoints and will be extracted from the next mining level down.

Figure 4.15 shows vertical sections illustrating design features of the mining method that will be used for the extraction of reserves from elevations -320 m to -365 m of both the Eastern and Western ore bodies. Figure 4.16 presents the corresponding plan views of the Eastern ore body.

Excavation of the reserve localised below the -365 m elevation will be provided for by the use of block caving system.

The ore beneath the pit bottom will be divided into three mining production levels defined by the current mine design:

 -320/-365 m elevation - height of production block is 45 m;  -365/-465 m elevation - height of production block is 100 m; and,  -465/-565 m elevation - will be mined similarly to the -365/-465 m elevation.

The main haulage levels will be every 100 m, starting at the -380 m elevation. They will be located 15 m below the corresponding mucking level, and the mined ore will be delivered from the mucking levels to the main haulage levels via ore passes.

Currently, development of the drives and the stopes is underway to prepare the ore between the -260 m and -365 m elevations for mining. Development is also in progress on the -398 m elevation. The ALROSA mine construction division performs the capital construction works at the mine. This includes the development of the major transportation elevations; -480 and - 580 m.

Production drilling in stopes is provided by Sandvik DL 420-7 electric hydraulic drill rigs for long holes. Ore delivery to ore passes at mucking levels will be provided by LH-410 diesel load-haul-dump (LHD) units, with 5m3 bucket capacity. Ore passes will be equipped with vibrating feeders for loading ore at the main transportation levels. At the -380 m elevation, ore will be loaded into underground trucks (carrying capacity 10.2 m3) and transported to the skip loading complex of the ventilation / auxiliary shaft at -368 m elevation, where the ore will be loaded into the skip by conveyor and further transported to the surface. When the construction of the main levels is completed, they will be equipped with conveyors that will transport ore to the skip shaft for hoisting to the surface.

Roof support of the waste development and the production drives will be required using a combination of steel mesh and concrete lining.

The Udachny underground mine is expected to encounter high inflows of mineralised groundwater (brines). The underground workings are protected by drilling inclined rising

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dewatering holes, which is currently being undertaken from the -365 m level. The mine drainage system includes several underground water tanks, equipped with pumps. The pump capacity is more than adequate for the forecast maximum water inflow. The mine water is pumped up the ventilation / auxiliary shaft to the mine water diversion station reservoirs on the surface and through the wells to the -255 m and the -260 m elevations in the open pit. After that mine water is delivered to the mine drainage water reinjection unit at the Levoberezhny reinjection site.

Micon notes that the Udachny underground mine utilises a mining method that has not been used at other ALROSA underground mines. The transition from open pit to underground mining provides another complication, taking into consideration the timing, location and the geometry of orebody and the presence of ore pillars in the pit walls. In Micon’s opinion, the achievement of the planned production targets in the initial period of mining is likely to be a challenge, and production shortfalls may occur in the short term.

The Udachny underground mine will operate on a three shift per day basis for 365 days per year, seven hours per shift. Production from the mine is scheduled to start in 2016 at a rate of 0.8 Mt/a, increasing to a maximum production of 4 Mt/a in 2019.

4.4.2 Udachny Production

4.4.2.1 Open Pit Production

Production data for the Udachny open pit from 2012 until 1st July 2016 are summarised in Table 4.19. Mining operations at the open pit have now ceased.

The amount of stockpiled ore from the Udachny open pit ore as at 1st July 2016 was included by Micon when estimating the deposit ore reserves and incorporated into the processing production plan.

4.4.2.2 Underground Mine Production

Construction of the first phase facilities of the Udachny underground mine was completed in 2014. Production stoping commenced in 2016. Actual data from the mining operations for the Udachny underground mine from 2014 to 1st July 2016 are summarised in Table 4.20.

The underground production schedule was developed by Micon, using data from ALROSA’s long term development plan extending to 2030, adjusted to conform to Micon’s estimate of the contained reserves. Planned production parameters of the Udachny underground mine suggested by Micon’s production schedule for the period from 1st July 2016 until 2030 are presented in Table 4.21.

The production schedule does not envisage depletion of the Udachnaya pipe reserves. It is estimated that the remaining reserves as at 1st January 2031 will be 29,307 million tonnes of ore, containing 38,484 million carats of +0.5 mm diamonds.

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Table 4.19: Udachny Open Pit Actual Production

2012 2013 2014 2015 H1 2016 Parameter Plan Actual % Plan Plan Actual % Actual % Plan Actual % Plan Actual % Ore (kt) 3,230 3,385 105 4,800 4,889 102 780 798 102 1,410 1,852 131 200 345 173 Diamond Grade +0.5 mm (ct/t) 1.36 1.21 89 1.13 1.13 100 0.59 0.67 113 0.90 1.05 117 0.50 0.46 91 Contained Diamonds +0.5 mm (kct) 3,938 3,725 95 5,424 5,523 102 462 535 116 1,264 1,951 154 100 157 157 Waste Stripping (k m3) 1,110 1,283 116 80 83 104 1,274 1,274 100 235 235 100 0 0 - Stripping Ratio (m3/t) 0.34 0.38 110 0.02 0.02 102 1.63 1.60 98 0.17 0.13 76 0.00 0.00 -

Table 4.20: Udachny Underground Mine Actual Production

2014 2015 H1 2016 Parameter Plan Actual % Plan Actual % Plan Actual % Ore (kt) 77.7 89.1 115 250 262 105 300 290 97 Diamond Grade +0.5 mm (ct/t) 1.75 1.30 74 1.42 1.57 110 1.52 1.58 104 Contained Diamonds +0.5 mm (kct) 136 116 85 355 410 116 456 459 101 Waste Development (k m3) 24.7 20.3 82 34.3 29.4 86 33.3 33.3 100

Table 4.21: Udachny Underground Mine Production Schedule

H2 Parameter 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total 2016 Ore (kt) 400 2,000 3,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 53,400 Diamond Grade +0.5 mm (ct/t) 1.59 1.70 1.31 1.31 1.31 1.31 1.31 1.31 1.31 1.31 1.31 1.31 1.31 1.31 1.31 1.33 Contained Diamonds +0.5 mm (kct) 636 3,394 3,939 5,252 5,252 5,252 5,252 5,252 5,252 5,252 5,252 5,252 5,252 5,252 5,252 70,998 Waste Development (k m3) 34 60 50 32 21 12 46 53 83 59 100 100 100 100 100 950

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4.4.3 Zarnitsa Mine Design and Operation

Commercial operations at the Zarnitsa open pit began in 1999 and, at 1st July 2016, the pit was approximately 90 m deep (elevation +330 m), with a surface dimension of 800 m by 800 m. It is planned to mine the pit to an ultimate depth of 200 m (elevation +220 m). Mining should be carried out within the boundary of kimberlite pipe.

Low diamond grades and the relatively low efficiency in mining the deposit have resulted in a recent revision to the design that was detailed in the 2015 TEO report. As a result, the reserve in Block I-C, has been subdivided into a higher grade Western zone and a lower grade Eastern zone. The Western zone is included in balance reserves, with the Eastern zone being considered off-balance.

The plan view shown in Figure 4.17 and a cross-section in Figure 4.18 illustrate the position of the final open pit outline. The Western zone ore will be mined and processed, whereas the low grade ore from the Eastern zone will be stockpiled for potential future processing.

Figure 4.17: Plan View of the Zarnitsa Open Pit Final Outline

200 m 0 m 200 m 400 m

Source: ALROSA 2015

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Figure 4.18: Cross-Section of the Zarnitsa Open Pit Final Outline

NW 1 - 1 SE Elevation (m)

Open Pit at 01.01.2015

Final Open Pit

Balance Ore Off-Balance Ore

Source: ALROSA 2015

The open pit utilises conventional truck and shovel surface mining techniques. The ore is broken by drilling and blasting, then loaded and hauled to an intermediate stockpile located 0.9 km west of the pit. From this stockpile, the ore is hauled 21 km to Plant No. 12, or to the stockpile at Udachny. Waste is transported to external dumps.

Tamrock D-75KS and Russian SBSH-250MNA-32 drill rigs are used to drill the blast holes. Russian EKG-10 rope shovels and Liebherr R-9350 excavators are used for loading the broken rock. CAT-785 trucks are used for hauling ore to the intermediate stockpile, and ore transportation to Plant No. 12 is carried out by SCANIA road trucks with a capacity of 70 t. The design annual production from the Zarnitsa open pit is 3.5 Mt/a.

4.4.4 Zarnitsa Production

The Zarnitsa open pit started operations in 1999. Production was suspended temporarily in 2010 and recommenced in 2011. Actual production data from 2012 to 1st July 2016 are summarised in Table 4.22.

The production schedule from 1st July 2016 to 2024 is presented in Table 4.23. This schedule is based upon ALROSA’s long term development plan extending to 2030 and its production plan in the 2015 TEO Report, adjusted to conform to Micon’s reserve estimate. These reserves are expected to be fully depleted in 2024, at which point operations are expected to cease.

4.4.5 Kluch Piropovy Placer and Zakonturnaya Deluvial Placer Mine Design and Operation

Mining at the Kluch Piropovy placer and the Zakonturnaya deluvial placer began in 1967 and continued up until 1974. Production was resumed in 1984 and continued until 1989. In 2014, the deposit reserves were re-estimated and open pit mining operations recommenced in 2015.

Overburden is removed first and the sands are then mined and transported for processing at Plant No. 12. Mining of this material is undertaken only in winter, whilst the sands are frozen, due to the high water content.

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Table 4.22: Zarnitsa Open Pit Actual Production

2012 2013 2014 2015 H1 2016 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Plan Actual % Ore (kt) 1,000 1,000 100 1,000 1,000 100 1,000 1,039 104 1,000 1,112 111 1,380 1,408 102 Diamond Grade +0.5 mm (ct/t) 0.22 0.21 96 0.17 0.17 100 0.16 0.17 108 0.22 0.25 118 0.25 0.25 99 Contained Diamonds +0.5 mm (kct) 216 207 96 171 171 100 157 177 113 215 281 131 349 354 101 Waste Stripping (k m3) 210 210 100 850 612 72 1,320 1,320 100 2,900 2,727 94 1,150 1,238 108

Table 4.23: Zarnitsa Open Pit Planned Production Schedule

Parameter H2 2016 2017 2018 2019 2020 2021 2022 2023 2024 Total Ore (kt) 1,500 2,700 2,600 3,310 3,500 3,500 3,500 3,500 3,193 27,303 Diamond Grade +0.5 mm (ct/t) 0.26 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 Contained Diamonds +0.5 mm (kct) 388 683 651 829 877 877 877 877 800 6,857 Mining Preparation Work1 (k m3) 5 10 10 10 10 10 10 10 10 85 Off-Balance Ore (k m3) 250 1,200 1,100 800 700 600 450 200 54 5,354 Waste Stripping (k m3) 1,015 2,520 1,920 1,100 800 600 200 75 40 8,270

Note: 1 The term “Mining Preparation Work” in the above table and further in the report in respect to open-pit mining of kimberlite deposits indicates the open-pit maintenance work, i.e. cleaning of safety benches, construction of access ramps, etc.

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Excavation and loading of the material is performed using a Liebherr R9150 hydraulic backhoe excavator with a bucket capacity of 8 m3. A LeTourneau L1150 front-end loader is used to load overburden and sand layers less than 3 m in thickness, and for the loading of sands from the stockpile. Caterpillar САТ-785В and CAT-740 trucks are used to haul the mined material.

The annual volume of sands to be mined at the Kluch Piropovy placer and the Zakonturnaya deluvial placer is expected to reach 1 Mt.

4.4.6 Kluch Piropovy Placer and Zakonturnaya Deluvial Placer Production

Mining recommenced at the Kluch Piropovy placer and Zakonturnaya deluvial placer in 2015, after a long break. Actual mining production data for the Kluch Piropovy placer and Zakonturnaya deluvial placer for 2015 and the first half of 2016 are presented in Table 4.24.

The mining production schedule for the Kluch Piropovy placer and Zakonturnaya deluvial placer for the period starting from 1st July 2016 is shown in Table 4.25. The schedule is based upon ALROSA’s long term development plan extending to 2030 and its production plan in the 2014 TEO Report, adjusted to conform to Micon’s reserve estimate. According to this schedule depletion of the deposits’ reserves will be completed in 2018. Further exploration and upgrading of Inferred mineral resources to higher categories could increase the reserve and extend the operational life.

Table 4.24: Kluch Piropovy Placer and Zakonturnaya Deluvial Placer Open Pit Actual Production

2015 H1 2016 Parameter Plan Actual % Plan Actual % Sands (k m3) 279 247 89 307 355 116 Diamond Grade (ct/m3) 0.40 0.40 98 0.45 0.44 96 Contained Diamonds (kct) 113 98 87 140 155 111 Off-Balance Sands (k m3) 267 232 87 0 0 - Waste Stripping (k m3) 510 420 82 240 247 103

Table 4.25: Kluch Piropovy Placer and Zakonturnaya Deluvial Placer Open Pit Production Schedule

Parameter 2016 H2 2017 2018 Total Sands (kt) 500 1,000 1,152 2,652 Sands (k m3) 279 557 637 1,473 Diamond Grade (ct/m3) 0.47 0.39 0.40 0.41 Contained Diamonds (kct) 131 216 252 599 Waste Stripping (k m3) 220 200 240 660

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4.4.7 Verkhne-Munskoe Open Pits Design and Operation

ALROSA has started development of the Verkhne-Munskoe deposit. The current schedule predicts mining operations should begin in 2017. The deposit will be operated by two open pits: the Zapolarny open pit (Zapolarnaya and Deimos pipes) and the Magnitny open pit (Novinka and Komsomolskaya-Magnitnaya pipes). Excavated ore will be hauled to the Udachny GOK Plant No. 12 for processing. The haulage distance is estimated to be approximately 170 km. SCANIA line-haul trains with capacities of 90 t are proposed to be used for hauling the ore.

Final depth assessments for the open pits have been completed. According to the assessments, the Zapolarny open pit base should reach down to 400 m to enable the entire excavation of the Zapolarnaya pipe (400 m deep) and the recovery of the Deimos pipe to a depth of 200 m. The Magnitny final open pit base will reach a depth of 300 m.

Figures 4.19 and 4.20 illustrate the final outline and cross section of the Zapolarny open pit. The final plan and sectional views of the Magnitny open pit are shown in Figures 4.21 and 4.22.

Figure 4.19: Plan View of the Zapolarny Open Pit Final Outline

A

A

200 m 0 m 200 m 400 m

Source: Alrosa 2016

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Figure 4.20: Cross-Section of the Zapolarny Open Pit Final Outline

A - А

Source: Alrosa 2016

Figure 4.21: Plan View of the Magnitny Open Pit Final Outline

A

A

200 m 0 m 200 m 400 m

Source: Alrosa 2016

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Figure 4.22: Cross-Section of the Magnitny Open Pit Final Outline

A - А

Source: Alrosa 2016

Mining will be performed using trucks to haul the mined waste to outside the open pit and to waste piles within the open pit. Mined ore and sands will be dumped in temporary stockpiles outside the open pit for further transportation to Plant No. 12 for processing. Conventional drilling and blasting techniques will be implemented to prepare the in-situ material for blasting.

САТ-777G mine trucks with 91 t capacity will be used for haulage, however for extremely steep inclines, the ore and waste haulage will be completed by XCMG XDA60Е articulated trucks (60 t capacity) with a 6 by 6 chassis type, manufactured in China.

The Atlas Copco Pit Viper 235 drilling rig is proposed to be used for waste and ore drilling. All blasted material will be loaded into trucks by Liebherr R9350 face shovels (15.3 m3 bucket capacity) and by CAT-993 front loaders (12 m3 bucket capacity). Other mining equipment and ancillary transport is also envisaged by the TEO report.

4.4.8 Verkhne-Munskoe Open Pits Production

The production schedule for the Verkhne-Munskoe open pits from 2017 to 2030 is presented in Table 4.26. This schedule is based upon ALROSA’s long term development plan extending to 2030 and the production plan in the 2015 TEO Report, adjusted to conform to Micon’s reserve estimate.

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Table 4.26: Verkhne-Munskoe Planned Production Schedule

Parameter 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Ore (kt) 100 250 2,505 2,850 2,850 2,850 2,877 3,000 3,000 3,000 3,000 3,000 3,000 3,000 35,282 Diamond Grade +0.5 mm (ct/t) 0.62 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63 Contained Diamonds +0.5 mm (kct) 62 157 1,572 1,789 1,789 1,789 1,806 1,883 1,883 1,883 1,883 1,883 1,883 1,883 22,145 Mining Preparation Work (k m3) 2 5 10 15 15 15 15 20 20 20 20 20 20 20 217 Waste Stripping (k m3) 240 600 2,675 4,500 7,800 9,300 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 113,115

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4.5 PROCESSING

4.5.1 Overview

Processing of the ores mined at the Udachny complex is undertaken at Plant No. 12, located in Udachny. The plant was designed in 1976 to process ore from the Udachnaya pipe, and has operated continuously since it was commissioned in 1978. From 2000, feed material has included ore from the Zarnitsa pipe and from 2015 sands from the Piropovy Placer, with the two materials being blended prior to processing. The efficiency of diamond recovery is very consistent and averages approximately 97% (Table 4.27).

Table 4.27: Plant No. 12 Actual Production1

Parameter 2012 2013 2014 2015 H1 2016 Ore Processed (kt) 4,619 5,825 4,814 5,377 3,096 Average Head Grade (ct/t) 1.261 0.855 0.776 0.803 0.530 Total Diamonds in Mill Feed (kct) 5,825 4,979 3,737 4,316 1,641 Diamond Recovery (%) 97.1 96.7 97.3 97.3 97.1 Carats Recovered (kct) 5,656 4,815 3,633 4,201 1,594 Note: 1Only +5 mm diamonds are included in the table

4.5.2 Current and Planned Production Parameters

The average head grade for the first half of 2016 was 0.53 ct/t. The total ore processed has gradually declined from 7,192 kt in 2009 to 5,377 kt in 2015. It is planned to process 6,500 kt of material in 2016 with a head grade 0.66 ct/t and to recover 4,138 kct of class +0.5 mm diamonds.

Historically, the main contributors to production have been from the Udachny open pit, which ceased production in 2016, and the Zarnitsa pipe. Currently, there is only minor production from the Udachny underground mine. Production stoping began in 2016 and production from the underground mine will reach the designed capacity of 4,000 kt only in 2019.

The previously mined Kluch Piropovy placer and Zakonturnaya deluvial placer were brought back into production in 2015, motivated by the declining production levels at the Udachnaya pipe. To provide additional feed for Plant No. 12, the Verkhne-Munskoe deposit will be brought into production comprising of five pipes, four pipes to be mined from two open pits.

The production schedule developed by Micon for Plant No. 12, from 1st July 2016 to 2030, is summarised in Table 4.28.

The planned production figures for Plant No. 12, prepared by Micon, correspond to those contained in the Udachny GOK divisions production plans. These plans also agree with the ore reserve statements declared in accordance with the JORC Code (2012) and are based on ALROSA’s long term production plan. The production schedule includes processing of the stockpile at the Udachny open pit, but does not include the recovery of class -0.5 mm diamonds.

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Table 4.28: Plant No. 12 Planned Production

Parameter H2 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Sources of Mill Feed Udachny Open Pit (kt) 0 500 608 ------1,108 Udachny Underground Mine (kt) 400 2,000 3,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 53,400 Zarnitsa Open Pit (kt) 1,500 2,700 2,600 3,310 3,500 3,500 3,500 3,500 3,193 ------27,303 Kluch Piropovy and Zakonturnaya Placers (kt) 500 1,000 1,152 ------2,652 Verkhne-Munskoe Deposit (kt) 0 100 250 2,505 2,850 2,850 2,850 2,877 3,000 3,000 3,000 3,000 3,000 3,000 3,000 35,282 Processing Ore Processed (kt) 2,400 6,300 7,610 9,815 10,350 10,350 10,350 10,377 10,193 7,000 7,000 7,000 7,000 7,000 7,000 119,745 Average Head Grade (ct/t) 0.48 0.74 0.71 0.78 0.77 0.77 0.77 0.76 0.78 1.02 1.02 1.02 1.02 1.02 1.02 0.85 Diamonds in Mill Feed (kct) 1,155 4,692 5,409 7,653 7,918 7,918 7,918 7,935 7,935 7,135 7,135 7,135 7,135 7,135 7,135 101,346 Average Recovery (%) 96.20 96.54 96.58 96.61 96.60 96.60 96.60 96.60 96.62 96.80 96.80 96.80 96.80 96.80 96.80 96.68 Diamonds Recovered +0.5 mm (kct) 1,111 4,530 5,225 7,394 7,649 7,649 7,649 7,665 7,667 6,907 6,907 6,907 6,907 6,907 6,907 97,979

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4.5.3 Process Flowsheet

4.5.3.1 Existing Flowsheet

The current flowsheet, used in Process Plant No. 12, is summarised below and has a design capacity of 12 Mt/a.

Ore is crushed in a cone crusher and then ground to -50 mm in autogenous mills, of which eight are available with five currently in operation. The maximal size of the overflow is 400 mm. After initial desliming of the mill discharge, with the overflow reporting to final tailings, the deslime underflow is screened and the resulting -50 to +20 mm, -20 to +10 mm and -10 to +5mm fractions are processed in X-ray sorters, with the concentrates passed to the final recovery section. The sorter tails are returned to the milling circuit for regrinding.

The -5 mm fraction is further deslimed in two stages, with overflows reporting to final tailings. The deslimed underflow is screened to produce a -5 to +2 mm and -2 mm fraction. The -5 to +2 mm fraction is processed in jigs to produce a concentrate for final recovery and the jig tailings, after dewatering, are returned to the milling circuit for regrinding.

The -2 mm fraction is deslimed, with overflow reporting to final tailings, and the underflow treated in rougher and cleaner spiral classifiers. Spiral tailings report to final tails. Spiral concentrate is deslimed and a pneumatic flotation unit is used to produce a concentrate that reports to final recovery. The flotation tailings are screened at 1.6 mm, with the -1.6 mm fraction reporting to final tails and the +1.6 mm fraction returned to the milling circuit for regrinding.

The final recovery section uses standard equipment, including further X-ray sorter units, grease drums, drying and magnetic separation, before passing the concentrates to the sorthouse for final diamond recovery.

4.5.3.2 Proposed Modified Flowsheet

It is proposed to make several modifications to the existing flowsheet. After crushing, seven of the eight autogenous mills will now be utilised to provide additional capacity. Deslimed underflow will be screened to produce slightly different size fractions, -50 to +25 mm, -25 to +13 mm and -13 to +6 mm, which will be processed as per the existing flowsheet.

The -6 mm fraction will be further deslimed in two stages, with overflow reporting to final tailings and underflow screened to produce -6 to +1.6 mm and -1.6 mm fractions. The -6 to +1.6 mm fraction will be processed in a more efficient dense media separation (DMS) circuit, instead of jigs, to produce a concentrate for final recovery, with DMS tailings reporting as final tailings. The -1.6 mm fraction will be processed as per the -2 mm fraction in the existing flowsheet.

Micon understands that, during 2015, the new DMS circuits for processing the -6 to +1.6 mm fraction were installed (two circuits, each of 110 t/h capacity). Recovery is expected to increase from 85% with the former jigs to 99% with the DMS circuits.

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4.6 INFRASTRUCTURE

4.6.1 Transport

Udachny is linked to other settlements by both air and road transport. The airport, located 12 km west of the town, accepts both cargo and passenger aircraft and the roads connecting Udachny to the settlements of Aikhal (70 km), Mirny (520 km) and Lensk (750 km) can be used throughout the year.

Freight intended for Udachny is generally first delivered via railway to the town of Ust-Kut, from which it is then transported along the Lena River to the town of Lensk and, finally, by road to Udachny.

4.6.2 Power and Water

Electric power is supplied to Udachny town and the industrial facilities of Udachny GOK from the Vilyuy hydroelectric power plant (HPP), located on the Vilyuy River near the Chernyshevskiy settlement. Electric power is supplied to the town via 220 Kv transmission lines more than 400 km long. Heating is provided by central electric boiler houses in the town. A dam was constructed on the Sytykan River, 7 km west of Udachny town, to provide a potable and industrial water supply to the town and GOK facilities.

A power line has been installed to the Zarnitsa open pit from the town of Udachny, 23 km distant.

4.7 ENVIRONMENTAL, HEALTH AND SAFETY AND SOCIAL ISSUES

4.7.1 Environmental and Health and Safety Management

The older operations, such as the Udachny open pit, were developed prior to much of the current environmental legislation. However, the technical basis for environmental and health and safety management of the more recent operations, including the Udachny underground mine, has been established in the relevant TEO documentation and the subsequent detailed design documentation, supplemented by documented internal regulations.

Udachny environmental personnel also maintain an environmental management programme, covering issues related to atmospheric emissions and air quality, protection of water resources and waste management. The environmental management programme is updated annually.

A register of the key facilities and their operational controls is provided in Table 4.29.

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Table 4.29: Udachny GOK Key Facilities (2016)

Air Emission Water Quality Facility Waste Controls Controls Controls Plant No. 12 (with 2 Tailings Facilities) √ √ √ Udachny Open Pit √ √ √ Udachny Underground Mine - - √ Zarnitsa Open Pit √ √ √ Zakonturnaya Deluvial Placer - - - Kluch Piropovy Placer - - - Verkhne-Munskoe1 - - - Water Reservoir - - √ Vehicle Maintenance Facilities √ √ - Specialised Equipment Repair √ √ - Heat and Power Unit √ √ - Note: 1 Deposit not being worked as of 1st July 2016

4.7.2 Key Environmental and Safety Issues

4.7.2.1 Inflows from Groundwater and Rainfall

Although all open pits and underground mines are in areas of continuous permafrost, there are localised areas where the high salt content prevents groundwater from freezing. These taliks, can give rise to inflows that are characterised by a high mineral content. The occurrence of such taliks is identified during the design stage and the issue is particularly severe at Udachny, where inflows of water averaging 168 m3/hour, with a total mineral content in excess of 400 g/l, are experienced.

Methane derived from localised natural gas deposits is also associated with some of the groundwater inflows, with up to 0.8 m3 methane gas evolving from each cubic metre of groundwater. Small quantities of naturally occurring oil also seep into the open pit.

These considerations are currently less prevalent at Zarnitsa, although groundwater inflow is predicted to increase as the open pit deepens towards 250 m to 260 m.

The discharge of highly mineralised water to surface waters is no longer permitted without a level of dilution that would be impractical. Consequently, the highly mineralised groundwater is delivered to sumps in the open pit, in which the suspended solids are settled, prior to the water being pumped and re-injected into fissures within the permafrost. The volume of mine water is such that the current re-injection site is nearing saturation and new sites are currently being evaluated.

4.7.2.2 Air Quality in the Open Pits

The air quality in the open pits is generally satisfactory for most of the year. However, during winter, the climate can give rise to periods of temperature inversion over the operations. During a temperature inversion, air within the open pits is effectively prevented from mixing with atmospheric air, causing a build-up of gaseous emissions generated during mining operations from blasting, vehicle exhausts etc. Gas concentrations can reach 30 mg 3 3 NOx/m and 50 mg CO2/m , exceeding safe working concentrations for several days until the

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temperature inversion ceases. The magnitude and duration of events increases as the open pits deepen.

ALROSA has developed a number of measures in response to such events, including postponing non-essential work and the use of positive air pressure cabs on vehicles. The waste rock dumps are located to ensure minimum disruption to natural air-flows across the open pit. However, despite these measures there are times when the conditions constrain operations, occasionally causing a complete cessation of work for short periods.

4.7.2.3 Waste Rock Management

Open pits generate a substantial quantity of waste rock, the disposal of which occupies large areas of land that ultimately require re-vegetation. Most of the waste rock is geochemically benign and does not give rise to poor-quality drainage water, although a small portion can contain high concentrations of salts.

4.7.2.4 Tailings Management

Tailings supernatant water is typically highly mineralised. All ALROSA tailings facilities now operate on a zero discharge basis, with water being re-circulated to the process plant. Seepage through the dam walls is restricted by the systematic enhanced freezing of the walls; any residual seepage is collected and returned to the tailings impoundment.

4.7.2.5 Mine Closure and Rehabilitation

A total of some 579 ha of land associated with the Udachnaya pipe will require rehabilitation, at a total estimated cost of RUB 60 million. Udachny GOK has been investigating the use of new technologies to revegetate the waste dumps, although only limited rehabilitation work has been completed to date at Udachny.

4.7.3 Health and Safety

The development of the underground mine represents a significant change in the risk profile of the Udachny complex. The change in working environment and operational practices, combined with inherent hazards in the underground mine related to poor ground conditions associated with water inflows and natural methane occurrences, presents a number of challenges to safety management. The management at both the corporate and operational level are aware of these challenges and have implemented a series of measures designed to address the key issues.

Safety statistics from Udachny GOK indicate a trend of generally improving safety performance since 2006, although some deterioration was evident in 2011 and 2102, probably associated with the increasing workforce employed in underground operations at Udachny. Indeed, the fatal incident in 2012, in which two miners were killed, was caused by a methane explosion underground. The safety performance since 2013 suggests a return to the long term trend of a steady improvement. The general safety performance is consistent with that demonstrated by ALROSA as a whole (Table 4.30).

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Table 4.30: Udachny GOK Safety Performance

Parameter 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average

Udachny GOK Total Number of Recorded Incidents 2 4 4 2 1 2 2 0 1 1 1.90 Incidents/1,000 Employees 0.47 0.95 0.94 0.48 0.23 0.56 0.57 0 0.30 0.30 0.48 Number of Fatal Incidents 0 0 0 0 0 1 1 0 1 0 0.30 Number of Fatalities 0 0 0 0 0 1 2 0 1 0 0.40 Fatalities/1,000 Employees 0.00 0.00 0.00 0.00 0.00 0.28 0.57 0 0.30 0 0.12 Number of Serious Incidents 1 0 1 0 0 1 1 0 0 0 0.40 Serious Incidents/1000 Employees 0.23 0.00 0.23 0.00 0.00 0.28 0.29 0 0 0 0.10 Number of Lost Working Days 212 361 175 88 26 138 136 0 0 90 123 Lost Days/1000 Employees 50 85 41 48 23 36 39 0 0 27 35 Total ALROSA Incidents/1000 Employees 1.28 1.16 0.90 0.78 0.79 0.81 0.84 0.92 0.38 0.28 0.82 Fatalities/1000 Employees 0.16 0.08 0.04 0.17 0.14 0.14 0.19 0.18 0.09 0.00 0.13 Serious Incidents/1000 Employees 0.28 0.12 0.04 0.04 0.19 0.19 0.09 0.32 0.00 0.05 0.13 Lost Days/1000 Employees 63 50 44 32 20 41 33 38 21 6 35

Note: “Total ALROSA” is for mining operations” only and includes data from Aikhal GOK, Mirny GOK, Nyurba GOK, Udachny GOK and all mining related support functions. Data for other ALROSA group companies are excluded. Data from Almazy Anabara, Nizhne-Lenskoe and Lomonosov are not included due to the incompatibility of the data.

4.7.4 Regulatory Compliance

Operations at Udachny are covered by five sub-soil licences issued by the State Committee for the Subsoil Use of the Republic of Sakha (Yakutia):

 Licence No. ЯКУ 03017 КЭ covers the Udachnaya pipe;  Licence No. ЯКУ 03000 КЭ covers the Zarnitsa pipe;  Licence No. ЯКУ 15160 КЭ covers Verkhne-Munskoe;  Licence No. ЯКУ 15658 КЭ covers the Kluch Piropovy placer; and,  Licence No. ЯКУ 15659 КЭ covers the Zakonturnaya deluvial placer.

The environmental, health and safety and social conditions attached to these licences are broadly consistent.

4.7.5 Permits for Nature Use

Udachny GOK operates under a series of separate permits for air emissions and waste management for the different operations, although all operations are covered by a single water discharge permit (Table 4.31). Micon has not identified any significant breaches of the conditions attached to these permits. The limits associated with both the water permit and, in particular, the waste permit have been exceeded, but these exceedances were covered by excess fee payments, as is standard Russian practice.

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Table 4.31: Udachny GOK Permits for Nature Use

Type of Licensed Date of Validity Expiry No Activity Licence No. Issuing Authority Issue Period Date GOK Division Air Emissions Directorate for Federal Environmental 5th February 31st December 1 Tailings Facility PDV 13/15 Supervision Service (Rosprirodnadzor) in the 5 years 2013 2017 Republic of Sakha (Yakutia) Directorate for Federal Environmental 5th February 31st December 2 Special Repair Shop PDV 13/16 Supervision Service (Rosprirodnadzor) in the 5 years 2013 2017 Republic of Sakha (Yakutia) Directorate for Federal Environmental Zakonturnaya Udachny and 7th June 6th June 3 474 Supervision Service (Rosprirodnadzor) in the 5 years Piropovy Placer Deposits 2016 2021 Republic of Sakha (Yakutia) Directorate for Federal Environmental Udachny and Zarnitsa 5th February 31st December 4 PDV 13/17 Supervision Service (Rosprirodnadzor) in the 5 years and Open Pits 2013 2017 Republic of Sakha (Yakutia) Directorate for Federal Environmental 5th February 31st December 5 Vehicle Maintenance PDV 13/18 Supervision Service (Rosprirodnadzor) in the 5 years 2013 2017 Republic of Sakha (Yakutia) Directorate for Federal Environmental 5th February 31st December 6 Plant No. 12 PDV 13/19 Supervision Service (Rosprirodnadzor) in the 5 years 2013 2017 Republic of Sakha (Yakutia) Directorate for Federal Environmental 13th May 31st March 7 Udachny Mine PDV 15/38 Supervision Service (Rosprirodnadzor) in the 5 years 2015 2020 Republic of Sakha (Yakutia) Directorate for Federal Environmental 5th February 31st December 8 Heat and Power Unit PDV 13/20 Supervision Service (Rosprirodnadzor) in the 5 years 2013 2017 Republic of Sakha (Yakutia) Waste Tailings Storage Directorate for Federal Environmental 16th 16th December 1 Enrichment Plant 14/115 Supervision Service (Rosprirodnadzor) in the December 5 years 2019 Concentrator 12 Republic of Sakha (Yakutia) 2014 Directorate for Federal Environmental 16th 16th December 2 Plant Dump 14/116 Supervision Service (Rosprirodnadzor) in the December 5 years 2019 Republic of Sakha (Yakutia) 2014 Directorate for Federal Environmental 11th 10th September 3 Concentrator Plant No. 12 15/65 Supervision Service (Rosprirodnadzor) in the September 5 years 2020 Republic of Sakha (Yakutia) 2015 Directorate for Federal Environmental 11th 10th September 4 Udachny Open Pits 15/69 Supervision Service (Rosprirodnadzor) in the September 5 years 2020 Republic of Sakha (Yakutia) 2015 Directorate for Federal Environmental 11th 10th September 5 Tailings Facility 15/64 Supervision Service (Rosprirodnadzor) in the September 5 years 2020 Republic of Sakha (Yakutia) 2015 Directorate for Federal Environmental 2nd June 2nd June 6 Heat and Power Unit 10/15 P Supervision Service (Rosprirodnadzor) in the 5 years 2011 2016 Republic of Sakha (Yakutia) Directorate for Federal Environmental 11th 10th September 7 Vehicle Maintenance 15/68 Supervision Service (Rosprirodnadzor) in the September 5 years 2020 Republic of Sakha (Yakutia) 2015 Directorate for Federal Environmental 11th Special Repair and 10th September 8 15/67 Supervision Service (Rosprirodnadzor) in the September 5 years Construction 2020 Republic of Sakha (Yakutia) 2015 Directorate for Federal Environmental 11th Office and Amenity 10th September 9 15/66 Supervision Service (Rosprirodnadzor) in the September 5 years Buildings, Administration 2020 Republic of Sakha (Yakutia) 2015 Water Combined Water Discharge Directorate for Federal Environmental 2nd December 30th November 1 from Udachny Open Pit NDS -13/17 Supervision Service (Rosprirodnadzor) in the 5 years 2013 2018 Outlet Republic of Sakha (Yakutia) Water Use 14-18.03.08,004-Х- Department of Water Affairs of the Republic of 1 Water Use Agreement 2013 13 years 2026 C-2013-02176/00 Sakha (Yakutia)

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4.7.6 Risk Categorisation

Notwithstanding the issues considered above, Micon considers the overall risk associated with environmental and health and safety considerations at Udachny to be moderate. The identified risk issues are not unique and inherent to the reviewed enterprises only. All these issues can be resolved by efficient management involving standard industrial practices, well acknowledged by the EP and H&S personnel of the ALROSA Group of Companies.

4.8 COSTS

4.8.1 Operating Costs

The structure of operating costs used in this Report is in line with the reporting system applied by ALROSA. The production costs include direct costs for mining, ore haulage and ore processing, as well as general production costs incurred by each division of a GOK. The general costs for mining, transportation and processing include all of the costs related to equipment repair and maintenance costs, as well as other general costs such as wages of non- production personnel and occupational safety costs incurred by each workshop or division. The indirect costs include all costs of the GOK which do not directly connected with the production.

The actual operating costs for the Udachny GOK for 2014 to 2015, as well as those planned for 2016 as provided by ALROSA, are presented in Table 4.32. Depreciation is excluded.

Micon’s assessment of future operating costs for the Udachny GOK is based on the operating costs projected for 2016. The cost assessment for the Verkhne-Munskoe was made on the basis of unit costs for the Zarnitsa open pit. In their cost forecast, Micon took into account projected volumes for each of the Udachny GOK divisions.

To provide a complete cost accounting for mining, processing and selling of diamonds, the Micon’s economic assessment includes a set of costs in addition to production and general costs. Detailed information on these costs is disclosed in Section 12.0.

4.8.2 Capital Costs

When completing the cost assessment, Micon included data on actual capital costs incurred by the Udachny GOK and was guided by the capital investment schedule for 2016 to 2030 proposed by ALROSA. A summary of capital costs on the year-by-year basis, which has been used by Micon in its evaluation of the Udachny GOK operations is contained in Table 4.33. All costs are stated in nominal prices.

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Table 4.32: Udachny GOK Actual Operating Costs

Cost Item 2014 2015 2016 Udachny Underground Mining Cost Direct Costs of Ore Mining (RUB/t) 1,002.3 784.2 795.1 Operating Exploration (RUB/t) 654.6 753.4 369.5 Preparation Work (RUB/m3 of work) 4,707.1 6,667.8 1,222.8 General Production Costs of the Underground Mine 1,019,340 2,668,542 5,113,601 (000’ RUB/t of mined material) Zarnitsa Open Pit Mining Operating Costs Direct Costs of Ore Mining (RUB/t) 14.5 19.1 23.7 Direct Costs of Overburden Removal (RUB/m3) 41.5 46.5 63.3 Direct Costs of Off-Balance Ore Mining (RUB/m3) 0 0 55.8 Preparation Work (RUB/m3 of work) 0 86.6 84.9 Open Pit, General Costs (000’ RUB) 361,665 402,461 487,805 Piropovy and Deluvial Placers Mining Direct Costs of Sands Mining (RUB/t) - 42.5 33.1 Operating Exploration (RUB/t) - 4.4 3.1 Direct Costs of Overburden Removal (RUB/m3) - 25.0 54.0 General Costs (000’ RUB) - 96,021 229,235 Haulage of Mined Material Haulage (kt-km) 85,197 104,098 111,338 Total Haulage Costs (RUB/t-km) 6.3 6.8 5.3 General Costs (000’ RUB) 1,302,475 1,355,430 1,400,206 Processing Plant No. 12 Direct Costs of Processing (RUB/t) 128.1 142.9 180.0 Direct Costs of Tailings Management (RUB/t) 65.4 73.5 84.4 Processing Plant Direct Costs (000’ RUB) 3,134,640 3,360,474 3,578,098 Final Recovery Section (RUB/ct of diamonds recovered) 11.24 10.63 14,76 Udachny GOK General Costs Total General Costs (000’ RUB) 872,027 892,222 997,301

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Table 4.33: Udachny GOK Capital Costs Schedule (Million RUB)

Division and Cost Item 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total

Udachny Mine, Development above -580 m elevation 5,523 3,421 1,298 1,356 2,164 2,526 1,210 ------17,498 Udachny Mine, Development below -580 m elevation ------2,500 2,500 2,500 2,500 2,500 2,500 15,000 Verkhne-Munskoe Construction 3,716 5,272 6,014 259 ------15,262 Verkhne-Munskoe Equipment - - - 340 556 529 651 383 525 215 109 222 225 344 - 4,099 Zarnitsa Equipment 328 38 ------366 Piropovy Placer Project Development 34 51 ------84 Levoberezhny Site of Udachny Mine, Reinjection Units 203 97 373 97 ------769 Processing Plant No.12, Tailings Pond at the Pravy Kieng River 25 40 ------66 Processing Plant No. 12 Modification (Thickening Circuit) 17 99 1,673 2,196 ------3,985 Processing Plant No. 12, Use of oil instead of - - 63 ------63 heating oil as a reagent for fine diamond recovery Bridge across the Daldyn River 14 326 ------339 Srednekembriysky Site, Water Reinjection Unit - - - 51 162 ------213 Technical Upgrading and Equipment Replacement 234 985 1,045 1,146 1,187 1,259 1,326 1,379 1,386 1,446 1,494 1,507 1,540 1,563 1,596 19,093 Plant No. 12 Technical Upgrading 45 1,402 1,059 496 520 - - 21 43 ------3,585 Explosive Storage Technical Upgrading 178 ------178 Verkhne-Munskoe Technical Upgrading ------1,253 3,239 270 830 1,327 523 7,443 Total for the GOK 10,316 11,732 11,525 5,940 4,589 4,315 3,187 1,782 1,955 5,413 7,343 4,499 5,095 5,734 4,620 88,043

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5.0 AIKHAL

5.1 BACKGROUND

The Aikhal mining and processing division (Aikhal GOK) is based close to the town of Aikhal (population 16,000), which is located 65 km southwest of Udachny and some 485 km north of the city of Mirny. Aikhal is the base for a number of other enterprises, including a construction material manufacturing complex, road maintenance services, a construction complex, and a petroleum storage depot.

The Aikhal GOK is located close to the Arctic Circle and in the same region of Russia as the Udachny GOK. Climatic conditions and physiography are similar to those at Udachny, as described previously in Section 4.1. Aikhal GOK was established in 1986 and currently exploits the deposits of the Jubilee, Aikhal and Komsomolskaya pipes. The Zaria pipe is currently being prepared for development.

The Aikhal kimberlite pipe, discovered in 1960, is located within the Alakit-Markha kimberlite field, in close proximity to the town of Aikhal. Open pit mining of the Aikhal pipe began in 1961 and was completed in 1997, upon exhaustion of the reserves. Underground mining commenced in 1997. A new design for mining operations was developed in 2004 and, in 2012, the mine reached the full design capacity of 0.5 Mt/a.

The Jubilee kimberlite pipe was discovered in 1975 and is the largest kimberlite pipe in western Yakutia. The deposit lies 14 km northwest of Aikhal. Open pit mining began in 1989 and has reached a depth of approximately 345 m. The open pit produced 6.45 Mt of ore in 2015.

The Komsomolskaya deposit, which is located 13 km northeast of Aikhal, was discovered in 1974 and commercial exploitation began in February 2001. The open pit produced 0.5 Mt of ore in 2015. According to ALROSA’s current plans, the reserves will be exhausted in 2020.

The Zaria pipe deposit was discovered in 1974 and is located 2 km southeast of the Aikhal pipe and 3 km south-southeast of Plant No. 8. The Zaria pipe is being prepared for production. Stripping work was commenced in 2016 and the first ore is scheduled to be mined in 2021.

Processing of ore from the Aikhal and Komsomolsky operations is currently undertaken at a central processing plant, Plant No. 8, located close to the Aikhal mine. Until 1996, ore from the Jubilee pit was also processed at Plant No. 8 but, since then, the ore has been processed at Plant No. 14, located 3 km northeast of the open pit. The ore to be mined from the Zaria pipe will replace the ore from the Komsomolskaya pipe that currently feeds Plant No. 8.

5.2 GEOLOGY

5.2.1 Jubilee Pipe

The Jubilee kimberlite pipe is located in the Daldyn-Alakit diamondiferous district (Figure 5.1) and is confined within the area of the Anabar anticline and Tunguss syncline intersection. The pipe transects a sequence of Upper Cambrian, Lower and Middle Ordovician, and Lower Silurian terrigenous-carbonate formations and is overlain by

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Carbonaceous and Permian terrigenous formations, and Upper Permian and Lower Triassic tuffaceous rock intruded by dolerite bodies. The average thickness of rock overlying the kimberlite is 66 m.

Morphologically, the Jubilee pipe is close to a classical funnel-shaped volcanic pipe, with a well-preserved conical mouth in the upper levels (crater bowl), which evolves into a vertical pipe body (diatreme vent) with depth and, finally, to the dyke-shaped section of the ore body (feeder). In plan view, the pipe is bulb-shaped and elongated, with a strike bearing 072°. The size of the pipe under the overlying rock strata is 1,293 m by 741 m.

The pipe is composed of three morphologically independent ore shoots: Central, Western and Eastern, formed by several varieties of kimberlite characterised by specific textural, structural and compositional peculiarities. A geological plan of the Jubilee, Aikhal, Komsomolskaya and Zaria pipe deposits area is shown in Figure 5.1, with the legend provided in Figure 5.2.

Figure 5.1: Geological Plan of the Jubilee, Aikhal, Komsomolskaya and Zaria Pipe Deposits Area

Jubilee Pipe

Komsomolskaya Pipe

Zaria Pipe

Aikhal Pipe

5,000 m 0 m 5,000 m 10,000 m

Source: ALROSA 2011

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Figure 5.2: Legend for Figure 5.1

Modern formations. Sand, clay loam, clay, kimberlite clasts.

Quaternary, modern formations. Bolotninskaya strata. Sand, clay with cobbles of dolerite and limestone. Alluvial clay loam and sand.

Permian System, Upper section, Triassic System, Lower section. Alakitskaya strata. Tuffite, tuffstone, tuff siltstone. Permian System. Inequigranular sand, siltstone.

Permian System, Lower section. Inequigranular sand. Akhtardinskaya suite.

Carboniferous System, Middle section, Permian System, Lower section. Inequigranular sand, siltstone. Upper, Middle sections. Aikhalskaya suite. Upper, Lower sub-suites. Sandstone, siltstone, carbonaceous siltstone, conglomerate. Middle section. Konekskaya suite. Basal conglomerate and gritstones, sandstone and siltstone, carbonaceous siltstone. Silurian System, Lower section. Landsverian stage. Organogenic limestone, clayey layers of marl. Upper - Middle sections. Kylakhskaya suite. Variegated marl, dolomite, argillite.

Lower - Middle sections. Sokhsolookhskaya suite. Dolomite, calcareous dolomite.

Lower section. Chiunskyi stage. Oldondinskaya suite. Calcareous dolomite, marlaceous limestone. Dolerite, gabbro-dolerite, microdolerite, doleritic porphyry, basalt. Sills, transgressive intrusions, covers. Kimberlites, kimberlite breccias, kimberlite tuffbreccias, pipes: a) exposed by erosion b) overlain by younger rocks. Borders between formations of different ages: a) explored, b) inferred.

Tectonic contacts: a) explored b) inferred. Source: ALROSA 2011

The composition of the kimberlite corresponds to different stages of pipe evolution. The first stage of intrusion included the formation of porphyritic kimberlite comprising the Western and Eastern dyke-type ore bodies. In the second stage, autolith kimberlite diatreme breccias were formed, comprising the Central ore shoot. The final stage consisted of the formation of shear zone kimberlites, with underlying autolith kimberlite breccias and kimberlite breccias, which crown the crater funnel formations. Both surface and deeper levels of the deposit are characterised by lower diamond grades in the porphyritic kimberlites of the Western and Eastern ore shoots, as compared to the autolithic kimberlite breccia in the Central ore shoot.

Gemstones comprise 12.66% to 12.78% of the diamonds, by weight. The majority of the Jubilee pipe diamonds (95% to 98%) luminesce under X-ray, which provides for their reliable recovery by X-ray separation.

Figure 5.3 is a geological profile of the Jubilee deposit. Figure 5.4 provides the legend for Figure 5.3.

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Figure 5.3: Geological Profile of the Jubilee Deposit

W E

Source: ALROSA 2011

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Figure 5.4: Legend for Figure 5.3

Quaternary System, modern alluvial-diluvial formations

Permian System, upper section – Triassic System, Lower section – Tuffogenic suite

Upper section

stem y S Permian Lower section. Burguklinskaya suite

Middle-upper sections of Carboniferous system and lower section of Permian System are poorly defined. Aikhalskaya suite

Silurian System. Lower section. Landsverian stage

Mangaseian stage

Middle Section Section Krivolutsky stage

Lower-middle sections. Chunsky and Krivolutsky stages. Sokhsolokhskaya suite

Ordovician System Ordovician Lower section. Ustkutsky stage. Oldoninskaya (Oldondian) suite

Morkokinskaya suite

Markhinskaya suite

Chukukskaya suite Cambrian System System Cambrian Middle section

Eruptive Rocks

Dolerite, medium and microcrystalline, dolerite porphyry, tuffite

Jubilee Pipe Kimberlites

a) kimberlite tuff breccia (Central ore shoot)

b) kimberlite rock of mixed zone, autolith kimberlite breccia (Central ore shoot)

c) Porphyritic kimberlite and eruptive breccia of porphyritic kimberlite (Western and Eastern ore shoot)

Ozernaya Pipe

Autolith kimberlite breccia

Ottorzhenets Kimberlite Body

Kimberlite breccia

Source: ALROSA 2013

The hydrogeological conditions of the Jubilee Pipe are characterised by a complicated series of aquifers. Suprapermafrost water is associated with the seasonal thawing layer and talik zones have developed under lakes surrounding the deposit. The intrapermafrost and subpermafrost water is characterised as sodium chloride and magnesium-calcium chloride brine. The pН varies from 6.5 to 7.1 and the water is corrosive to metals. Petroleum and bitumen concentrations in the rock do not exceed 0.1%.

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5.2.2 Aikhal Pipe

The Aikhal pipe lies within Lower Palaeozoic carbonate rocks, including the Lower Ordovician (Oldondian suite) and Upper Cambrian (Morkokinskaya and Markhinskaya suites) carbonate and terrigenous-carbonate successions. The pipe is an inclined dyke-shaped ore body formed by three ore shoots, each having its own feeder. The length of the ore body along the long axis at the surface is 510 m. The width of the ore body significantly decreases with depth, as it evolves into a dyke. The deposit is characterised by a relatively high diamond grade of around 4 ct/t to 5 ct/t.

The diamonds of the Aikhal pipe deposit are relatively fine-grained. The average weight of diamonds from the southwestern ore body is 1.73 mg, while that of the northeastern ore body is 2.23 mg. Most of the diamonds have cracks and solid inclusions. Highly quality stones comprise only 6.5% of the total weight of diamonds.

Figure 5.5 shows the geological profile of the Aikhal pipe, with the legend displayed in Figure 5.6.

Figure 5.5: Geological Profile of the Aikhal Pipe

Source: ALROSA 2011

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Figure 5.6: Legend for Figure 5.5

Silurian System. Lower section. Landoverian stage.

Middle-Upper sections. Kylakhskaya suite.

Lower-Middle sections. Sokhsolokhskaya suite.

System System

Ordovician Ordovician Lower section. Ustkutsky stage. Oldondinskaya suite.

Upper package.

Middle package.

Suite

Markokinskaya Markokinskaya Lower package.

Upper package.

Upper Section Cambrian System System Cambrian Middle package.

Suite

Markhinskaya Markhinskaya Lower package.

Kimberlite breccia.

Porphyritic kimberlite.

Limestone.

Sandy (arenaceous) limestone.

Clayey limestone.

Dolomite limestone. Calcareous dolomite.

Limestone flat-gravel conglomerate.

Carbonate breccia.

Cavernous limestone.

Algal limestone.

Glauconitic limestone.

Red or mottled limestone.

Dolomite.

Sandy dolomite.

Clayey dolomite.

Friable limestone.

Gypsum.

Suture (stylolite) seams.

Kimberlite breccia.

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Zone of kimberlite rock mixture.

Porphyritic kimberlite.

Kimberlite injections in host rock.

Sedimentary rock xenolith in kimberlite.

Ice.

Rock fracturing.

Crushing zone.

Sulphide, magnetite and ferric oxide inclusions.

Pyritisation.

Carbonate alteration.

a) Sulphidisation b) Ferritisation (limonitisation).

a) Carbonate alteration b) gypsum-alteration. Zones of intense fracturing and development of slipping planes.

Core drill holes (hole collar and number).

Drill holes located within the section plane.

Drill holes projected onto the section plane.

Points of section plane interception by inclined drill holes.

Core sampling intervals, figures on the left – sample numbers, figures on the right – diamond grade in ct/t.

Multi-branch drill hole, C-3 – main shaft collar C-6 – additional shaft collar.

Geological boundaries: a) proven b) inferred. Borders between kimberlite varieties.

a) C1 balance reserves.

b) C2 balance reserves.

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Ore body contour within the mined part of the deposit.

Ore body contact with host rock according to exploration.

Depth of drill hole penetration into the ore body contact (m).

Bottom of drill hole No. 4 and its depth (m).

Drill hole projection onto the horizontal plane.

Open pit contour.

Drill hole projection onto the vertical plane within the ore body contour C-26 – drill hole number 1885 – depth of penetration into the ore body (m) 2077 – depth beyond the ore body (m).

P – ROM ore reserves within the block, tonnes C – average diamond grade within the block, ct/t Q – diamond reserves within the block, K carats. Bulk sampling points.

Source: ALROSA 2011

The main source of groundwater inflow into the Aikhal underground workings is the Upper Cambrian aquifer complex. Groundwater includes calcium chloride and calcium-magnesium chloride brine, with mineral concentrations ranging from 75 g/l to 350 g/l. The brines also contain soluble gases, with nitrogen/carbon dioxide concentrations of 0.005 m3/m3 to 1.0 m3/m3. Occasional thin interbeds of oil and bitumen-saturated rock also occur.

5.2.3 Komsomolskaya Pipe

The Komsomolskaya kimberlite pipe lies within the Alakit-Markha kimberlite field (Figure 5.1). It is a dyke-shaped ore body with a north-easterly orientation. Below the overlying rock strata, the pipe measures approximately 864 m by 225 m, decreasing to 40 m to 60 m at the southwestern flank, and to 15 m to 20 m at the northeastern flank. The upper portion of the pipe is trumpet-shaped. Dips range from 50° to 70° near surface and become essentially vertical at depth.

The Komsomolskaya pipe is overlain by Carbonaceous and Permian terrigenous formations and Permian and Triassic trap rocks with total thicknesses ranging between 54 m and 110 m. Recent formations, 3 m to 5 m thick, including loam, silt and overburden, are extensive at surface.

Only the Central ore shoot is of commercial value. The deposit is distinguished by a low diamond grade of about 0.4 ct/t and relatively high quality of crystals. The average weight of a crystal from the deposit is 1.5 to 2 times higher than the average of the Jubilee and Aikhal pipes.

5.2.4 Zaria Pipe

The Zaria kimberlite pipe is located 3 km southeast of Aikhal settlement (Figure 5.1). Morphologically, the Zaria pipe is close to a classic funnel-shaped volcanic pipe. In plan

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view, the pipe is bulb-shaped and elongated (irregular ellipsoid) with a northeastern strike bearing 56°. Below the overlying rock strata (at an average depth of 505.1 m), the pipe measures 480 m by 260 m, while the dimensions of the ore shoot of commercial interest are 350 m by 160 m. The width of the pipe significantly decreases with depth.

Overlaying the pipe are Carbonaceous terrigenous formations and Upper Permian and Lower Triassic tuffaceous rock intruded by dolerite. These are covered by widely developed Quaternary alluvial and lacustrine-waterlogged formations up to 5 m thick. The overall thickness of rock overlying the Zaria pipe ranges from 85 m at the northwestern flank to 144 m at the southwestern border of the pipe, averaging 103 m.

Figure 5.7 shows the geological profile of the Zaria pipe, with the legend provided in Figure 5.8.

Figure 5.7: Geological Profile of the Zaria Pipe

Source: ALROSA 2015

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Figure 5.8: Legend for Figure 5.7

Modern chain alluvial-diluvial formations Clay loam, clay sand with landfill and gravel Permian System, Upper section - Triassic System, Lower section - Alakitskaya suite. Tuffs of basic composition. Carboniferous System, Middle-Upper section. Aikhalskaya suite, Upper sub-suite. Sandstone, siltstone, carbonaceous siltstone. Carboniferous System, Middle-Upper section. Aikhalskaya suite, Lower sub-suite. Sandstone, siltstone, carbonaceous siltstone. Silurian System, Lower section. Llandoverian stage, Bashennaya suite. Limestone, marl layers Silurian System, Lower section. Llandoverian stage, Baitakhskaya strata. Argillaceous limestone Ordovician System, Middle-Upper section. Kylakhskaya suite. Variegated marl, dolomite, argillite Ordovician System, Middle section. Sytykanskaya suite Sandy limestone

Ordovician System, Lower section. Sokhsolokhskaya suite. Dolomite, dolomitic limestone, calcareous sandstone, sandy limestone, marl Ordovician System, Lower section. Oldondinskaya suite. Dolomite, calcareous dolomite, sandy dolomite Cambrian System, Upper section. Onkhoiyuryakhskaya suite. Marl, dolomite, limestone

Magmatic Formations Middle Palaeozoic - Early Mesozoic Trappean Formation Dolerite

Middle Palaeozoic Kimberlite Formation Autolith kimberlite breccia

Porphyritic kimberlite

Sedimentary Formations Alluvial-diluvial formations

Sandstone

Tuff

Siltstone

Limestone

Siliceous limestone

Argillaceous limestone

Sandy limestone

Marl

Dolomite

Dolomite limestone

Carbonate breccia.

Karst formations within limestone

Gypsum

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Secondary Alteration Magnetite

Chloritisation

Calcitation

Carbonatisation

Sulphidisation

Silification, silitisation

Ferritisation (limonitisation)

Pyrite inclusions

Pyrite veinlets

Caverns, pores

Crushing zone

Zones of intense fracturing and development of fault planes

Cracks

Ice

Other Symbols Contours of C reserve estimate blocks 1 Contours of C reserve estimate blocks 2

Drill holes: collar in black - exploration holes drilled before 2009 collar in green - holes drilled from 2014 to 2016.

Symbols near drill hole collars - drill hole number is numerator collar elevation is denominator.

Marks at the drill hole with a “k” symbol - ore body contacts; numerator is depth to the intersection point; denominator is the elevation.

Symbols near bottom of drill hole - bottom elevation and drill hole number (in brackets)

Source: ALROSA 2015

The Zaria pipe is characterised by low diamond grades. Therefore, it is assumed that the diamonds mined from this pipe are high quality.

5.3 MINERAL RESOURCES AND RESERVES

5.3.1 Jubilee Pipe

5.3.1.1 Exploration

The Jubilee kimberlite pipe was discovered in 1975. Extensive exploration to a depth of 500 m below surface was undertaken between 1975 and 1978, and initial reserves were approved by the GKZ in 1978. Further exploration of deeper levels was undertaken between 1981 and 1986 (from 500 m to 1,300 m). Following this exploration, +0.5 mm diamond reserves were also approved by the GKZ in 1986, using temporary cut-off criteria. The

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reserves were re-estimated three times (in 1999, 2001 and 2007), with the application of exploitation cut-off criteria.

The first stage of exploration of the upper levels involved a total of 227 holes with the aggregate length of 58,701.4 m, including 171 holes (33,301.0 m) drilled in kimberlite. The holes were drilled along 17 exploration lines oriented across the ore body. To assess the diamond grade of the kimberlites and to control core sampling, a shaft was driven on the pipe to the +470 m elevation (150 m from surface), as well as three drifts (Nos. 1, 2, 3). The deeper levels of the Jubilee pipe were explored by a system of drill holes along seven exploration lines oriented cross the long axis of the ore body. Exploration is on-going, with holes being drilled on a 40 m by 40 m grid, with further grid intensification to 28 m by 28 m, or 20 m by 20 m, at sites with complex geological structures.

During exploration, core samples were taken at least every 10 m from the holes that intersected kimberlite, as well as from host rock in the contact zone. Samples were processed at Sample Processing Plant No. 10, located in the Aikhal settlement. A sub-set of core samples (10%) was sent to Plant No. 6 in Mirny for control processing. Tests were conducted on tailings from the processed core samples at Plant No. 10. Control recovery of diamonds from core samples by chemical dissolution was also performed.

5.3.1.2 Russian Mineral Reserve Estimate

The most recent Russian reserve estimate was completed in 2009, to a depth of 1,300 m and using all the previous exploration data back to 1975. The reserves were approved by the GKZ in December 2010. The following permanent exploration cut-off criteria were used for estimating the deposit balance reserves:

 Reserves were estimated within optimized open pit contours down to 720 m depth from the surface (to elevation -100 m). This contour includes all reserves of the Central ore shoot to the base of the ultimate open pit, but implies leaving a small part of C1 reserves of the Western and Eastern ore shoots in the open pit walls;  Diamond reserves were estimated for the +3 NSC class;  The weight of diamonds of the -3 NSC has been estimated to be 12.5% of the balance reserves of +3 NSC diamonds;  The cut-off diamond grade in the upper crater part of the kimberlite pipe was 0.162 ct/t;  Reserves with diamond grades below the cut-off value (0.162 ct/t) were classified as off-balance ore; and,  The minimum thickness of off-balance ore intervals included in the estimate was 5 m.

The reserves were estimated using the method of horizontal sections, which best suits the peculiarities of the pipe morphology and internal structure. The reserve blocks are bounded by pipe contacts with the host rock, by boundaries of ore shoots, or by the walls of the designed open pit.

The average specific gravity of kimberlite was estimated for each hole as a mean value, and for each block as a weighted average. The weight assigned to each hole was dependent on the number of measurements available.

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The diamonds reserves of +3 NSC (+1.2 mm) were estimated for each block by multiplying the mean value of the diamond grade of this class for the block by the reserves within the block. The diamond grades have been estimated with the application of an adjustment factor equal to 1.35 to account for under-representation of coarse diamonds recovered during core sampling.

Blocks 2-В, 6-В and part of 3-В that form the crater facies of the pipe have frequent inclusions of off-balance material represented by large xenoliths of host rock. The reserves of off-balance material were estimated at a cut-off grade of 0.162 ct/t for +3 NSC (+1.2 mm).

In addition to the +3 NSC diamonds, the estimated balance reserves for open pit mining also include diamonds of -3 NSC recovered during the course of ore processing. The balance reserves of the deposit, as of 1st January 2016, are presented in Table 5.1.

Table 5.1: Balance Reserves of the Jubilee Pipe as at 1st January 2016

Diamond Contained Tonnage Category Grade Diamonds (kt) (ct/t) (kct) For Open Pit Mining Diamonds of +3 NSC B 19,996.3 0.86 17,268.4

C1 64,090.4 0.85 54,417.4

B+C1 84,086.7 0.85 71,685.8 For Underground Mining Diamonds of +0.5 mm

С1 62,827.0 0.83 51,871.8

С2 10,720.0 0.62 6,688.3

5.3.1.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described previously in Section 3.3, Micon has produced a mineral resource statement for the Jubilee pipe in accordance with the guidelines of the JORC Code (2012).

Micon notes that the balance reserves of the Jubilee pipe planned for underground mining were estimated considerably earlier than 2009, using blocks that differ from the ones used for the balance reserve estimate in 2009. Additionally, these reserves do not correspond to the ultimate pit contour assumed for the design in 2009. Therefore, Micon has used the values for reserves outside the design pit contour suggested by the 2009 Russian standard estimate. Similar to the open pit mining reserves, the values for underground mining reserves were also checked and confirmed using the Micon computer model of the Jubilee pipe.

Micon also included the mineral resources, being a volume equivalent of the ore kept in the Jubilee ore stockpile. The material contained in the crushed ore stockpile was included in the JORC Code Mineral Resource Statement and, following the JORC Code (2012) guidelines, it was classified as Measured Resources.

The mineral resources of the Jubilee pipe deposit estimated in accordance with the JORC Code (2012) are shown in Table 5.2. The mineral resources are reported inclusive of reserves.

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Table 5.2: Mineral Resources of the Jubilee Kimberlite Pipe as at 1st July 2016

Diamond Grade Contained Diamonds Tonnage JORC Category Description +1.2mm +1.2mm (kt) (ct/t) (kct) Measured Ore Stockpile 1,151 1.55 1,779 Measured Open Pit Resources 17,269 0.81 14,035 Open Pit + Underground Indicated 88,138 0.74 65,401 Resources Total Measured + Indicated 106,558 0.76 81,216 Inferred - 57,821 0.63 36,352

Currently, the material from the Western and Eastern ore shoots below the -480 m elevation has not been sufficiently explored to be classified as mineral resources or ore reserves under the JORC Code (2012). This is regarded by Micon to have potential for further exploration, as shown in Table 5.3.

Table 5.3: Potential for Exploration for the Jubilee Kimberlite Pipe as at 1st July 2016 (Potential Resources are not classified within the guidelines of the JORC Code (2012))

Diamond Grade Contained Diamonds Tonnage Category +1.2 mm +1.2 mm (kt) (ct/t) (kct) Potential 16,594 0.42 6,977

5.3.1.4 JORC Code Ore Reserve Statement

Micon has estimated ore reserves for the Jubilee pipe in accordance with the guidelines of the JORC Code (2012). The ore reserves include all of the mineral resources classified as Measured and Indicated in Table 5.2, modified by the allowances for ore losses and dilution shown in Table 5.4.

Table 5.4: Losses and Dilution Allowances for the Jubilee Pipe

Top Bottom Losses Dilution Elevation Elevation Description (%) (%) (m) (m) - 220 Total 0.06 2.72 220 120 Western 0.11 2.804 120 -100 Ore Soot 0.243 2.258 220 120 Central Ore 0.012 1,161 120 -100 Shoot 0.018 0.813 220 120 Eastern Ore 0.13 1.94 120 -100 Shoot 0.18 2.67

Ore reserves for the Jubilee pipe, estimated in accordance with the guidelines of the JORC Code (2012) and adjusting factors presented in this Section, are presented in Table 5.5.

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Table 5.5: Ore Reserves of the Jubilee Pipe as at 1st July 2016

Diamond Grade Contained Diamonds Tonnage Classification Description +1.2 mm +1.2 mm (kt) (ct/t) (kct) Proved Ore Stockpile 1,151 1.55 1,779 Proved For Open Pit Mining 17,742 0.79 14,027 Probable For Open Pit Mining 65.105 0.84 54,387 Total Proved and Probable 83,998 0.84 70,193

5.3.2 Aikhal Pipe

5.3.2.1 Exploration

The Aikhal kimberlite pipe was discovered in 1960. Detailed exploration of the upper levels of the deposit was conducted by drilling between 1960 and 1962. The first balance reserves were approved by the GKZ in 1962. Between 1967 and 1970, follow-up exploration of the deeper levels of the deposit was conducted, in order to evaluate the morphology and diamond grade of the pipe between 200 m to 600 m below surface.

Further exploration work at deeper levels was undertaken between 1991 and 1997, extending from 270 m to 900 m below the surface (+230 m to -400 m elevations). The upper boundary of the zone covered by this exploration stage coincided with the ultimate design depth of open pit mining (+230 m). In total, 31 core holes were drilled with an aggregate length of 15,156.4 m. The holes were located along five exploration lines oriented across the length of the axis of the ore body. The distance between exploration lines was 60 m to 180 m. In total, exploration of the deeper levels of the deposit provided 179 core samples.

Core samples were processed at Sample Processing Plant No. 10. The quality of core sample processing was subject to a control protocol that covered 10.1% of processed samples. The control processing detected only two crystals, in addition to 5,707 crystals recovered by conventional processing, demonstrating the high efficiency of core sample processing.

Aikhal GOK also performed bulk sampling of the Aikhal kimberlite pipe during the 1997 exploration programme, to assess the value of the contained diamonds. A 50,000 t bulk sample was taken in the central portion of the northeastern ore body, from the bottom of the open pit at the +245 m elevation. The sample was processed at the Processing Plant No. 8, using the industrial-scale processing flowsheet. The diamond grade in the bulk sample was 6.22 ct/t. This grade is much higher than the average grade of the underlying (+230 m to 0 m elevations) reserve blocks as estimated from core samples. It was concluded that the core samples were not representative of the coarser (+4 mm) diamond fraction.

In 1997, a study (TEO) of permanent cut-off criteria was prepared, and a reserve estimate was compiled on the deeper levels of the deposit for underground mining. The deposit balance reserves were approved by GKZ in January 1998.

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5.3.2.2 Russian Mineral Reserve Estimate

The Aikhal pipe diamond reserves were estimated using the cut-off criteria approved by the GKZ in 1997. The estimate was based upon the exploration results from 1991 to 1997, covering the elevation range of +230 m to -400 m. Some 241 core samples with a total mass of 17.45 t were used to estimate the diamond grade in the reserve blocks. A total of 6,733 diamond crystals were recovered from these samples, with a total mass of 71.49 ct.

The official state balance reserves of the Aikhal pipe, as of 1st January 2016, are summarised in Table 5.6.

Table 5.6: Balance Reserves of the Aikhal Kimberlite Pipe as at 1st January 2016

Tonnage Diamond Grade Contained Diamonds Category (kt) (ct/t) (kct) For Open-Pit Mining above +230 m Elevation

С1 92 3.87 356

С2 19 3.49 66 For Underground Mining +230 m / -100 m

С1 4,463 4.97 22,214

C2 2,531 3.92 9,933 No Balance Status Interval -100 m / -400 m

C2 2,651 2.99 7,924

5.3.2.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has produced a mineral resource statement for the Aikhal pipe in accordance with the guidelines of the JORC Code (2012), as summarised in Table 5.7. These mineral resources are reported inclusive of reserves.

Table 5.7: Mineral Resources of the Aikhal Pipe as at 1st July 2016

Diamond Grade Contained Diamond Tonnage JORC Category +1.2 mm +1.2 mm (kt) (ct/t) (kct) Measured 4,361 4.97 21,666 Indicated 690 3.14 2,168 Total Measured + Indicated 5.051 4.72 23,834 Inferred 1,716 4.06 6,966

5.3.2.4 JORC Code Ore Reserve Statement

Micon has estimated the ore reserves for the Aikhal pipe in accordance with the guidelines of the JORC Code (2012), based on the Measured and Indicated resources shown in Table 5.7, and using allowances of 1.55% for ore losses and 10.40% for dilution, which represents actual data for 2016. These reserves are summarised in Table 5.8.

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Table 5.8: Ore Reserves of the Aikhal Pipe as at 1st July 2016

Diamond Grade Contained Diamonds Tonnage JORC Category +0.5mm +0.5 mm (kt) (ct/t) (kct) Proved 4,792 4.45 21,330 Probable 758 2.82 2,134 Total Proved + Probable 5,550 4.23 23,464

5.3.3 Komsomolskaya Pipe

5.3.3.1 Exploration

Exploration of the Komsomolskaya deposit was undertaken in several stages. Stage 1 (1974 to 1976) included delineation of the ore body and a preliminary evaluation of the diamond grade of the kimberlite to a depth of 100 m to 110 m. Exploration drilling was completed on an 80 m by 40 m grid. In total, 54 holes were drilled, 29 of which intersected the ore body. Exploration drilling covered 6,865 linear metres, which included 2,038.7 linear metres in kimberlite, from which 199 core samples were taken. Stage 2 (1978 to 1981) included driving workings within the central ore shoot at the +550 m elevation (110 m below surface). In total, 720.3 linear metres of underground workings were driven and 55 bulk samples were taken. Stage 3 (1999 to 2000) included detailed exploration of the deposit down to +300 m elevation (360 m below surface) by inclined holes. In total, 15 holes were drilled with an aggregate length of 3,669.0 linear metres, and 287 core samples were taken.

The samples were processed at the Amakinskaya exploration expedition plant. Processing was used for all core, bulk and channel samples, as well as the dump that was formed during the course of bulk sampling.

In 2003 to 2004, exploration reached the +200 m elevation. This work resulted in the estimation of В+С1 balance reserves down to +300 m elevation, and the assessment of Р1 inferred resources down to +200 m elevation. In 2007, follow-up exploration of the central ore shoot was conducted between elevations +300 m and +200 m, culminating in estimation of reserves within the explored block in the С1 category. The reserves were approved by the Sakha (Yakutia) Republic Reserves Committee in 2008.

5.3.3.2 Russian Mineral Reserve Estimate

The most recent Russian reserve estimate of the Komsomolskaya pipe was made in 2007 using the results of the last stage of exploration that covered the elevation range from +300 m to +200 m (Block 5). However, the balance reserves down to +300 m elevation, (Blocks 2, 3 and 4), approved by the Sakha (Yakutia) Republic in 2004, were not re-estimated. The reserves were estimated using the geological block method, as described previously in Section 3.2.

The State balance reserves for the Komsomolskaya pipe as at 1st January 2016 are presented in Table 5.9.

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Table 5.9: Balance Reserves of the Komsomolskaya Pipe as at 1st January 2016

Diamond Contained Tonnage Category Grade Diamonds (kt) (ct/t) (kct)

C1 4,614 0.38 1,767

5.3.3.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has produced a mineral resource statement for the Komsomolskaya pipe in accordance within the guidelines of the JORC Code (2012), as summarised in Table 5.10. These mineral resources are reported inclusive of reserves.

Table 5.10: Mineral Resources of the Komsomolskaya Pipe at 1st July 2016

Diamond Grade Contained Diamonds Tonnage JORC Category +0.5mm +0.5mm (kt) (ct/t) (kct) Indicated 3,943 0.38 1,494

5.3.3.4 JORC Code Ore Reserve Statement

Micon has estimated the ore reserves for the Komsomolskaya pipe in accordance with the guidelines of the JORC Code (2012). The ore reserve estimate was based on the Indicated mineral resources shown in Table 5.10, after applying the allowances for ore losses (0.25%) and dilution (1.83%), which agrees with actual values of these factors in 2016.

The Komsomolskaya pipe ore reserves estimated in accordance with the guidelines of the JORC Code (2012) are presented in Table 5.11.

Table 5.11: Ore Reserves of the Komsomolskaya Pipe as at 1st July 2016

Diamond Grade Contained Diamonds Tonnage JORC Category +0.5mm +0.5 mm (kt) (ct/t) (kct) Probable 4,006 0.37 1,490

5.3.4 Zaria Pipe

5.3.4.1 Exploration

The Zaria pipe was discovered in 1973 during prospecting work completed on a 500 m by 500 m grid. The pipe was then delineated using a 160 m by 80 m drilling grid and was accessed down to depth of 50 m. At that time, the results of non-representative core sampling suggested a low diamond content of the pipe.

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In 2007, more representative core sampling of the Zaria pipe was conducted, using larger drilling diameters, which provided an average sample weight of 260 kg to 450 kg. The sampling also detected a central ore shoot within the pipe with an increased diamond grade (0.2 ct/t to 0.3 ct/t) and high quality diamonds. This work was followed, in 2008, by prospecting and exploration work on drilling grids of 80 m by 40 m and 40 m by 40 m, to a depth of 200 m (down to +300 m elevation). This work showed that the Zaria pipe is composed of kimberlite (mainly autolithic kimberlite breccia) representing two stages of intrusion. Only the central ore shoot is formed by kimberlites from the second stage of intrusion, and it represents a commercial deposit.

From 2009 to 2012, follow-up work on the geological structure and diamond content of the Zaria pipe was completed. Prospecting and exploration was carried out on grids of 80 m by 40 m and 40 m by 40 m, with drilling down to 300 m (+200 m elevation). This work confirmed both the presence of the central ore shoot and two stages of kimberlite intrusion.

From 2014 to 2015, additional exploration on 80 m by 40 m and 40 m by 40 m grids was completed by drilling to 400 m (+100 m elevation). The dimensions of the pipe in plan view were confirmed to be 480 m by 260 m. The average diamond grade in the central ore shoot, including adjustment factors, was estimated at 0.25 ct/t, decreasing to 0.10 ct/t at the flanks of the deposit within the kimberlites of the first stage of intrusion.

5.3.4.2 Russian Mineral Reserve Estimate

Official ore reserves, approved by GKZ in 2011, do not include the exploration results of the Zaria pipe from 2014 to 2015, or the results from the most recent deposit reserve estimate completed in 2015 by ALROSA. The updated ALROSA reserve estimate used all of the geological exploration data conducted between 2007 and 2015, and was performed by the geological block method, as described in Section 3.2, including the use of adjustment factors in estimating the average grade of the contained diamonds.

Table 5.12 shows data from the updated reserve estimate of 2015. These data are actual, as at the moment of the report preparation no mining has been carried out at the deposit.

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Table 5.12: Balance Reserves of the Zaria Pipe Deposit as at 1st January 2016

Diamond Diamond Adjustment Adjustment Diamond Contained Upper Lower Tonnage Grade Grade Factor Factor Grade Diamonds Block Description Category Limit Limit (kt) -2+0.5 mm -4+0.5 mm -2+0.5 mm -4+0.5 mm +0.5mm +0.5 mm (m) (m) (ct/t) (ct/t) (ct/t) (ct/t) (ct/t) (kct)

2 Central Ore Shoot C1 - 400 7,868.9 - - - - 0.28 2,203.3

4 Central Ore Shoot C1 400 300 4,522.8 - - - - 0.29 1,311.6

6 Central Ore Shoot C1 300 200 3,703.6 - 0.19 - 1.26 0.24 888.9

8 Central Ore Shoot C2 200 100 4,681.3 0.09 - 1.97 - 0.18 842.6

1 Flanks C1 - 400 7,901.2 0.06 - 1.97 - 0.12 948.1

3 Flanks C1 400 300 4,864.4 0.04 - 1.97 - 0.08 389.2

5 Flanks C1 300 200 3,549.0 0.05 - 1.97 - 0.10 354.9

7 Flanks C2 200 100 2,647.4 0.03 - 1.97 - 0.06 158.8

Total C1 Category - 200 32,409.9 - - - - 0.19 6,096.0

Total C2 Category 200 400 7,328.7 - - - - 0.14 1,001.5

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5.3.4.3 JORC Code Mineral Resource Statement

Based on the block definitions used by ALROSA for the 2015 reserve estimate, Micon has produced a mineral resource statement for the Zaria pipe in accordance with the guidelines of the JORC Code (2012). When completing the estimate, Micon focused its attention on confirming the values obtained during the estimation in 2015. The sources of information used by Micon are the same as those identified previously in Section 3.3.

Micon has used data obtained for the Zaria deposit since the date of the ALROSA estimate, for the purposes of evaluating the ALROSA deposits as of 1st January 2016. The fact that the deposit is not currently being mined has also been taken into consideration.

Micon used the ALROSA sampling database for the deposit to estimate the volume and tonnage of ore within the blocks and to calculate the average grade based on the core sampling results. The calculation results confirmed the volume and tonnage of ore and the average diamond grade obtained directly by core sampling (without using adjustment factors) for each deposit block for the ALROSA 2015 estimate.

Micon found it appropriate to use adjustment factors for its estimate, although Micon considers that the values calculated based only on the core sampling of Blocks 2 and 4 are not fully reliable and decrease the level of confidence in the estimate. As a result, only resources for Blocks 2 and 4 of the central ore shoot were classified as Indicated.

The mineral resources of the Zaria pipe deposit estimated according to the guidelines of the JORC Code (2012) are given in Table 5.13. These mineral resources are reported inclusive of reserves.

Table 5.13: Mineral Resources of the Zaria Pipe at 1st July 2016

Diamond Grade Contained Diamonds Tonnage Classification +0.5 mm +0.5 mm (kt) (ct/t) (kct) Indicated 12,392 0.28 3,515 Inferred 27,347 0.13 3,583

5.3.4.4 JORC Code Ore Reserve Statement

Micon has estimated the ore reserves for the Zaria pipe in accordance with the guidelines of the JORC Code (2012). The ore reserve estimate was based on the Indicated mineral resources shown in Table 5.14, after applying the allowances for ore losses and dilution, proposed by the study (TEO) of 2015, which are contained in Table 5.15.

Table 5.14: Losses and Dilution for the Zaria Pipe

Losses Dilution Description (%) (%)

Block 2-C1 1.140 0.660

Block 4-C2 1.570 1.120

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Table 5.15: Ore Reserves of the Zaria Pipe at 1st July 2016

Diamond Grade Contained Diamonds Tonnage JORC Category +0.5mm +0.5 mm (kt) (ct/t) (kct) Probable 12,333 0.28 3,469

5.4 MINING

5.4.1 Jubilee Mine Design and Operation

The Jubilee open pit commenced production in 1989. In 2015, the open pit bottom reached the +250 m elevation, which corresponds to a depth of 370 m. The current mine design stipulates an ultimate pit depth of 720 m, but the option of proceeding to greater depth is being studied. Figure 5.9 is a plan view of the pit workings as of 1st January 2016.

Figure 5.9: Jubilee Open Pit Plan View as at 1st January 2016

250 m 0 m 250 m 500 m

Source: ALROSA 2016

Throughout its life, the open pit has been mined by traditional surface mining methods, including drilling, blasting, load, haul and dump techniques. Production drilling uses 250 mm diameter holes drilled by Russian-built SBSh-250 MN-32, SBSh-190/250 rigs and a diesel D-75KS Sandvik rig. Explosives consist of 85% pumped emulsion and 15% packaged emulsion, which has a higher strength.

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Ore and waste are moved by a series of Russian electric rope shovels, with bucket capacities up to 15 m3, plus Le Tourneau L1100 and L1150 front-end loaders. Trucks of 136 t capacity, consisting of Komatsu Haulpak D-510E, Terex UNIT RIG MT3300, as well as 130 t BelAZ-75137 trucks are used to transport ore and waste. Ore from the pit is transported to Plant No. 14 and waste is hauled and stockpiled at dumps situated near the pit.

The principal design parameters of the open pit are:

 Working bench height – 15 m;  Final wall bench height – 45 m;  Bench face angle – 75° to 80°;  Safety berm width – 17 m to 20 m; and,  Haul ramp width – 30 m.

The Jubilee pit operates on three shifts per day, seven days per week. A total of 598 persons were employed in the mining operations as at 1st January 2016.

Currently, there is no major ingress of groundwater into the pit. The water that is currently collected and pumped is mainly derived from precipitation. Water is collected in a sump located on the +250 m elevation and pumped to the nearby Lake Mutnoe.

An air inversion layer can form over the pit during the winter if the temperature rises rapidly over a short period of time. This causes deterioration in the quality of air in the pit and can result in work stoppages in some winter months.

5.4.2 Jubilee Pipe Production

Production data for the Jubilee open pit from 2012 to 1st July 2016 are summarised in Table 5.16.

The future production schedule for the Jubilee open pit has been compiled by Micon, using data from ALROSA’s long term plan, adjusted to match the Micon ore reserve estimated in accordance with the guidelines of the JORC Code (2012). Micon’s projection of production for the Jubilee open pit from 1st July 2016 to 2030 is presented in Table 5.17. Off-balance reserves within the design pit shell have been treated as waste.

The production schedule up to 2030 does not envisage a complete excavation of the Jubilee open pit reserves. The remaining portion of reserves, as at 1st January 2031, should, according to the schedule, be 14,373 kt of ore containing 12,043 kct of diamonds class +1.2 mm.

The possibility of open pit mining of the Jubilee pipe below the 720 m depth is currently being analysed. This would significantly increase the ore reserves of the deposit and extend the period of open pit mining.

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Table 5.16: Jubilee Open Pit Actual Production

2012 2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Plan Plan Plan Actual % Plan Actual % Plan Actual % Ore (kt) 10,382 10,382 100 8,100 8,114 100 7,050 7,083 101 6,250 6,250 100 2,800 2,800 100 Diamond Grade +1.2 mm (ct/t) 0.52 0.57 109 - 0.92 - 1.14 1.22 106 1.21 1.25 104 1.22 1.15 95 Contained Diamonds +1.2 mm (kct) 5,407 5,920 109 - 7,447 - 8,055 8,612 107 7,542 7,813 104 3,407 3,232 95 Off-Balance Ore (kt) 0 0 - 0 0 - 0 0 - 0 0 - 0 0 - Waste Stripping (k m3) 10,000 10,000 100 10,500 10,500 100 10,925 11,140 102 11,273 11,610 103 5,480 5,484 100 Preparation Work (k m3) 60 60 100 60 60 100 60 67 112 60 60 100 45 55 122

Table 5.17: Jubilee Open Pit Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Ore (kt) 3,225 5,200 4,500 4,000 4,000 4,200 4,200 4,900 4,500 4,700 5,400 5,000 4,800 5,500 5,500 69,625 Diamond Grade +1.2 mm (ct/t) 1.17 1.32 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.84 Contained Diamonds +1.2 mm (kct) 3,761 6,885 3,493 3,105 3,105 3,260 3,260 3,804 3,494 3,648 4,192 3,881 3,726 4,269 4,269 58,150 Preparation Work (k m3) 30 60 60 60 60 60 60 60 60 60 60 0 40 30 10 750 Waste Stripping (k m3) 5,475 8,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 6,000 6,000 5,000 5,000 4,000 4,000 92,475

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5.4.3 Aikhal Pipe Design and Operation

Underground mine development began in 1997, with a period of experimental mining between 1997 and 2000. A mudslide of an estimated 60,000 m3 in 2003, following heavy rains, resulted in the suspension of operations for one year. The full production capacity of 500,000 t/a was reached in 2012, as planned.

A schematic profile of the mine workings in the Aikhal pipe is given in Figure 5.10.

Figure 5.10: Schematic Profile of Mining in the Aikhal Pipe

Source: ALROSA 2013

The main excavations providing access to the underground reserves are:

 An auxiliary inclined shaft from the surface elevation of +584.6 m down to -111.2 m (currently sunk down to +100 m);  A transportation inclined shaft from elevation +580.2 m down to -13.6 m (currently sunk down to +60 m); and,  A vertical skip and cage shaft from elevation +496.2 m down to -145.05 m (in place, but not yet equipped).

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The vertical shaft is used for hoisting and the inclined shafts are used for personnel transport and ventilation.

The plan illustrating locations of mined-out open pit and main excavations to access the ore body for underground mining is shown in Figure 5.11.

Figure 5.11: Plan View of Aikhal Mine Main Excavations

Vertical Shaft

Inclined Shafts

Capital Crosscuts

Ore Body

250 m 0 m 250 m 500 m

Source: ALROSA 2011

The main levels in the mine are designed at elevations +180 m, +100 m, 0 m and -100 m. The -100 m level will be equipped with conveyors, and diesel mobile equipment will be used for ore haulage on all other levels.

The current ventilation system allows for 260 m3/sec of air to the mine. The air supply to the mine is heated in the winter. There are no radon issues.

A combination of mining methods has been utilised at the Aikhal mine. The first method used was longhole caving, which involved mining in the open stopes at the bottom of the pit. During the first winter, the mine continually fogged up and, during the summer, several large rocks from the pit walls damaged the remote LHDs working in the open stopes.

The second method adopted was the use of a 40 m pillar of waste above the caved ore. This method suffered high losses due to dilution from the waste and was subsequently abandoned. The third method adopted was sub-level caving with partial shrinkage stoping, which was later abandoned due to safety issues.

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The fourth method, currently in use, is slicing by road headers in blind drifts, with backfill. Ore is broken mechanically leaving a panel-pillar in order to mine within the level and downwards, to extract the ore within the block. The panels are 5 m to 8 m wide, and the height of the stoping face is 4.5 m. Ore is broken by road headers and then hauled by LHD machines. Once the panel is mined, it is backfilled. The first layer of the backfill fed to the floor of the working is reinforced with cement, since it acts as the roof of the working stope when the lower panel is mined.

Cross-sections illustrating this mining method are provided in Figure 5.12.

In 2015, the slicing method of mining accounted for 67% of the total production at the Aikhal mine.

Figure 5.12: Slicing Mining Method – Illustrative Cross-Sections along the Working Stope

Panel mining with backfilling is also used at Aikhal. This method presently accounts for a small proportion of production, but is expected to be more widely used in future because of its relatively lower cost.

Ore breakage within the panels is performed by drilling and blasting. The holes are drilled by a Sandvik DL-311-7 rig and charged by a charging machine. Broken ore is loaded and hauled by a remote controlled Sandvik LH-410 machine. Ore is hauled to the reloading panel where it is loaded in a dump truck. The current dimensions of these panels are up to 20 m in height and 10 m in width. The sections shown in Figure 5.13 illustrate one of the panel mining methods.

The Aikhal mine operates on three shifts per day, seven days per week, and is relatively dry.

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Figure 5.13: Panel Mining Method – Illustrative Sections along the Working Stope

5.4.4 Aikhal Production

Production data for the Aikhal underground mine from 2012 to 1st July 2016 are summarised in Table 5.18.

The future production schedule for the Aikhal underground mine has been compiled by Micon, using the data from ALROSA’s long term schedule extending to 2030, adjusted to match the Micon ore reserve estimate. The production targets for the Aikhal underground mine from 1st July 2016 to 2027 are presented in Table 5.19.

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Table 5.18: Aikhal Underground Mine Actual Production

2012 2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Plan Actual % Ore (kt) 500 500 100 536 536 100 536 536 100 500 500 100 250 250 100 Diamond Grade +0.5 mm (ct/t) 5.39 5.72 106 - - - 5.26 5.67 108 5.11 5.37 105 5.36 5.31 99 Contained Diamonds +0.5 mm (kct) 2,693 2,860 106 - - - 2,821 3,041 108 2,556 2,687 105 1,339 1,326 99 Development (k m3) 17.1 17.1 100 22.3 22.3 100 20.5 20.5 100 28.0 28.0 100 13.8 13.8 100

Table 5.19: Aikhal Underground Mine Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Total Ore (kt) 245 500 500 500 500 500 500 500 500 500 500 305 5,550 Diamond Grade +0.5 mm (ct/t) 5.63 5.53 4.02 4.02 4.02 4.02 4.02 4.02 4.02 4.02 4.02 4.02 4.23 Contained Diamonds +0.5 mm (kct) 1,380 2,763 2,011 2,011 2,011 2,011 2,011 2,011 2,011 2,011 2,011 1,226 23,464 Development (k m3) 14 31.4 34.8 56.4 56.4 56.4 56.4 56.4 56.4 56.4 40 40 555

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5.4.5 Komsomolsky Mine Design and Operation

The open pit at the Komsomolskaya pipe deposit has been in production since 1992. As of 1st January 2015, the open pit bottom had reached a depth of 250 m, and the pit surface dimensions were 900 m by 800 m. Figure 5.14 illustrates the pit geometry as of 1st January 2016.

Figure 5.14: Komsomolsky Open Pit - Plan View as at 1st January 2016

100 m 0 m 100 m 200 m

Source: ALROSA 2016

The open pit uses traditional surface mining methods including drilling, blasting, load, haul and dump techniques. Waste is hauled in trucks to external dumps and ore is transported to the processing plant or stockpiled on the surface.

Drilling is carried out on 15 m benches. The production blast holes are 250 mm in diameter, drilled by Russian-built SBSh-250MN-32 and SBSh-190/250 rigs. Ore is loaded by EKG-10, EKG-8I, EKG-5A, CAT-385 excavators and a CAT-988G loader. Ore is hauled by a

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42-tonne BelAZ-75473 dump truck and transported to the stockpile for Processing Plant No. 8.

No ore mining took place during 2013 and 2014, as operations focused on waste stripping for the last pushback of the open pit.

The Komsomolsky pit operates three shifts per day, seven days per week. Air inversion layers cause some disruption to production process during the winter.

5.4.6 Komsomolsky Open Pit Production

Production data for the Komsomolsky open pit mine from 2012 to 1st July 2016 are summarised in Table 5.20.

The future production schedule for the open pit extending to 2020, as proposed by ALROSA, has been adjusted to conform to the Micon reserve estimate. Micon’s adjusted production schedule for the Komsomolsky deposit indicates that the reserves will be depleted by 2020. Future production data proposed by Micon for the period from 1st July 2016 to 2020 are shown in Table 5.21.

5.4.7 Zaria Open Pit Design and Operation

The Zaria pipe deposit is being developed for mining by ALROSA. The project is proposed to be an open pit mine with processing of excavated ore in Plant No. 8. Waste stripping and access open pit construction has commenced in 2016. The first ore is scheduled to be mined in 2021.

The TEO report (2015) contains the basis for engineering decisions for the deposit development and operations. The final depth of the open pit should be approximately 300 m. Ore from the central ore shoot will be hauled to the plant for processing while porphyry kimberlite material in the flanks of the pipe will be mined and stockpiled separately as the off-balance ore.

Haulage of waste and ore will be provided by mine trucks. Waste material is proposed to be transported to exterior piles, while the ore will be temporary stockpiled on surface prior to haulage to Plant No. 8 for processing, and the off-balance ore will be sent to a special stockpile. The in-situ rock will be prepared for excavation by implementing conventional drilling and blasting techniques.

It is proposed to use BelAZ-75473 trucks of 45 t capacity and CAT-740 articulated trucks of 38 t capacity at lower levels close to the bottom of the open pit. Drilling of ore and waste will be carried out using SBSH-250 electric drill rigs (Russian). Loading of broken materials willo be undertaken by EKG excavators with 10m3 bucket capacity. Other mining and ancillary equipment is set out in the TEO report.

Figures 5.15 and 5.16 illustrate the Zaria ultimate open pit in plan view and in cross-section corresponding to line A-A on Figure 5.15.

5.4.8 Zaria Open Pit Production

The future production schedule for the Zaria open pit mine up to 2030 has been compiled by Micon, using the data from ALROSA’s long term schedule extending to 2030, adjusted to match the ore reserve estimate prepared by Micon. The production targets for the Zaria open pit mine from 1st July 2016 to 2030 are presented in Table 5.22.

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Table 5.20: Komsomolsky Open Pit Actual Production

2012 2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Plan Actual % Ore (kt) 500 520 104 0 0 - 12.1 16.0 132 504 504 100 646 682 106 Diamond Grade +0.5 mm (ct/t) 0.37 0.39 106 - - - 0.28 - 0.28 0.30 107 0.35 0.40 113 Contained Diamonds +0.5 mm (kct) 184 202 110 - - - 4.4 - 141 150 107 229 273 119 Waste Stripping (k m3) 4,450 4,450 100 4,520 4,520 100 4,130 4,130 100 3,400 3,400 100 854 974 114 Preparation Work (k m3) 30 30 100 10 10 100 30 39 130 58 79 136 25 70 280

Table 5.21: Komsomolsky Open Pit Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 Total Ore (kt) 505 1,010 1,010 1,010 471 4,006 Diamond Grade +0.5 mm (ct/t) 0.39 0.37 0.37 0.37 0.37 0.372 Contained Diamonds +0.5 mm (kct) 197 377 372 372 173 1,490 Waste Stripping (k m3) 1,000 1,500 1,500 500 177 4,677 Preparation Work (k m3) 45 10 10 10 10 85

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Figure 5.15: Zaria Open Pit, - Plan View of Ultimate Pit

A

A 100 m 0 m 100 m 200 m

Source: ALROSA 2015

Figure 5.16: Zaria Open Pit – Cross-Section View of Ultimate Pit (Section Line A-A in Figure 5.15)

A - А

Pit position after finishing mining capital works

Final pit outline

Off-Balance ore Balance ore

Source: ALROSA 2015

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Table 5.22: Zaria Open Pit Mine Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Ore (kt) - - - - - 1,025 1,025 1,025 1,025 1,025 1,025 1,025 1,025 1,025 1,025 10,250 Diamond Grade +0.5 mm (ct/t) - - - - - 0.28 0.28 0.28 0.28 0.28 0.28 0.28 0.28 0.28 0.28 0.28 Contained Diamonds +0.5 mm (kct) - - - - - 288 288 288 288 288 288 288 288 288 288 2,883 Stripping (k m3)1 2,889 4,200 5,000 5,000 4,500 3,500 3,500 2,500 1,500 1,500 1,100 900 800 550 500 37,939 Development (k m3) - - - - - 10 10 10 10 10 10 10 10 10 10 100

Note: 1 Stripping volumes include the off-balance ore which is stockpiled without processing.

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5.5 PROCESSING

5.5.1 Overview

Ore from the Aikhal mining complex is treated at Processing Plants No. 8 and No. 14, which were commissioned in 1968 and 1996, respectively. Plant No. 8 receives ore from the Komsomolskaya and Aikhal pipes and Plant No. 14 handles feed from the Jubilee pipe. Ore from the Zaria pipe is planned to be processed at Plant No. 8.

Ores from the Aikhal underground mine and Komsomolskaya pipe are processed separately at Plant No. 8, which has a throughput capacity of 1.7 Mt/a. The flowsheet for the plant has been modified over the years to include magnetic separators for processing the -6 mm product from the first stage screening, and also for the -2 mm to +0.5 mm product, to eliminate the high magnetic mineral content from the downstream process. DMS technology was introduced in 2005 to replace the -6 mm to +1.4 mm jig recovery circuits.

Plant No. 14 was designed in 1989 and has an annual capacity of 10 Mt/a. The recovered diamond size range is -50 mm to +0.5 mm. In 2001, a DMS plant was added to improve the recovery of the -6 to +1.2 mm fraction. Magnetic and electrostatic separation techniques were implemented between 2001 and 2004 to reduce the amount of magnetic material in the circuit. In 2003, a dry tailings disposal circuit was commissioned to process -6 to +3 mm DMS tailings which had previously been reground. In 2015, two 75 t/h DMS circuits were commissioned, in replacement of jigs, to process the -3 to +1 mm size fraction.

The efficiency of diamond recovery for both plants is greater than 97% (Tables 5.23 and 5.24).

Table 5.23: Plant No. 14 Actual Production

Parameter 2012 2013 2014 2015 2016 H1 Ore Processed (Mt) 9,627 8,884 8,506 8,355 4,420 Average Head Grade (ct/t) 0.551 0.855 0.933 0.976 0.897 Recovered Diamonds from Mill Feed (kct)1 6,272 7,356 7,712 7,926 3,893 Diamond Recovery (%) 97.5 97.4 97.2 97.2 98.2 Note: 1 Only +2 mm diamonds.

Table 5.24: Plant No. 8 Actual Production

Parameter 2012 2013 2014 2015 2016 H1 Ore Processed (Mt) 899 933 972 786 795 Average Head Grade (ct/t) 2.956 3.597 3.563 3.722 1.023 Recovered Diamonds from Mill Feed (kct)1 2,673 3,244 3,345 2,844 786 Diamond Recovery (%) 97.1 96.7 96.6 97.2 96.6 Note: 1 Only +2 mm diamonds.

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5.5.2 Current and Future Production

Compared with some previous years, the throughput for Plant No. 8 decreased in 2015 in line with the weight of diamonds recovered. However, in 2016, the throughput should increase significantly despite a decrease in average head grade, as a result of a higher proportion of ore from the Komsomolskaya mine.

While throughput for Plant No. 14 has generally declined in recent years, annual diamond production has significantly increased due to higher head grades (up to 0.98 ct/t in 2015). In 2015, 7,926 kct of diamonds were recovered (9,405 kct when diamonds class -1.2 mm are included).

The planned future production schedules for the plants of Aikhal GOK, as developed by Micon, correspond to the production schedules of the Aikhal GOK deposits compiled by Micon. These plans, in turn, agree with the reserve assessments made in compliance with JORC guidelines and correlate with the ALROSA long term production schedule.

The forecast production schedules for Plants No. 8 and No. 14 are given in Tables 5.25 and 5.26, respectively.

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Table 5.25: Plant No. 8 Planned Production

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Plant Feed Aikhal Mine (kt) 245 500 500 500 500 500 500 500 500 500 500 305 - - - 5,550 Komsomolsky Open Pit (kt) 505 1,010 1,010 1,010 471 ------4,006 Zaria Open Pit (kt) - - - - - 1,025 1,025 1,025 1,025 1,025 1,025 1,025 1,025 1,025 1,025 10,250 Processing Processing (kt) 750 1,510 1,510 1,500 971 1,525 1,525 1,525 1,525 1,525 1,525 1,330 1,025 1,025 1,025 19,806 Average Head Grade (ct/t) 2.10 2.08 1.58 1.58 2.25 1.51 1.51 1.51 1.51 1.51 1.51 1.14 0.28 0.28 0.28 1.41 Diamonds Contained in Mill Feed (kct) 1,577 3,140 2,382 2,382 2,184 2,299 2,299 2,299 2,299 2,299 2,299 1,514 288 288 288 27,838 Diamond Recovery (%) 96.4 96.3 96.3 96.3 96.3 96.3 96.3 96.3 96.3 96.3 96.3 96.2 96.0 96.0 96.0 96.3 Diamonds Recovered Class +0.5 mm (kct) 1,500 3,024 2,294 2,294 2,103 2,213 2,213 2,213 2,213 2,213 2,213 1,457 277 277 277 26,802

Table 5.26: Plant No. 14 Planned Production

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Plant Feed Jubilee Open Pit (kt) 3,225 5,200 4,500 4,000 4,000 4,200 4,200 4,900 4,500 4,700 5,400 5,000 4,800 5,500 5,500 69,625 Processing Processing (kt) 3,225 5,200 4,500 4,000 4,000 4,200 4,200 4,900 4,500 4,700 5,400 5,000 4,800 5,500 5,500 69,625 Average Head Grade (ct/t) 1.17 1.32 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.84 Diamonds Contained in Mill Feed (kct) 3,761 6,885 3,493 3,105 3,105 3,260 3,260 3,804 3,493 3,648 4,192 3,881 3,726 4,269 4,269 58,150 Diamond Recovery (%) 97.6 97.0 97.0 97.2 97.2 97.2 97.2 97.2 97.2 97.2 97.0 97.0 97.0 97.0 97.0 97.1 Diamonds Recovered Class +0.5 mm (kct) 3,670 6,678 3,388 3,018 3,018 3,169 3,169 3,697 3,395 3,546 4,066 3,765 3,614 4,141 4,141 56,476

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5.5.3 Process Flowsheets

5.5.3.1 Plant No. 8

Ore from the Aikhal underground mine and the Komsomolskaya pipe is processed separately, although the latter is now drawn from stockpile areas only.

ROM ore at -700 mm maximum size is fed directly to two autogenous mills, with no primary crushing. The milling circuit is closed and screw classifiers produce a -50 mm product that is then screened into -50 mm to +13 mm, -13 mm to +6 mm and -6 mm fractions. The -50 mm to +13 mm and -13 mm to +6 mm fractions are processed through X-ray sorters, with the concentrate passing to final recovery and the tails returned for regrinding. The -6 mm fraction is processed by magnetic separation to remove the magnetic fraction to tails. The non-magnetic fraction is further screened into -6 mm to +1.2 mm and -1.2 mm fractions. Desliming is performed prior to the above screening stages and all -0.5 mm material reports directly to final tails.

The -6 mm to +1.2 mm fraction is processed by DMS and the concentrate reports to final recovery. Two DMS plants are available. For Aikhal ore, DMS tails are reground in the milling circuit, although there are plans to use an HPGR unit for this duty. For Komsomolskaya pipe ore, DMS tails are conveyed to a storage bin for transport to the tailings dump.

The -1.2 mm fraction is deslimed and processed in spirals. Spiral tails report to final tails and spiral concentrate is passed to magnetic separation. The magnetic fraction reports to tails and the non-magnetic fraction is deslimed and fed to rougher flotation.

The rougher flotation concentrate is deslimed and screened into +1 mm and -1 mm fractions. The -1 mm fraction is further processed by scavenger flotation and the concentrate is screened at 0.5 mm. The oversize, combined with the +1 mm fraction, is fed to the “dry line” in final recovery. The -0.5 mm fraction reports as final tails and flotation scavenger tails are recycled.

Rougher flotation tails are screened at 1 mm for Aikhal ore and 1.2 mm for Komsomolskaya ore, with the oversize returned to the mill for regrinding and the undersize reporting to final tails.

In final recovery, concentrates from the X-ray sorters are screened at 50 mm, 13 mm and 6 mm. The +50 mm fraction is returned to the milling circuit for regrinding. The -50 to +13 mm and -13 to +6 mm fractions are further processed in two-pass X-ray sorters, with the concentrates passed to the sorthouse. X-ray sorter tails are returned for regrinding.

The -6 mm fraction, including the -6 mm to +1.2 mm DMS concentrate, is deslimed and further screened at 3 mm and 1 mm. The -6 mm to +3 mm and -3 to +1 mm fractions are processed through X-ray sorters, with the -1 mm fraction reporting to froth flotation. X-ray sorter tails are processed using grease separation. X-ray sorter and flotation concentrates are further dried and screened into several size fractions. Depending on the specific size fraction, these are treated using X-ray sorters and magnetic separation, with further processing of the concentrates using electrostatic separation and roasting. Final diamond recovery is performed at the sorthouse of Plant No. 14.

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The tailings from the grease separators are generally returned to the milling circuit, although the finer fractions are screened with the undersize (1.6 mm for Komsomolskaya ore and 1.2 mm for Aikhal ore) reporting to final tailings.

5.5.3.2 Plant No. 14

Ore from the Jubilee pipe is processed in Plant No. 14, which has a capacity of 10 Mt/a.

ROM ore with a top size of 1,000 mm is delivered by truck and fed into three autogenous mills, with no primary crushing. Milled product at -50 mm is deslimed and screened into -50 mm to +20 mm, -20 mm to +13 mm, -13 mm to +6 mm and -6 mm fractions. The -50 mm to +20 mm, -20 mm to +13 mm and -13 mm to +6 mm fractions are all processed using X-ray sorters, with tails returned to the milling circuit and concentrates passed to final recovery.

After desliming, the -6 mm fraction is further screened at 3 mm and 0.5 mm. The -6 mm to +3 mm fraction is passed through magnetic separation prior to DMS concentration (two plants, each of 100 t/h capacity), with the magnetic fraction reporting to tails. DMS concentrate reports to final recovery and DMS tails to final tails.

Following desliming, the -3 mm to +0.5 mm fraction is processed in primary and secondary spiral concentrators. Spiral tails report to final tails.

The rougher spiral concentrate is processed via magnetic separation to reject the magnetic material and is then upgraded in the cleaner spirals. After desliming and screening at 1 mm, both spiral concentrates report to a DMS circuit (two plants, each of 75 t/h capacity). DMS concentrate reports to final recovery and DMS tails to final tails.

The -1 mm fraction from screening the DMS feed and the magnetic fraction from the separators in the DMS circuits are deslimed and fed to spirals. Spiral concentrate reports to final recovery and spiral tails report to final tails.

The -50 mm to +6 mm concentrates from the X-ray sorters report to final recovery and are screened into +50 mm, -50 mm to +16 mm, -16 mm to +5 mm and -5 mm fractions. The +50 mm fraction is crushed in a jaw crusher and fed back to final recovery. The -50 mm to +16 mm and -16 mm to +5 mm fractions are processed in several stages of X-ray sorting and the concentrates are passed to the sorthouse. Sorter tails are either recrushed, returned to final recovery or returned to the milling circuit, as appropriate. After desliming, the -5 mm fraction reports to the -6 mm to +1 mm DMS circuit.

The DMS concentrates pass through magnetic separators and the non-magnetic fraction is screened into +6 mm, -6 mm to +3 mm, -3 mm to +1 mm and -1 mm fractions. The +6 mm fraction is returned to the final recovery sizing screen, while the other fractions are individually processed in X-ray sorters, with the concentrates passing through magnetic separation after drying. The secondary sorter tails are fed to grease separation, with the tails returned to the milling circuit for regrinding.

The sorthouse recovers diamonds from both processing plants, but they accounted for separately.

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5.5.4 Summary

Micon considers the operation of Plants No. 8 and No. 14 to be efficient. Both enterprises are capable of fulfilling the planned production targets, providing designed performance parameters are maintained.

5.6 INFRASTRUCTURE

5.6.1 Transport

Aikhal is linked to other settlements by both air and road transport. The airport, located 3.5 km from the town, accepts small planes all year round. Roads connecting Aikhal to the settlements of Udachny (80 km), Mirny (485 km) and Lensk (720 km) can be used throughout the year. Freight intended for Aikhal is generally first taken by rail to the town of Ust-Kut, where it is then transported along the Lena River to the town of Lensk and finally delivered by road to Aikhal.

5.6.2 Power and Water

Electric power is supplied to Aikhal town and the industrial facilities of Aikhal GOK from the Vilyuy hydroelectric power plant, described previously in Section 4.6.2. Electric power is supplied via 220 kV transmission lines. Heating is provided by seven boiler houses owned by ALROSA. The Markha Reservoir to the north of the settlement provides potable and industrial water to the town and GOK facilities.

5.7 ENVIRONMENT, HEALTH AND SAFETY AND SOCIAL ISSUES

5.7.1 Environmental and Health and Safety Management

The technical basis for environmental and health and safety management of the Aikhal operations has been established in the relevant TEO documentation and the subsequent detailed design documentation supplemented by documented internal regulations.

Aikhal environmental personnel maintain an Industrial Environmental Control Schedule, covering issues related to atmospheric emissions and air quality, protection of water resources and waste management. The schedule also contains a register of key facilities (Table 5.27).

5.7.2 Key Environmental and Safety Issues

5.7.2.1 Inflows from Existing Surface Water Bodies

The Jubilee open pit is located near to Lake Mutnoe. To prevent inflows from the lake entering the pit, ALROSA has initiated a plan to construct a protective dam and infill part of the lake with waste rock, effectively moving the lake some 2 km further away from the ultimate pit rim.

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Table 5.27: Aikhal GOK Key Facilities (2016)

Air Emission Water Quality Facility Waste Controls Controls Controls Plant No. 8 √ - Plant No. 14 √ √ - Jubilee Open Pit √ √ - Komsomolsky Open Pit √ √ - Aikhal Open Pit √ √ - Aikhal Underground Mine √ √ - Zaria Pipe (not working) - - - Jubilee and Aikhal Settlements √ √ - Mining Equipment Maintenance √ √ - Heat and Power Facility √ √ - Boiler House - √ - Power Distribution Unit √ - - Sewerage System - - √ (Aikhal and Jubilee Settlements) Lake Mutnoe - - √ Pumping Station – R. Markha - - √ Pumping Station – R. Oyuur-Yurege - - √ Water Discharge – R. Sokhsolookh - - √

5.7.2.2 Inflows from Groundwater and Rainfall

Rainfall and snowmelt accumulate in sumps at the base of the open pits. The level of precipitation is low and the quantities are managed by a series of settling ponds, to remove sediment prior to discharge to surface waters. In case of small oil deposits, they can be isolated.

Although all open pits are in areas of continuous permafrost, there are localised areas where the high salt content prevents groundwater from freezing. These “taliks” can give rise to inflows that are characterised by a high mineral content, occasionally exceeding 100 g/l. At the Jubilee open pit, for example, such inflows amount to about 5 m3/hour.

The discharge of highly mineralised waters to surface waters is no longer permitted. Current practice is for these waters to be collected and re-injected into deep voids in the permafrost.

5.7.2.3 Air Quality in the Open Pits

The air quality in the open pits is generally satisfactory for most of the year. However, during winter, the climate can give rise to periods of temperature inversions over open pit operations, the consequences of which have been described in Section 4.7.2.2.

5.7.2.4 Waste Rock Management

Open pits generate a substantial quantity of waste rock, the disposal of which occupies large areas of land that ultimately require re-vegetation. Most of the waste rock is geochemically benign and does not give rise to poor quality drainage water, although a small portion can comprise high concentrations of salts.

5.7.2.5 Tailings Management

Tailings supernatant water is typically highly mineralised. All ALROSA tailings facilities now operate on a zero discharge basis, with water being re-circulated to the plants. Seepage

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through the dam walls is restricted by the systematic enhanced freezing of the walls; any residual seepage is collected and returned to the tailings impoundment.

5.7.3 Health and Safety

Safety statistics from Aikhal GOK indicate a safety performance consistent with, if not slightly better than, that demonstrated by ALROSA as a whole (Table 5.28). The general improvement apparent between 2006 and 2009 was followed by a noticeable deterioration in 2010 and 2011, although the safety performance improved markedly from 2012 onwards.

Table 5.28: Aikhal GOK Safety Performance

Parameter 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average Aikhal GOK Total Number of Recorded Incidents 4 3 1 1 4 3 0 1 1 0 1.8 Incidents/1,000 Employees 0.83 0.63 0.21 0.21 0.86 0.64 0.00 0.22 0.23 0.00 0.38 Number of Fatal Incidents 1 0 0 0 2 0 0 0 0 0 0.30 Number of Fatalities 1 0 0 0 2 0 0 0 0 0 0.30 Fatalities/1,000 Employees 0.21 0.00 0.00 0.00 0.43 0.00 0.00 0.00 0.00 0.00 0.06 Number of Serious Incidents 0 0 0 0 0 1 0 1 0 0 0.20 Serious Incidents/1,000 Employees 0.00 0.00 0.00 0.00 0.00 0.21 0.00 0.22 0.00 0.00 0.04 Number of Lost Working Days 204 95 49 172 195 128 0 87 179 0 111 Lost Days/1,000 Employees 42 20 10 36 42 27 0 19 41 0 24 TOTAL ALROSA Incidents/1,000 Employees 1.28 1.16 0.90 0.78 0.79 0.81 0.84 0.92 0.38 0.28 0.82 Fatalities/1,000 Employees 0.16 0.08 0.04 0.17 0.14 0.14 0.19 0.18 0.09 0.00 0.13 Serious Incidents/1,000 Employees 0.28 0.12 0.04 0.04 0.19 0.19 0.09 0.32 0.00 0.05 0.13 Lost Days/1,000 Employees 63 50 44 32 20 41 33 38 21 6. 35

Note: “Total ALROSA” is for mining operations” only and includes data from Aikhal GOK, Mirny GOK, Nyurba GOK, Udachny GOK and all mining related support functions. Data for other ALROSA group companies are excluded. Data from Almazy Anabara, Nizhne-Lenskoe and Lomonosov are not included due to the incompatibility of the data.

5.7.4 Regulatory Compliance

Operations at Aikhal are covered by four principal subsoil licences issued by the State Committee for the Subsoil Use of the Republic of Sakha (Yakutia):

 Licence No. ЯКУ 03013 КЭ covers the Jubilee Pipe;  Licence No. ЯКУ 03015 КЭ covers the Komsomolsky Pipe;  Licence No. ЯКУ 03018 КЭ covers the Aikhal Pipe; and,  Licence No. ЯКУ 15666 КЭ covers the Zaria Pipe

The environmental, health and safety and social conditions attached to these licences are broadly consistent.

5.7.5 Permits for Nature Use

Aikhal operates under a series of separate permits for air emissions from the different operations and a range of permits and agreements for water use and discharge, although all operations are covered by a single waste permit (Table 5.29).

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Table 5.29: Aikhal GOK Permits for Nature Use

Type of Licensed Activity, GOK Validity Expiry No. Licence No. Issuing Authority Date of Issue Division Period Date Air Emissions Directorate for Federal Environmental 23rd 31st Liquid Fuel Boiler House, Dorozhny 1 AET 12/187 Supervision Service (Rosprirodnadzor) November 5 years December Settlement in the Republic of Sakha (Yakutia) 2012 2017 Stationary sources (excl. radioactive Directorate for Federal Environmental 31st 1st January 2 substances) – Aikhal Underground PDV – 13/201 Supervision Service (Rosprirodnadzor) 5 years December 2014 Mine, Aikhal GOK in the Republic of Sakha (Yakutia) 2018 Stationary sources (excl. radioactive Directorate for Federal Environmental 31st 1st January 3 substances) – Processing Plant No. 8 – PDV – 13/254 Supervision Service (Rosprirodnadzor) 5 years December 2014 Aikhal GOK in the Republic of Sakha (Yakutia) 2018 Stationary sources (excl. radioactive Directorate for Federal Environmental 15th 29th December 4 substances) – Maintenance Shop – PDV-14/342 Supervision Service (Rosprirodnadzor) 5 years December 2014 Aikhal GOK in the Republic of Sakha (Yakutia) 2019 Stationary sources (excl radioactive Directorate for Federal Environmental 31st 3rd March 4.75 5 substances) – Komsomolsky Open Pit, PDV-14/22 Supervision Service (Rosprirodnadzor) December 2014 years Fire Safety Station Aikhal GOK in the Republic of Sakha (Yakutia) 2018 Directorate for Federal Environmental 31st Stationary sources (excl. radioactive 3rd March 4.75 6 PDV-14/23 Supervision Service (Rosprirodnadzor) December substances) – Jubilee Pipe Aikhal GOK 2014 years in the Republic of Sakha (Yakutia) 2018 Stationary sources (excl. radioactive Directorate for Federal Environmental 31st 3rd March 4.75 7 substances) –Processing Plant 14 – and PDV-14/24 Supervision Service (Rosprirodnadzor) December 2014 years industrial power plant Aikhal GOK in the Republic of Sakha (Yakutia) 2018 Stationary sources (excl. radioactive Directorate for Federal Environmental 31st 3rd March 4.75 8 substances) –Komsomolsky Open Pit, PDV-14/25 Supervision Service (Rosprirodnadzor) December 2014 years Aikhal GOK in the Republic of Sakha (Yakutia) 2018 Directorate for Federal Environmental 29th 15st 9 Mining Equipment Shop, Section No. 4 PDV-14/342 Supervision Service (Rosprirodnadzor) September 5 years December in the Republic of Sakha (Yakutia) 2014 2019 Waste Approval Directorate for Federal Environmental 10th August 9th August 1 Aikhal GOK 15/60 Supervision Service (Rosprirodnadzor) 5 years 2015 2020 in the Republic of Sakha (Yakutia) Directorate for Federal Environmental Plant No. 14, Tailings Disposal 16th March 16th March 2 15/17 Supervision Service (Rosprirodnadzor) 5 years Facilities 2015 2020 in the Republic of Sakha (Yakutia) Directorate for Federal Environmental 15th 15th December 3 Plant No. 8, Tailings Disposal Facilities 14/114 Supervision Service (Rosprirodnadzor) 5 years December 2014 in the Republic of Sakha (Yakutia) 2019 Directorate for Federal Environmental 15th 15th Aikhal Pit and Mine Waste Rock 4 14/113 Supervision Service (Rosprirodnadzor) December 5 years December Management in the Republic of Sakha (Yakutia) 2014 2019 Water Water Discharge 1 Sewage Treatment Facilities, Aikhal Directorate for Federal Environmental 31st 3rd September Settlement VAT -12/12 Supervision Service (Rosprirodnadzor) 5 years December 2012 Sewage Treatment Facilities, Jubilee in the Republic of Sakha (Yakutia) 2016 2 underground mining (Power Station) 14-18.03.08.004-X- Water Use Agreement for the Oyuur Department of Water Relations, Republic 3 дзвх –C-2012- 2013 5 years 2018 Yurige river of Sakha (Yakutia) 02055/00 Water Discharge to Sokhsolookh river - 14-18,03,08,004-P- Jubilee Pipe 1. Collecting pond post- Department of Water Relations, Republic 5th August 31st December 4 PCBX-C-2013- 3.25 years treatment and 2. Aikhal settlement post- of Sakha (Yakutia) 2013 2016 02394/00 treatment. Directorate for Federal Environmental Water Discharge to Sokhsolookh river - 15th July 31st December 5 NDS-14/07 Supervision Service (Rosprirodnadzor) in 2.5 years Jubilee Pipe 2014 2016 the Republic of Sakha (Yakutia) 14-18.03.08.004-X- Water Use Agreement for the Department of Water Relations, Republic 6 дзвх-C-2016- 2016 14.5 years 2030 Markha river of Sakha (Yakutia) 03343/00

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5.7.6 Risk Categorisation

Micon considers the overall risk associated with environmental and health and safety considerations at Aikhal to be moderate.

5.8 COSTS

5.8.1 Operating costs

The 2014, 2015 actual operating costs and 2016 planned operating costs for the Aikhal GOK, as provided by ALROSA, are presented in Table 5.30. These values exclude amortisation of the principal assets.

Table 5.30: Aikhal GOK Actual Operating Costs

Cost Item 2014 2015 2016 Jubilee Open Pit Direct Costs of Ore Mining (RUB/t) 25.5 28.3 34.5 Exploitation Exploration (RUB/t of mined ore) 17.2 12.3 11.0 Direct Costs of Waste Stripping (RUB/m3) 46.7 52.4 60.4 General Production Costs of the Open Pit 1,898,572 1,956,218 2,090,200 (RUB/t of mined material) Aikhal Underground Mine Direct Costs of Ore Mining (RUB/t) 2,022.8 1,919.1 1,890.7 Exploitation Exploration (RUB/t) 35.2 65.2 45.7 Mine Development (RUB/t) 4,256.8 3,308.0 4,028.4 General Production Costs of Underground Mine (RUB/t of ROM) 1,287,106 939,843 1,032,387 Komsomolsky Open Pit Direct Costs of Ore Mining (RUB/t) - 28.8 24.6 Preparation Work (RUB/m3 of work) - 5.1 8.2 Direct Cost of Waste Stripping (RUB/ m3) - 63.8 74.6 General Production Costs of the Open Pit (RUB/t of ROM) - 883,892 414,014 ROM Ore Haulage Costs (RUB/t-km) Haulage (kt x km) 281,251 297,788 300,113 Direct Transportation Costs (RUB/t x km) 7.0 8.2 7.9 General Costs ('000 RUB) 2,136,402 2,689,637 2,725,426 Plant No. 14 Direct Costs of Processing (RUB/t) 99.4 108.9 126.0 General Production Costs of the Plant (RUB/t) 3,360,607 3,313,841 3,568,609 Final Recovery Section (RUB/ct of diamonds recovered) 18.7 8.0 7.2 Plant No. 8 Direct Costs of Processing (RUB/t) 176.6 185.3 208.2 General Production Costs of the Plant (RUB/t) 981,540 797,571 1,227,878 Final Recovery Section (RUB/ct of diamonds recovered) 13.4 6.2 6.4 Aikhal GOK General Costs Total General Costs (‘000 RUB) 1,286,784 1,640,266 2,323,838

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The estimation of costs for operation of the Zaria deposit is based on actual unit costs for Komsomolsky open pit.

Planned operating costs for 2016 were used as the basis of operating costs forecast for future years, completed by Micon. When forecasting operating costs, Micon took into account planned production parameters for each of the divisions of the Aikhal GOK.

For a full accounting of diamond production and sales costs in the completed economic evaluation, Micon took account of a number of costs in addition to production and general costs. More detailed information is provided in Section 12.0.

5.8.2 Capital Costs

When completing the evaluation of capital costs, Micon incorporated the data on actual capital expenditures by Aikhal GOK and was guided by the annual planned capital expenditures for 2016 to 2030, proposed by ALROSA. Capital costs by year for the considered period used by Micon for assessment of Aikhal GOK operations are summarised in Table 5.31. Capital costs are expressed in nominal terms.

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Table 5.31: Aikhal GOK Capital Costs Schedule (Million RUB)

Cost Item 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Aikhal Mine - Equipment Replenishment 267 58 1,172 108 ------1,605 Aikhal Mine - Access to Reserves (Elevations -100 m/-400 m) - - - - 34 387 731 761 791 638 866 901 937 975 1,013 8,035 Plant No. 14 - Tailings Disposal Facilities - - - - 24 25 380 0 0 0 0 0 600 0 0 0 Jubilee Open Pit - Major Equipment Depot, other Facilities - - - - 878 1,313 1,234 162 332 347 2,825 713 593 433 2,143 1,029 Zaria Project Development 1,529 2,511 2,486 2,620 ------518 57 10,973 Jubilee Open Pit - Zarechny Area Reinjection Facilities 66 141 296 0 - - 76 189 398 ------9,721 Aikhal Oil Tank Farm Modification 149 53 ------1,166 Jubilee Open Pit - Engineering Works and Structures 7 73 ------202 Aikhal Mine - Connection of Buildings to Clean Water Pipeline - - 25 ------80 Technical Upgrading and Worn Equipment Replenishment 935 1,193 1,265 1,379 1,430 1,513 1,591 1,655 1,669 1,740 1,800 1,821 1,865 1,897 1,942 25 Total 2,953 4,029 5,244 4,107 2,366 3,239 4,013 2,766 3,190 2,726 5,491 3,436 3,994 3,823 5,155 23,697

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6.0 MIRNY

6.1 BACKGROUND

The Mirny mining and processing complex (Mirny GOK) is based in the city of Mirny, which has a population of approximately 36,000. Mirny GOK was established in 1993 and is the base for the ALROSA corporate headquarters, in addition to a number of its divisions and organisations. There is a limited amount of non-mining related industrial and commercial activity in the city. The population comprises a mix of ethnic Russian and Yakut peoples.

Mirny is located 220 km south of the Arctic Circle, and the climate and physiography are similar to that described for Udachny, in Section 4.1. Permafrost is continuous across the area and extends to 390 m below surface. The depth of the seasonal thaw ranges from 0.2 m to 5.0 m.

Currently, Mirny GOK mines the hardrock deposits of the Mir and International pipes, the Vodorazdelnye Galechniki, Gornoye and Irelyakh placer deposits, and is reworking the historic tailings from Plant No. 5.

The Mir kimberlite pipe, discovered in 1955, is located within Mirny city. Since 2009, the deposit has been exploited by the Mir underground mine. Prior to this, the deposit was mined by open pit methods from 1958.

The International kimberlite pipe, discovered in 1969, lies 16 km southwest of Mirny city. Open pit mining began in 1971 and was suspended in 1980. In 2004, open pit mining recommenced, but reserves were exhausted in 2011. Underground mining began in 1999 and continues today.

The Irelyakh alluvial deposit (26.5 km long) lies within the Irelyakh River valley. Since 1950, it has been exploited by dredging as a placer operation. The mine base is located in the Almazny settlement, 22 km southeast of Mirny city. While the valley placer is now exhausted, the terrace placer is being mined by conventional open pit methods. Dredging is used for mining of dumps created during primary dredging of the deposit.

The Vodorazdelnye Galechniki alluvial deposit was discovered in 1956 and is located near the Mir pipe in the suburbs of Mirny city.

The Gornoye alluvial deposit was discovered in 1956 and lies on the left bank of the Malaya Botuobia River, 26 km southeast of Mirny.

The man-made deposit referred to as “Old Tailings Facility of Plant No. 5” is located on the right tributary of the Irelyakh River, 0.5 km distant from Plant No. 5 and 4 km south of Mirny.

6.2 GEOLOGY

6.2.1 Mir Pipe

The Mir pipe is confined within the Botuobinskaya anticline. The older sequence is overlain by the eastern part of the Upper Palaeozoic Tunguss syncline and the western part of the Mesozoic Vilyuy depression.

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The rocks that host the Mir pipe include terrigenous carbonate and Upper and Middle Cambrian sulphate-carbonate sediments (the Kholomolokhskaya, Mirninskaya, Metegerskaya and Icherskaya suites), and Lower Cambrian carbonate and bituminous carbonate formations (the Charskaya, Olekminskaya and Tolbachanskaya suites). The host rocks are sub- horizontally bedded. The Mir pipe is confined to the near north-south trending zone of the Parallel fault of the Vilyuy-Markhinskaya group of regional tectonic faults.

The Mir kimberlite pipe is steeply dipping and has a conical shape to a depth of 300 m (+30 m elevation). The pipe becomes cylindrical at greater depths. The width of the mineralised zone decreases drastically at depths between 900 m to 1,000 m, where it changes to a sub-vertical kimberlite dyke about 300 m long and up to 25 m to 30 m thick.

Figure 6.1 is a geological map of the area of the Mir and International pipes, the legend for which is provided in Figure 6.2. Figure 6.3 is a geological cross-section of the Mir pipe, the legend for which is provided in Table 6.4.

Figure 6.1: Geological Plan View of the Mir and International Pipe Deposit Area

Mir Pipe

B

A International Pipe 5 km 0 km 5 km 10 km

Source: ALROSA 2013

Figure 6.2: Legend for Figures 6.1 and 6.3

Recent alluvial formations: pebble gravel, sands, clay loams, silts (2 m to 8 m).

stage Recent Recent Alluvial formations of the 1st overbank terrace: pebble gravel, sand, clay sand, clay.

Alluvial formations of the 2nd overbank terrace: pebble gravel, sand, clay sand, clay.

Quaternary System System Quaternary stage

Lower rd Middle- Alluvial formations of the 3 overbank terrace: sand, clay loam, pebble gravel, silt.

Vakunaiskaya suite. Sands, sandstone, siltstone, layers of sandstone and gritstone.

Lower section section Jurassic System, Oruktakhskaya suite. Siltstone, argillite, layers of conglomerate, gritstone.

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Yulegirskaya suite. Conglomerate, sand, siltstone, carbonaceous clay.

Boruloiskaya suite. Sandstone, siltstone, carbonaceous siltstone, lenses of pebble gravel. Upper

section section System, Permian

Kholomolokhskaya suite. Limestone, dolomites, limestone-dolomitic siltstone, marls.

Upper

section section Mirninskaya suite. Marl, argillite, siltstone, redbeds, clayey dolomite, System, Cambrian layers of gypsum.

Akhtardisnkyi intrusion complex – sills of dolerite.

Middle Palaeozoic Intrusion Complex

Dykes of dolerites in fault zones (on cross section).

Kimberlite volcanic pipes: a) Reaching the level of modern erosion surface. b) Overlain by Mesozoic formations. Borders of stratigraphic units of different ages.

Faults, described by a complex of features: a) Primary (1-Western; 2-Parallel; 3-Central). b) Secondary. Faults, covered by the upper formations: a) Primary. b) Secondary. Mineral Deposits Hard rock Deposits of diamonds.

Placer Deposits of diamonds: a) In the valleys of modern streams. b) In the Mesozoic formations.

Operated natural gas deposit.

Natural gas deposit.

Others

Open pits.

Dumps.

Town of Mirny.

Source: ALROSA 2013

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Figure 6.3: Geological Profile of the Mir Pipe

Source: ALROSA 2013

Figure 6.4: Legend for Figure 6.3

Modern formations. Clay loam, clay, pebble gravel, silt.

System Clay loams, sands, pebble gravel of the III-II overbank terraces. Quaternary

Lower section.

Clays, siltstone, sand. System Jurassic Triassic System. Upper section.

Jurassic System. Lower section. Ireliakhskaya suite. Clay, sand, pebble gravel, siltstone, brown coal.

Upper section. Ilginskaya suite. Sandstone, siltstone, dolomite.

Upper – Lower Sections. Verkholenskaya suite. Dolomite marl, gypsum siltstone.

Middle Section. Metegerskaya suite. Dolomites, dolomite marl, anhydrite gypsum, dolomite breccias. Middle – Lower Sections. Itcherskaya suite. Dolomites, limestone, anhydrite gypsum, dolomite breccia. Charskaya suite. Rocksalt, dolomite, limestone, anhydrite, anhydrite dolomite. Olekminskaya suite.

Cambrian System Cambrian Anhydrite dolomite, dolomite, petroliferous limestone. Tolbachanskaya suite. Dolomites, limestone, dolomite marl, rocksalt. Elgiaiskaya suite. Lower Section Dolomites, anhydrite. Yuedeiskaya suite. Dolomites, limestone, anhydrites, rocksalt, argillite.

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Vendian complex - Cambrian system. Lower section. Iktekhskaya suite.

Dolomite, anhydrites. Vendian - Riphean.

Quartz sandstone. Archaean.

Granite-gneiss. Devonian system. Upper Section. Vilyuisko-Markhinsky complex

of undifferentiated intrusions. Dykes, sills, dolerite, gabbro-dolerite. Devonian system. Upper Section – Carboniferous System. Lower Section.

Kimberlite. Lithologies Siltstone.

Sand.

Calcareous argillite.

Calcareous siltstone.

Sandstone with calcareous cement.

Gypsum.

Anhydrite.

Rocksalt (halite).

Clayey marl.

Dolomite marl. Limestone.

Clayey dolomite.

Siltstone dolomite.

Dolomite.

Anhydrite-dolomite Quartz sandstone.

Granite-gneiss.

Dolerite, gabbro-dolerite.

Kimberlite.

Altered Rocks Brecciated.

Cavernous.

Fractured.

Silicified.

Mylonitisation zones in marl, calcareous clay.

Zones of skarn alteration with garnet-magnetite mineralisation. Borders of brecciated rocks zones.

Bottom of Permafrost – top of Metegerskiy-Icherskiy aquifer system. Bottom of Metegerskiy-Icherskiy aquifer system. Collectors Water-saturated collectors

Gas-oil-saturated collectors

Source: ALROSA 2013

The hydrogeological environment is complex and has a major influence on the exploitation of the Mir deposit. Of particular significance are the deep-lying Metegerskiy-Icherskiy aquifer; the gas content of the groundwater, kimberlite and host rock; regional variations in the permeability of the formation; the corrosive nature of the groundwater; and the spatial fluctuations in physical and chemical properties of the brines.

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The main aquifer is confined to the rocks of the Metegerskaya and Icherskaya suites at depths between 280 m and 320 m, and also between 456 m to 525 m. The sodium chloride content of the groundwater varies from 95 g/l to 130 g/l. The water also contains dissolved gases (nitrogen 70% to 90%, methane 5% and hydrogen sulphide 2% to 3%). The presence of hydrogen sulphide in the brines is a complicating factor, and the drilling of degassing holes always precedes underground development. At present, water inflow to the pit is relatively constant, at approximately 1,200 m3/h. Water is pumped from the pit in order to minimise ingress into the underground workings.

Gas and petroleum concentrations in the host rock and, to a lesser degree, in the kimberlite result in a ‘hazardous’ categorisation for the mine. Petroleum, bitumen and gas occurrences are associated with highly porous layers within the carbonate strata.

The diamond content of the Mir kimberlite pipe is high, with an average grade exceeding 3 ct/t. The diamonds are distinguished by their relatively high quality.

6.2.2 International Pipe

The International pipe is located within the Malo-Botuobinsky diamondiferous district, and is overlain by a thin stratum of Lower Mesozoic sediments. The host rocks include Lower, Middle and Upper Cambrian and Lower Ordovician sedimentary terrigenous-carbonate and sulphate-carbonate rock. These rocks are characterised by monoclinal bedding with a 3° to 60° easterly dip. The pipe is situated 0.4 km west of the Kyuellyakhsky fault.

The pipe is funnel-shaped down to a depth of 125 m, and then changes into a near cylindrical body which dips steeply to the southeast. At surface, the pipe is an irregular oval, elongated along a north-westerly trend, and with dimensions of 152 m by 112 m.

Figure 6.5 is a geological cross-section of the International pipe, corresponding to line A-B on Figure 6.1.

Figure 6.5: Geological Cross-Section of the International Pipe Deposit Area (Section Line A-B in Figure 6.1)

International Pipe 400

300

200

100

Source: ALROSA 2013

The pipe is composed of autolith kimberlite breccia (80%) and porphyritic kimberlite. The average diamond grade decreases with depth.

The hydrogeological environment is extremely complex and has a major influence on the exploitation of the International deposit. The main hydrogeological structure is the regional Metegerskiy-Icherskiy aquifer. These sodium chloride rich brines have a mineral content ranging from 35 g/l to 320 g/l and contain dissolved natural gases, including methane (70% to 75%) and hydrogen sulphide (130 mg/l).

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The host rocks of the International pipe and are of relatively poor quality (strength) and in unsupported workings, scaling and caving of roofs and walls is typical.

Diamonds in the International pipe are high quality and have high value. The high average grade of 8 ct/t makes the International pipe unique on a global scale.

6.2.3 Irelyakh Placer Deposit

The Irelyakh deposit was formed as the result of the weathering of diamonds from the Mir pipe. The productive stratum ranges from 0.0 m to 6.4 m in thickness and the diamondiferous sands are represented by sandy-gravelly-pebbly deposits, with inclusions of boulders and small blocks of bedrock. In terms of the mineralogical composition, the heavy fraction of the alluvial deposits in the terraces and the river bed is mainly represented by ilmenite, pyroxene, almandine, grossularite and magnetite. The amount of ilmenite is not less than 30%. The average diamond grade in the estimated reserves suitable for dredging is 0.12 ct/m3, and 0.46 ct/m3 within the solid terrace blocks. The diamonds are distinguished by their high quality.

6.2.4 Gornoye Placer Deposit

The Gornoye diamondiferous placer deposit is located 26 km to the southeast of Mirny, and covers an area of 5.8 km in length and ranges in width from 150 m to 1,650 m. Diamond distribution and frequency fluctuates throughout the deposit. The average grade of diamonds in the balance reserves is 0.37 ct/m3. The Gornoye deposit diamonds are distinguished by their high quality.

6.2.5 Vodorazdelnye Galechniki Deposit

The Vodorazdelnye Galechniki alluvial deposit is located close to the Mir pipe, and is composed of an ancient buried placer. The thickness of the deposits ranges from 0.1 m to 2.0 m at the edges of the placer, to 10 m at its centre. The bedrock sources of the diamonds are the Mir and Sputnik kimberlite pipes, plus the kimberlite vein adjacent to the Mir pipe.

The diamond content decreases with the distance from the Mir pipe. In general, the grade of diamonds in the placer is extremely uneven, both down the dip and along the strike. The diamond distribution and frequency also fluctuate throughout the deposit. The average grade of diamonds in the balance reserves of the deposit is 0.94 ct/m3. The deposit diamonds are distinguished by their high quality.

6.3 MINERAL RESOURCES AND RESERVES

6.3.1 Mir Pipe

6.3.1.1 Exploration

The Mir kimberlite pipe was discovered in 1955. Detailed exploration of the upper level of the deposit to a depth of 600 m (-265 m elevation) was conducted in 1955 to 1958. Further exploration of deeper levels was undertaken between 1977 and 1981 (from 455 m to 1,235 m). The initial reserves, to a depth of 800 m (-465 m elevation), were approved by the GKZ in 1959.

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Exploration of the deeper levels of the pipe included drilling 21 exploration holes, with an aggregate length of 26,436 m. Approximately 16% of the exploration holes were drilled within the ore body. At deeper levels, drill core sampling was undertaken throughout the pipe at 10 m intervals. In total, 430 kimberlite samples were collected and processed.

Core samples were processed at the plant of the Botuobinskaya expedition, with control samples processed at the plant of Aikhalskaya exploration expedition. The samples were processed according to the conventional flowsheet, with +0.2 mm diamonds recovered by the following sequence: weighing, crushing down to -16 mm, selective recovery, de-sliming, jigging, drying, screening, X-ray luminescence separation, grease separation, and flotation.

6.3.1.2 Russian Mineral Reserve Estimate

The Mir pipe reserves were estimated by the Botuobinskaya expedition of Yakutskgeologia in 1981, following detailed exploration of deeper levels between 1977 and 1981. The estimate covered reserves ranging from the bottom of the open pit at the completion of mining, at an elevation of -120 m, to the -900 m elevation; and, the minimum commercial diamond grade to 1,200 m depth was 2.50 ct/t.

The reserves were estimated by the geological block methodology, described in Section 3.2. In total, 482 core samples were used in the reserve estimate. For estimation of the +2 mm diamond fraction, an adjustment factor of 1.98 was used, based on exploration and exploitation data.

The Mir pipe reserves were approved by the GKZ in September 1981. In estimating the reserves, it was assumed that the open pit would extend down to the -120 m elevation only. The balance reserves were subsequently updated to reflect the final pit depth. The official Mir pipe State balance reserves, as at 1st January 2016, are presented in Table 6.1.

Table 6.1: Balance Reserves of the Mir Kimberlite Pipe as at 1st January 2016

Reserves Diamond Contained Diamond Contained Category Tonnage Grade Diamonds Grade Diamonds (kt) +0.5 mm +0.5 mm -0.5 +0.2 mm -0.5 +0.2 mm (ct/t) (kct) (ct/t) (kct) For Open-Pit Mining

C1 348.0 5.55 1,931.7 0.04 13.9 For Underground Mining

C1 37,133.3 3.55 131,736.2 0.04 1,475.6

C2 1,072.0 3.11 3,338.5 - -

6.3.1.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has developed a mineral resource estimate within the guidelines of the JORC Code (2012) for the Mir pipe, as summarised in Table 6.2. The reported resources are inclusive of the reserves.

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Table 6.2: Mineral Resources of the Mir Kimberlite Pipe as at 1st July 2016

Diamond Contained Top Bottom Tonnage Grade Diamonds JORC Category Elevation Elevation (kt) +0.5 mm +0.5 mm (m) (m) (ct/t) (kct) Measured -190 -550 20,104 3.71 74,521 Indicated -550 -900 16,538 3.36 55,525 Total Measured + Indicated -190 -900 36,642 3.55 130,046 Inferred -500 -900 1,072 3.11 3,339

6.3.1.4 JORC Code Ore Reserve Statement

Micon has estimated the ore reserves in accordance with the guidelines of the JORC Code (2012) for the Mir pipe. The ore reserves were based on the Measured and Indicated mineral resources shown in Table 6.2, modified to account for the following factors:

 Dilution of 7.0% and mining losses of 0.38%; and,  The volume of the crown pillar below the pit bottom (1,408 kt) was subtracted from the volume of resources used in the estimate.

The ore reserves for the Mir pipe deposit, classified in accordance with the guidelines of the JORC Code (2012), are presented in Table 6.3.

Table 6.3: Ore Reserves of the Mir Pipe as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category Description (kt) +0.5 mm +0.5 mm (ct/t) (kct) -190/-550 m minus Proved 20,028 3.42 68,538 the safety pillar Probable -550/-900 m 17,715 3.12 55,315 Total Proved and Probable 37,743 3.28 123,853

6.3.2 International Pipe

6.3.2.1 Exploration

The International kimberlite pipe was discovered in 1969. Detailed exploration was conducted between 1969 and 1971 to a depth of 315 m (+80 m elevation), and the initial reserves were approved by the GKZ in 1971.

The deeper levels of the International pipe were explored in detail between 1972 and 1975 by drilling inclined holes to a depth of 1,215 m (-820 m elevation). From 2003 to 2008, the ore body was explored in more detail between elevations -560 m and -690 m.

Core samples were taken separately from all types of kimberlite, as well as host rock and major xenoliths within the ore body. Within the kimberlite, core sample lengths ranged from 13.5 m to 22.9 m, depending on the inclination of the hole, and corresponded to a vertical length of 13.5 m. In horizontal holes, core samples were taken at 15 m intervals. In total,

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130 kimberlite core samples were collected. The samples were processed at Plant No. 6 and control processing was conducted at Plant No. 10.

From 2011 to 2013, additional exploration of the deposit was carried out between elevations -690 m and -820 m. A total of 17 inclined holes and one vertical hole were drilled from the drilling chamber on the -690 m elevation. A fan of nine horizontal drill holes was drilled from the -788 m elevation. Fans of five to seven horizontal holes were drilled from the -702 m, -714 m, -742 m and-755 m elevations, for a total of 25 drill holes. In total, 174 kimberlite core samples were collected and processed. The samples were processed at Plant No. 10. Control processing was completed at Plant No. 6. The results from this latest exploration stage were used for the estimation of the deposit reserves, approved by GKZ in December 2014.

6.3.2.2 Russian Mineral Reserve Estimate

The most recent Russian estimate of the International pipe reserves was completed in 2014 by ALROSA, using the geological block methodology described in Section 3.2. The reserve calculation was completed to a depth of 1,220 m (elevation -820 m), and the minimum diamond size threshold for the balance reserves was +0.5 mm. The International pipe deposit reserves on the State balance, as at 1st January 2016, are presented in Table 6.4.

Table 6.4: Balance Reserves of the International Pipe as at 1st January 2016

Diamond Contained Top Bottom Tonnage Grade Diamonds Block Category Elevation Elevation (kt) +0.5 mm +0.5 mm (m) (m) (ct/t) (kct)

IV C1 140 80 55.6 10,04 558,0

V C1 80 -40 1,365.3 9,05 12,355,6

VI C1 -40 -160 1,345.6 10,01 13,469,7

VII C1 -160 -280 119.4 9,38 1,119,5

X C1 -560 -690 275.9 9,10 2,510,6

XI C1 -690 -790 1,285.5 7,94 10,200,6 Total C1 4,447,3 9,04 40,214,0

XI a C2 -690 -790 149.7 0,95 142,2

XII C2 -790 -820 533.1 7,94 4,233,2

XII a C2 -790 -820 100.6 0,95 95,6

Total C2 783.4 5,67 4,471.0

6.3.2.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon developed a mineral resource statement in accordance with the guidelines of the JORC Code (2012) for the International pipe, to elevation -820 m. These resources are summarised in Table 6.5, and are inclusive of reserves.

Table 6.6 presents the potential resources for the material in Block XIII-P1 which has not been sufficiently explored to be classified as mineral resources or ore reserves under the JORC Code (2012).

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Table 6.5: Mineral Resources of the International Pipe as at 1st July 2016

Diamond Contained Top Bottom Tonnage Grade Diamonds JORC Category Elevation Elevation (kt) +0.5 mm +0.5 mm (m) (m) (ct/t) (kct) Measured -155 -790 1,448 8.21 11,888 Indicated 140 -820 3,544 8.71 30,848 Total Measured + Indicated -155 -820 4,992 8.56 42,736

Table 6.6: Potential Resources of the International Pipe as at 1st July 2016 (Potential Resources are not classified within the guidelines of the JORC Code (2012))

Diamond Contained Top Bottom Tonnage Grade Diamonds Block Elevation Elevation (kt) +0.5 mm +0.5 mm (m) (m) (ct/t) (kct)

XIII-P1 -820 -1,050 1,949 7.15 13,933

6.3.2.4 JORC Code Ore Reserve Statement

Micon has estimated ore reserves in accordance with the guidelines of the JORC Code (2012) for the International pipe. The ore reserve estimate, which was based on the Measured and Indicated mineral resources stated in Table 6.5, modified by allowances of 8.0 % for dilution and 0.40% for mining losses, is summarised in Table 6.7. Mining losses and dilution correspond to average design values.

Table 6.7: Ore Reserves of the International Pipe as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +0.5 mm +0.5 mm (ct/t) (kct) Proved 1,568 7.55 11,840 Probable 3,836 8.01 30,725 Proved + Probable 5,404 7.88 42,565

6.3.3 Irelyakh Placer

6.3.3.1 Exploration

The Irelyakh River placer mineralisation was discovered in 1954. Exploration allowing the estimation of reserves was completed in the late 1950s, and the corresponding results underwent GKZ examination in 1957, 1958 and 1959. Reserves for both dredging operations and open pit mining were allocated within the placer. The floodplain and terrace parts of the placer were explored with holes on a grid of 400 m by 20 m to 40 m, and the river bed by trenches intersecting the river channel every 200 m.

Since 1960, the placer has been developed by dredging. Currently, the dredge deposit reserves are almost depleted but the dredges continue to operate re-processing their own dumps.

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6.3.3.2 Russian Mineral Reserve Estimate

The most recent Irelyakh placer deposit reserve estimate was completed in 2013, using the geological block methodology described in Section 3.2. The estimate was approved by the GKZ in January 2014. The estimation was carried out separately for valley placer solid blocks (for dredge mining), for dredging dumps (for dredge mining) and for terrace reserves (for open pit mining). The following cut-off parameters were used:

 For the valley placer solid blocks, the sand reserves and the diamond content were estimated within the geological contours of the river bed sand-gravel-pebble deposits from the low and high floodplains;  For the dredging dumps, the reserves were estimated within the contours of those dumps;  For the terrace placer, the reserves were estimated based on the geomorphological elements of the valley;  Minimum grade of valuable component in the marginal working was 0.064 ct/m3; and,  The diamonds reserve estimation was completed for class size +0.5 mm.

When calculating the diamond reserves, an adjustment factor of 1.45 was used for the diamond reserves for the solid placers intended for dredge mining and a factor of 1.47 was used for the terrace diamond reserves intended for open pit mining. These factors are based on the exploration and exploitation reconciliation data from the exhausted mined areas. Micon considers that these adjustment factors are reasonable.

The diamond reserves for the blocks involved in third generation mining were calculated using actual grades from the diamond production data. For the non-third generation blocks, the diamond reserves were calculated based on the grades recorded from the previous dredging operations, with a reduction factor of 0.34 applied. Micon reviewed the data used for the factor calculation and agrees with the value and the methodology applied.

The Irelyakh placer deposit reserves on the state balance, as at 1st January 2016, are presented in Table 6.8.

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Table 6.8: Balance Reserves of the of the Irelyakh Placer as at 1st January 2016

Diamond Grade Contained Diamonds Sands Category +0.5mm +0.5 mm (kt) (ct/t) (kct) Valley Placer - Terraces and Solid Blocks Licence ЯКУ 03045 КЭ B 2,319.4 0.42 979.4

C1 1,238.1 0.54 669.6 Terraces Licence ЯКУ 03042 КЭ B 139.0 0.17 24.1 Dredging Dumps - Dredging Licence ЯКУ 03045 КЭ

C1 1,973.1 0.23 445.5

C2 6,744.2 0.10 686.3 Waste Dumps - Dredging Licence ЯКУ 03042 КЭ

C1 875.5 0.08 67.6 Total B 2,458.4 0.41 1,003.5

C1 4,086.7 0.29 1,182.7

C2 6,744.2 0.10 686.3

6.3.3.3 JORC Code Mineral Resource Statement

Micon has estimated the mineral resources for the Irelyakh placer deposit in accordance with the guidelines of the JORC Code (2012), using the methodology and sources of information described in Section 3.3. These resources are summarised in Table 6.9, and are reported inclusive of the reserves.

Table 6.9: Mineral Resources of the Irelyakh Placer Deposit as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category Description (m3) +0.5mm +0.5 mm (ct/m3) (kct) Measured Open Pit Mining 2,388 0.41 990 Indicated Dredge Mining 9,270 0.13 1,206 Indicated Open Pit Mining 1,163 0.56 648 Total Measured and Indicated 12,820 0.22 2,844

6.3.3.4 JORC Code Ore Reserve Statement

Micon has estimated the Irelyakh placer deposit ore reserves in accordance with the guidelines of the JORC Code (2012), based on Measured and Indicated mineral resources state in Table 6.9, modified by the allowance for dilution and ore losses shown in Table 6.10. Micon’s ore reserve estimate is summarised in Table 6.11.

Table 6.10: Dilution and Losses for the Irelyakh Placer

Losses Dilution Mining Method (%) (%) KSA (OP Mining) 0.0 13.4 Dredges 1.7 7.0

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Table 6.11: Ore Reserves of the Irelyakh Placer as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category Description (m3) +0.5mm +0.5 mm (ct/m3) (kct) Proved Open Pit Mining 2,758 0.36 990 Probable Dredge Mining 9,800 0.12 1,185 Probable Open Pit Mining 1,343 0.48 648 Total Proved and Probable 13,900 0.20 2,824

6.3.4 Gornoye Placer

6.3.4.1 Exploration

The Gornoye terrace diamondiferous placer deposit was discovered in 1956. In 1957 and 1958, initial exploration results were used to calculate the reserves approved by the GKZ in 1959. From 1959 to 1966, detailed exploration of the Irelyakh and M. Botuobiya River high terraces was undertaken at the Gornoye deposit. Prospect pits were dug on grids of 200 m by 40 m, 400 m by 40 m and 400 m by 80 m, and 465 samples were collected from 310 exploration workings. The reserve estimate completed based on this exploration data was approved by the GKZ in 1968.

From 1977 to 1981, additional exploration at the deposit covered the Irelyakh River I-IV terraces and the M. Botuobiya River II-IV terraces. Ten exploration profiles with 195 prospect pits were dug, producing 2,339 samples which were processed.

From 1981 to 1987, continued exploration was conducted at the deposit and along its northern flanks. Nine additional profiles of prospect pits were completed, producing 4,542 samples which were processed. The deposit reserves based on this stage of its exploration were calculated as at 1st September 1987.

6.3.4.2 Russian Mineral Reserve Estimate

A 2010 TEO report suggested that the cut-off criteria for reserve estimation should be a minimum commercial diamond grade of 0.248 ct/m3 in the block, and a cut-off grade of 0.204 cm/m3 in the samples. A reserve estimate was prepared in 2012, based on those cut-off criteria and utilising all the available data and the geological block methodology described in Section 3.2. This reserve estimate was approved by the GKZ in December 2012. The Gornoye placer deposit reserves on the State balance as at 1st January 2016 are presented in Table 6.12.

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Table 6.12: Balance Reserves of the Gornoye Deposit as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Block Sands Grade Diamonds Sands Grade Diamonds (m3) +0.5 mm +0.5 mm (m3) +0.5 mm +0.5 mm (ct/m3) (kct) (ct/m3) (kct) Dredge Mining B 6,198 0.38 2,353.5 13,088.0 0.14 1,849.0

C1 - - - 30.0 0.33 9.9 Open Pit Mining B 355 0.42 148 - - - Total B 6,553 0.38 2,501.6 13,088.0 0.14 1,849.0

C1 - - - 30 0.33 10

6.3.4.3 JORC Code Mineral Resource Statement

Micon has estimated the mineral resources for the Gornoye placer deposit in accordance with the guidelines of the JORC Code (2012), using the methodology and sources of information described in Section 3.3, as summarised in Table 6.13. The resources are inclusive of reserves.

Table 6.13: Mineral Resources of the Gornoye Deposit as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category Description (m3) +0.5mm +0.5 mm (ct/m3) (kct) Indicated Dredge Mining 6,011 0.37 2,241 Indicated Open Pit Mining 355 0.42 148 Total Indicated 6,366 0.38 2,389

6.3.4.4 JORC Code Ore Reserve Statement

Micon has estimated the Gornoye placer deposit ore reserves in accordance with the guidelines of the JORC Code (2012), based on the Indicated mineral resources as stated in Table 6.13, modified by the allowance for dilution and ore losses shown in Table 6.14.

Table 6.14: Dilution and Losses for the Gornoye Deposit

Losses Dilution Mining Method (%) (%) Open Pit 0.0 15.5 Dredges 2.7 9.3

Micon’s ore reserve estimate is presented in Table 6.15.

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Table 6.15: Ore Reserves of the Gornoye Deposit as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category Description (m3) +0.5mm +0.5 mm (ct/m3) (kct) Probable Dredge Mining 6,449 0.34 2,180 Probable Open Pit Mining 420 0.35 148 Total Measured and Indicated 6,869 0.34 2,328

6.3.5 Vodorazdelnye Galechniki Placer

6.3.5.1 Exploration

The Vodorazdelnye Galechniki placer deposit was discovered in 1955. Exploration between 1957 and 1959 established that commercial concentrations of diamonds were extensively distributed, and that diamonds occurred near the bedrock “basal” level, and also in separate scattered lenses of siltstone and sand in the upper and the medium areas of the section.

A series of exploration pits were completed in 1959, on grids of 40 m by 80 m, 80 m by 80 m and 80 m by 160 m. Additional exploration of the southern part of the deposit was conducted from 1978 to 1983, in which this area was covered by exploration pits on a grid of 80 m by 40 m. The 244 exploration pits, which had been completed between 1961 and 1966, were supplemented with an additional 457 pits, resulting in an area of 2.2 km of diamond mineralisation identified in 701 exploration pits. Samples retrieved were processed at the Plant No. 6 according to the standard flowsheet.

6.3.5.2 Russian Mineral Reserve Estimate

The most recent Vodorazdelnye Galechniki deposit reserve estimate was completed in 2001, using the sampling data from all of the exploration stages, and the geological block methodology described in Section 3.2. The cut-off parameters applied were:

 Cut-off diamond grade of 0.09 ct/m3 in the individual samples for the productive seam contouring on the vertical section;  Cut-off limit for the average diamond grade in the marginal workings was 0.118 ct/m3;  Minimum commercial diamond grade in the calculation block was 0.179 ct/ m3;  Increase the cut-off grade and the minimum commercial grade by 0.016 ct/m3 per unit of stripping ratio for the contoured workings;  Minimum thickness of the seam included in the reserve calculation was 0.5 m; and,  Maximum thickness of below cut-off material included in the reserve calculation was 1.3 m.

The official Vodorazdelnye Galechniki deposit reserves on the State balance, as at 1st January 2016, are presented in Table 6.16.

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Table 6.16: Balance Reserves of the Vodorazdelnye Galechniki Deposit as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Block No. Sands Grade Diamonds Sands Grade Diamonds (m3) +0.5 mm +0.5 mm (m3) +0.5 mm +0.5 mm (ct/m3) (kct) (ct/m3) (kct) B - - - 58.0 0.15 8.5

C1 4,931.1 0.95 4,685.5 16.7 0.16 2.6

C2 330.0 0.35 116.1 114.0 0.26 29.5 Under Mirny Airport Runway B - - - 58.3 0.15 8.5

C1 4,196.0 1.00 4,211.6 16.7 0.16 2.6

C2 110.0 0.25 27.8 114.0 0.26 29.5

6.3.5.3 JORC Code Mineral Resource Statement

Micon has estimated the mineral resources for the Vodorazdelnye Galechniki deposit in accordance with the guidelines of the JORC Code (2012), using the methodology and sources of information described in Section 3.3, as summarised in Table 6.17. These resources are inclusive of reserves.

Table 6.17: Mineral Resources of the Vodorazdelnye Galechniki Deposit as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (m3) +0.5mm +0.5 mm (ct/m3) (kct) Indicated 704 0.66 468 Inferred 220 0.40 88

6.3.5.4 JORC Code Ore Reserve Statement

Micon has estimated the Vodorazdelnye Galechniki deposit ore reserves in accordance with the guidelines of the JORC Code (2012), based on the Indicated mineral stated in Table 6.17, modified by an allowance of 9.4% for dilution and 0.0% for mining losses. The ore reserves of the Vodorazdelnye Galechniki deposit, estimated in accordance with the guidelines of the JORC Code (2012), are presented in Table 6.18.

Table 6.18: Ore Reserves of the Vodorazdelnye Galechniki Deposit as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (m3) +0.5mm +0.5 mm (ct/m3) (kct) Probable 777 0.60 468

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6.4 MINING

6.4.1 Mir Pipe Design and Operation

The Mir open pit was closed in 2001, at which point it had reached an elevation of -190 m. Commissioning of the Mir underground mine began in 2009. Figure 6.6 is a schematic representation of the historical and planned mining operations.

Figure 6.6: Schematic Profile of Mining Progress of the Mir Pipe

Source: ALROSA 2013

The developed area of the deposit is accessed by two vertical shafts, a skip shaft and a cage shaft, sunk from the surface to the first mining level (-615 m elevation). The skip shaft is equipped with two single line hoisting units, a twin skip system for hoisting the ore and a cage lift for hoisting of rock and for emergency evacuation. The cage shaft is used for fresh air ventilation, hoisting of rock, and transportation of personnel, materials and equipment. Ventilation of the Mir underground mine is via a centralised scheme using a VTsD-42.5 ventilation unit. In regular ventilation mode, the cage shaft is used as the intake and the skip shaft is used as the exhaust.

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The current mining operations are carried out using the mechanised cut-and-fill method with a descending sequence of layer development, without temporary crown pillars, and with full backfilling of the mined space.

Figures 6.7 and 6.8 display the Mir pipe underground mining blocks. Drives and stopes are cut with roadheaders equipped with specialised cutting bits for hard rock. Hauling of ore from the roadheaders to the ore passes is performed principally with LHD units.

A new mining system is being considered for the Mir mine, which would utilise a room-and- pillar system within the descending mining sequence and combined ore breakage methods (roadheaders plus drilling and blasting). If this new system is adopted, the stope widths will be 6 m with heights of 10 m. Ore excavation from the rooms will be performed in two stages: a roadheader will cut the 5 m high top part of the working, with drilling and blasting of the 5 m high bottom part of the working.

The Mir mine operates three eight hour shifts per day, seven days per week.

The Mir pipe mining operations are complicated by a significant inflow of highly mineralised groundwater (brines). Currently, the average inflow into the open pit is 1,200 m3/hour. The water from the bottom of the pit is collected in a sump at the -183 m elevation, pumped to the surface through wells equipped with the submersible pumps and pumped to the accumulation pond, located 8.8 km from the open pit. From the accumulation pond, the brines are injected back into the Metegero-Ichersky aquifer. The reinjection site is separated from the Mir pipe by the Eastern regional fault.

The bottom of the pit is separated from the underground workings of the mine by an impermeable screen and a crown pillar with the thickness of 20 m. However, the brines flow under the pillar into the mine workings at approximately 50 m3/hour.

Micon noted that the ability of the water to dissolve the rock salt host rocks is a factor which raises concerns. If the water drainage system fails to provide adequate control of the groundwater inflow, it will potentially result in serious risks to the associated mining operations. At the moment, this issue is appropriately addressed but it requires constant attention.

6.4.2 Mir Pipe Production

The Mir pipe underground mine was commissioned in 2009. Production has ramped up year by year, and the design production rate of 1 Mt/a is expected to be achieved in 2016. In 2015, the mine produced 762 kt of ore. The Mir pipe underground mine production data from 2012 to 1st July 2016 are presented in Table 6.19.

The future mining schedule for the Mir pipe was developed by Micon using the ALROSA development plan, with adjustments to conform to Micon’s ore reserve estimate. The production targets for the Mir pipe mine up to 2030 are presented in Table 6.20.

The production schedule up to 2030 does not allow for complete mining of the Mir pipe deposit reserves. The residual reserves of the Mir pipe deposit as of 1st January 2031 are expected to be 23,248 kt of ore, containing 77,890 kct of +0.5 mm size class diamonds.

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Table 6.19: Mir Underground Mine Actual Production

2012 2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Plan Actual % Ore Production (kt) 550 497 90 751 643 86 452 483 107 762 783 103 495 495 100 Diamond Grade + 0.5 mm (ct/t) 3.77 3.75 99 3.65 3.51 96 3.47 3.48 100 3.36 3.43 102 3.33 3.40 102 Contained Diamonds + 0.5 mm (kct) 2,071 1,862 90 2,741 2,258 82 1,567 1,682 107 2 564 2 684 105 1,649 1,683 102 Waste Development (k m3) 41.5 38.0 92 65.7 68.8 105 68.0 68.0 100 85.4 85.4 100 34.1 34.1 100

Table 6.20: Mir Underground Mine Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Ore Production (kt) 495 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 14,495 Diamond Grade + 0.5 mm (ct/t) 3.22 3.25 3.12 3.13 3.13 3.13 3.13 3.13 3.13 3.13 3.22 3.22 3.22 3.22 3.22 3.17 Contained Diamonds + 0.5 mm (kct) 1,591 3,251 3,124 3,128 3,128 3,128 3,128 3,128 3,128 3,128 3,220 3,220 3,220 3,220 3,220 45,963 Development (k m3) 32.9 60 60 40 40 40 40 40 40 40 40 40 40 40 40 633

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6.4.3 International Pipe Design and Operation

Open pit mining ceased at the International Pipe deposit in 2011 when the pit bottom reached the +85 m elevation. Underground mining began in 1999 at a rate of 150 kt/a and full production of 500 kt/a was achieved in 2003. Since then the mine has maintained this level of production.

Two centrally located shafts provide access to the Phase I reserves down to elevation -560 m:

 The cage shaft, of 6.5 m diameter sunk to a depth of 1,025 m, is designed for the transportation of personnel, materials and equipment, hoisting of waste and supply of fresh air to the mine. The shaft is capable of hoisting 60,000 m3 of waste per year; and,  The skip shaft, of 5.5 m diameter sunk to a depth of 1,065 m, is designed for hoisting of ore and exhausting the ventilation air. The shaft is equipped with a 9.5 m3 skip and a cage for emergency evacuation. The skip shaft is capable of hoisting 500 kt of ore per year.

Both shafts have stations at elevations -200 m, -290 m, -380 m, -470 m and -560 m.

The main ventilation facility is located next to the skip shaft and is equipped with two axial VOD-50 fans (one operating and one backup). Construction of a third auxiliary ventilation shaft of 6.5 m diameter was started in 2007, in order to develop the underground reserves directly under the open pit (elevations +85 m to -155 m). The auxiliary ventilation shaft will be equipped with one skip and one cage hoisting unit. The shaft is designed for hoisting of ore from the +85 m elevation. Figure 6.7 shows the locations of the three shafts.

The regional Metegerskiy-Icherskiy aquifer is located below the pit bottom, within the elevation range of +70 m to -130 m, and drainage will be undertaken prior to mining.

Ore reserves are subdivided into benches with heights of 4 m to 4.75 m, and drives with widths of 5.1 m to 5.4 m. Ore excavation is completed using the room-and-pillar mining method, with preservation of a pillar between the drives. The pillars are developed with one wall of backfill and the other wall of ore. Stoping consists of driving blind drives using a roadheader, with ore haulage to the dump truck loading chamber, or the ore pass, by LHD units. Developed drifts are filled with a backfill mix.

The International pipe mine operates three seven hour shifts per day, seven days per week.

6.4.4 International Pipe Production

Actual production data from the International pipe underground mine from 2012 to 2015 are summarised in Table 6.21. The future mining schedule produced by Micon, based on ALROSA’s long term plan adjusted to conform to the Micon reserve estimate, is presented in Table 6.22. Reserves at the International mine are expected to be fully depleted in 2027, although additional exploration of the deposit at deeper levels may expand the reserves and extend the mine life.

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Figure 6.7: Schematic Profile of the International Pipe Mine

Cage Shaft Auxiliary Ventilation Shaft

Skip Shaft

+85 m

0 m

-100 m

-200 m

-290 m

-380 m

-560 m

-690 m

-820 m Source: ALROSA 2015

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Table 6.21: International Underground Mine Actual Production

2012 2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Plan Actual % Ore Production (kt) 520 515 99 500 520 104 450 450 100 509 509 100 250 250 100 Diamond Grade + 0.5 mm (ct/t) 7.58 7.56 100 7.86 7.94 101 8.06 8.06 100 8.22 8.23 100 7.70 7.77 101 Contained Diamonds + 0.5 mm (kct) 3,939 3,893 99 3,932 4,130 105 3,626 3,629 100 4,184 4,190 100 1,926 1,941 101 Waste Development (k m3) 18 18 100 18 18 100 13.5 13.5 100 17.0 17.0 100 9.3 9.3 100

Table 6.22: International Underground Mine Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Total Ore Production (kt) 249 500 500 500 500 470 500 430 500 500 500 255 5,404 Diamond Grade + 0.5 mm (ct/t) 8.09 8.00 7.43 7.43 7.43 7.51 7.53 7.44 7.41 7.41 7.42 7.42 7.88 Contained Diamonds + 0.5 mm (kct) 2,013 4,002 3,715 3,715 3,715 3,530 3,763 3,200 3,707 3,707 3,712 3,786 42,565 Development (k m3) 13.5 30 30 18 18 18 18 18 18 18 18 10 227

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6.4.5 Irelyakh Placer Production

6.4.5.1 River Bed Section

The diamondiferous river bed and floodplain deposits of the Irelyakh placer have almost been completely mined out by dredging, with re-dredging of the dumps now being undertaken. The mining operations are performed by two 250 l bucket chain 250D type dredges, Dredge No. 201 and Dredge No. 202.

The polygons for dredging are fenced off from the Irelyakh river bed by environmental dams. A combination of transversal and longitudinal dams produces large artificial reservoirs.

6.4.5.2 Terraces

The overbank terrace reserves in the lower reaches of the Irelyakh River are mined by open pit methods, with overburden stripping and sand production performed separately. Mined sands are subjected to preliminary processing in the KSA-150 modular sorting plant, and the resulting middlings (-25 mm to + 0.5 mm size diamond-bearing material) are transported to Processing Plant No. 3.

Stripping of waste thickness less than 2 m is completed by ripping with bulldozers, with waste removed to internal dumps of previously mined placer sites nearby. For areas in which the waste thickness exceeds 2 m, stripping is completed by hydraulic CAT-375, CAT-385, and CAT-390 excavators, or CAT-980 and CAT-988 front-end loaders. The waste is transported to the internal dumps of previously mined placer sites using BelAZ-754831, BelAZ-75473 dump trucks with capacities of 42 t and 45 t, respectively.

6.4.6 Gornoye Placer Production

The Gornoye deposit reserves are mined by dredging methods, using one 250 l bucket chain 250D type dredge, Dredge No. 203. Stripping is performed using bulldozers, with transportation by dump trucks.

6.4.7 Vodorazdelnye Galechniki Placer Production

This deposit is mined using open pit methods, with overburden stripping and sand production completed separately. Mined sands are transported to Processing Plant No.3.

Stripping of waste thickness less than 2 m is completed by ripping with bulldozers. For areas in which the waste thickness exceeds 2 m, stripping is completed with CAT-980 or CAT-988 front-end loaders. The waste is transported by truck to internal dumps.

In summer, mining is carried out using the natural thawing of sands, and with stockpiling of sands by bulldozer and loading into dump trucks. In winter, mining of sands with thicknesses of 2 m or more is undertaken by stockpiling with bulldozers.

6.4.8 Irelyakh, Gornoye and Vodorazdelnye Galechniki Production Summary

Production data for the Irelyakh placer, Gornoye and Vodorazdelnye Galechniki deposits from 2012 to 2015 are presented in Tables 6.23, 6.24 and 6.25, respectively.

The future mining schedules for the Irelyakh placer, Gornoye and Vodorazdelnye Galechniki placer deposits, to 2030, have been developed by Micon, using ALROSA’s long term plan, adjusted to conform to the Micon ore reserve estimate, and are presented in Tables 6.26, 6.27, and 6.28, respectively.

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Table 6.23: Irelyakh Placer Actual Production

2012 2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Plan Actual % Irelyakh Placer - Dredge No. 201 Sands Production (k m3) 520 484 93 520 456 88 492 495 101 540 541 100 175 175 100 Diamond Grade + 0.5 mm (ct/m3) 0.15 0.19 120 0.10 0.14 143 0.07 0.09 121 0.11 0.12 109 0.08 0.08 100 Contained Diamonds + 0.5 mm (kct) 80.5 90.0 112 52.5 65.9 126 35.1 42.9 122 58.9 64.6 110 14.4 14.7 102 Development (k m3) - - - 15 15 100 15 15 100 ------Irelyakh Placer - Dredge No. 202 Sands Production (k m3) 550 585 106 650 600 92 558 425 76 664 664 100 210 167 79 Diamond Grade + 0.5 mm (ct/m3) 0.11 0.10 86 0.08 0.09 111 0.06 0.09 156 0.07 0.06 86 0.06 0.03 50 Contained Diamonds + 0.5 mm (kct) 61.9 56.7 92 51.5 52.9 103 31.7 37.6 119 44.4 38.6 87 13.1 4.9 37 Development (k m3) - - - 40 40 100 30 30 100 ------Irelyakh Placer - Selective Open Pit Mining (KSA) Sands Production (k m3) 151 151 100 150 156 104 175 175 100 300 259.1 86 140 168.3 120 Diamond Grade + 0.5 mm (ct/m3) 0.31 0.32 102 0.57 0.49 86 0.49 0.49 100 0.42 0.44 104 0.42 0.31 73 Contained Diamonds + 0.5 mm (kct) 46.9 47.76 102 85.9 76.5 89 85.1 85.4 100 126.4 113 89 59.2 51.7 87 Development (k m3) - - - 27 27 100 10 10 100 77 77 100 - - - Waste Stripping (k m3) 65 65 100 160 160 100 220 220 100 355 369 104 270 253 94

Table 6.24: Gornoye Placer Actual Production – Dredge No. 203

2012 2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Plan Actual % Sands Production (k m3) 600 567 95 400 381 95 590 598 101 601 580 96 200 200 100 Diamond Grade + 0.5 mm (ct/m3) 0.27 0.29 106 0.52 0.61 117 0.71 0.60 85 0.46 0.47 102 0.39 0.55 141 Contained Diamonds + 0.5 mm (kct) 162 163 100 209 232 111 419 361 86 275 275 100 77 109 142 Development (k m3) 150 150 100 210 150 71 290 290 100 ------Waste Stripping (k m3) 150 150 100 130 85 65 230 230 100 ------

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Table 6.25: Vodorazdelnye Galechniki Placer Actual Production

2012 2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Plan Actual % Sands Production (km3) 30 30 100 40 40 100 54 54 100 100 100 100 100 100 100 Diamond Grade + 0.5 mm (ct/m3) 0.54 0.56 104 0.56 0.53 95 0.56 0.64 114 0.52 0.55 106 0.55 0.60 109 Contained Diamonds + 0.5 mm (kct) 16 17 104 22 21 95 30 34 114 26 28 106 27 30 109 Development (k m3) - - - 5 5 100 5 5 100 ------Waste Stripping (k m3) - - - 30 30 100 80 80 100 ------

Table 6.26: Irelyakh Placer Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Dredging Sands Production (k m3) 564 1 170 650 650 650 650 650 650 650 650 650 650 650 650 266 9,800 Diamond Grade + 0.5 mm (ct/m3) 0.088 0.144 0.140 0.118 0.118 0.118 0.118 0.118 0.118 0.118 0.118 0.118 0.118 0.118 0.118 0.121 Contained Diamonds + 0.5 mm (kct) 50 169 91 77 77 77 77 77 77 77 77 77 77 77 31 1,185 Development (k m3) 23 45 40 40 40 40 40 40 40 40 40 40 40 40 40 588 Recovery (%) 83.3 83.5 83.5 83.4 83.4 83.4 83.4 83.4 83.4 83.4 79.5 79.5 79.5 79.5 82.7 82.36 Recovered diamonds (kct) 41 141 76 64 64 64 64 64 64 64 61 61 61 61 26 976 Selective Open Pit Mining (KSA-150) Sands Production (k m3) 155 320 320 320 320 320 320 320 320 320 320 320 320 105 - 4,100 Sands Production (kt) 295 608 608 608 608 608 608 608 608 608 608 608 608 201 - 7,791 Diamond Grade + 0.5 mm (ct/m3) 0.21 0.31 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 - 0.21 Contained Diamonds + 0.5 mm (kct) 61 190 121 124 124 124 122 122 122 122 122 122 122 40 - 1,639 Development (k m3) 10 70 70 70 70 70 70 70 70 70 70 70 70 50 - 900 Waste Stripping (k m3) 230 300 300 300 300 300 300 300 300 300 300 300 300 300 - 4,130

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Table 6.27: Gornoye Placer Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Total Dredging Sands Production (k m3) 300 600 600 600 600 600 600 600 600 600 600 149 6,449 Diamond Grade + 0.5 mm (ct/m3) 0.48 0.43 0.42 0.43 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.34 Contained Diamonds + 0.5 mm (kct) 143 260 253 259 175 175 175 175 175 175 175 43 2,180 Development (k m3) 105 200 200 200 200 200 200 200 200 200 200 50 2,155 Waste Stripping (k m3) 250 200 200 200 200 200 200 200 200 200 200 50 2,300 Recovery (%) 83.1 83.0 83.0 83.0 83.0 83.0 83.0 83.0 83.0 83.0 80.0 80.0 82.7 Recovered diamonds (kct) 119 216 210 215 145 145 145 145 145 145 140 35 1,803

Table 6.28: Vodorazdelnye Galechniki Placer Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 Total Selective Open Pit Mining Sands Production (k m3) 27 50 50 138 138 150 150 75 777 Sands Production (t) 55 100 100 275 275 300 300 149 1 554 Diamond Grade + 0.5 mm (ct/m3) 0.53 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.30 Contained Diamonds + 0.5 mm (kct) 29 29 29 80 80 88 88 44 468 Development (k m3) 3 5 5 5 5 5 5 5 38 Waste Stripping (k m3) 30 50 50 50 50 50 50 50 380

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6.5 PROCESSING

6.5.1 Overview

Processing Plant No. 3 treats diamond-bearing material supplied from the Mir and International pipes, as well as from the Vodorazdelnye Galechniki, Irelyakh and Gornoye placer deposits, and tailings from Plant No. 5.

Installation of HPGR and DMS units now allows the plant to achieve the maximum design capacity of 2 Mt/a. Upgrading of plant automation and optimisation of the fine diamond recovery and final recovery sections is in progress. Planned diamond recovery for 2016 is 97.3%, with forecast throughput of 1.900 Mt from all feed sources.

Mining and processing of the placer deposits is provided by Dredges No. 201, 202 and 203 (type 250 D) in addition to two modular KSA-150 units. Middlings produced with the modular units are processed at Plant No. 3, with a forecast recovery of 90%. Planned recovery of all dredges is 83.0%. The capacity of each dredge is 185 m3/h and the capacity of each modular unit is 150 m3/h.

The Mirny processing facilities also include hand sorting, re-crushing, saline decomposition (sintering), chemical pre-treatment and finishing with the application of acids and oxidants, magnetic separation, mineralogical examination and sizing. Recovered diamonds are weighed and packaged and forwarded to the ALROSA central sorting facility located in Mirny.

The total quantity of diamonds recovered in 2015 from the Mirny GOK, including the placer deposits, amounted to 6,908 kct.

6.5.2 Current and Future Production

Actual production for Processing Plant No. 3 from 2013 to 1st January 2016, including all feed sources, is shown in Table 6.29.

In 2013, the total throughput was close to the design of 2 Mt/a and declined from this level afterwards. A throughput of 1.952 Mt/a was planned for 2015, but the actual value was below this at 1.804 Mt. Diamond recovery varies significantly for different processed materials. Diamond recovery for the International pipe underground mine consistently exceeds 99%. Mir pipe recovery is slightly lower, but higher than 97% for the considered period. Recovery for material supplied from the placer deposits is significantly lower, but exceeds 90%.

Table 6.29: Plant No. 3 Actual Production

Parameter 2012 2013 2014 2015 2016 H1 Material Processed (kt) 1,927 2,013 1,678 1,804 992 Feed Grade (ct/t) 4.408 3.109 3.348 3.576 3.811 Diamonds in Material Processed (kct) 8,495 7,014 5,618 6,451 3,780 Average Diamond Recovery (%) 97.5 98.2 98.7 99.0 98.6 Diamonds Recovered (kct) 8,282 6,889 5,543 6,388 3,727 Note: Diamonds below 0.5 mm are not included in this table.

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Table 6.30: Dredges No. 201, No. 202 and No. 203 Actual Production

Sands 2013 2014 2015 2016 H1 Dredge No. 201 - Irelyakh Placer Sands Processed (k m3) 456 495 541 175 Diamond Grade (ct/m3) 0.145 0.087 0.119 0.084 Contained Diamonds (kct) 66 43 65 15 Diamond Recovery (%) 80.0 83.6 84.5 84.4 Diamonds Recovered (kct) 53 36 55 12 Dredge No. 202 - Irelyakh Placer Sands Processed (k m3) 600 446 664 167 Diamond Grade (ct/m3) 0.088 0.102 0.058 0.029 Contained Diamonds (kct) 53 46 39 5 Diamond Recovery (%) 80.1 85.2 83.9 83.0 Diamonds Recovered (kct) 42 39 32 4 Dredge No. 203 – Gornoye Placer Sands Processed (k m3) 381 577 580 200 Diamond Grade (ct/m3) 0.610 0.619 0.475 0.549 Contained Diamonds (kct) 232 357 275 110 Diamond Recovery (%) 80.0 82.7 83.9 83.2 Diamonds Recovered (kct) 186 295 231 91

The future production schedules developed by Micon, for the KSA units, Processing Plant No. 3 and Dredges No. 201, No. 202 and No. 203, using ALROSA’s long term plan and the Micon ore reserve estimates, are given in Tables 6.31, 6.32 and 6.33, respectively. Diamonds smaller than 0.5 mm are not included in these tables.

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Table 6.31: Irelyakh KSA-150 Processing Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Total Mined Material Sands Production (k m3) 295 608 608 608 608 608 608 608 608 608 608 608 608 201 7,791 Diamond Grade (ct/m3) 0.39 0.59 0.38 0.39 0.39 0.39 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.40 Contained Diamonds (kct) 61 190 121 124 124 124 122 122 122 122 122 122 122 40 1,639 Processing (including further processing by Plant No. 3) Produced and Processed Middlings (kt) 52 128 128 128 125 150 150 150 150 150 150 150 150 49 1,810 Recovery (%) 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 Recovered Diamonds (kct) 55 171 109 112 112 112 110 110 110 110 110 110 110 36 1,475

Table 6.32: Plant No. 3 Processing Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Mined Material Mir Ore (kt) 495 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 14,495 International Ore (kt) 249 500 500 500 500 470 500 430 500 500 500 255 0 0 0 5,404 Irelyakh Placer KSA Middlings (kt) 52 128 128 128 125 150 150 150 150 150 150 150 150 49 0 1,810 Vodorazdelnye Galechniki Placer (kt) 55 100 100 275 275 300 300 149 0 0 0 0 0 0 0 1,554 Processing Ore Processing (kt) 850 1,728 1,728 1,903 1,900 1,920 1,950 1,729 1,650 1,650 1,650 1,405 1,150 1,049 1,000 23,262 Diamond Grade (ct/m3) 4.35 4.32 4.04 3.70 3.71 3.58 3.64 3.76 4.22 4.22 4.28 5.07 2.91 3.11 3.22 3.90 Contained Diamonds (kct) 3,694 7,473 6,990 7,047 7,047 6,870 7,101 6,494 6,957 6,957 7,054 7,128 3,342 3,260 3,220 90,634 Average Recovery (%) 97.9 97.3 97.3 97.3 97.3 97.3 97.3 97.3 97.4 97.4 97.4 97.4 97.2 97.4 97.5 97.4 Recovered Diamonds (kct) 3,617 7,270 6,804 6,858 6,858 6,684 6,909 6,320 6,774 6,774 6,869 6,940 3,249 3,176 3,140 88,241

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Table 6.33: Dredges No. 201, 202 and 203 Processing Schedule

Parameter 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Irelyakh Placer – Dredge No. 202, Dredge No. 201 until 2018 Sands Production (k m3) 564 1 170 650 650 650 650 650 650 650 650 650 650 650 650 266 9,800 Diamond Grade (ct/m3) 0.09 0.14 0.14 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 Contained Diamonds (kct) 50 169 91 77 77 77 77 77 77 77 77 77 77 77 31 1,185 Recovery (%) 83.3 83.5 83.5 83.4 83.4 83.4 83.4 83.4 83.4 83.4 79.5 79.5 79.5 79.5 82.7 82.4 Recovered Diamonds (kct) 41 141 76 64 64 64 64 64 64 64 61 61 61 61 26 976 Gornoye Placer - Dredge No. 203, Dredge No. 201 from 2018 Sands Production (k m3) 300 600 600 600 600 600 600 600 600 600 600 149 - - - 6,449 Diamond Grade (ct/m3) 0.48 0.43 0.42 0.43 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 - - - 0.34 Contained Diamonds (kct) 143 260 253 259 175 175 175 175 175 175 175 43 - - - 2,180 Recovery (%) 83.1 83.0 83.0 83.0 83.0 83.0 83.0 83.0 83.0 83.0 80.0 80.0 - - - 82.7 Recovered Diamonds (kct) 119 216 210 215 145 145 145 145 145 145 140 35 - - - 1,803

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6.5.3 Plant No. 3 Process Flowsheet

Ore from the Mir and International underground pipes is processed separately from the alluvial deposits.

Ore at a size of -200 mm is initially crushed in one of two available primary jaw crushers, and then fed directly to three autogenous mills. Future plans allow for the replacement of the jaw crushers with a mineral sizer, the product from which, at -50 mm, will be treated in a scrubber.

Milled product at -50 mm is then screened into +16 mm, -16 mm to 5 mm and -5 mm fractions. The +16 mm and -16 mm to 5 mm fractions are processed in X-ray sorters and the concentrates are passed to final recovery. Sorter tails are recrushed in an HPGR unit and returned to the milling circuit.

The -5 mm fraction is deslimed and further screened at 2 mm. The -5 mm to +2 mm fraction is processed using DMS when treating hardrock (two 150 t/h units); otherwise, since 2013, jigs are used when processing the placer deposits and Plant No. 5 tailings, for improved recovery. DMS and jig concentrates report to final recovery. The -5 mm to +3 mm fraction of DMS tailings is recrushed in the HPGR unit and fed back to the milling circuit, whereas the -3 mm fraction reports as final tailings.

The -2 mm fraction from initial screening of the -5 mm fraction, is deslimed and processed in spirals. Spiral tails and deslime overflow report as final tailings. Spiral concentrate is processed in magnetic separators and then fed to rougher flotation. Flotation tails are dewatered and screened at 1 mm, with the -1 mm fraction reporting to final tailings and the +1 mm fraction returned to the milling circuit. Rougher flotation concentrate is deslimed and recleaned by flotation, with the concentrate screened at 0.5 mm. The +0.5 mm concentrate is recleaned and reports to final recovery. The recleaner tails are recirculated back to the head of the flotation circuit.

The X-ray sorter +5 mm concentrates are screened into +32 mm, -32 mm to 13 mm and -13 mm to 5 mm fractions. The +32 mm fraction is returned to the milling circuit. The -32 mm to 13 mm and -13 mm to 5 mm fractions are combined and fed through two stages of X-ray sorting with concentrates reporting to the sorthouse and tails returned to the milling circuit.

The -5 mm to +2 mm DMS concentrates are processed using two stages of X-ray sorting and concentrates from both stages are screened at 1.25 mm. The -5 mm to +1.25 mm fraction is dried and further screened at 2 mm and 1.25 mm. The -5 mm to +2 mm and -2 mm to +1.25 mm fractions are further processed using two stages of X-ray sorting, with concentrates reporting to the sorthouse. Second stage tails are returned to screening. The -5 mm to +2 mm tails from the X-ray sorters are pumped to grease separation, with the tails returned to the milling circuit.

The -5 mm to +2 mm DMS concentrates are processed using two stages of X-ray sorting and concentrates from both stages are screened at 1.25 mm. The -5 mm to +1.25 mm fraction is dried and further screened at 2 mm and 1.25 mm. The -5 mm to +2 mm and -2 mm to +1.25 mm fractions are further processed using two stages of X-ray sorting, with concentrates reporting to the sorthouse. Second stage tails are returned to screening. The -5 mm to

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+2 mm tails from the X-ray sorters are pumped to grease separation, with the tails returned to the milling circuit.

Dry concentrate from grease separation is screened into -5 mm to +1.25 mm and -1.25 mm fractions with the -5 mm to +1.25 mm fraction processed through two stages of X-ray sorting. Concentrates are transferred to the sorthouse and tails are returned to the process plant.

The -1.25 mm fraction is fed to the fines recovery circuit, together with the -2 mm flotation concentrate. After screening, the -0.5 mm to +0.2 mm fraction is fed to a ball mill and the -2 mm to +0.5 mm fraction is dried and further screened into -2 mm to +1.25 mm, -1.25 mm to +0.5 mm and -0.5 mm fractions. The -0.5 mm fraction reports to the ball mill and the other two fractions are processed using magnetic and electrostatic separation. Produced concentrates in the -2 mm to +1.25 mm, -1.25 mm to +0.5 mm and -0.5 mm to +0.2 mm fractions are transferred to the sorthouse. The -0.2 mm material reports to final tails. Ball mill product, after screening at 0.2 mm, is reprocessed using the same recovery equipment.

The sorthouse recovery process includes hand sorting, re-crushing, saline decomposition (sintering), chemical pre-treatment and finishing with the application of acids and oxidants, magnetic separation, mineralogical examination and sizing. Recovered diamonds are weighed and packaged and forwarded to the ALROSA central sorting facility, located in Mirny.

6.5.4 250D Dredges and KSA-150 Unit Process Flowsheets

Dredges No. 201 and No. 202 are used to mine the floodplain area (river bed section) of the Irelyakh placer deposit and have a capacity of 185 m3/h each.

Sands are processed in a trommel, with +24 mm material rejected as waste and -24 mm material deslimed and screened to produce -24 mm to +10 mm, -10 mm to +5 mm and -5 mm fractions. The -24 mm to +10 mm and -10 mm to +5 mm fractions are processed through two stages of X-ray sorting. First stage tails are rejected as waste, while second stage tails are recycled back to the first stage feed. Second stage concentrate is manually sorted and sent to final recovery.

The -5 mm fraction is screened at 2 mm and the -5 mm to +2 mm and -2 mm fractions are processed in two stages of jigs. Second stage jig concentrate reports to final recovery, first stage jig tails report as final tails and second stage jig tails are recirculated back to the first stage jig feed. Concentrates are further upgraded using grease separation and X-ray sorting. Final upgrading is carried out in the final recovery section of Processing Plant No. 3.

During the inter-seasonal repairs in 2013 to 2014, a Gekko IPJ 1500 jig was installed to replace the conventional jigs for treating the -5 mm to +2 mm fraction on Dredge No. 201, with further plant improvements planned.

For Dredge No. 203, the process is similar, but with a few minor variations, which are not regarded as material. The forecast recovery for all the dredges is 83.0%.

Processing of the terraced portion of the Irelyakh placer deposit is carried out using a mobile modular KSA-150 unit with a design capacity of 150 m3/h (two units are utilised). The unit can accept a maximum feed size of 800 mm and is used during the summer season, operating

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for 12 hours per day. Actual throughput, including plant availability and other factors, is expected to be 115 m3/h.

The unit is simple in concept and consists of washing, screening, spiral classification, scrubbing, conveyor and pumping systems, to produce +50 mm boulders, -50 mm to +25 mm pebbles (rejected to waste), -25 mm to +1.2 mm product (sent to Plant No. 3) and -1.2 mm slimes (rejected to final tailings). The productive -25 mm to +1.2 mm fraction is estimated to represent 25% of the feed composition. During the winter, the head sands are stockpiled for processing during the summer season, after the material has thawed. For material with low clay content, the scrubber can be bypassed.

6.6 INFRASTRUCTURE

6.6.1 Transport

An all-year earth road connects Mirny with the port of Lensk (250 km), as well as Yakutsk, the capital of the Yakutia Republic (800 km). The airport has regular flights connecting Mirny to a number of major Russian cities.

Freight delivery routes to Mirny include railway to Ust-Kut town (Irkutsk Region), river transportation along the Lena River to Lensk town, and then by road.

6.6.2 Power and Water

The power generation source for the city and industrial facilities of Mirny GOK is the Vilyuy hydroelectric power plant (HPP) on the Vilyuy River near Chernyshevskiy (about 100 km distant from Mirny). Further electrical power supplies are from the Svetlinskaya HPP that is owned by ALROSA, and is also on the Vilyuy River downstream from Chernyshevskiy. In addition, reserve gas turbine power plants operate with local natural gas. Water supplies to the industrial and civil facilities of the city are from surface water reservoirs (15 million m3 capacity) associated with the Irelyakh River.

6.7 ENVIRONMENT, HEALTH AND SAFETY AND SOCIAL ISSUES

6.7.1 Environmental Health and Safety Management

Older operations, such as the now closed Mir open pit, were developed prior to much of the current environmental legislation. However, the technical basis for environmental and health and safety management of the more recent operations, including the Mir underground mine, has been established in the relevant TEO documentation, supplemented by documented internal regulations.

Mirny environmental personnel maintain an environmental management programme covering issues related to atmospheric emissions and air quality, protection of water resources and waste management. The management programme covers all the key facilities of Mirny GOK (Table 6.34).

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Table 6.34: Mirny GOK Key Facilities (2014)

Waste Air Emission Water Quality Element Controls Controls Controls Plant No. 3 √ √ √ Plant No. 5 (Tailings Facility Only)1 √ √ International Open Pit √ √ √ International Underground Mine √ √ √ Mir Underground Mine √ - √ Mir Open Pit2 - √ √ Gornoye, Irelyakh and Vodorazdelnye √ √ √ Galechniki Placer Deposits Vehicle Maintenance Facilities √ √ √ Special Repair and Construction Site √ √ √ Prikaryerny Sand Quarry - √ - Note: 1 Plant No. 5 has been demolished and the site re-vegetated; the tailings facility for Plant No. 5 is being maintained pending the outcome of a study into possible re-processing. 2 The Mir open pit is no longer working, although the active controls on pit water are maintained to restrict seepage into the underground workings and air quality continues to be influenced by emissions of hydrogen sulphide originating from inflows into the pit.

6.7.2 Key Environmental and Safety Issues

6.7.2.1 Inflows from Groundwater and Rainfall

All open pits and underground mines are in areas of continuous permafrost. There are, however, localised areas (taliks) where the high salt content prevents groundwater from freezing. These taliks can give rise to significant inflows into workings.

Although open pit mining has been completed at all the deposits, water ingress into the pits still needs to be managed in order to reduce water seepage into the underground workings. Groundwater inflow primarily comes from the regional subpermafrost Metegerskiy-Icherskiy aquifer that has been exposed at the deeper levels of the Mir open pit. The underground workings themselves will intersect deeper aquifers. Subpermafrost aquifers are characterised by high mineral content (up to 320 g/l for the International pipe, with a slightly lower value for the Mir pipe) and a high concentration of dissolved gases, including methane and hydrogen sulphide (H2S). The pits have also accessed small deposits of petroleum that contaminate the water in the pits. The discharge of highly mineralised waters to surface waters is no longer permitted and these waters are now and re-injected into deep voids in the permafrost at a safe distance from the mine workings.

6.7.2.2 Air Quality in the Open Pits

Air quality in and around the Mir open pit is characterised by elevated levels of H2S; this is a natural phenomenon caused by the presence of sulphides in groundwater and in small amounts of natural gas seeping into the open pit. Concentrations of H2S in air at the pit rim are typically of the order of 0.25 mg/m3. These concentrations are below toxicity thresholds but are above the levels that give rise to detectable odours and may cause “odour annoyance”. Under certain weather conditions, the H2S odour can be detected across large parts of Mirny.

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6.7.2.3 Dust Control

During dry summer months, fugitive dust from unsurfaced access roads can be problematic, causing both a nuisance to adjacent residential properties and to reduced visibility on access roads and in working areas. Mirny GOK maintains a programme of dust suppression using water sprays.

6.7.2.4 Tailings Management

Tailings supernatant water is typically highly mineralised. All ALROSA tailings facilities now operate on a zero discharge basis, with water being re-circulated to the process plant. Seepage through the dam walls is restricted by the systematic enhanced freezing of the walls; any residual seepage is collected and returned to the tailings impoundment.

6.7.2.5 Mine Closure and Rehabilitation

There exists a significant closure liability associated with operating mines, related principally to waste rock dumps, plant sites and tailings facilities. ALROSA has a programme of closure and rehabilitation work that has been developed in accordance with standard Russian practice and approved by the relevant government authority.

The climatic conditions make re-vegetation difficult. Nevertheless, and despite the fact that the programme is approved by the regulatory authorities, by international standards the quality of the re-vegetation work is poor.

6.7.3 Safety Performance

Safety statistics from Mirny GOK indicate a safety performance broadly consistent with that demonstrated by ALROSA as a whole (Table 6.35).

Table 6.35: Mirny GOK Safety Performance

Parameter 2006 2007 2008 2009 2010 2011 2012 2013 2014 Average Mirny GOK Total Number of Recorded Incidents 5 2 3 5 3 3 3 9 1 3.4 Recorded Incidents/1,000 Employees 1.42 0.57 0.84 1.40 0.87 0.86 0.80 2.36 0.26 0.97 Number of Fatal Incidents 1 0 0 3 0 1 1 2 1 0.86 Number of Fatalities 1 0 0 3 0 1 1 2 1 0.86 Fatalities/1,000 Employees 0.28 0.00 0.00 0.84 0.00 0.29 0.27 0.52 0.26 0.24 Number of Serious Accidents 1 0 0 1 0 1 1 3 0 0.57 Serious Accidents/1,000 Employees 0.28 0.00 0.00 0.28 0.00 0.29 0.27 0.79 0.00 0.16 Number of Lost Working Days 206 99 86 198 56 105 95 335 0 121 Lost Working Days/1,000 Employees 59 28 24 55 16 30 25 88 0.00 34 Total ALROSA Recorded Accidents/1,000 Employees 1.28 1.16 0.90 0.78 0.79 0.81 0.84 0.92 0.38 0.87 Fatalities/1,000 Employees 0.16 0.08 0.04 0.17 0.14 0.14 0.19 0.18 0.09 0.13 Serious Accidents/1,000 Employees 0.28 0.12 0.04 0.04 0.19 0.19 0.09 0.32 0.00 0.14 Lost Working Days/1,000 Employees 63 50 44 32 20 41 33 38 21 38

Note: “Total ALROSA” is for mining operations” only and includes data from Aikhal GOK, Mirny GOK, Nyurba GOK, Udachny GOK and all mining related support functions. Data for other ALROSA group companies are excluded. Data from Almazy Anabara, Nizhne-Lenskoe and Lomonosov are not included due to the incompatibility of the data.

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6.7.4 Regulatory Compliance

The Mirny GOK carries out its operations on the basis of five main sub-soil licences issued by the State Committee for the Subsoil Use of the Republic of Sakha (Yakutia):

 Licence No. ЯКУ – 03014 КЭ covers the International pipe;  Licence No. ЯКУ – 03016 КЭ covers the Mir pipe;  Licence No. ЯКУ – 03042 КЭ covers the Gornoye placer deposit;  Licence No. ЯКУ – 03045 КЭ covers the Irelyakh placer deposit; and,  Licence No. ЯКУ – 03044 КЭ covers the Vodorazdelnye Galechniki placer deposit.

The environmental, health and safety and social conditions attached to these licences are broadly consistent.

6.7.5 Permits for Nature Use

Mirny operates under a series of separate permits for air emissions for the different operations, although all operations are covered by a single waste permit and there are five water use agreements covering all mining operations (Table 6.36).

6.7.6 Risk Categorisation

Notwithstanding the issues considered above, Micon considers the overall risk associated with environmental and health and safety considerations at Mirny to be moderate.

6.8 COSTS

6.8.1 Operating Costs

The 2013 to 2015 actual and 2016 planned operating costs for the Mirny GOK, as provided by ALROSA, are given in Table 6.37. These figures do not include depreciation.

Planned operating costs for 2016 were used as the basis of operating cost forecast completed by Micon. When forecasting operating costs Micon included the planned production parameters for each of the operations and divisions of Mirny GOK.

For a full accounting of diamond production and sales costs in the completed economic evaluation, Micon took into account a number of costs in addition to production and general costs. More detailed information is provided in Section 12.0.

6.8.2 Capital Costs

When completing the evaluation Micon took into account data of actual capital expenditures of Mirny GOK and was guided by the annual planned capital expenditures for 2016 to 2030, proposed by ALROSA. Capital costs by years for the considered period used by Micon for assessment of Mirny GOK operations are summarised in Table 6.38. Capital costs are expressed in nominal terms.

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Table 6.36: Mirny GOK Permits for Nature Use

Issuing Date of Validity No. Type of Licensed Activity Licence No. Expiry Date Authority Issue Period Air Emissions Federal Environmental 24th April 31st December 1 Vehicle Maintenance, Mirny GOK PDV -13/58 Supervision Service 4.7 years 2013 2017 (Rospirodnadzor) Federal Environmental 24th April 31st December 2 Mir Underground Mine PDV -13/59 Supervision Service 4.7 years 2013 2017 (Rospirodnadzor) Federal Environmental 24th April 31st December 3 Plant No. 3 PDV -13/60 Supervision Service 4.7 years 2013 2017 (Rospirodnadzor) Federal Environmental 28th March 4 Sand Open Pit PDV – 14/37 Supervision Service 4 years 5th March 2018 2014 (Rospirodnadzor) Federal Environmental Irelyakh mine (Gornoye Alluvial 28th March 5 PDV -14/38 Supervision Service 4 years 5th March 2018 Deposit, Dredges Nos. 201, 202, 203) 2014 (Rospirodnadzor) International Mine (underground mine, Federal Environmental surface complex, ore warehouse) 28th March 6 PDV – 14/39 Supervision Service 4 years 5th March 2018 Vodorazdelnye Galechniki mine 2014 (Rospirodnadzor) (International overburden pit) Federal Environmental Vodorazdelnye Galechniki mine 28th March 7 PDV – 14/40 Supervision Service 4 years 5th March 2018 (Vodorazdelnye Galechniki deposit) 2014 (Rospirodnadzor) Federal Environmental Vodorazdelnye Galechniki mine 28th March 8 PDV – 14/41 Supervision Service 4 years 5th March 2018 (Prikaryerny Sand Quarry) 2014 (Rospirodnadzor) Federal Environmental Vodorazdelnye Galechniki - Irelyakh 28th March 9 PDV – 14/42 Supervision Service 4 years 5th March 2018 placer (terraces) 2014 (Rospirodnadzor) Vodorazdelnye Galechniki mine Federal Environmental 20th 10 (Tailings Plant No. 5, Ore stockpile, PDV – 14/187 Supervision Service August 4.8 years 9th July 2019 Waste Dumps) (Rospirodnadzor) 2014 Federal Environmental 26th 2nd December 11 Mir Open Pit PDV – 14/328 Supervision Service December 5 years 2019 (Rospirodnadzor) 2014 Federal Environmental 16th May 31st December 12 Special Repair and Construction PDV -13/66 Supervision Service 4.6 years 2013 2017 (Rospirodnadzor) Federal Environmental 1st January 31st December 13 Temporary Vehicle Storage PDV- 12/05 Supervision Service 4 years 2012 2015 (Rospirodnadzor) Waste Federal Environmental 17th May 1 All Facilities 10/55P Supervision Service 3 years 29th June 2014 2011 (Rospirodnadzor) Water State Committee for 5th March 1st December 1 Minewater Re-injection YK 01923 PG 12.9 years Subsoil Use 2002 2014 14-18,03,08,003- Department of Water 11th December 2 Water Use Agreement P-ДБВ-C-2012- Affairs Republic of 2012 3 years 2015 01729/00 Sakha (Yakutia) 14-18,03,08,003- Department of Water 30th September 3 Water Use Agreement P- ДВЗХ-C- Affairs Republic of 2012 3 years 2015 2012-017217/00 Sakha (Yakutia) 14-18,03,08,003- Department of Water 22nd December 4 Water Use Agreement P-ДБВ-C-2012- Affairs Republic of 2012 3 years 2015 01650/00 Sakha (Yakutia) 14-18,03,08,003- Department of Water 30th September 5 Water Use Agreement P- ДВЗХ-C- Affairs Republic of 2012 3 years 2015 2012-02051/00 Sakha (Yakutia) 14-18,03,08,003- Department of Water 18th 22nd December 6 Water Use Agreement P- ДВЗХ- Affairs Republic of February 4.9 years 2020 C.2016-03242/00 Sakha (Yakutia) 2016

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Table 6.37: Mirny GOK Actual and Planned Operating Costs

Cost Item 2014 2015 2016 Mir Underground Mine Direct Cost of Ore Mining (RUB/t) 2,068.2 1,739.1 1,513.4 Exploitation Exploration Cost (RUB/t of mined ore) 134.3 87.6 100.0 Direct Development Cost (RUB/m3) 1,177.5 1,194.8 1,625.3 General Production Costs of the Mine (‘000 RUB) 3,713,629 4,453,479 4,437,322 International Underground Mine Direct Cost of Ore Mining (RUB/t) 1,863.1 1,745.7 1,721.8 Exploitation Exploration Cost (RUB/t of mined ore) 115.3 132.1 230.5 Direct Development Cost (RUB/m3) 4,128.6 3,602.2 3,134.3 General Production Costs of the Mine (‘000 RUB) 2,508 765 2,694,439 2,945,606 Irelyakh Placer - KSA unit Direct Cost of Sands Mining (RUB/m3) 731.4 226.6 182.0 Direct Development Work Cost (RUB/m3) 340.1 112.1 163.7 Direct Cost of Waste Stripping (RUB/m3) 169.7 219.7 223.1 Direct Cost of KSA Processing (RUB/m3) - 306.5 475.3 General Production Costs (‘000 RUB) - - 108,578 Irelyakh Placer - Dredges No. 201 and No. 202 Direct Cost of Sands Mining and Washing (RUB/m3) 108.9 85.5 179.5 Development Work Cost (RUB/m3) 161.1 77.2 167.9 General Production Costs (‘000 RUB) 326,379 354,697 329,754 Final Recovery Section (RUB/ct of diamonds recovered) 16.1 8.1 18.7 Gornoye Placer - Dredge No. 203 Direct Cost of Sands Mining and Washing (RUB/m3) 103.7 110.5 120.2 Direct Development Work Cost (RUB/m3) 23.1 27.7 23.5 Direct Cost of Waste Stripping (RUB/m3) 12.5 10.4 11.6 General Production Costs (‘000 RUB) 431,001 469,389 552,478 Final Recovery Section (RUB/ct of diamonds recovered) 9.2 7.9 8.2 Vodorazdelnye Galechniki Placer Direct Cost of Sands Mining and Washing (RUB/m3) 129.7 267.5 123.4 Direct Development Work Cost (RUB/m3) 469.1 492.4 166.7 Direct Cost of Waste Stripping (RUB/m3) 441.9 217.9 219.6 General Production Costs (‘000 RUB) - - 13,501 ROM Material Haulage Haulage (kt x km) 43,821 41,962 40,256 Direct Transportation Costs (RUB/t x km) 5.6 6.5 6.4 General Costs ('000 RUB) 489,979 574,860 601,837 Plant No. 3 Direct Costs of Processing (RUB/t) 439.3 430.8 359.8 General Production Costs of the Plant (RUB/t) 1,373,030 1,566,611 1,782,984 Final Recovery Section (RUB/ct of diamonds recovered) 9.1 8.9 10.1 Mirny GOK General Costs Total General Costs ('000 RUB) 659,641 748,205 856,060

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Table 6.38: Mirny GOK Capital Cost Schedule (Million RUB)

Cost Item 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total

Mir Mine: Sustaining of production, construction works 1,117 1,052 977 663 2,224 1,577 1,708 1,326 1,528 1,078 1,121 1,166 1,213 1,552 1,261 19,567 International Mine: Access to levels down to -790 m elevation 2,594 1,387 603 26 ------4,609 and to reserves under the pit bottom International Mine: Access to levels below -790 m elevation - 57 1,029 1,097 1,224 1,280 1,324 2,917 3,056 3,227 719 1,504 3,354 1,856 0 22,643 Plant No 3: Reconstruction of tailings facilities - starter dam Stage III) 158 582 ------740 Drainage water reinjection site: Stages 1, 2 - "Yuzhny"area, 508 601 ------1,109 Stage 4 "Tymtaidakhsky"area Modernisation and replacement of worn-out equipment 806 1,026 1,089 1,190 1,233 1,307 1,375 1,430 1,440 1,502 1,553 1,569 1,604 1,630 1,667 20,420 International Mine: Replacement of main ventilator 501 ------501 Total 5,684 4,705 3,698 2,976 4,681 4,164 4,407 5,673 6,024 5,807 3,393 4,238 6,171 5,039 2,929 69,589

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7.0 NYURBA

7.1 BACKGROUND

The principal offices of the Nyurba mining and processing division (Nyurba GOK) are located in the city of Mirny, although the operations are based around the drive-in/drive-out Nakyn settlement, some 200 km northwest of the town of Nyurbinsky and 320 km northeast of Mirny. Nakyn is located close to the Arctic Circle and in the same region of Russia as the Udachny GOK. Climatic conditions and physiography are similar to those at Udachny, as described in Section 4.1.

Currently, Nyurba GOK mines two hardrock deposits, the Botuobinskaya and Nyurbinskaya kimberlite pipes, each with associated adjacent diamond placer deposits. Planned development of the Maiskoye kimberlite body, located in the same area, is scheduled.

The Nyurbinskaya pipe was discovered in 1996. The open pit was commissioned in 2000, and as of 1st January 2015, the pit depth had reached 290 m (-40 m elevation). The Nyurbinskaya placer deposit is adjacent to the pipe and owes its origins to the hardrock deposit. Currently, the placer sands that extend into the ultimate footprint of the Nyurbinskaya open pit to the southeast are being mined.

The Botuobinskaya kimberlite pipe was discovered in 1994, and is located 3.3 km southwest of the Nyurbinskaya pipe. Open pit mining began at the site in 2012, with production commencing in 2015. The Botuobinskaya placer deposit adjoins the pipe on the southwestern side. The placer sands are being mined as part of the open pit development for the Botuobinskaya pipe.

The Maiskoye kimberlite dyke body is located 3 km southwest of the Botuobinskaya pipe. Exploration was completed in 2015 and the deposit is now being prepared for mining.

Processing of ore from all mining Nyurba GOK operations is currently undertaken at the central processing plants, Plants No. 15 and No. 16, which were commissioned in 1999 and 2003, respectively.

7.2 GEOLOGY

The Nyurbinskaya and Botuobinskaya pipes, their associated placer deposits and the Maiskoye kimberlite body are located in the Sredne-Markhinsky region of the Nakynsky kimberlite field. The geological characteristics of the area are a function of its location in the central part of the Siberian platform, at the junction of the Anabar anticline southeastern slope and the Vilyuy syncline.

The stratigraphic profile of the area includes Upper Cambrian and Lower Ordovician rocks that host the kimberlite bodies, as well as Triassic, Lower and Middle Jurassic sediments overlying the kimberlite formations. The kimberlite deposits are confined to the area of the Middle Palaeozoic deep fault zone intersection, comprising the Vilyuysko-Markhinskaya zone and Middle Markhinskaya zone.

Figures 7.1 and 7.2 present a geological plan and cross-section of an area of the Nakynsky kimberlite field. Figure 7.3 provides the legend for Figures 7.1 and 7.2.

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Figure 7.1: Geological Plan of Part of Nankynsky Kimberlite Field

B

Nyurbinskaya Pipe

Botuobinskaya Pipe

Maiskoye Kimberlite Body

2,000 m 0 m 2,000 m 4,000 m A

Source: ALROSA 2011

Figure 7.2: Geological Cross Section along Section Line A-B

Botuobinskaya Pipe

Maiskoye Kimberlite Body Nyurbinskaya Pipe

Source: ALROSA 2011

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Figure 7.3: Legend for Figures 7.1 and 7.2

Modern Stage. Alluvial and proluvial clay loam, clay sands, sands, pebble

gravel, lacustrine-boggy silts and peats

System Eikskaya Suite - covering sediments. Gravel-pebble-sand sediments. Quaternary Quaternary Middle Yakutskaya Suite – sand stones, sands, siltstone, argillite, conglomerate Section lenses. Suntarskaya Suite. Fourth band - crust silty sandstone.

Suntarskaya Suite. Third band – coarse-grained siltstone, limestone pods.

Suntarskaya Suite. Second band – clayey siltstone, limestone pods.

Suntarskaya Suite. First band – thin-layer argillite, limestone.

Suntarskaya Suite poorly defined – argillite, siltstone, silty sandstone, limestone pods (on cross section). Jurassic System

Lower Section Lower Section Plinsbakhskyi Stage. Upper substage. Tyungskaya Suite - silty sandstone with cobbles, conglomerate lenses. Ukugutskaya Suite – siltstone, argillite, sand, conglomerate (diamondiferous). Diakhtiarskaya Strata – siltstone and variegated clay with gravel, breccias, conglomerate, iron conglomerate (diamondiferous). Middle Palaeozoic Intrusive Formations

Nakynsky complex. Kimberlite bodies (pipes, veins), covered under Mesozoic formations (diamondiferous): a) On the map, b) On the cross section

Viliusko-Markhinsky complex. Dykes of dolerite and of sub-alkali basites,

covered by Mesozoic formations

Oldnodinskaya Suite. Second band – dolomites, limestone, siltstone, argillite system

Ordovician Ordovician Oldnodinskaya Suite. First band – limestone, dolomites, siltstone layers Lower Section Lower Section

Markhinskaya Suite. Fourth band – siltstone, sand stones, limestone, marls

Markhinskaya Suite. Third band – siltstone, breccias, limestone, marls

Markhinskaya Suite. Second band – oolite limestone, siltstone, argillite

Upper Section Upper Section

Cambrian system system Cambrian Markhinskaya Suite. First band – argillite, limestone

Others

Findings of fauna (a), microfauna (b), flora (c) (on the cross section)

Faults, covered by Mesozoic formations.

Faults of deep location, made by dykes of main and sub-alkali rocks: а) Ore controlling (1-Diakhtarsky, 2- Botuobinsky) б) Potentially ore controlling (on the block of deposits: 3-Northern, 4-Southern) Ore - hosting fault, covered under Mesozoic formations

Borders of stratigraphic units of different ages: explored and inferred.

Drill holes and their numbers: a) Mapping and prospecting.

b) Confirming magnetic anomalies. c) Hydrogeological.

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Others Line ID of bore holes

Block of detailed prospecting and exploration work

Explored hard rock diamonds deposits with commercial reserves.

Underexplored hard rock occurrences of diamonds.

Explored buried diamond placers a)on the map, b) on the cross section

Diamond placer occurrences in foot horizons of Mesozoic (a) and Cainozoic (b)

sediments, 1-number of crystals found in drill-hole core samples.

Source: ALROSA 2011

7.2.1 Nyurbinskaya Pipe

The Nyurbinskaya pipe stretches northeastwards at a bearing of 016° to 017°. In plan view, it is a rounded-ellipsoid in shape, with dimensions of the upper part of the pipe of 358 m by 177 m at the +190 m elevation. The pipe width decreases significantly with depth. Between 280 m and 320 m below the surface, the pipe separates into two ore bodies, divided by a dyke-shaped basite intrusion.

The Nyurbinskaya pipe is the largest pipe within the Nakynsky kimberlite field. It is characterised by high diamond grades, with the average grade in the balance reserves exceeding 4 ct/t in the ore.

In general, the hydrogeological conditions are not complex. Groundwater comprises calcium chloride brines, with a mineral content up to 224 g/l. Maximum groundwater inflows to the mine are estimated at 133 m3/day.

7.2.2 Nyurbinskaya Placer Deposit

The Nyurbinskaya placer deposit is a fragment of the buried Verkhne-Dyakhtarskaya placer. The diamond-bearing gravel is composed of detritus from the Ukugutskaya and Dyakhtarskaya suites. The diamond-bearing formations of the Ukugutskaya suite overlie the diamond-bearing Dyakhtarskaya formations and weathered strata of the kimberlite and Lower Ordovician rocks. The +2 NSC diamond grade in the upper and lower parts of the deposit varies insignificantly, with an average grade of 4 ct/m³.

7.2.3 Botuobinskaya Pipe

The general geology of the area around the Botuobinskaya pipe is similar to that of the Nyurbinskaya pipe (Figures 7.1 and 7.2). The rocks hosting the Botuobinskaya pipe are carbonate and terrigenous-carbonate sedimentary formations from the Lower Palaeozoic Oldondinskaya suite of the Ordovician system, and the Morkokinskaya and Markhinskaya suites of the Cambrian system.

The Botuobinskaya pipe has a northeastern strike along the zone of the ore-hosting Diagonal fault (25° to 28°). It has an irregular, elongated shape, changing from a dyke shape in the

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southwest to a subrounded oval shape in the northeast. The pipe gradually tapers out with the depth and dips in a south-westerly direction of 66° to 73°. The diamond grade of the Botuobinskaya pipe is high, with an average grade of 5 ct/t.

The hydrogeological conditions of the deposit are similar to those of the Nyurbinskaya pipe deposit.

7.2.4 Botuobinskaya Placer Deposit

The Botuobinskaya placer deposit is closely associated with the kimberlite pipe, both spatially and in origin. It adjoins the pipe on the southwestern flank. Diamondiferous deposits occur within the local depression formed in the Lower Palaeozoic rock that hosts 95% of the placer reserves.

7.2.5 Maiskoye Kimberlite Body

The Maiskoye dyke-like kimberlite body cuts through the Ordovician and Cambrian carbonate and terrigenous-carbonate rocks. The dyke is steeply dipping, with a prevalence for near-vertical contacts with the host rocks.

The Maiskoye kimberlite body is a linear elongated dyke-shaped formation, varying in thickness from 15 m to 40 m. It can be traced for 430 m along strike and up to 400 m down dip.

The Maiskoye kimberlite body diamond mineralisation has a high average grade of 2.39 ct/t (+2 NSC).

7.3 MINERAL RESOURCES AND RESERVES

7.3.1 Nyurbinskaya Pipe Deposit

7.3.1.1 Exploration

Exploration of the Markha River basin was prompted by the discovery of diamond-bearing placer deposits in 1950. The Botuobinskaya pipe was then discovered in 1995, followed by the Nyurbinskaya pipe in 1996. Early drilling of the Nyurbinskaya pipe (down to elevation -55 m) and the associated placer deposit was carried out between 1996 and 2000, and the initial reserves were estimated and approved by the GKZ in April 2001. Additional exploration of the Nyurbinskaya pipe to deeper levels commenced in 2006 and was completed in 2012.

ALROSA performed infill drilling at the deposit, on a grid of 40 m by 40 m to 20 m by 20 m. Samples from 15 m intervals were transported to the Mirninskaya expedition production division for processing. At least 10% of core samples were sent for quality control external processing at Plant No. 10.

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7.3.1.2 Russian Mineral Reserve Estimate

The most recent Russian reserve estimation was undertaken in 2015, using the data from all stages of exploration up to 1st January 2015. This reserve estimate was approved by the GKZ in December 2015. The following cut-off criteria were used for estimating the balance reserves for both the Nyurbinskaya and the Botuobinskaya pipes:

 Delineation of reserves for the GKZ estimate is completed following natural geological boundaries (contacts) of ore bodies and the enclosing rocks;  Open pit mining is feasible down to the following depths:  Nyurbinskaya pipe - 750 m (-500 m elevation);  Botuobinskaya pipe - 780 m (-530 m elevation); and,  The lowest size diamond threshold for the Botuobinskaya and Nyurbinskaya pipes is +1.0 mm (+2 NSC), with associated recovery of -2 NSC diamonds estimated at 7% of recovered +2 NSC diamonds.

The reserves were estimated using the method of geological blocks described in Section 3.2. Reserves of diamonds from the +2 NSC are estimated as the total for -3+2 NSC and +3 NSC reserves. An adjustment factor was used to estimate the grade of +3 NSC diamonds.

The Nyurbinskaya pipe Russian reserves, estimated as at 1st January 2016, are presented in Table 7.1.

Table 7.1: Balance Reserves of the Nyurbinskaya Pipe as at 1st January 2016

Top Bottom Diamond Grade Contained Diamonds Tonnage Block Elevation Elevation +2 NSC +2 NSC (t) (m) (m) (ct/t) (kct)

III-С1 10 -55 381.6 4.38 1,671.0

IV-С1 -55 -80 1,478.8 4.27 6,314.5

V-С1 -80 -140 1,028.2 3.55 3,650.5

VI-С1 -80 -140 1,532.4 4.91 7,524.1

VII-С1 -140 -200 778.1 4.35 3,384.7

VIII-С1 -140 -200 1,210.4 4.39 5,313.2

IXа-С1 -200 -320 664.7 2.52 1,675.0

IXб-С1 -200 -320 217.2 2.18 473.5

X-С1 -200 -320 1,663.8 5.17 8,601.8

Total С1 10 -320 8,955.2 4.31 38,608.3 XI-С2 -320 -500 1,217.1 5.56 6,766.5

Total С1 + C2 10 -500 10,172.3 4.46 45,374.8

7.3.1.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has completed a mineral resource statement for the Nyurbinskaya pipe in accordance with the guidelines of the JORC Code (2012), as summarised in Table 7.2. The mineral resources are stated inclusive of reserves.

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Table 7.2: Mineral Resources of the Nyurbinskaya Kimberlite Pipe as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +2 NSC +2 NSC (ct/t) (kct) Measured 1,432 4.12 5,905 Indicated 7,095 4.32 30,623 Total Measured and Indicated 8,527 4.28 36,528 Inferred 1,217 5.56 6,767

7.3.1.4 JORC Code Ore Reserve Statement

Micon has estimated the ore reserves in accordance with the guidelines of the JORC Code (2012) for the Nyurbinskaya pipe deposit (Table 7.3). Ore reserves were derived from the Measured and Indicated mineral resources shown in Table 7.2, modified to include allowances of 0.39% for ore losses and 4.98% for dilution (from the 2015 TEO report).

Table 7.3: Ore Reserves of the Nyurbinskaya Kimberlite Pipe as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +2 NSC +2 NSC (ct/t) (kct) Proved 1,501 3.92 5,882 Probable 7,437 4.10 30,503 Total Proved and Probable 8,938 4.07 36,385

7.3.2 Botuobinskaya Pipe

7.3.2.1 Exploration

The Botuobinskaya pipe was discovered in 1994 and early exploration was conducted between 1994 and 2000. Between 2001 and 2005, the second stage of exploration investigated the flanks and deeper levels of the pipe, down to a depth of 980 m (-730 m elevation). The initial reserve estimate was approved to a depth of 780 m (elevation -530 m) in 2005.

Vertical, inclined and directional holes were drilled along 11 parallel exploration profiles, oriented transverse to the long axis of the pipe and with a spacing of 40 m. In addition, a profile of directional drill holes was drilled to determine the morphology of the flanks of the kimberlite body. Four hydrogeological holes were also drilled at different exploration stages to study groundwater conditions. In total 1,242 samples (10,702.2 linear m) were collected from the ore body.

7.3.2.2 Russian Mineral Reserve Estimate

The most recent Russian reserve estimate was approved by the GKZ in May 2009, using the cut-off criteria described previously in Section 7.3.1.2. The reserves were estimated using the geological block method as described in Section 3.2. Reserves of +2 NSC diamonds are estimated as the total of -3+2 NSC and +3 NSC reserves. An adjustment factor was used to estimate the grade of +3 NSC diamonds.

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Balance reserves for the Botuobinskaya pipe deposit, as at 1st January 2016, are presented in Table 7.4.

Table 7.4: Balance Reserves of the Botuobinskaya Kimberlite Pipe as at 1st January 2016

Diamond Contained Top Bottom Tonnage Grade Diamonds Block Elevation Elevation (t) +2 NSC +2 NSC (m) (m) (ct/t) (kct)

I-С1 165 70 1,367.6 8.73 11,937.6

II-С1 170 70 1,946.6 2.96 5,765.8

III-С1 70 -30 2,222.9 7.62 16,938.5

IV-С1 70 -30 890.5 2.54 2,262.1

V-С1 -30 -130 2,416.1 6.08 14,689.9

VI-С1 -130 -230 2,450.9 5.23 12,818.2

VII-С1 -230 -330 2,159.0 6.07 13,105.1

Total С1 170 -330 13,453.7 5.76 77,517.2

VIII-С2 -330 -430 1,545.0 5.37 8,296.7

IX-С2 -430 -530 1,216.5 6.15 7,481.5

Total C2 -330 -530 2,761.5 5.71 15,778.2

7.3.2.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.2, Micon has produced a mineral resource statement for the Botuobinskaya kimberlite pipe, in accordance with the guidelines of the JORC Code (2012), as summarised in Table 7.5. The mineral resources are inclusive of the reserves.

Table 7.5: Mineral Resources of the Botuobinskaya Kimberlite Pipe as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +2 NSC +2 NSC (ct/t) (kct) Measured 3,172 5.30 16,827 Indicated 10,139 5.90 59,814 Total Measured and Indicated 13,312 5.76 76,641 Inferred 2,762 5.71 15,778

7.3.2.4 JORC Code Ore Reserve Statement

Micon has estimated ore reserves for the Botuobinskaya pipe in accordance with the guidelines of the JORC Code (2012) (Table 7.6). The ore reserves were derived from the Indicated mineral resources, stated in Table 7.5, modified by allowances of 0.39% for ore losses and 4.98% for dilution (from the 2015 TEO report).

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Table 7.6: Ore Reserves of the Botuobinskaya Pipe as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +2 NSC +2 NSC (ct/t) (kct) Proved 3,325 5.04 16,761 Probable 10,629 5.61 59,580 Total Proved and Probable 13,954 5.47 76,341

7.3.3 Nyurbinskaya Placer Deposit

7.3.3.1 Exploration

The Nyurbinskaya placer deposit was discovered during the course of detailed exploration of the Nyurbinskaya pipe and the first stage of exploration was completed between 1996 and 2000. Mining commenced in 2002 and continuing exploration has led to the expansion of the economic resource. From 2007 to 2012, further exploration included the drilling of clusters of vertical 151 mm core holes. Each cluster consisted of three to five drill holes on a drilling grid of 80 m by 55 m to 40 m.

Exploration samples were processed at Processing Plant No. 17, using a conventional process flowsheet. In total, 1,034 samples were processed. All stages of processing were subject to internal control. External control of the processing quality (8% of the total amount of samples) was performed at Plants No. 6 and No. 10. The bulk density of sands was also defined by the analysis of 445 samples. Operational exploration is still in progress and includes drilling of 151 mm core drill holes on a 40 m by 40 m grid.

7.3.3.2 Russian Mineral Reserve Estimate

The most recent GKZ reserve estimate was undertaken in 2015, based on the data from all exploration phases as at 1st January 2015, and using the following cut-off criteria:

 Reserves are estimated within the outline of the open pit justified by the TEO study;  Contouring of the placers was completed within the geological boundaries of the Ukugutskaya suite diamond-bearing sediments, or the Dyakhtarskaya suite, at a cut-off grade of 0.2 ct/m3;  Minimum grade within the resource contour is 0.2 ct/m3;  Minimum pay zone thickness is 1.0 m;  Minimum commercial grade in the estimation block is 0.32 ct/m3;  The minimum balance reserves diamond size threshold is +1.0 mm (+2 NSC); and,  Associated recovery of -2 NSC diamonds is estimated at 7% of the +2 NSC diamonds recovered in the balance reserves.

The grade of +3 NSC diamonds was estimated using a scale-up factor of 1.777, based on the placer sand processing data for 2005 to 2013. The grade of -3+2 NSC diamonds was determined based on actual core sampling data. This estimate was approved by the GKZ in December 2015.

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The Nyurbinskaya diamond placer state balance reserves, as at 1st January 2016, are given in Table 7.7.

Table 7.7: Balance Reserves of the Nyurbinskaya Placer as at 1st January 2016

Diamond Contained Sands Grade Diamonds Category (k m3) +2 NSC +2 NSC (ct/m3) (kct)

С1 2,654.9 4.62 12,265.9

С2 2,988.6 3.91 11,692.9

7.3.3.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has developed a mineral resource estimate in accordance with the guidelines of the JORC Code (2012) for the Nyurbinskaya placer deposit, as summarised in Table 7.8. These mineral resources are reported inclusive of the reserves.

Table 7.8: Mineral Resources of the Nyurbinskaya Placer as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Measured 93 7.85 734 Indicated 3,064 5.13 15,717 Total Measured and Indicated 3,158 5.21 16,451 Inferred 2,381 3.01 7,158

7.3.3.4 JORC Code Ore Reserve Statement

Micon has estimated ore reserves in accordance with the guidelines of the JORC Code (2012) for the Nyurbinskaya placer deposit. Ore reserves were derived from the Indicated mineral resources, as stated in Table 7.8, modified by allowances of 0.004% for ore losses and 0.76% for dilution (actual 2016 values). The ore reserves are summarised in Table 7.9.

Table 7.9: Ore Reserves of the Nyurbinskaya Placer as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Proved 94 7.79 733 Probable 3,088 5.09 15,716 Total Proved and Probable 3,182 5.17 16,450

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7.3.4 Botuobinskaya Placer Diamond Deposit

7.3.4.1 Exploration

The Botuobinskaya diamondiferous placer was explored during the course of the detailed exploration of the Botuobinskaya kimberlite pipe between 1995 and 2000. Exploration included vertical and inclined core drill holes, on a grid inherited from the exploration of the associated bedrock deposit. In the southwestern area of the placer, holes were drilled across the strike, intersecting a cavity (funnel) produced by erosion and karst genesis in the Lower Palaeozoic rocks. The cavity is filled with diamondiferous deposits from the Dyakhtarskaya suite.

Within the karst cavity zone, spacing between the drill holes is usually 1 m to 20 m, occasionally 40 m to 45 m. The remainder of the open pit area is covered with drill holes on a grid of 80 m by 40 m to 80 m. Total drilling consisted of 48 drill holes with a total length of 554.8 linear m. The total number of core samples collected was 210.

7.3.4.2 Russian Mineral Reserve Estimate

The cut-off criteria used for the Botuobinskaya placer reserves estimate are the same as those used for the Nyurbinskaya placer, reviewed in Section 7.3.3.2, and the applied estimation method is also the same. The Botuobinskaya diamond placer reserves as at 1st January 2016, approved by the GKZ in December 2015, are shown in Table 7.10.

Table 7.10: Balance Reserves of the Botuobinskaya Placer as of 1st January 2016

Diamond Contained Sands Grade Diamonds Category (k m3) +2 NSC +2 NSC (ct/m3) (kct)

C2 426.4 0.99 422.3

7.3.4.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has developed a mineral resource statement in accordance with the JORC Code (2012) for the Botuobinskaya placer deposit, as summarised in Table 7.11.

Table 7.11: Mineral Resources of the Botuobinskaya Placer as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/t) (kct) Indicated 384 0.98 377

7.3.4.4 JORC Code Ore Reserve Statement

Micon has estimated ore reserves in accordance with the guidelines of the JORC Code (2012) for the Botuobinskaya placer deposit. Ore reserves were derived from the Indicated mineral resources, as stated in Table 7.11, modified by allowances of 0.007% for ore losses and 7.64% for dilution (actual 2016 values). The reserves are summarised in Table 7.12.

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Table 7.12: Ore Reserves of the Botuobinskaya Placer as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable 416 0.91 376

7.3.5 Maiskoye Kimberlite Body

7.3.5.1 Exploration

Prospecting work on the Maiskoye kimberlite was conducted during 2006 and 2007, followed by detailed exploration between 2011 and 2015, to a depth of 400 m from the surface. A total of 79 holes were drilled comprising 3, 626.1 linear metres.

7.3.5.2 Russian Mineral Reserve Estimate

The reserve estimate prepared in 2015 for the Maiskoye kimberlite body and the associated placer utilised all available exploration data and the geological block methodology described in Section 3.2, including the use of an adjustment factor for estimating the grade of +3 NSC diamonds. The Russian reserve estimate is summarised in Table 7.13, for the Maiskoye kimberlite and the associated placer deposit. Deposit reserves were approved by the GKZ in December of 2015.

Table 7.13: Balance Reserves of the Maiskoye Kimberlite Body Deposit and the Maiskoye Placer as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Tonnage Grade Diamonds Tonnage Grade Diamonds (t) +2 NSC +2 NSC (t) +2 NSC +2 NSC (ct/t) (kct) (ct/t) (kct) Kimberlite

C1 1,231.1 6.032 7,426.1 - - -

C2 1,767.8 2.986 5,277.8 3,004.3 0.543 1,631.1 Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct) Placer

C2 101.4 2.364 239.7 38.2 1.024 39.1

7.3.5.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has developed a mineral resource statement in accordance with the guidelines of the JORC Code (2012) for the Maiskoye kimberlite body and the Maiskoye Placer, as summarised in Table 7.14.

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Table 7.14: Mineral Resources of the Maiskoye Kimberlite Body and the Maiskoye Placer as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (t) +2 NSC +2 NSC (ct/t) (kct) Kimberlite Indicated 1,231 6.03 7,426 Inferred 1,768 2.99 5,278 Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Placer Inferred 101 2.36 240

7.3.5.4 JORC Code Ore Reserve Statement

Micon has estimated ore reserves for the Maiskoye kimberlite body in accordance with the guidelines of the JORC Code (2012) (Table 7.15). The ore reserves were derived from the Indicated mineral resources, stated in Table 7.14, modified by allowances of 2.48% for ore losses and 9.54% for dilution (from the 2015 TEO report).

Table 7.15: Ore Reserves of the Maiskoye Kimberlite Body as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +2 NSC +2 NSC (ct/t) (kct) Probable 1,327 5.46 7,242

7.4 MINING

7.4.1 Nyurbinskaya Pipe and Placer Mine Design and Operation

Open pit mining operations at Nyurbinskaya began in 2000. The open pit produces both ore from the Nyurbinskaya pipe and sands from the Nyurbinskaya placer deposit capping the pipe. Figure 7.4 displays the final Nyurbinskaya pipe open pit plan at the ultimate design depth of 750 m. Figure 7.5 is a cross-section of the final open pit and the ore body.

Mining of the deposit is carried out at bench heights of 7.5 m to 15 m, with division of the 15 m benches into two 7.5 m flitches. Ore and waste are broken using conventional drilling and blasting. Drilling is carried out with diesel hydraulic downhole hammer and rotary rigs. Conventional ammonium nitrate-based explosives are used for blasting.

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Figure 7.4: Nyurbinskaya Final Open Pit Plan (Depth of 750 m)

A

A

250 m 0 m 250 m 500 m

Source: ALROSA 2015

Figure 7.5: Nyurbinskaya Final Open Pit Section (Depth of 750 m)

A - А

Actual Position

1st Intermediate Contour

2nd Intermediate Contour

Final Open Pit Contour

Source ALROSA 2015

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Loading of blasted rock is performed by Liebherr R9350 hydraulic face shovels with bucket capacities of 15 m3, and СAT 992 and Le Tourneau L950 front-end loaders with bucket capacities of 12.0 m3. The waste is hauled from the pit to the dumps and the sands and ore are hauled to the surface stockpiles using CAT 777 and Terex100 dump trucks with capacities of 91 t. At the surface stockpiles, СAT 988 front-end loaders with bucket capacities of 6.3 m3 load the alluvial sands and ore into a fleet of BelAZ 754831 40 t dump trucks, for haulage to the processing plant.

The pit operations are based on two 12-hour shifts per day, seven days a week. There is a rotational staff schedule of two weeks on, two weeks off.

The current inflow of groundwater into the open pit is insignificant. The future water inflow is estimated to be 133 m3/day, mainly originating from a subpermafrost aquifer.

7.4.2 Nyurbinskaya Pipe and Placer Deposit Production

The actual production data from 2012 to 1st July 2016 for the Nyurbinskaya open pit are summarised in Table 7.15. The Nyurbinskaya open pit production schedule was developed by Micon using the ALROSA development plan, with adjustments to conform to Micon’s ore reserve estimate. The open pit production schedule covers the period from the second half of 2016 to 2030 and is shown in Table 7.16. This schedule does not provide for the complete depletion of the Nyurbinskaya pipe reserves. The residual Nyurbinskaya pipe deposit reserves, as at 1st January 2031, are estimated to be 1,139 kt of ore, containing 3,259 kct of +2 NSC diamonds.

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Table 7.16: Nyurbinskaya Open Pit Actual Production

2012 2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Plan Actual % Ore (kt) 1,400 1,400 100 1,350 1,350 100 1,350 1,350 100 920 920 100 500 490 98 Diamond Grade (ct/t) 4.74 5.08 107 4.78 4.87 102 4.26 4.47 105 5.00 5.19 104 4.68 4.92 105 Contained Diamonds (kct) 6,629 7,112 107 6,453 6,575 102 5,751 6,035 105 4,604 4,778 104 2,342 2,413 103 Sands (kt) 530 532 100 176 176 100 0 0 - 600 600 100 200 222 111 Diamond Grade (ct/t) 2.18 2.27 104 0.33 0.34 103 - - - 2.48 2.48 100 2.07 1.92 93 Contained Diamonds (kct) 1,157 1,208 104 58 60 103 0 0 - 1,486 1,489 100 413 426 103 Preparation Work (k m3) - - - 20 20 100 20 20 100 20 20 100 8 8 100 Waste Stripping (k m3) 12,000 12,000 100 12,000 12,000 100 12,000 12,000 100 7,563 7,563 100 1,965 1,965 100

Table 7.17: Nyurbinskaya Open Pit Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Ore (kt) 500 1,000 800 650 650 500 450 400 400 350 300 450 450 450 450 7,800 Ore Diamond Grade +2 NSC (ct/t) 4.59 4.71 5.24 4.19 4.19 4.19 4.19 4.19 4.19 4.19 3.66 3.66 3.66 3.66 3.66 4.25 Contained Diamonds +2 NSC (kct) 2,295 4,705 4,188 2,725 2,725 2,096 1,887 1,677 1,677 1,468 1,097 1,647 1,647 1,647 1,647 33,126 Sands (kt) 128 610 680 760 860 810 810 206 300 300 250 250 250 250 250 6,713 Sands Diamond Grade +2 NSC (ct/t) 3.17 2.17 2.58 2.58 2.57 2.59 2.59 2.25 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.45 Contained Diamonds +2 NSC (kct) 404 1,325 1,752 1,959 2,210 2,098 2,098 463 671 671 559 559 559 559 559 16,450 Preparation Work (k m3) 10 20 20 20 20 20 20 20 20 20 20 20 20 20 10 280 Waste Stripping (k m3) 1,383 8,500 9,500 10,500 11,000 11,000 12,000 12,500 12,500 10,500 10,500 8,000 8,000 8,000 6,000 139,883

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7.4.3 Botuobinskaya Pipe and Placer Deposit Mine Design and Operation

The Botuobinskaya pipe deposit and the associated placer deposits are being mined by a single open pit. Stripping operations began in 2012 and, in 2014 open pit construction was completed, with the first ore from the Botuobinskaya pipe produced in 2015.

Figure 7.6 displays final Botuobinskaya pipe open pit plan at the ultimate design depth of 780 m, and Figure 7.7 is a cross-section of the final open pit and the ore body.

Mining of the deposit is carried out at bench sizes of 7.5 m to 15 m, with division of the 15 m benches into two 7.5 m sub-benches. The Botuobinsky open pit uses the same type of equipment as that used at the Nyurbinskaya open pit.

Figure 7.6: Botuobinsky Final Open Pit Plan (Depth 780 m)

A

A 250 m 0 m 250 m 500 m

Source: ALROSA 2015

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Figure 7.7: Botuobinsky Open Pit Configuration at the End of Initial Waste Stripping

A - А Current Position

1st Intermediate Contour

2nd Intermediate Contour

3rd Intermediate Contour

Final Open Pit Contour

Source: ALROSA 2015

7.4.4 Botuobinskaya Pipe and Placer Deposit Production

Ore production in the Botuobinskaya pipe open pit began in 2015 when 250 k t of kimberlite and 200 k t of sands were mined. The volume of stripping amounted to 10,061 k m3. Actual production data for the Botuobinskaya open pit from 2013 to the first half of 2016 are summarised in Table 7.18.

The Botuobinsky open pit production schedule from second half of 2016 to 2030, as shown in Table 7.19, was developed by Micon using the ALROSA long term development plan, with adjustments to conform to Micon’s ore reserve estimate. The production schedule up to 2030 does not provide for complete depletion of the Botuobinskaya pipe reserves. The residual reserves as at 1st January 2031 are estimated to be 5,058 kt of ore, containing 29,716 kct of +2 NSC diamonds.

7.4.5 Maiskoye Kimberlite Body and the Maiskoye Placer Deposit Mine Design and Operation

According to ALROSA’s long term plan development of the Maiskoye Kimberlite Body deposit will be started in 2022. The deposit will be mined by the open pit method. According to the solution suggested by the 2015 TEO report the final depth of the open pit will reach 400 m. Figures 7.8 and 7.9 display the plan view and the section of the open pit in the final position.

Mining of the deposit will be conducted with external waste dumping, haulage of ore and waste by dump trucks. Mined ore and sands will be stockpiled separately for further processing at Plant No. 16 (ore) and Plant No. 15 (sands). The Maiskoye Kimberlite Body open pit will utilise the same type of equipment as that used at the Nyurbinskaya and Botuobinskaya open pits.

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Table 7.18: Botuobinsky Open Pit Actual Production

2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Ore (kt) ------250 250 100 160 170 106 Ore Diamond Grade (ct/t) ------9.27 9.55 103 5.84 5.70 98 Contained Diamonds (kct) ------2,316 2,386 103 934 968 104 Sands (kt) ------195 200 103 100 99 99 Sands Diamond Grade (ct/t) ------1.07 1.07 100 0.53 0.55 103 Contained Diamonds (kct) ------209 214 102 53 54 102 Preparation Work (k m3) ------10 10 100 10 10 100 Waste Stripping (k m3) 5,500 5,500 100 6,000 6,000 100 10,061 10,061 100 5,980 5,980 100

Table 7.19: Botuobinsky Open Pit Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total

Ore (kt) 96 200 300 400 400 700 750 900 800 750 800 800 700 700 600 8,896 Ore Diamond Grade +2 NSC (ct/t) 4.51 4.77 4.77 4.77 5.34 5.34 5.34 5.34 4.95 5.34 5.34 5.34 5.34 5.34 5.34 5.24 Contained Diamonds +2 NSC (kct) 431 954 1,431 1,909 2,137 3,741 4,007 4,810 3,962 4,007 4,275 4,275 3,741 3,741 3,206 46,625 Sands (kt) 50 200 200 250 202 ------902 Sands Diamond Grade +2 NSC (ct/t) 0.77 0.70 0.30 0.30 0.30 ------0.42 Contained Diamonds +2 NSC (kct) 38 140 61 76 61 ------376 Preparation Work (k m3) 5 10 10 10 10 20 20 20 20 15 15 15 15 15 15 215 Waste Stripping (k m3) 6,000 13,500 12,500 13,500 13,300 12,800 12,800 11,800 17,800 18,500 18,300 21,500 21,900 19,900 15,700 229,800

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Figure 7.8: Maiskoye Kimberlite Body Final Open Pit Plan (Depth 400 m)

A

A

200 m 0 m 200 m 400 m

Source: ALROSA 2015

Figure 7.9: Maiskoye Kimberlite Body Final Open Pit Section (Depth of 400 m)

A - А

Source: ALROSA 2015

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7.4.6 Maiskoye Kimberlite Body Deposit Production

The Maiskoye Kimberlite Body open pit production schedule from 2022 (beginning of waste stripping) to 2030 is shown in Table 7.20. The schedule was developed by Micon using the ALROSA long term development plan and the production schedule suggested by the 2015 TEO report with adjustments to conform to Micon’s ore reserve estimate. Ore production is scheduled to start in 2025.

The production schedule up to 2030 does not provide for complete depletion of the Maiskoye Kimberlite Body reserves. The residual reserves as at 1st January 2031 are estimated to be 677 kt of ore, containing 3,695 kct of +2 NSC diamonds.

Table 7.20: Maiskoye Kimberlite Body Open Pit Production Schedule

Parameter 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Ore (kt) - - - 100 150 0 100 100 200 650 Ore Diamond Grade +2 NSC (ct/t) - - - 5.46 5.46 5.46 5.46 5.46 5.46 5.46 Contained Diamonds +2 NSC (kct) - - - 546 818 0 546 546 1,091 3,547 Preparation Work (k m3) - - - 2 2 0 2 2 5 13 Waste Stripping (k m3) 4,500 4,500 4,500 9,500 5,000 3,000 3,000 3,000 3,000 40,000

7.5 PROCESSING

7.5.1 Overview

Ore from both the Botuobinsky and Nyurbinsky mines is processed locally at the Nyurba GOK Plants No. 15 and No. 16. The seasonally operating Plant No. 15 was commissioned in 1999 to process Nyurbinskaya pipe ores and placer deposit sands, and is also currently processing the Botuobinsky placer deposit sands. Processing Plant No. 16 was designed to process Nyurbinskaya pipe ore and the adjacent placer deposit sands, and is also currently processing Botuobinsky pipe ore.

The original process flowsheet for Plant No. 15 was based on the western option for processing diamond-bearing kimberlites, making it different from other ALROSA plants. This flowsheet includes three-stage crushing, as well as DMS. Various modifications have increased the plant capacity to 100 t/h for kimberlite ore and 150 t/h for placer processing. The plant does not operate in the winter.

Plant No. 16 was designed in 2001 and commissioned in 2003 at a capacity of 1.4 Mt/a ore. It is a very modern plant that includes DMS and HPGR circuits in the flowsheet.

7.5.2 Current and Future Production

The actual production figures for Plants No. 15 and No. 16 for 2013 to 1st July 2016 are shown in Table 7.21. Diamonds below +2 NSC are not included in the Table 7.21 data.

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Table 7.21: Plants No. 15 and No. 16 Actual Production

Parameter 2012 2013 2014 2015 2016 H1 Plant No. 15 Sands Processed (kt) 520 500 500 505 0 Feed Grade (ct/t) 0.710 0.998 1.072 2.706 - Diamonds in Material Processed (kct) 369 499 536 1,366 0 Diamond Recovery (%) 97.0 97.0 97.0 85.6 - Diamonds Recovered (kct) 358 484 520 1 170 0 Plant No. 16 Ore and Sands Processed (kt) 1,585 1,540 1,500 1,535 634 Feed Grade (ct/t) 4,344 5,253 5,299 4,883 4,886 Diamonds in Material Processed (kct) 6,885 8,090 7,948 7,495 3,098 Diamond Recovery (%) 97.6 84.8 85.1 84.5 97.5 Diamonds Recovered (kct) 6,718 6,865 6,762 6,332 3,020

The forecast production schedules from the second half of 2016 to 2030 are displayed in Tables 7.22 and 7.23, for Plants No. 16 and No. 15, respectively. Diamonds below +2 NSC are not included in these schedules.

The future processing schedules for Plants No. 15 and No. 16 correspond to mining production plans of Nyurba GOK operations developed by Micon. These plans are based on ALROSA’s long term plan, adjusted to conform to Micon’s reserve estimates.

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Table 7.22: Plant No 16 Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Mined Material Nyurbinskaya Pipe (kt) 500 1 000 800 650 650 500 450 400 400 350 300 450 450 450 450 7,800 Botuobinskaya Pipe (kt) 96 200 300 400 400 700 750 900 800 750 800 800 700 700 600 8,896 Nyurbinskaya Placer (kt) 128 200 270 300 350 300 300 200 300 300 250 250 250 250 250 3,898 Botuobinskaya Placer (kt) 50 100 100 150 100 ------500 Maiskoye Kimberlite Body (kt) ------100 150 0 100 100 200 650 Processing Ore and Sands Processing (kt) 773 1,500 1,470 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 21,743 Diamond Grade (ct/m3) 4.10 4.18 4.25 3.57 3.78 4.34 4.38 4.62 4.21 4.46 4.50 4.32 4.33 4.33 4.34 4.25 Contained Diamonds (kct) 3,169 6,273 6,253 5,350 5,675 6,508 6,565 6,934 6,310 6,692 6,750 6,481 6,492 6,492 6,503 92,449 Average Recovery (%) 97.5 97.5 97.4 97.4 97.4 97.4 97.4 97.5 97.4 97.4 97.5 97.5 97.5 97.5 97.5 97.5 Recovered Diamonds (kct) 3,088 6,115 6,094 5,213 5,529 6,342 6,397 6,758 6,149 6,521 6,579 6,316 6,327 6,327 6,338 90,094

Table 7.23: Plant No 15 Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 Total

Mined Sands Nyurbinskaya Placer (kt) 0 410 410 460 510 510 510 6 2,816 Botuobinskaya Placer (kt) 0 100 100 50 - - - 152 402 Processing Sands Processing (kt) 0 510 510 510 510 510 510 158 3,218 Diamond Grade (ct/m3) 0 1.67 2.31 2.55 2.80 2.80 2.80 0.39 2.39 Contained Diamonds (kct) 0 852 1,178 1,302 1,427 1,427 1,427 62 7,676 Average Recovery (%) - 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 Recovered Diamonds (kct) 0 826 1,142 1,263 1,384 1,384 1,384 60 7,446

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7.5.3 Process Flowsheet

7.5.3.1 Plant No. 15

ROM ore is transported by trucks to a stockpile and loaded by front-end loader into the feed bin, from which it is conveyed to a single autogenous grinding mill. Milled product at -25 mm is deslimed at 1 mm, with the -1 mm fraction reporting to final tails and the -25 to +1 mm fraction fed to a rotating wet scrubber. The scrubber product is screened with +25 mm material returned to milling, the -25 to +1 mm fraction reporting to DMS and the -1 mm fraction reporting to final tails.

The DMS concentrate is screened into -25 to +6 mm and -6 to +1 mm fractions, which are transported to the sorthouse of Plant No. 16. The -1 mm fraction is returned to the scrubber and the DMS tails reports to final tails. Plant No. 15 operates seasonally for 140 days during the summer period.

7.5.3.2 Plant No. 16

ROM ore is trucked to the plant, received into bins and fed to primary jaw crushers (two lines available) and then to three autogenous grinding mills. After classification in four screw classifiers, the milled product at -32 mm is screened into +32 mm, -32 to +1 mm and -1 mm fractions. The +32 mm fraction is returned to the mills for regrinding, the -1 mm fraction is thickened and reports to final tails and the -32 to +1 mm fraction is further screened into -32 to +6 mm and -6 to +1 mm fractions. These fractions are then fed to the coarse and fines DMS plants, respectively.

Tails from the fines DMS plant report as final tails and are trucked to a stockpile. Coarse DMS tails are recrushed in an HPGR unit, with the product reporting to a wet rotating scrubber and then screened into +32 mm, -32 to +1 mm and -1 mm fractions.

The +32 mm fraction is returned to the autogenous grinding mills, the -32 to +1 mm fraction is returned to screening ahead of the DMS plants, and the -1 mm fraction reports as final tails.

The DMS concentrates report to final recovery. The coarse DMS concentrate (-32 to +6 mm) is screened into -32 to +12 mm and -12 to +6 mm fractions and processed using X-ray sorters. The sorter tails report to an HPGR unit for recrushing, while the concentrates report to the sorthouse.

The fines DMS concentrate (-6 to +1 mm) is screened into -6 to +3 mm and -3 to +1 mm fractions and then dried before processing using several stages of X-ray sorters, with grease separation on the sorter tails. X-ray sorter concentrates report to the sorthouse.

The -6 to +3 mm grease separator tails are recrushed in a small HPGR unit and, together with the +6 mm crushed sorter tails, are returned to the main HPGR circuit in the processing section. The -3 to +1 mm grease separator tails report to final tails.

The grease separator concentrate (-6 to +1 mm) is dried and screened into -6 to +3 mm and -3 to +1 mm fractions. The +3 mm fraction reports to the sorthouse and the -3 to +1 mm fraction is treated using a combination of calcining and magnetic separation.

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7.6 INFRASTRUCTURE

7.6.1 Transport

The Nakyn camp is connected to the nearest settlements (Nyurba and Mirny) by helicopter and fixed wing aircraft. The construction of a runway located 2.5 km northeast of the camp has recently been completed. There are no year-round roads in the area, except for site roads that connect the GOK facilities. Cargo is delivered by trucks during the winter season. The city of Mirny is some 610 km from the camp via 235 km of second-class roads (Mirny to Aikhal) and 375 km of ice roads. River transport is used during the flood season, when cargo is delivered by barges along the Markha River to the wharf located about 20 km from the Nakyn camp.

7.6.2 Power and Water

Electrical power is supplied to the Nakyn camp from stationary and mobile diesel generators. Heating for the camp and industrial facilities is provided by electric-powered boiler houses.

The year-round supply of household, potable and industrial water to the Nyurba GOK production facilities and camp is maintained by the existing system of pipelines and reservoirs.

7.7 ENVIRONMENT, HEALTH AND SAFETY AND SOCIAL ISSUES

7.7.1 Environmental and Health and Safety Management

The technical basis for environmental and health and safety management of the more recent operations, such as Nyurba, has been established in the relevant TEO documentation and the subsequent design documentation, supplemented by documented internal regulations.

Nyurba environmental personnel maintain an environmental management programme covering issues related to atmospheric emissions and air quality, protection and efficient use of water resources and waste management that is updated annually (Table 7.24).

Table 7.24: Nyurba GOK Key Facilities

Air Emission Water Quality Parameter Waste Controls Controls Controls Plant No. 15 √ √ √ Plant No. 16 √ √ √ Markha sand and gravel pit - √ - Nyurbinskaya Open Pit √ √ √ Nyurbinskaya Placer1 - - - Botuobinskaya Open Pit1 - - - Botuobinskaya Placer1 - - - Vehicle Maintenance Facilities √ √ √ Specialised Equipment Repair √ √ - Heat and Power Unit √ √ - Note: 1 Facilities included within the controls for the Nyurbinskaya Open Pit

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7.7.2 Key Environmental and Safety Issues

7.7.2.1 Inflows from Groundwater and Rainfall

Although the open pits are in an area of continuous permafrost, there are localised areas where the high salt content prevents groundwater from freezing. These taliks can give rise to inflows into open pits that are characterised by a high mineral content. The discharge of highly mineralised waters to surface waters is no longer permitted, and highly mineralised groundwater is settled in sumps in the base of the open pit, to remove suspended solids, prior to re-injection. Due to the relatively shallow depth of the current open pits, the magnitude of the inflow is small. However, as the pits deepen, greater inflows are anticipated in future.

7.7.2.2 Air Quality in the Open Pits

Air quality in the open pits is generally satisfactory. The constraints imposed on other ALROSA operations as a consequence of a build-up of gaseous emissions during temperature inversions are apparently not experienced at Nyurba, although these events may occur as the open pits deepen.

7.7.2.3 Waste Rock Management

Open pits generate a substantial quantity of waste rock, the disposal of which occupies large areas of land that ultimately require re-vegetation.

7.7.2.4 Tailings Management

Tailings management at Nyurba GOK has undergone a number of developments since operations commenced. As a consequence, there is a complex series of tailings ponds with interlinked drainage systems in operation. Dry tailings disposal has also been practised.

Tailings supernatant water is typically highly mineralised. All ALROSA tailings facilities now operate on a zero discharge basis, with water being re-circulated to the plants. Seepage through the dam walls is restricted by the systematic enhanced freezing of the walls; any residual seepage is collected and returned to the tailings impoundment.

7.7.2.5 Dust Control

During dry summer months, fugitive dust from un-surfaced access roads can be problematic, giving rise to reduced visibility on access roads and in working areas. Nyurba GOK maintains a programme of dust suppression using water sprays.

7.7.3 Safety Performance

Safety statistics from the Nyurba GOK indicate a safety performance in the period 2006 to 2015 that was slightly worse than that demonstrated by ALROSA as a whole (Table 7.25). Measures taken to improve safety performance have resulted in improvements in recent years, when safety performance was more consistent with that for ALROSA as a whole.

ALROSA Group of Companies 216 November 2016 Nyurba

Table 7.25: Nyurba GOK Safety Performance

Parameter 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average Nyurba GOK Total Number of 2 3 1 2 1 0 1 3 1 0 1.56 Recorded Incidents Recorded Incidents/1,000 1.85 2.70 0.88 1.79 0.88 0.00 0.78 2.00 0.65 0.00 1.28 Employees Number of Fatal Incidents 0 1 0 0 0 0 1 1 0 0 0.33 Number of Fatalities 0 1 0 0 0 0 1 1 0 0 0.33 Fatalities/1,000 0.00 0.90 0.00 0.00 0.00 0.00 0.78 0.67 0.00 0.00 0.26 Employees Number of Serious 0 0 0 0 0 0 0 1 0 0 0.11 Incidents Serious Incidents/1,000 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.67 0 0.00 0.07 Employees Number of Lost Days 192 76 34 20 10 0 0 243 157 0 81 Lost Working Days/1,000 177 85 41 18 9 0 0 162 101 0 66 Employees Total ALROSA Recorded Incidents/1000 1.28 1.16 0.90 0.78 0.79 0.81 0.84 0.92 0.38 0.28 0.82 Employees Fatalities/1000 Employees 0.16 0.08 0.04 0.17 0.14 0.14 0.19 0.18 0.09 0.00 0.13 Serious Incidents/1,000 0.28 0.12 0.04 0.04 0.19 0.19 0.09 0.32 0.00 0.05 0.13 Employees Lost Working Days/1,000 63 50 44 32 20 41 33 38 21 6 35 Employees Note: “Total ALROSA” is for mining operations” only and includes data from Aikhal GOK, Mirny GOK, Nyurba GOK, Udachny GOK and all mining related support functions. Data for other ALROSA group companies are excluded. Data from Almazy Anabara, Nizhne-Lenskoe and Lomonosov are not included due to the incompatibility of the data.

7.7.4 Regulatory Compliance

Operations and exploration prospects at Nyurba are covered by three sub-soil licences issued by the State Committee for the Sub-Soil Use of the Republic of Sakha (Yakutia):

 Licence No. ЯКУ 01450 КЭ covers the Nyurbinskaya pipe;  Licence No. ЯКУ 01451 КЭ covers the Botuobinskaya pipe; and,  Licence No. ЯКУ 15159 КЭ covers the Maiskoye kimberlite body.

The environmental, health and safety and social conditions attached to these licences are broadly consistent.

7.7.5 Permits for Nature Use

The Nyurba GOK operates under single permits for air emissions, waste management and discharges at each site, covering all current operations (Table 7.26). Micon has not identified any significant breaches of the conditions attached to these permits. The limits associated with both the water permit and, in particular, the waste permit were exceeded, but these exceedances were covered by excess fee payments as is standard Russian practice.

ALROSA Group of Companies 217 November 2016 Nyurba

Table 7.26: Nyurba GOK Permits for Nature Use

Type of Date of Validity Expiry No. Licence No. Issuing Authority Licensed Activity Issue Period Date Air Emissions

All facilities of th Rosprirodnadzor in the 27th March 13 March 1 Nyurbinsky GOK at the PDV-14/48 5 years Republic of Sakha (Yakutia) 2014 2019 Nakyn site 17th 31st All facilities of Mirny Rosprirodnadzor in the 2 PDV-14/02 January 5 years December production base Republic of Sakha (Yakutia) 2014 2018 Markha sand and gravel Rosprirodnadzor in the 19th June 18th June 3 PDV- 14/85 5 years open pit Republic of Sakha (Yakutia) 2014 2019 26th Liyendokit Rock Rosprirodnadzor in the 31 December 4 PDV-12/203 December 5 years Quarry Republic of Sakha (Yakutia) 2017 2012 Waste

Nyurbinsky GOK th Rosprirodnadzor in the 12th August 12 August 1 Mining & Processing 14/81 5 years Republic of Sakha (Yakutia) 2014 2019 Plant All facilities of Mirny Rosprirodnadzor in the 30th June 30th June 2 14/59 5 years production base Republic of Sakha (Yakutia) 2014 2019 Water Use 14-18,03,08,004- Department of Water Water Use Agreement 18th March 11.8 31 December 1 X- —c- Relations, Republic of Sakha (unnamed river 2147) дзио 2011 years 2022 2011-01210/00 (Yakutia) Water Discharge Department of Water 9th Water Discharge Permit 4.9 30th October 1 (unnamed tributary of NDS -13/18 Relations, Republic of Sakha December years 2018 Dyulung Otuu) (Yakutia) 2013 14-18,03,08,004-P- Department of Water Water Discharge 1st January 4.8 30 October 2 Agreement (unnamed PCBX-C-2013- Relations, Republic of Sakha 2014 years 2018 stream) 02486/00 (Yakutia)

7.7.6 Risk Categorisation

Micon considers the overall risk associated with environmental and health and safety considerations at Nyurba GOK to be low to moderate. Nyurba does not currently experience a number of the key environmental and safety issues found at many other ALROSA operations, such as significant inflows of mineralised groundwater and the poor air quality in the open pit, although this may change in the future.

7.8 COSTS

7.8.1 Operating Costs

The 2013 to 2015 actual and 2016 planned operating costs for the Nyurba GOK, as provided by ALROSA, are given in Table 7.27. These figures do not include depreciation.

Evaluation of the mining costs for exploitation of the Maiskoye kimberlite body is based on the unit cost values for the Botuobinskyaya open pit.

ALROSA Group of Companies 218 November 2016 Nyurba

Planned values for 2016 operating costs were used as the basis for the operating cost forecast for future years, completed by Micon. When forecasting operating costs Micon included planned production parameters for each of the operations - divisions of the Nyurba GOK.

While completing the economic evaluation to provide a full account of diamond production and sales costs, Micon included a number of other costs in addition to the production and general costs. More detailed information is provided in Section 12.0.

Table 7.27: Nyurba GOK Actual and Planned Operating Costs

Cost Item 2014 2015 2016 Nyurbinsky Open Pit Direct Cost of Ore Mining (RUB/t) 18.7 18.1 18.2 Direct Cost of Sands Mining (RUB/t) - 18.3 19.2 Direct Cost of Waste Stripping (RUB/m3) 33.5 39.9 42.3 Direct Development Work Cost (RUB/m3) 12.8 20.0 46.0 General Production Costs of the Mine (‘000 RUB) 1,225,035 818,603 331,500 Botuobinsky Open Pit Direct Cost of Ore Mining (RUB/t) - 15.1 20.0 Direct Cost of Sands Mining (RUB/t) - 12.9 19.2 Direct Cost of Waste Stripping (RUB/m3) - 31.8 42.2 Direct Development Work Cost (RUB/m3) - 4.5 39.3 General Production Costs of the Mine (‘000 RUB) - 1,075,323 1,066,744 Mined Material Haulage Haulage (kt x km) 142,858 145,103 128,625 Direct Transportation Costs (RUB/t x km) 7.6 7.5 8.2 General Costs ('000 RUB) 954,504 1,144,572 1,358,297 Plant No. 15 Direct Costs of Processing (RUB/t) 85.9 83.1 - General Production Costs of the Plant (‘000 RUB) 228,400 245,063 30,155 Final Recovery Section (RUB/ct of diamonds recovered) 10.8 11.6 - Plant No. 16 Direct Costs of Processing (RUB/t) 358.9 346.4 357.0 General Production Costs of the Plant (‘000 RUB) 1,540,716 2,154,634 2,435,408 Final Recovery Section (RUB/ct of diamonds recovered) 10.0 8.4 10.4 Nyurba GOK General Costs Total General Costs ('000 RUB) 505,866 485,959 621,794

7.8.2 Capital Costs

When completing the evaluation Micon incorporated the data on actual capital expenditures for the Nyurba GOK and was guided by the calendar plan of capital expenditures for 2016 to 2030, proposed by ALROSA. The capital costs for the considered period used by Micon for the assessment of the Nyurba GOK operations are summarised in Table 7.28. The presented capital costs are expressed in nominal prices.

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Table 7.28: Nyurba GOK Capital Costs Schedule (Million RUB)

Cost Items 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total

Nyurbinskaya, Botuobinskaya and Maiskoye Body Open Pits 711 514 462 480 2,368 2,132 2,522 4,440 4,344 947 2,014 687 715 797 960 24,093 NGOK, administrative building in Mirny - 15 245 305 ------565 Modernisation and replacement of worn-out equipment 288 371 393 429 445 471 495 515 519 541 560 566 579 589 603 7,363 Implementation of project "Oil of Nakyn" 20 706 200 ------926 Participation in project "LEP" - - - 250 ------250 Total for Nyurba GOK 1,019 1,605 1,300 1,464 2,813 2,603 3,017 4,955 4,863 1,488 2,574 1,254 1,294 1,386 1,563 33,197

ALROSA Group of Companies 220 November 2016 Solur-Vostochnaya

8.0 SOLUR-VOSTOCHNAYA

8.1 BACKGROUND

The Solur-Vostochnaya placer deposit contains two spatially separate, buried deposits, Solur and Vostochnaya, and is located between the Irelyakh and Chuonalyr Rivers, 25 km northwest of Mirny. The Solur-Vostochnaya deposit occurs within the Malo-Botuobinsky diamond-bearing area. The climate and physiography are similar to those described for Udachny, in Section 4.1.

The Vostochnaya and Solur placer deposits were discovered between 1979 and 1989, and exploration was undertaken between 1981 and 2005. State balance reserves have been approved for the deposit and it can now be prepared for commercial development, however such development is not planned in near future.

8.2 GEOLOGY

The geological structure of the Mirny kimberlite field, covering the Solur-Vostochnaya placer deposit, is described in Section 6.0.

The sedimentary formations in the deposit area are terrigenous-carbonate rocks of the Vendian Upper Cambrian period which host the diamond-bearing hardrock deposits. The overlying terrigenous deposits of the Upper Palaeozoic, Mesozoic and Cenozoic Eras host the diamond placer deposits. The kimberlite pipes are characterised by a high diamond-bearing factor and are the main hardrock sources for the Upper Palaeozoic and Mesozoic alluvial deposits within the area.

The Solur-Vostochnaya placer contains two spatially separate, but adjacent buried deposits: the Vostochnaya (Upper Palaeozoic) and the Solur (Mesozoic) deposits. These deposits differ in their age and they are controlled by two different morphological structures with different orientations.

A geological map and cross-section of the Solur-Vostochnaya placer are presented in Figures 8.1 and 8.2, respectively. Figure 8.3 provides the legend for Figures 8.1 and 8.2.

The Vostochnaya placer is localised within the coarse argillite formation at the base of the Lapchanskaya Suite of the Middle Carboniferous. The placer stretches along the sediments of the Lapchanskaya Suite for 5.2 km, with a commercial contour of 4.6 km. The thickness of the diamond-bearing layer varies from 0.1 m and 1.9 m, with an average of 0.68 m.

The Solur placer is confined to the basal level of the Yulegirskaya Suite of the Lower Jurassic. The thickness of the diamond-bearing layer varies from 0.5 m to 5.1 m, with an average of 2.35 m.

The thickness of the sediments overlying the diamond-bearing bed at the Vostochnaya placer varies from 12 m to 58 m, with an average of 47.7 m. Within the Solur placer area, the thickness of the overlying sediments varies from 5 m to 54 m, with an average of 41.7 m.

ALROSA Group of Companies 221 November 2016 Solur-Vostochnaya

Figure 8.1: Geological Map of the Solur-Vostochnaya Placer Area

A The Solur-Vostochnaya Placer Deposit The Mir pipe

B

The International Pipe

C D

5 km 0 km 5 km 10 km

Source: ALROSA 2013

Figure 8.2: Geological Section along A-B-C-D, the Solur-Vostochnaya Placer Area

Source: ALROSA 2013

Figure 8.3: Legend for Figures 8.1 and 8.2

Recent stage. Clay loam, sand, pebble gravel, silt, peat.

Clay loams, sands, pebble gravel of the I terrace.

System Quaternary Quaternary stage Upper Clay loams, sands, pebble gravel of the II terrace.

Vakunaikinskaya suite. Verkhnevakunaikinskaya subsuite. Siltstone, argillite, sand. Vakunaikinskaya suite. Nizgnevakunaikinskaya subsuite. Sand with lenses of calcareous sandstone, argillite, pebble stone. Oruktakhskaya suite. Pebble gravel, sandstone, sand, siltstone, clay, coal.

Lower section Lower section Jurassic System Yulegirskaya suite. Sand, siltstone, clays, coal.

n m Boruloiskaya suite. Sand, sandstone, siltstone, pebble gravel. Syste Permia Upper section

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Botuobinskaya suite. Siltstone, sand, sandstone, conglomerate.

Lower section

Lapchanskaya suite. Siltstone, clay, carbonaceous argillite, coal, conglomerate. Middle System Section Section Carboniferous

Kholomolokhskaya suite. Limestone, sandstone, marl, variegated siltstone. Upper section section

System Cambrian Intrusive Rocks Katangskyi complex.

Undifferentiated and poorly differentiated intrusions of dolerite. Kimberlite.

Others Middle Palaeozoic tuff pipes

Over thrusts filled in at depth by Middle Palaeozoic dolerite dykes.

Faults located by seismic prospecting data.

Faults located by geophysical studying of the drill holes data.

Drill holes that exposed Palaeozoic deposits at depths of more than 500

m and their ID.

Shafts and their numbers.

Mineral Deposits

Diamond placer deposits being mined.

Explored diamond placer deposits.

Mined out diamond placer deposits.

Mineral Deposits Hard rock diamond deposits being mined by open pits.

Hard rock diamond deposits being mined by underground mines.

Hard rock diamond deposits mined out by open pits.

Hard rock diamond deposits under preparation for underground mining.

Oil and natural gas deposits.

Source: ALROSA 2013

In the Vostochnaya placer, the diamond content in samples varies from zero to 99.29 ct/m3, with an average of 3.01 ct/m3. The diamond content of the Solur placer is considerably lower, with samples varying from zero to 10.12 ct/m3, with an average of 1.0 ct/m3. The size of diamonds within both deposits varies considerably, but diamonds within classes -4 to +2 mm and -2 to +1 mm predominate.

ALROSA Group of Companies 223 November 2016 Solur-Vostochnaya

8.3 MINERAL RESOURCES AND RESERVES

8.3.1 Exploration

Exploration was performed at the deposit from 1981 to 2005. This work included driving underground workings, cable-tool and core drilling, and sampling. The exploration work completed at the Solur-Vostochnaya placer included the driving of nine galleries or headings and seven lines of cable-tool drill hole clusters. The deposits were accessed by an inclined shaft driven along each line of headings. Galleries were driven to intersect the entire thickness of the diamond-bearing sediments. A total of 627 bulk samples of the diamond-bearing layer were collected from galleries, raises and winzes, at intervals of 10 m and 20 m.

The density of core holes at the Vostochnaya placer ranged from 150 m by 100 m to 200 m by 100 m. For the cable-tool drill holes, the average spacing ranged from 200 m by 100 m to 100 m by 100 m. At the Solur placer, the drilling grid for core holes varied from 200 m by 50 m to 50 m by 50 m. For cable-tool drill holes the final grid was 400 m by 100 m.

Samples collected from the underground workings and cable-tool drill holes were processed at stationary processing plants. The results from trial processing of the sands from the Vostochnaya placer, and the pilot tests of bulk samples, were used to develop a processing flowsheet which included washing and particle size reduction, screening, desliming, jigging, crushing, X-ray luminescent separation and grinding.

8.3.1.1 Russian Mineral Reserve Estimate

The most recent Russian reserve estimate was performed in 2008, using the geological block methodology described in Section 3.2, and the cut-off criteria shown in Table 8.1.

Table 8.1: Permanent Exploration Cut-Off Criteria used to Estimate Reserves at the Solur-Vostochnaya Deposit

Deposit No. Cut-Off Criteria Parameters and their Application Vostochnaya Solur 1 Minimum commercial grade in a reserve block (ct/m3) 1.51 0.87 2 Minimum grade of a reserve block within balance reserves (ct/m3) 1.12 0.64 Minimum grade of peripheral intercepts used to define the limits 3 0.60 0.50 of the seam in plan view (ct/m3) within geological 4 Cut-off grade used to contour the seam thickness (ct/m3) 0.40 boundaries 5 Minimum thickness of the diamond-bearing layer (m) 0.4 0.4 Thin seams (<0.4 m) with high grade to be contoured using 6 0.24 0.20 grade x thickness (ct/m3-m) 7 Minimum grade in a reserve block for off-balance reserves (ct/m3) 0.61-1.50 0.51-0.86 8 Diamond reserves to be estimated for +1 mm class

The deposit was explored using a series of exploration lines located across the strike of the deposit (contours of palaeo-valley). The lines were used to define reserve blocks, with each block limited by two exploration lines. Contouring of the productive seam in the plan view is completed according to the adopted cut-off criteria (Table 8.1).

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The thickness of the diamond-bearing layer and overlying rock was defined by drilling results and underground workings.

In single cable-tool drill holes the average diamond grade of the samples collected through the entire thickness of the deposit was estimated as the total amount of diamonds recovered from the diamond-bearing sediments divided by the total volume of the sample collected. The same method was used to calculate the average grade in drill hole clusters. The average thickness of sands and average diamond grade were calculated for the exploration lines and reserve blocks using the weighted average method, and taking into account the radius of influence of the mine working.

The volume of sand in each block was calculated using the average thickness in the block multiplied by the block area. The weight of diamonds in the block was calculated as the volume multiplied by the average grade. The impact of abnormally high grade samples was restricted in the reserve estimation.

The result of reserve estimate was approved by GKZ, the reserves recorded on the State balance, as of 1st January 2016, are presented in Table 8.2.

Table 8.2: Balance Reserves of the Solur-Vostochnaya Placer as of 1st January 2016

Balance Reserves Off-Balance Reserves Contained Contained Diamond Grade Diamond Grade Category Sands Diamonds Sands Diamonds +1 mm +1 mm (k m3) +1 mm (k m3) +1 mm (ct/m3) (ct/m3) (kct) (kct)

C1 2,990.9 1.97 5,903.2 - - -

C2 479.3 1.80 864.6 121.07 1.01 121.73 С1+С2 3,470.3 1.95 6,767.8 121.07 1.01 121.73

8.3.2 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has developed mineral resource estimate for the Solur-Vostochnaya placer in accordance with the guidelines of the JORC Code (2012), as summarised in Table 8.3. The mineral resources are inclusive of reserves.

Table 8.3: Mineral Resources of the Solur-Vostochnaya Placer as of 1st July 2016

Diamond Grade Contained Diamonds Sand Weight JORC Category Description +1 mm +1 mm (kt) (ct/t) (kct) Indicated Vostochnaya 3,616 1.17 4,233 Indicated Solur 3,910 0.43 1,670 Total Indicated 7,527 0.78 5,903 Inferred Vostochnaya 522 1.08 561 Inferred Solur 676 0.45 304 Total Inferred 1,198 0.72 865

All technical aspects of the development and exploitation of the deposits related to mining and processing of mined sands, environmental protection, infrastructure of the project were determined in the TEO report prepared in 2008. This document also provided an economic

ALROSA Group of Companies 225 November 2016 Solur-Vostochnaya justification of the project. However, the current long term plan of ALROSA indicates that production at the deposit is scheduled to commence in 2030. In view of this timeframe, the technical solutions provided in the TEO report will require revision, and the economic justification will have to be re-examined relative to conditions forecast in 2030. Considering the above, Micon determined that it was not possible to declare reserves following the guidelines of the JORC Code (2012) for the Solur-Vostochnaya deposit.

ALROSA Group of Companies 226 November 2016 Lomonosov

9.0 LOMONOSOV

9.1 BACKGROUND

The Lomonosov mining and processing division (Lomonosov GOK) is an operating facility of PAO Severalmaz, created in 1992 to develop the Lomonosov deposit. The Severalmaz headquarters are in the city of Arkhangelsk (population of 356,000), located in the Primorsky Region of the Arkhangelsk Oblast. The deposit is 100 km northeast of the city which is a major industrial and cultural hub, connected with other regions of the country by rail, road and a regular air service. The city also supports shipbuilding and boatyards, pulp and paper, timber, chemicals and food industries.

Exploration and mining of the Lomonosov deposit is served by the settlement of Svetly, which is constructed at the deposit in the immediate vicinity of the Lomonosov GOK production facilities.

With a subarctic climate, the annual average daily air temperature is -0.6°С. The average temperature in July ranges between 14°C to 16°C, falling to -14°C in January, with minimum temperatures as low as -30°C to -40°C. The winter lasts up to 250 days of the year, with up to 125 days of snowfall. Annual rainfall averages 560 mm.

The Lomonosov deposit is located on the upper reaches of the Zolotitsa River, which is a Class I salmon fishery.

The landscape in the deposit area is undulating, with elevations between 120 m and 160 m. The thick vegetation is characteristic of the arctic taiga, with forests covering 70% of the area. Much of the remaining land area is wetland. The forest areas support a high level of bio- and landscape diversity, in addition to being considered of cultural and historical value, with a high tourism potential. The Soyansk State Biological Reserve, an area of protected forest, is directly adjacent to the mining operations. Forest fires are a seasonal occurrence.

There are six kimberlite pipes at the deposit: Pomorskaya, Arkhangelskaya, Karpinskogo-1, Karpinskogo-2, Pionerskaya and Lomonosov. Currently, Lomonosov GOK mines two of these pipes, Arkhangelskaya and Karpinskogo-1.

Discovered in 1980, the Arkhangelskaya kimberlite pipe has been mined by open pit methods since 2005. In 2015, a total of 6.66 Mm3 of rock was excavated from the open pit, including 2.109 Mt of ore. The first stage of overburden stripping at the Karpinskogo-1 mine commenced in 2009. In 2015, a total of 7.35 Mm3 of rock was excavated from the open pit, including 2.145 Mt of ore.

Processing of ore from two open pit mining operations is currently undertaken at centralised processing facilities, comprising Processing Plant No. 1 (production capacity 1 Mt/a) and the adjacent Plant No. 2 (production capacity 3 Mt/a), which was commissioned in 2014.

The Karpinskogo-2 and Pomorskaya pipes are characterised by low diamond contents. All studies completed for the Lomonosovsky deposit have excluded these pipes from the future operating plans, and no resources or reserves have been attributed to them in this Report.

ALROSA Group of Companies 227 November 2016 Lomonosov

9.2 GEOLOGY

The six kimberlite pipes of the Lomonosov deposit intrude into Upper Vendian terrigenous sedimentary rocks of the Valday series. The Vendian sediments are believed to be in excess of 900 m thick, and are underlain by sediments of Riphean age. The uppermost part of the sequence consists of Neogene to Quaternary sediments underlain by Middle Carboniferous rocks, consisting predominantly of sandstone of the Urzug suite and residual carbonate rock of the Olmug and Okunev suites.

Each deposit consists of a primary kimberlite pipe. The Arkhangelskaya, Karpinskogo-1 and Pionerskaya pipes are overlain by crater facies rocks (reworked kimberlitic pyroclastic and epiclastic rocks). The general geology of the area is presented in Figure 9.1 and geological a cross-section from points A to B is shown in Figure 9.2.

Figure 9.1: Geology Plan of the Lomonosov Deposit Area (Legend as in Figure 9.2)

Source: Severalmaz 2013

ALROSA Group of Companies 228 November 2016 Lomonosov

Figure 9.2: Geological Profile of the Lomonosov Deposit

S N A B

Legend 1-4 Overburden: 1 –Quaternary and Middle Carboniferous deposits, 2-4 Kashirskiy horizon of the Moscow formation (Carboniferous), 2 –Okunev and Olmug suites (limestone, dolomite, dolomitic limestone), 3 – Voerechenskaya suite (limestone, dolomitic limestone with bands of clay marl), 4 – Urzuevskaya suite (sand, sandstone with bands of clay and gravel). 5-9 Host rocks: 5-7 –Valday series of Vendian (Late Proterozoic era), 5 – Padunskaya suite, Kotlinskiy horizon, (sandstone with bands of siltstone), 6 – Mezenskaya suite, Kotlinskiy horizon, (sandstone with bands of mudstone), 7 – Ust-Pinezhskaya suite, Redkinskiy horizon, (siltstone and mudstone with bands of sandstone and gravel), 8 – Tuchkinskaya suite, Safonovskaya series, Late Riphean (mudstone, siltstone, marl, arkose), 9 –Belomorskaya series, Late Archaean (gneiss, gneissic granite, amphibolites) 10 – Kimberlite pipes 11 – Tectonic fault 12 – Geological Section Profiles 13 – Licence Boundaries 14 – Drill Holes

Source: Severalmaz 2013

The hydrogeological environment at the Lomonosov deposit is complex. Two large aquifer systems have been detected within the currently mined southern part of the deposit to a depth of 550 m. The two systems are comprised of seven aquifers and complexes. The groundwater that drains into the pit areas has a salt concentration ranging from 0 mg/litre to 310 mg/litre.

Historical studies and experience gained during mining of the first two deposit pipes suggest that further development is possible at the Lomonosovsky deposit, but only with the application of special dewatering measures.

9.3 MINERAL RESOURCES

9.3.1 Exploration

The Lomonosov deposit was discovered between 1981 and 1983, and detailed exploration was completed between 1983 and 1987 to a depth of 460 m. Initial reserves were approved by GKZ in 1987. Since then, additional of exploration has been completed, including core and large diameter drilling, and bulk sampling from preliminary shaft and underground excavations at the Arkhangelskaya and Karpinskogo-1 and 2 pipes. A summary of exploration carried out prior to 2009 is given in Table 9.1 (data from SRK Consulting report, 2009).

ALROSA Group of Companies 229 November 2016 Lomonosov

Table 9.1: Exploration Data for each Lomonosov Pipe (Prior to 2009)

Drilling Diameter Micro Diamond Shaft/Underground Pipe LDD Drilling 112 mm 223 mm Holes Excavation 14 Exploration holes 117 holes (4,167 m) 4 (1,512 m) 3 (900 m), Arkhangelskaya 1 sample of 8,000 t (33,318 m) 223 Grade Control Diameter 406 mm Diameter 146 mm holes (8,878 m) 74 holes 29 holes 3 (1,221 m) 3 (967 m), Karpinskogo-1 1 sample of 6,000 t (19,916 m) (5,237 m) Diameter 406 mm Diameter 127 mm 115 holes 17 holes Karpinskogo-2 - - 1 sample of 5,340 t (26,045 m) (3,280 m) 97 holes 37 holes 8 (1,392 m), Lomonosov - - (25,534 m) (5,526 m) diameter 760 mm 72 holes 12 holes 7 (1,286 m), Pionerskaya - - (19,169 m) (3,853 m) diameter 560 mm Pomorskaya 38 holes (8,270 m) - - -

From 2011 to 2015, further exploration was conducted on the Pionerskaya and Pomorskaya pipes, including exploration and hydrogeological drilling, geophysical surveys, core sampling, core sample processing, laboratory work and field data analysis.

In addition to the 133 holes drilled at the Pionerskaya pipe from 1983 to 1989, 68 exploration holes were drilled between 2011 and 2015, to depths between 64 m to 500 m. Overall, the drilling linear metres amounted to 18,449.1 m. This additional exploration resulted in an exploration grid of 40 m to 80 m by 80 m on 13 cross-sectional and 12 longitudinal exploration profiles, and provided 1,188 new core samples.

The data obtained from all stages of the northern group pipe exploration (Pionerskaya, Pomorskaya and Lomonosov) was used in 2015 to develop cut-off criteria and re-estimate the reserves of the Pionerskaya and Lomonosov pipes.

9.3.2 Russian Mineral Reserve Estimate

In 2012, the Arkhangelskaya pipe reserves were reviewed, due to the approval of new cut-off criteria aimed at differentiating between balance and off-balance reserves. In 2016 balance reserves were updated by the GKZ which converted block A-2b to off-balance reserves. Approved Russian balance and off-balance reserves for the Arkhangelskaya and Karpinskogo-1 pipes, as of 1st January 2016, incorporating the latest GKZ decision from 8th July 2016, are presented in Table 9.2.

Table 9.2: Balance Reserves of Arkhangelskaya and Karpinskogo-1 Pipes as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Tonnage Grade Diamonds Tonnage Grade Diamonds (kt) +3 NSC +3 NSC (kt) +3 NSC +3 NSC (ct/t) (kct) (ct/t) (kct) Arkhangelskaya Pipe B 18,041.6 1.00 17,963.1 5,943.7 0.08 488.1 C1 29,688.6 1.08 32,184.0 - - - B + C1 47,730.2 1.05 50,147.1 5,943.7 0.08 488.1 Karpinskogo-1 Pipe B 7,455.6 1.03 7,705.2 5,105.0 0.12 601.8

C1 15,529.1 1.41 21,886.0 21,280.8 0.03 573.0 B + C1 22,984.7 1.29 29,591.2 26,385.8 0.04 1,174.8

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In 2015, new cut-off criteria parameters were justified for the northern Lomonosovsky deposit pipes (Pionerskaya, Lomonosova, Pomorskaya). Based on the proposed cut-off criteria and using the data obtained from the geological study completed on these pipes (including exploration from 2011 to 2015) a new reserve estimate was completed.

Only core sampling data was used to prepare this new reserve estimate and a number of methods were used. The estimate for the vent part of the pipes was based on the horizontal slice method; this proved to be the main method used. The geological block method was used to estimate the sub-horizontal tabular ore bodies in the Pionerskaya pipe comprised of rocks with crater facies. The vertical slice method and the statistical method were employed to estimate specific blocks with complex geometry. The block volumes have been defined using computer models (Micromine) and traditional graphical analytical methods. The average specific gravity and moisture content values have been calculated based on the values obtained from core samples, with an adjustment for moisture content. Adjustment factors were applied in estimating the grade of +2 NSC diamonds.

The completed reserve estimate was approved by the GKZ in 2016. Updated Russian reserves for the Pionerskaya pipe, as at 1st January 2016, are given in Table 9.3 and those for the Lomonosov pipe are presented in Table 9.4.

Table 9.3: Balance Reserves of the Pionerskaya Pipe as at 1st January 2016

Diamond Contained Top Bottom Tonnage Grade Diamonds Category Elevation Elevation (kt) +2 NSC +2 NSC (m) (m) (ct/t) (kct) Within the Pit Contour (Bottom Elevation -230 m) Balance Reserves

C1 38.2 -230 58,330.1 0.47 27,529.7 Off-Balance Reserves

C1 +78.7 -150 23,395.1 0.06 1,374.6 Outside the Pit Contour (Bottom Elevation -230 m)

C1 38.2 -350 31,731.8 0.43 13,795.1

C2 -150 -350 32,952.8 0.34 11,058.2

Table 9.4: Balance Reserves of the Lomonosov Pipe as at 1st January 2016

Diamond Contained Top Bottom Tonnage Grade Diamonds Category Elevation Elevation (kt) +2 NSC +2 NSC (m) (m) (ct/t) (kct) Within the Pit Contour (Bottom Elevation -146 m) Balance Reserves B 51.2 -50 23,705.5 0.50 11,804.9

C1 -50 -146 8,817.7 0.50 4,425.4

B+C1 51.2 -146 32,523.2 0.50 16,230.3 Outside the Pit Contour (Bottom Elevation -146 m) B 51.2 -50 9,217.9 0.24 2,201.2

C1 -50 -350 68,247.3 0.29 19,742.8

B+C1 51.2 -350 77,465.2 0.28 21,944.0

C2 -350 -550 37,140.2 0.28 10,584.6

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9.3.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has developed separate mineral resource estimates in accordance with the guidelines of the JORC Code (2012) for the Arkhangelskaya, Karpinskogo-1, Pionerskaya and Lomonosov pipes. For the Arkhangelskaya and Karpinskogo-1 pipes, Micon used the same block definitions as those in the GKZ approved mineral reserve estimates.

Micon included the mineral resources from the mined ore stockpiles of the Arkhangelskaya and Karpinskogo-1 open pits. Following the guidelines of the JORC Code (2012) the stockpiled material was included into the mineral resource estimate and classified as Measured.

The mineral resources estimated in accordance with the JORC Code (2012), which are inclusive of reserves, are shown in Table 9.5 for the Arkhangelskaya pipe, Table 9.6 for the Karpinskogo-1 pipe, Table 9.8 for the Pionerskaya pipe and Table 9.9 for the Lomonosov pipe. Table 9.7 provides an estimate of the additional potential resources of the Karpinskogo-1 pipe, which cannot be classified as mineral resources under the JORC Code (2012).

Table 9.5: Mineral Resources of the Arkhangelskaya Pipe as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +3 NSC +3 NSC (ct/t) (kct) Measured (ore stockpile) 1,207 0.29 354 Measured (in situ) 17,024 1.02 17,409 Total Measured 18,231 0.97 17,764 Indicated 29,689 1.08 32,184 Total Measured + Indicated 47,920 1.04 49,948 Inferred 39,407 1.24 48,941

Table 9.6: Mineral Resources of the Karpinskogo-1 Pipe as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +3 NSC +3 NSC (ct/t) (kct) Measured (ore stockpile) 679 0.79 539 Measured (in situ) 6,292 1.11 6,962 Total Measured 6,971 1.08 7,501 Indicated 6,915 1.72 11,893 Total Measured + Indicated 13,886 1.40 19,394 Inferred 8,615 1.16 9,993

The Karpinskogo-1 blocks below the -250 m elevation were not classified as mineral resources in accordance with the guidelines of the JORC Code (2012). These blocks, the data for which are provided in Table 9.7, are regarded by Micon as a potential exploration target.

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Table 9.7: Potential Exploration Target of the Karpinskogo-1 as at 1st July 2016 (Potential Resources are not classified within the guidelines of the JORC Code (2012))

Diamond Contained Tonnage Grade Diamonds Block (kt) +0.5 mm +0.5 mm (ct/t) (kct) Total 42,472 0.37 15,705

Table 9.8: Mineral Resources of the Pionerskaya Pipe as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +2 NSC +2 NSC (ct/t) (kct) Indicated 58,330 0.47 27,530 Inferred 42,875 0.52 22,502

Table 9.9: Mineral Resources of the Lomonosov Pipe as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +2 NSC +2 NSC (ct/t) (kct) Total Indicated 32,523 0.50 16,230 Total Inferred 42,250 0.46 19,530

9.3.4 JORC Code Ore Reserve Statement

Micon has estimated ore reserves within the guidelines of the JORC Code (2012) for the Arkhangelskaya and Karpinskogo-1 pipes, using only the Measured and Indicated mineral resources identified in Section 9.3.3. The stated ore reserves include allowances of 0.167% for ore losses and 0.656% for dilution. These reserves are summarised in Table 9.10.

Table 9.10: Ore Reserves of the Lomonosov Deposit as at 1st July 2016

Diamond Contained Tonnage Grade Diamonds JORC Category (kt) +3 NSC +3 NSC (ct/t) (kct) Arkhangelskaya Pipe Proved 18,315 0.97 17,735 Probable 29,835 1.08 32,130 Total Proved + Probable 48,150 1.04 49,865 Karpinskogo-1 Pipe Proved 7,002 1.07 7,489 Probable 6,949 1.71 11,873 Total Proved + Probable 13,951 1.39 19,363 Total in the Deposit 62,101 1.11 69,228

Micon’s ore reserve estimate for the Arkhangelskaya pipe was based on the 2002 Project (Yakutniproalmaz, Giproruda, Mekhanobr) which involves mining of the pipe reserves within the pit contour, including ore body volumes down to the -350 m elevation. This is the bottom elevation for estimated blocks which were classified as ore reserves in accordance with the guidelines of the JORC Code (2012).

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Micon found it was not possible to estimate ore reserves for the Pionerskaya and Lomonosov pipes. In reaching this conclusion, Micon reviewed studies for the mining reserves for the northern group of pipes completed in 2014 and 2015. Micon believes that a feasibility study classifying ore reserves for these pipes in accordance with the guidelines of the JORC Code (2012) can be completed, and that this should be done two or three years before the planned commencement of mining.

9.4 MINING

Mining activities at the Lomonosovsky deposits are currently confined to the Arkhangelskaya and Karpinskogo-1 pipes, which are adjacent to one another and have similar geological and mining conditions.

The major features of the deposits that determine the mine design are brittle overburden, the host and kimberlite pipe rocks, high water content and pressure throughout all mine strata, and relatively low average value of the ore.

The optimal production capacity of the mining complex is 4.0 Mt/a of ore.

9.4.1 Arkhangelskaya Mine Design and Operation

The Arkhangelskaya pipe has been in production since 2005. In 2015 the total volume of mined material amounted to 6.66 million m3 including 2.109 Mt of ore. The plan view of the open pit as at 1st January 2016, is illustrated by Figure 9.3. The depth of the open pit as at 1st January 2016 was 138 m.

Conventional truck and shovel surface mining methods are used at both pits. Currently, drilling and blasting are not required because ore and waste can be dug freely. Waste is transported to an external dump, and balance and off-balance reserves are stockpiled separately. Off-balance ore is currently not processed.

The bench heights ore is 8 m and 12 m. A shovel works the 12 m benches, while 8 m benches are worked by a backhoe. Waste rock is loaded by two 15 m3 Bucyrus RH120E hydraulic excavators in face shovel and backhoe configuration. Two 5 m3 Caterpillar 385 diesel front-end loaders are employed at the ore stockpiles and for feeding the processing plant bunkers. CAT 777D 90 t trucks are used to haul waste to the dump, while CAT 740B 40 t articulated trucks haul ore to the concentrator and the high-grade and low-grade ore stockpiles.

Construction and timely servicing of the in-pit and external roads is essential in the deposit area, due to the brittle rocks and the water-saturated strata. Aggregate is sourced nearby in a local quarry and used for road surfacing.

The pits operate 365 days per year, seven days per week and two 12-hours shifts per day. The personnel work on a rotational basis of 2 weeks of work followed by 2 weeks off.

Mining in the pit is protected from groundwater inflow by a drainage system of dewatering wells and pit sumps. In 2015, the system of peripheral dewatering wells at the Arkhangelskaya and Karpinskogo-1 pits comprised 47 holes, and it is planned to continue drilling additional wells. Each well is equipped with a pump installed at a depth of 200 m with a maximum pump capacity of 100 m3/h. It is planned also to employ horizontal drainage wells.

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Figure 9.3: Arkhangelskaya Open Pit as at 1st January 2016

200 m 0 m 200 m 400 m

Source: Severalmaz 2016

Nominal water inflow into the pit at the end of 2015 amounted to 1,085 m3/h, with an estimated maximum water inflow of 2,215 m3/h. The main pit water discharge has a maximum pumping capacity of 2,658 m3/h.

9.4.2 Arkhangelskaya Open Pit Production

The production data for the Arkhangelskaya open pit from 2011 to 1st July 2016 are given in Table 9.11.

Micon has developed a future production schedule for the Arkhangelskaya pit, incorporating account data from ALROSA’s long term production plan and based on Micon’s ore reserve estimate. The schedule is shown in Table 9.12 for the period from 1st July 2016 to 2030. The schedule values only include +3 NSC diamonds. Micon’s production schedule treats all off-balance reserves as waste.

Under this schedule, the remaining pipe deposit reserves as at 1st January 2031 will amount to 9,948 kt of ore containing 14,586 kct of +3 NSC diamonds.

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Table 9.11: Arkhangelskaya Open Pit Actual Production

2012 2013 2014 2015 2016 H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Plan Actual % Balance Ore (kt) 1,300 1,432 110 1,650 1,760 107 2,966 3,008 101 2,087 2,109 101 2,027 2,052 101 Diamond Grade +3 NSC (ct/t) 0.43 0.42 98 0.47 0.45 96 0.48 0.47 99 0.44 0.44 99 0.29 0.37 126 Contained Diamonds +3 NSC (kct) 559 597 107 776 794 102 1,424 1,427 100 927 931 100 594 757 127 Off-Balance Ore (kt) 100 100 100 20 298 1,492 708 776 110 205 226 110 108 32 29 Waste Stripping (k m3) 7,950 7,536 95 7,708 7,653 99 5,618 5,520 98 5,509 5,537 101 2,370 2,402 101

Table 9.12: Arkhangelskaya Open Pit Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Ore (kt) 1,116 2,000 2,086 2,500 2,500 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 2,000 2,000 38,201 Diamond Grade (ct/t) 0.45 0.63 0.81 0.91 0.93 0.95 0.97 0.99 0.99 1.00 1.00 1.00 1.02 1.05 0.69 0.92 Contained Diamonds (kct) 498 1,267 1,687 2,281 2,315 2,855 2,916 2,964 2,975 2,990 2,990 2,990 3,072 2,097 1,382 35,279 Waste Stripping (k m3) 2,484 4,000 4,000 4,000 3,500 3,500 3,500 3,000 3,000 3,000 3,000 2,000 2,000 2,000 1,500 44,484

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9.4.3 Karpinskogo-1 Mine Design and Operation

Overburden stripping commenced at the Karpinskogo-1 mine in 2009, and the first ore was mined in 2014. In 2015, a total of 7.35 Mm3 of rock was mined from the Karpinskogo-1 pipe, including 2.145 Mt of ore. Off-balance ore mined from the pit is stockpiled, together with off-balance ore from the Arkhangelskaya pit.

Waste loading is carried out with a one 15 m3 Bucyrus RH120E hydraulic excavator in face shovel and backhoe configuration, and one 7 m3 Caterpillar 6015 excavator in backhoe configuration. One 7 m3 Bucyrus RH40E in backhoe configuration is used for ore loading.

Groundwater inflow into the pit is controlled by a system of dewatering wells, similar to that used at Arkhangelskyaya. Nominal water inflow into the pit at the end of 2015 amounted to 397 m3/h, with a maximum value of 1,002 m3/h. The capacity of the main pit water discharge station located at the pit bottom is 1,202 m3/h.

Figure 9.4 shows a plan view of the Karpinskogo-1 pit as at 1st January 2016. Depth of the pit as at 1st January 2016 amounted to 104 m.

Figure 9.4: Karpinskogo-1 Open Pit as at 1st July 2016

200 m 0 m 200 m 400 m

Severalmaz 2016

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9.4.4 Karpinskogo-1 Mine Production

Production data for the Karpinskogo-1 open pit from 2013 to 1st July 2016 are summarised in Table 9.13.

Micon has developed a future production schedule for the Karpinskogo-1, incorporating data from ALROSA’s long term production plan and based on Micon’s ore reserve estimate. This schedule is shown in Table 9.14, for the period from 1st July 2016 to 2030. Schedule values include only +3 NSC diamonds. Micon’s production schedule treats all off-balance reserves as waste.

Under the Micon schedule the estimated reserves will be exhausted in 2026.

9.5 PROCESSING

9.5.1 Overview

Ore from the Arkhangelskaya and Karpinskogo-1 open pits is treated at a pilot processing facility, Plant No. 1, which has a capacity of 1 Mt/a, and at Plant No. 2, which has a capacity of 3 Mt/a. Plant No. 2 was constructed in a building adjoining Plant No. 1 and shares the same feeding arrangements. The maximum capacity of Plant No. 2 is 4 Mt/a, if all four lines are in operation.

A recent scoping study was undertaken to investigate options for additionally processing the northern pipes of the Pionerskaya and Lomonosova deposits. The preferred option is reportedly to increase the capacity of the existing facilities to 5 Mt/a and exploit the new deposits after the Arkhangelskaya and Karpinskogo-1 pipes have been mined out. The proposed capacity increase includes a new coarse crushing facility, a new 60 t/h modular DMS unit, an additional X-ray sorter, recycled water pump stations and a frequency converter for the mill motor.

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Table 9.13: Karpinskogo-1 Open Pit Actual Production

2013 2014 2015 2016, H1 Parameter Plan Actual % Plan Actual % Plan Actual % Plan Actual % Balance Ore (kt) 0 0 - 600 602 100 2,130 2,145 101 1,190 1,198 101 Diamond Grade +3 NSC (ct/t) - - - 0.52 0.534 103 0.50 0.50 100 0.55 0.57 104 Contained Diamonds +3 NSC (kct) - - - 312 319.53 102 1,070 1,078 101 650 679 104 Off-Balance Ore (kt) 530 452 85 4,558 3,627 80 2,990 2,673 89 20 132 660 Waste Stripping (k m3) 4,592 4,888 106 3,948 4,780 121 4,740 5,186 109 3,348 3,449 103

Table 9.14: Karpinskogo-1 Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Total Ore (kt) 884 1,760 1,895 1,500 1,500 1,000 1,000 1,000 1,000 1,000 733 13,272 Diamond Grade (ct/t) 0.55 0.58 1.35 1.69 1.69 1.69 1.69 1.69 1.69 1.69 1.69 1.42 Contained Diamonds (kct) 490 1,026 2,558 2,533 2,533 1,689 1,689 1,689 1,689 1,689 1,238 18,824 Waste Stripping (k m3) 3,172 7,500 8,300 7,300 4,900 2,600 2,000 2,000 1,200 200 50 39,222

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9.5.2 Current and Future Production

Production for Plant No. 1 for the period from 2012 to 1st July 2016 is shown in Table 9.15. The average diamond recovery was 97.42% in 2015.

Table 9.15: Plants No. 1 and No. 2 Actual Production

Parameter 2012 2013 2014 2015 2016 H1 Arkhangelskaya Pipe Ore Processed +3 NSC (kt) 1,100 1,193 2,793 1,903 1,327 Diamond Grade +3 NSC (ct/t) 0.499 0.512 0.484 0.435 0.485 Diamonds Processed +3 NSC (kct) 550 610 1,350 828 643 Diamond Recovery +3 NSC (%) 96.6 97.3 97.1 97.4 97.8 Diamonds Recovered +3 NSC (kct) 528 594 1,312 807 629 Karpinskogo-1 Pipe Ore Processed +3 NSC (kt) - - 516 2 086 664 Diamond Grade +3 NSC (ct/t) - - 0.506 0.510 0.44 Diamonds Processed +3 NSC (kct) - - 262 1,064 275 Diamond Recovery +3 NSC (%) - - 97.0 97.4 97.7 Diamonds Recovered +3 NSC (kct) - - 254 1,037 269 Total for Lomonosov GOK Ore Processed +3 NSC (kt) 1,100 1,193 3,309 3,989 1,991 Diamond Grade +3 NSC (ct/t) 0.499 0.512 0.487 0.475 0.47 Diamonds Processed +3 NSC (kct) 550 610 1,612 1,893 918 Diamond Recovery +3 NSC (%) 96.6 97.3 97.1 97.4 97.8 Diamonds Recovered +3 NSC (kct) 528 594 1,565 1,844 898

The planned production figures developed by Micon for the Lomonosov GOK plants correspond to the mine production schedules of the Arkhangelskaya and Karpinskogo-1 open pits. These production schedules are based on ALROSA’s long term plans, adjusted to conform to Micon’s ore reserve estimate.

Micon’s production schedules for Plants No. 1 and No. 2 for the period from 1st July 2016 to 2030 are given in Table 9.16. The processing schedule developed by Micon up to 2030 assumes processing of the Karpinskogo-1 pipe mined ore stockpile and does not take into account the recovery of -3 NSC diamonds.

9.5.3 Process Flowsheet

9.5.3.1 Plant No. 1

Ore is delivered to Plant No. 1 in 45 t trucks and dumped into a feed bin, with oversize rocks broken by a rock breaker. The ore fed to a 5 m diameter autogenous mill, where the ore is ground to -25 mm. Milled product is classified using screw classifiers into +25 mm, -25 to +1.2 mm and -1.2 mm fractions. The +25 mm fraction returns to the mill for regrinding and the -1.2 mm fraction is pumped to final tailings. The -25 to +1.2 mm fraction reports to the DMS circuit.

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Table 9.16: Planned Production for Plants No. 1 and No. 2

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Mill Feed Arkhangelskaya Pipe (kt) 1,116 2,000 2,086 2,500 2,500 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 2,000 2,000 38,201 Karpinskogo-1 Pipe (kt) 884 1,760 1,895 1,500 1,500 1,000 1,000 1,000 1,000 1,000 733 679 0 0 0 13,951 Processing Ore Processing (kt) 2,000 3,760 3,980 4,000 4,000 4,000 4,000 4,000 4,000 4,000 3,733 3,679 3,000 2,000 2,000 52,152 Diamond Grade (ct/m3) 0.49 0.61 1.07 1.20 1.21 1.14 1.15 1.16 1.17 1.17 1.13 0.96 1.02 1.05 0.69 1.05 Contained Diamonds (kct) 988 2,292 4,244 4,815 4,849 4,544 4,605 4,653 4,664 4,679 4,228 3,529 3,072 2,097 1,382 54,642 Average Recovery (%) 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 Recovered Diamonds (kct) 958 2,224 4,117 4,670 4,703 4,407 4,467 4,513 4,524 4,538 4,101 3,423 2,980 2,034 1,341 53,002

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DMS tails are screened into -25 to +6 mm, -6 to +3 mm and -3 to +1 mm fractions. The -25 to +6 mm fraction returns to the mill for regrinding, the -6 to +3 mm fraction is recrushed and reports to final tailings, along with the -3 to +1 mm fraction.

DMS concentrate reports to final recovery, where it is screened into -25 to +6 mm, -6 to +3 mm and -3 to +1 mm fractions and processed with X-ray sorters. Concentrates report for final upgrading in the sorting department. The -25 to +6 mm sorter tails fraction is reground. The -6 to +3 mm sorter tails fraction is processed by magnetic separation, with the non-magnetic fraction reground and the magnetic fraction reporting to final tails. The -3 to +1 mm sorter tails fraction reports to final tails.

9.5.3.2 Plant No. 2

Ore is delivered as per Plant No. 1 and fed to a 7.32 m diameter autogenous mill equipped with a 1.7 MW motor. Milled product is classified using four identical lines of screw classifiers and associated screens. Four lines are available (each of 1 Mt/a), but one line is typically on standby, so the effective capacity is 3 Mt/a. The classified milled product is screened into +25 mm, -25 to +12 mm, -12 to +8 mm and -8 to +1.2 mm fractions. The - 1.2 mm fraction reports as final tailings.

The +25 mm fraction is returned to the grinding mill. The -25 to +12 mm and -12 to +8 mm fractions are processed separately by X-ray sorters. Concentrates report to the sorting department and tailings are reground in the milling circuit.

The -8 to + 1.2 mm fraction reports to the DMS circuit. DMS tails are recrushed by roll crushers to -3 mm and report to final tails. DMS concentrate reports to final recovery, where it is screened into -8 to +6 mm, -6 to +3 mm and -3 to +1 mm fractions. The -1 mm fraction reports to final tails. The other fractions are processed separately using X-ray sorters, with concentrates reporting to the sorting department.

The -8 to +6 mm sorter tails fraction is reground. The -6 to +3 mm sorter tails fraction is processed by magnetic separation, with the non-magnetic fraction reground and the magnetic fraction reporting to final tails. The -3 to +1 mm sorter tails fraction reports to final tails.

The design recovery is 96%.

9.6 INFRASTRUCTURE

9.6.1 Transport

There is a year-round 105 km road connecting Svetly and the operation facilities with the town of Arkhangelsk. The road is used for delivery of all materials, fuel, equipment and personnel.

9.6.2 Power and Water

The Svetly settlement and mine complex has its own infrastructure, including a diesel power station, boiler, garage, warehouses and accommodation. Satellite communication systems are provided to guarantee reliable telephone connections. Between 2015 and 2016 most of the settlement buildings have been rebuilt Micon notes that the new constructed facilities meet a high standard and represent a significant improvement on the earlier accommodation facilities.

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9.7 ENVIRONMENTAL, HEALTH AND SAFETY AND SOCIAL ISSUES

9.7.1 Environmental and Health and Safety Management

PAO Severalmaz operates independently of the ALROSA corporate environmental and health and safety management systems. Nevertheless, Severalmaz has developed a sophisticated and comprehensive system of management based on the best Russian and international practice. Micon notes that the development and implementation of such high class management systems is facilitated by the relatively small scale of Severalmaz operations and by the increased exposure of Severalmaz personnel to good international practice through greater contact with international mining companies, compared with the ALROSA operations elsewhere. Indeed, the experience of Severalmaz in this regard could be of significant benefit to other ALROSA operations.

The technical basis for environmental and health and safety management of the operations was established in 2003 with the preparation of independent OVOS, the formal Russian equivalent of an Environmental and Social Impact Assessment (ESIA). This document was prepared to a very high standard and, together with the subsequent detailed design documentation, has been used to develop comprehensive environmental and safety management systems.

9.7.2 Key Environmental and Safety Issues

9.7.2.1 Inflows from Groundwater and Rainfall

The open pits experience significant inflows of groundwater (>10 Mm3/year). A series of peripheral dewatering wells intercept more than 50% of this inflow, which is discharged direct to surface waters. The remaining water is collected in sumps in the base of the open pits. This water contains a very high concentration of fine suspended solids derived from the saprolite content of the waste rocks. The pit water is pumped to large “filtration beds”, which are essentially reed bed/grassland passive treatment systems. The filtration beds remove the fine suspended solids from the water, which then seeps into channels connected to local surface watercourses.

9.7.2.2 Diversion of Surface Watercourses and Protection of Aquatic Ecosystems

The operation of the open pits has necessitated the construction of a series of diversion channels covering parts of the Svetly Creek, Svetlaya River and Zolotisa River. These diversion channels are designed to protect and, where possible enhance, the high value fisheries of the river system. Erosion control and the localised elevation of fine suspended solids in run-off from the waste dumps is an important consideration.

9.7.2.3 Waste Rock Management

Open pits generate a substantial quantity of waste rock, the disposal of which occupies large areas of land that ultimately require re-vegetation. Most of the waste rock is geochemically benign and does not give rise to poor quality drainage water. However erosion control and the localised elevation of fine suspended solids in run-off is an important consideration in the management of the waste rock dumps.

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9.7.2.4 Tailings Management

The tailings facilities operate on a zero discharge basis, with water being re-circulated to the plants. Seepage through the dam walls is restricted by the use of impermeable materials and residual seepage is collected and returned to the tailings impoundment.

9.7.2.5 Air Quality and Dust Control

During dry summer months, fugitive dust from un-surfaced access roads can be problematic, giving rise to reduced visibility on access roads and in working areas. Lomonosov maintains a programme of dust suppression using water sprays on site. However, the main access road is the responsibility of the local administration, although traffic associated with Lomonosov forms a high proportion of overall traffic flows. Dust generation on the main access road can be problematic and, at times, reduced visibility constitutes a significant hazard.

The same dry summer conditions are also associated with an increased risk of forest fires in the area. Although unlikely to directly affect the operational site, forest fires may also have an impact on visibility along the access road. Indeed, historically the access road has been closed during severe fire outbreaks.

9.7.3 Safety Performance

Safety statistics from Severalmaz are collected in a slightly different format from those of the other ALROSA operations. The available information might suggest a safety performance that is significantly worse than that demonstrated by ALROSA as a whole (Table 9.17), although Micon considers that this is misleading and, more likely, reflects the differences in the way in which the data are collected. Notably, there is a lower threshold for recorded incidents (many of the accident records reviewed by Micon appeared to relate to minor injuries of a type absent from the records seen elsewhere in ALROSA). Certainly, the rate of fatal accidents is no different to that experienced elsewhere in ALROSA. Based on impressions gained during the site visits, Micon considers it likely that the overall safety performance is at least consistent with, if not better than, that demonstrated elsewhere in ALROSA.

Table 9.17: Lomonosov GOK Safety Performance

Parameter 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average Total Number of Recorded 6 5 5 11 4 17 19 2 0 8 Incidents Recorded Incidents/1,000 8.05 6.44 6.42 14.22 3.29 12.44 13.15 1.23 0.00 8.47 Employees Number of Fatalities 0 0 0 0 0 1 1 0 0 0.17 Fatalities/1,000 Employees 0.00 0.00 0.00 0.00 0.00 0.17 0.69 0.00 0.00 0.18 Number of Lost Working 143 66 173 256 70 481 nd nd nd 198 Days Lost Working Days/1000 192 85 222 331 58 351 nd nd nd 207 Employees Note: nd = no data

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9.7.4 Regulatory Compliance

Operations at Lomonosov are covered by a single sub-soil licence issued by the local office of the Federal Sub-Soil Use Agency, Arkhangelsknedra - Licence No. APX 10496.

The conditions attached to this licence include the requirements similar to those in place for other ALROSA operations, but with additional emphasis on the peripheral dewatering wells surrounding the open pits.

9.7.5 Permits for Nature Use

Severalmaz operates under single permits for air emissions and waste management covering all current operations, although three permits covering water discharge points are currently valid (Table 9.18). Micon has not identified any significant breaches of the conditions attached to these permits. The limits associated with both the water permit and, in particular the waste permit, have been exceeded, but these exceedances were covered by excess fee payments, as is standard Russian practice.

Table 9.18: Lomonosov GOK Permits for Nature Use

Type of Licensed Validity No. Licence No. Issuing Authority Date of Issue Expiry Date Activity Period Air Emissions Federal 25th September 10th September 1 All Facilities 07-10/20-39 Environmental 5 years 2015 2020 Supervision Service Water Discharge Federal 10-11-28/20- 31st December 1 Discharge Points 1-3 Environmental 1st January 2014 2 years 39/1-3 2016 Supervision Service Federal 10-11-28/20- 21st February 2 Discharge Points 4-8 Environmental 6th August 2012 4.5 years 39/4-8 2017 Supervision Service Federal 10-11-28/20- 27th November 31st December 3 Discharge Points 9 Environmental 4 years 39/4-9 2012 2017 Supervision Service Federal 07-11/20- 10th September 4 Discharge Points 10 Environmental 2.75 years 11th May 2018 39/10 2015 Supervision Service Waste Disposal Federal 27th January 1 All Facilities 07-09/20-39 Environmental 5 years 26th January 2021 2016 Supervision Service

9.7.6 Risk Categorisation

Micon considers the overall risk associated with environmental and health and safety considerations at the Lomonosovsky deposit to be low.

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9.8 COSTS

9.8.1 Operating Costs

In assessing unit costs for use in the economic evaluation Micon used data on operating costs received from Severalmaz. The 2013 to 2015 actual and 2016 planned operating costs for the Lomonosov GOK, as provided by Severalmaz, are given in Table 9.19. These figures do not include depreciation.

The commercial costs presented in Table 19.9, include charges from the ALROSA Sorting Centre, GOKHRAN diamond evaluation costs and other commercial expenses (excluding customs tax).

The 2016 operating costs planned values were used as the basis for the operating cost forecast for future years, completed by Micon. When forecasting the operating costs, Micon included the planned production parameters for each of the operations - divisions of the Lomonosov GOK.

Table 9.19: Lomonosov GOK Actual and Planned Operating Costs

Cost Item 2014 2015 2016 Production Costs Direct Cost of Mining (RUB/m3 of mined material) 51.8 83.3 98.6 Direct Processing Cost (RUB/t of ore) 219.5 242.2 299.3 Direct Cost of Dewatering (000’ RUB) 430,372 385,428 538,559 Direct Cost of Mining Haulage (RUB/m3 of mined material) 57.7 65.7 80.5 General Production Costs (000’RUB) 1,096,063 1,186,453 1,435,591 General Costs General and Administrative Costs (000’RUB) 193,849 251,600 300,282 Commercial Costs Commercial Costs (000’RUB) 195,845 487,179 529,796

9.8.2 Capital Costs

When estimating capital costs for the period from 1st July 2016 to 2030, Micon took into account data on the actual capital expenditures from Lomonosov GOK and was guided by the capital expenditures plan for 2015 to 2025, proposed by Severalmaz. The capital costs schedule used by Micon for the economic assessment of the Lomonosov GOK reserve exploitation is presented in Table 9.20.

The expenses for the second half of 2016 are estimated as half the planned costs for the full year of 2016. Capital costs for the period after 2025 are assumed constant at the level of the last year of available forecast. Micon adopted this assumption, taking into account the general logic of the development of the operations.

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Table 9.20: Lomonosov GOK Capital Costs Schedule (Million RUB)

Parameter 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total

Forecast of Severalmaz - Total Nominal Capital Costs 732.3 564.7 500.0 1,307.0 2,355.5 1,293.8 1,369.8 1,397.0 383.7 864.2 - - - - - 10,768 Capital Costs used by Micon - Terms and Conditions of 2016 732.3 533.7 447.1 1,113.1 1,910.5 999.4 1,007.7 978.8 256.0 549.2 549.2 549.2 549.2 549.2 549.2 10,907.6

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10.0 ALMAZY ANABARA

10.1 BACKGROUND

The Almazy Anabara Company was established in 1998, and reorganised into AO (joint-stock company) Almazy Anabara in 2004. Since 2007, 100% of the shares in the AO Almazy Anabara have been owned by ALROSA. Almazy Anabara operates within several districts in the Republic of Sakha (Yakutia), with the head office located in the city of Yakutsk. Almazy Anabara, through its subsidiary Mayat Mines Co., controls nine placer diamond deposits, as shown in Figure 10.1.

The Almazy Anabara placer deposits occur within the Anabar River area located in the northwest of Yakutia, in the Anabarsky national territory (Dolgano-Nenets) and the Olensky (Evenki) ethnic district. The level of the economic development of both districts is low. The majority of the population comprises indigenous arctic ethnic groups, including Yakuts, Dolgans, Evens and Evenks. The population is primarily engaged in reindeer-herding, hunting, fishing and other animal breeding. The possibilities for employing qualified personnel from the local population are extremely limited. There are no permanent settlements in close proximity to the diamond deposits. Crews employed at the deposits live in drive-in/drive-out camps constructed by the Company close to the mining sites. The Mayat and Morgogor camps are currently in use.

The placer deposits are located within the Arctic Circle and are characterised by a severe continental climate, with long winters of 7 to 8 months, and warm, short summers of 2 to 2.5 months. The average temperature in January is -35.5°С, whilst in July it averages +11.7°С. The annual average temperature is -14°С. The annual amount of precipitation varies from 215 mm to 252 mm. The thickness of snow cover does not exceed 0.5 m; however, it can accumulate in drifts of up to two metres. The area is subject to seasonal changes in wind direction. In winter, southeast and northwest winds prevail, whilst in summer eastern trends are most frequent. During the winter period up to 50 days are marked by snow storms.

10.1.1 Ebelyakh River Placer

The Ebelyakh River placer deposit covers a portion of the valley of the Ebelyakh River, stretching for 83 km from its confluence with the Anabar River, and is considered to be one of the world’s largest diamond fields, as demonstrated by its reserves. All alluvial formations and re-deposited weathering crusts in the river valley are diamond bearing.

The placer deposit was discovered in 1965. From 1966 to 1969 and 1980 to 1985, the placer was subject to prospecting and exploration, which included sinking of shafts and exploration pits. Between 1984 and 1985, and again in 1988, test exploitation operations were undertaken. In 2011, an updated TEO of permanent exploration cut-off criteria was prepared and approved by the State authorities. On 2nd March 2012, the GKZ approved the cut-off criteria for reserve estimation and the reserves of the Ebelyakh River placer. Commercial mining recommenced at the deposit in 2014.

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Figure 10.1: General Location Map of Almazy Anabara Placer Deposits

Source: Alrosa 2015

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10.1.2 Gusiny Stream Placer

Gusiny Stream forms the left tributary, 44 km below the source of the Ebelyakh River. The commercial diamond content is associated with the weathering crust, Late Quaternary, Neogene - Lower Quaternary sediments. The placer was discovered at the same time as the Ebelyakh River placer and geological studies of both placers were carried out simultaneously. On 2nd March 2012, GKZ approved the cut-off criteria for reserve estimation and the reserves of the Gusiny placer. The deposit was commissioned for commercial operation in 2014.

10.1.3 Istok Stream Placer

The Istok Stream placer covers a portion of the upper reaches of the Ebelyakh River. It is a natural continuation of the Ebelyakh River placer deposit and is covered by an individual licence.

The Istok Stream placer deposit was discovered in 1965. From 1980 to 1985, the placer was prospected and explored, including the sinking of shafts and excavation of trenches. During 1984, 1985 and 1988, test exploitation operations were undertaken. The reserves of the deposit were approved by TKZ on 26th April 1988. In 2012, the reserves were updated and re-approved, together with the approval of the reserves for the Gusiny Stream placer. The Istok Stream placer has been in production since 1997, and the major portion of its reserves are now mined out.

10.1.4 Morgogor Stream Placer

The Morgogor Stream alluvial placer is located within Morgogor Stream valley, a tributary of the Ebelyakh River. The deposit is formed from modern to Late Quaternary sediments. The Morgogor placer was discovered in 1965 and geological studies of the deposit were carried out between 1996 and 2004, resulting in several reserve assessments. The latest TEO report was issued in 2006, based on the data from pilot mining completed during 2005 and 2006, and contained new cut-off criteria and an upgraded reserve assessment. On 27th October 2006, the reserve was approved by the GKZ. The deposit was commissioned for commercial operation in 2006.

10.1.5 The Right Bank Morgogor Placers

Three placers are located within the area referred to as the Right Bank of the Morgogor Stream. The placers are located within the tributary valleys of the Khotugu-Balaganakh, Kamenistyj and Bystryj Streams. The Morgogor Right Bank placers were discovered in 1965. Between 1966 and 2008, they were covered by preliminary prospecting and exploration. From 2008 to 2012, AO Almazy Anabara undertook a comprehensive exploration programme in the area, which included the excavation and bulk sampling of exploration pits. The reserves were approved by the GKZ on 6th September 2013. Commercial mining of the Right Bank Morgogor Stream placers commenced in 2014.

10.1.6 Olom and Ruchey Log 325 Placers

The Olom Stream (Istok Site) and Ruchey Log 325 placer deposits are located on the rim of the Mayat deposit in the Anabar River basin. The series of placers within the Mayat River watershed form one of the largest diamond-bearing areas within the Anabar River region, but the reserves of these placers have now almost been depleted. AO Almazy Anabara completed the geological study of the Olom Stream and Kula Stream tributary valleys between 2002 and 2007, and the reserves were approved by the GKZ on the 28th March 2008.

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10.1.7 Kholomolokh Placer

The Kholomolokh placer deposit is located along the Kholomolokh Stream valley, a tributary of the Ebelyakh River. Reserves of the Kholomolokh placer were approved by the TKZ on the 31st May 1988. In 2012, the reserves were updated and re-approved, along with Ebelyakh River and Gusiny Stream reserves.

10.1.8 Uchakh-Ytyrbat River and Khara-Mas River Licence Area

The licence area within which the Uchakh-Ytyrbat River (a left tributary of the Anabar River) and Urung-Yuriakh Stream (a left tributary of the Khara-Mas River) placers occur is located on the left bank of the Anabar River. Urung-Yuriakh Stream also hosts the Saiyluk Stream placer. Several minor placers and geophysical anomalies in the area are yet to be explored.

The valleys and tributaries of the Uchakh-Ytyrbat and Khara-Mas Rivers have been studied by varying levels of prospecting and exploration. A series of Late Quaternary placers with potentially commercial diamond contents have been traced discontinuously along the Uchakh-Ytyrbat River valley. Other deposits are located in the Urung-Yurakh Stream valley and in the valley of Saiylyk Stream. Fragments of Neogene placers with commercial grades have been outlined in the Uchakh-Ytyrbat River valley. The potentially commercial placers can be grouped into two sites: the Uchakh-Ytyrbat site (Uchakh-Ytyrbat River placers) and the Urung-Yurakh site (Urung-Yuriakh Stream placer and Saiylyk Stream placer), some 8 km apart.

The TEO report containing the cut-off criteria for reserve estimation was issued in 2015, and the reserve was placed onto the State balance on the 1st January 2015.

10.2 GEOLOGY

The Anabara diamond-bearing area is located on the northeastern edge of the Siberian platform, at the intersection of the Anabara anticline and the Lena-Anabara deflection. The deposit area contains terrigenous carbonate and volcanic formations of the Middle Cambrian, Carboniferous, Permian, Triassic, Jurassic and Cretaceous periods, as well as a Cenozoic polygenetic complex of unconsolidated sediments. Ancient crusts produced by surface weathering (relict and re-deposited) are linear and well developed at all elevations. The formation of these weathering crusts occurred over a long period of time, from the end of the Carboniferous period up to and including the Neogene Period.

The magmatic formations in the area consist of basic and sub-alkaline intrusions, as well as explosive basic tuff breccias. No outcrops of magmatic rocks are found at surface.

Analysis of bulk material from the Ebelyakh River placer deposits revealed that they are connected with the re-washing of intermediary diamond deposits. Diamonds are found within terrigenous rocks from the Permian, Jurassic and Lower Cretaceous periods, within weathering crusts and in all unconsolidated formations of Neogene to Quaternary age.

Figure 10.2 illustrates the geology of the Ebelyakh River area with the Almazy Anabara placer locations indicated. Figure 10.3 contains the legend for Figure 10.2.

10.2.1 Ebelyakh River Placer

The Ebelyakh River placer deposit covers the sections of the river valley stretching for 83 km upstream from the confluence with the Anabar River. The valley cuts through carbonate rocks of the Middle Cambrian, composed of dolomite from the Anabarskaya Suite, and dolomite and limestone from the Dzhakhtarsky series.

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Figure 10.2: Geological Map of the Almazy Anabara Placer Deposits

10 km 0 km 10 km 20 km

Source: Almazy Anabara 2015

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Figure 10.3: Legend for Figure 10.2

Anabaro-Birectinskaya Morpho-Lithogeneous Zone Alluvial formations of riverbed, river terrace and overbank terrace sediments. Pebble gravel, sand, clay sand, clay loam, silt, siltstone, aeolian sand. Alluvial formations of I overbank Holocene Holocene terrace deposits. Pebble gravel, Upper stage NeoPleistocene-Holocene.

sand, clay sand, clay loam, silt, Lacustrine-boggy (lb) icy siltstone, clay loam, siltstone, aeolian sand. silt, sand, peat, lenses and veins of ice (up to Upper stage. Alluvial formations 8 m). De-alluvial - solifluvial (ds), proluvial (dp) of U-shaped valleys. Silt, clay glacial clay loam. sand, clay loam, pebble gravel. Sartanskyi, Karginskyi, Murucktinskyi Horizons. Mayatskaya Suite. Covering polygenous (pg) formations. Upper stage. Karginskyi horizon. Cryogenic silt, clay loam, clay sand, peat, in sections sand Alluvial formations of II overbank with rolled rock and gravel, less frequently with cobble and terrace. Pebble gravel, sand, clay gravel, lenses of ice (up to 8 m), De alluvial - solifluvial (ds),

sand, clay loam, silt. proluvial (dp) glacial clay loam, clay sand, siltstone, sand with rolled rock, gravel, less frequently with cobbles and gravel. Upper stage. Kazantsevskyi Quaternary System System Quaternary horizon. Alluvial formations of III overbank terrace. Pebble gravel, boulders, sand, clay sand, clay Pleistocene Pleistocene loam, silt. Middle stage. Shirtinskyi and Tazovskyi horizons. Alluvial formations of IV overbank terrace. Pebble gravel, gravel, sand, clay sand, clay loam, silt.

Middle stage. Tobolskyi horizon. Alluvial formations of old valleys (V overbank terrace). Pebble gravel, gravel, sand, clay sand, clay loam.

Anabaro-Birectinskaya Morpho-Lithogeneous Zone (continued) Ebelyakhskaya strata. Alluvial formations of karstic-erosion valleys. Ferruginised pebble gravel with boulders, sand with Pliocene Pliocene Neogene cobbles, clay and clay loam. Anabaro-Olenekskaya Facies Zone Anabaro-Yudzginskaya Facies Zone

Lower section. Soft sandstone, siltstone, siderite concretions,

lenses of gritstone and Lower Lower

Cretaceous Cretaceous conglomerate, clay, coal layers.

Leno-Khatangskaya Facies Zone Leno-Anabarskaya Facies Subzone Buolkalakhskaya Suite. Siltstone, sandstone, gritstone, calcareous Upper

Jurassic nodules.

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Figure 10.3: Legend for Figure 10.2 (cont)

Kuonamsko-Molodinskaya Facies Zone Anabaro-Yudzginskaya Facies Subzone Basalt-doleritic Pravoboyarskyi Complex. Covering dykes, dyke-

type bodies of basalt, trachybasalt, Upper

Triassic rarely trachyandesite.

Bur-Yudzginskaya Facies Zone

Onkuchakhskaya Suite. Sandstone, layers and lenses of siltstone, argillite, clay, calcareous shale,

conglomerate, gritstone, rare lenses Lower Lower

Permian and nodules of siderite, in the lower section, lenses of limestone. Oleniokskaya Facies Zone Anabaro-Nizgnelenskaya Facies Zone Yudzgino-Munskaya Facies Subzone Anabarskaya Facies Subzone Tchomurdakhskaya Suite. Limestone, clayey limestone, organogenous-clastic and bituminous limestone, marl, calcareous-clayey shale. Siligirskaya Suite. Anabarskaya Suite. Clayey limestone and marl, Stromatolitic sometimes oolitic dolomites, lenses of silica dolomite, calcareous-clayey shale, and less frequently of dolomite breccia. algal limestone, lenses of conglomerate and conglobreccia. Dzgakhtarskaya Suite. Limestone, dolomitic limestone,

less frequently clayey, dolomite,

clay, lenses of marl. Oleniokskaya Suite. Variegated limestone clayey limestone and marls, layers of

calcareous dolomite, lenses and

nodules of silicified limestone and silica.

Other Geological Boundaries: Defined. Inferred. Projected.

Faults: Defined. Inferred.

Covered by upper formations. Inferred, covered by upper formations.

Outlines of licensed areas for the deposits of the Ebelyakh River,

Gusiny Stream and Yras-Yuriakh Stream.

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Other Outlines of licensed areas for the other deposits of AO Almazy Anabara.

Outlines of mined out deposits and

blocks.

Location of seasonal processing

plants.

Shift team camp for Morgogor

mine.

Deposits being mined.

Mined out deposits.

Sampling points of bulk samples

and their numbers.

Source: Almazy Anabara 2015

The Ebelyakh River deposit occurs as a large alluvial placer. The commercial contour of the placer includes the sediments of the river bed, the lower and upper plains, four terraces above the floodplains and re-deposited weathering crusts.

The deposit can be divided into two areas, referred to as the valley and upper terraces, based upon the character of the sediments, size and continuity of productive seams, and uniformity of the diamond distribution.

The valley areas of the deposit have relatively continuous widths and thicknesses, with relatively flat to shallowly-inclined bedrock and irregular diamond distribution. The terrace placer areas are formed from fragments of previously large, partially eroded, placer deposits. These are characterised by relatively continuous thicknesses, within which relatively broad zones of high diamond grades can be distinguished from the lower grade background grades.

The diamond content of the placer deposits is closely related to the lithology of the underlying host rock. The boulder-pebble-granule, pebble-granule-sandstone sediments and re-deposited weathering crusts have the highest diamond content. Pebble-rock debris, silt- pebble-rock debris and pebble-sandstone sediments are characterised by lower diamond content.

The average diamond grade within the Ebelyakh River placer deposits varies from 0.28 ct/m3 to 7.82 ct/m3. The grade of blocks included for mining varies from 0.22 ct/m3 to 5.91 ct/m3. The average value across the deposit is 1.34 ct/m3. A decreasing trend in diamond sizes is observed within metallurgical samples downstream from the Ebelyakh River source. The Priustyevoy section (Confluence area) of the deposit is characterised by the largest crystals.

Industrial diamonds are predominant on a mass basis. The content of gemstone diamonds (Category I) comprises approximately 6.55% of the total.

10.2.2 Gusiny Stream Placer

The Gusiny Stream alluvial placer can be divided into three areas: Late Quaternary sediments, Neogene-lower Quaternary sediments and re-deposited weathering crusts. The productive seam is composed of Neogene-lower Quaternary sediments, typically ranging

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from 2.0 m to 5.0 m thick. The average stripping ratio varies from 0.57 to 2.68 along the strike of the deposit and averages 1.57.

The sediments of the Gusiny Stream placer are composed mainly of pebble-granule- sandstone and occasionally of sand-granule-pebble from the Late Quaternary period. The sediments (sands) forming the base of the U-shaped valley represent over 90% of the reserves of the placer.

The average diamond grade in the Gusiny Stream Placer varies along exploration lines from 0.33 ct/m3 to 2.40 ct/m3, while block grades vary from 0.74 ct/m3 to 1.87 ct/m3. The average grade of the deposit is 1.364 ct/m3.

10.2.3 Istok Placer

The Istok placer is covered by a separate licence, but forms the east end of the Ebelyakh placer, having the same geological setting. The average diamond grade within the Istok placer deposit varies from 0.24 ct/m3 to 9.46 ct/m3 along exploration lines, with selected blocks varying from 0.43 ct/m3 to 1.95 ct/m3. The average value across the deposit is 1.34 ct/m3.

The Istok alluvial placer can be divided into three areas within the valley: Late Quaternary sediments, Neogene to early Quaternary sediments and re-deposited weathering crusts. Of the diamonds studied, gemstone (Category I) diamonds are dominant, comprising approximately 66% of the total. The industrial diamonds (rejects), with high levels of fractures within the crystals, and a high proportion of diamonds with wear marks, contribute approximately 33% of the total amount.

10.2.4 Morgogor Placer

The Morgogor placer covers an area of the river valley up to 26 km upstream from the confluence point with the Ebelyakh River. The Morgogor U-shaped river valley ranges from 150 m to 300 m wide. The valley cuts through carbonate rocks of the Middle Cambrian, dolomite from the Anabarskaya Suite, and Late Quaternary sediments. The terraced slopes are composed of gravel and sands, covered with peat. The commercial part of the placer includes the sediments of the river bed, lower and upper floodplains, terraces and re-deposited weathering crusts.

The average diamond grade varies along the strike of the deposit and across the river valley. The highest diamond grades, up to 4.86 ct/m3, are present within the fluvial sediments of the Late Quaternary period. Large-size crystals represent 79.5% of total diamonds.

10.2.5 Right Bank Morgogor Placers

The alluvial Right Bank Morgogor placers include the Khotogu-Balaganakh, Kamenistyj and Bystryj placers. The geological setting of the Right Bank Morgogor placers is the same as that for the Morgogor placer area described in Section 10.2.4.

The Khotogu-Balaganakh Stream flows north to south in an asymmetrical channel, 14.0 km long. The thickness of the diamond-bearing sediments is 1.6 m and the average grade within

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the geological boundaries of the placer is 0.42 ct/m3. Gemstone diamonds represent 40.63% of all the diamonds found during the geological sampling.

The Kamenistyj Stream is 10.0 km long and is the second tributary to the Morgogor Stream. The thickness of the diamond-bearing sediments is 1.4 m and the average grade within the geological boundaries of the placer is 0.28 ct/m3. Gemstone diamonds represent 55.41% of all the diamonds obtained by sampling.

The Bystryj Stream is 5.9 km long and is the smallest tributary to the Morgogor Stream. The thickness of the diamond-bearing sediments is 1.6 m and the average grade within the geological boundaries of the placer is 0.24 ct/m3. Gemstone diamonds represent 50.78% of all the diamonds recovered during the geological sampling.

10.2.6 Olom and Ruchey Log 325 Placers

The Olom and Ruchey Log 325 Placers are part of the Mayat watershed. On the surface, there are exposed carbonate rocks of the Middle to Upper Cambrian, which are represented by dolomites from the Anabarskaya Suite. Continental sands from the Permian and Triassic volcanogenic-sedimentary rocks were intersected by the drill holes but do not outcrop on the surface. All the older rocks are covered by Neogene and Quaternary unconsolidated sediments.

Diamond-bearing sands exclusively occur in Late Quaternary sediments, represented by silty sands with a relatively low content of granules, pebbles, boulders and medium-sized pebbles. The average thickness of the riverbed facies within the commercial contour is 1.25 m to 1.29 m. The thickness of overburden varies from 1.4 m to 5.2 m, with an average of thickness 3.94 m. The placers are ribbon-like sand-gravel formations with small consistent thicknesses, but with uneven distribution of diamonds. Lenses enriched with diamonds are observed within the diamond bearing sands.

The Olom placer is 5.3 km long and 20 m to 120 m wide, with the grade within the commercial placer varying from 0.04 ct/m3 to 1.76 ct/m3. Selected estimated blocks vary from 0.24 ct/m3 to 0.70 ct/m3. The average value across the deposit is 0.46 ct/m3. The average thickness of the diamond-bearing layer is 1.8 m.

The Ruchey Log 325 placer is relatively small, at 1.93 km long and approximately 30.6 m wide, but is characterised by its better quality and grade of diamonds. The diamond grade varies from 0.16 ct/m3 to 1.76 ct/m3, while, within the selected estimated blocks, the variation is from 0.24 ct/m3 to 0.70 ct/m3. The average value across the deposit is 0.46 ct/m3.

The content of gemstone diamonds (Category I) comprises approximately 62.5% of the total amount. The industrial diamonds (rejects), represent approximately 37% of the total recovered diamonds.

10.2.7 Kholomolokh Placer

The Kholomolokh diamond placer occurs within the Ebelyakh River area and has the same regional geological setting as that described in Section 10.2.1. The local geology of the placer is represented by Middle Cambrian carbonate rocks of the Siligirskaya suite and Anabarskaya suite, with a widely developed weathering crust. Lower Cretaceous and

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Neogene to Late Quaternary formations are less developed. The valley bed is composed of Late Quaternary sediments, which contain the major portion of the diamond reserves.

Within the resource contour of the Kholomolokh placer, sediments are composed of re- deposited dolomites, weathering crust, upper riverbed alluvium and contemporary sediments.

The diamond content in the reserve blocks ranges from 0.32 ct/m3 to 1.75 ct/m3, with an average of 0.91 ct/m3. The balance reserves average 1.14 ct/m3.

10.2.8 Uchakh-Ytyrbat River and Khara-Mas River Licence Area

Geological settings for the Uchakh-Ytyrbat and Khara-Mas placers are the same as those in the adjacent Ebelyakh area. The placers are located within a zone of Middle and Upper Cambrian rocks of the Anabarsky suite, Pliocene sediments of the Ebelyakh suite, alluvial sediments of paleo-valleys, Late Quaternary alluvial rocks from a relict valley, weathered detritus on the valley slopes, and recent channel and floodplain deposits.

Three separate diamond-bearing alluvial complexes of Pleistocene to Holocene ages have been recognised:

 Neogene placer - Pliocene Ebelyakh-series sedimentary rocks, which fill the low lying areas and karstic depressions;  Bench placer - Middle to Late Quaternary sediments; and,  Valley placer - Late Quaternary sedimentary rock of the U-shaped valley.

The deposits of the Uchakh-Ytyrbat and the Khara-Mas River basins include Neogene and Late Quaternary placers located in the Uchakh-Ytyrbat River valley, as well as Late Quaternary placers localised within the Urung-Yurakh Stream and its tributary, Saiylyk Stream.

The sediments of the Ebelyakh series that form the Neogene placer are developed irregularly and are associated with the middle and upper portions of the Uchakh-Ytyrbat River. The diamond content of the Neogene placer is relatively high, with an average of 0.52 ct/m3, based on the results of sampling from exploration pits. The majority of the reserves, including 78.4% of the sands and 87.9% of the diamonds (average grade 1.0 ct/m3), are concentrated in the lower portion of the placer. Diamond grades in the upper part of the placer are relatively low (0.33 ct/m3) and not of commercial interest.

Middle and Late Quaternary sediments occur on upper terraces within the middle reaches of the Uchakh-Ytyrbat River valley. Alluvial channel facies are formed from poorly sorted pebble-granule-sand-clay materials with aggregates of boulders, fragments and blocks. The diamond content is low, averaging 0.14 ct/m3.

The sediments of the Late Quaternary placer form the base of the Uchakh-Ytyrbat valley and Urung-Yurakh stream valley. The placer overlies weathered bedrock material or host bedrock. The Late Quaternary sediments demonstrate lower diamond contents. Based on sampling from exploration pits, the average diamond grade of the placer is 0.24 ct/m3 for the Uchakh-Ytyrbat River area, 0.15 ct/m3 for Urung-Yurakh Stream, and 0.21 ct/m3 for Saiylyk Stream. The average diamond grade within the reserve block is 0.87 ct/m3 and varies from 0.31 ct/m3 to 1.68 ct/m3.

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10.3 MINERAL RESOURCES AND RESERVES

10.3.1 Ebelyakh River and Gusiny Stream Placers

10.3.1.1 Exploration

The Ebelyakh River and Gusiny Stream placers were discovered in 1965. Between 1969 and 1985, the alluvial deposits of the Ebelyakh River basin were subject to prospecting, evaluation and exploration, including exploration pits, trenches, bulk and technological sampling of potentially mineralised sediments, mining and processing of sands, topographic and geodetic surveys and a limited amount of drilling.

During the advanced exploration stage, a 200 m by 10 m prospecting grid was used to estimate Russian B category reserves and a 400 m by 10 m grid was used to estimate С1 reserves. In the upper terrace areas where deposits were over 40 m in width, the interval between the exploration workings was 20 m.

The prospecting stage included excavation of trenches into the Ebelyakh River bed. During the exploration stage, the trenches in the river bed were replaced by exploration shafts. Table 10.1 summarises the various types of geological exploration work performed at the deposit.

Table 10.1: Geological Exploration Work Conducted at the Ebelyakh River Placer

The Ebelyakh River Deposit No. Types of Work Units Including Total Prospecting Exploration 1 Exploration Shafts m 17,854.3 1,146.9 16,708.0 2 Trenches m3 5,016.7 893.9 4,122.8 3 Exploration Sampling sample 10,146 613 9,533 4 Sample Processing m3 17,557.4 1,678.1 15,879.3 Technological Sampling: 5 Large-Sized Samples sample 1 - 1 Small-Sized Samples sample 287 - 287 6 Channel Sampling sample 1,874 111 1,763 7 Special Sampling sample 69 5 64 Mechanical Drilling 2,150.7 11.4 2,139.3 8 - Auger Drilling m 178.1 11.4 166.7 - Core Drilling m 1,972.6 - 1,972.6 Topographic and Geodetic Work - Plane-Table Survey, Scale 1:5000 km2 47.0 47.0 9 - Tacheometric Survey km2 5.96 5.96 - 4th-Order Levelling km 299.2 299.2 - 4th-Order Traverse km 146.6 146.6 Surface Geophysical Work Surface Magnetic Survey, 1:10,000 km2 Total deposit area - Profile Work with the use of 10 km 395 - 395 Additional Profiling Method - Profile Magnetic Exploration km 395 - 395 - Profile Gravity Exploration km 154 - 154

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10.3.1.2 Russian Mineral Reserve Estimate

The cut-off criteria for open pit mining were approved by GKZ on the 2nd March 2012 and are summarised in Table 10.2.

Table 10.2: Cut-Off Criteria for the Ebelyakh River and Gusiny Stream Placers

Alluvial Deposits No. Cut-Off Criteria Parameters and Application Ebelyakh Gusiny River Stream 1 The reserves to be estimated in the economically justified contour defined in the design for open-pit mining. 2 The thickness of the diamond-bearing layer to be contoured within the geological boundaries. Minimum grade in peripheral intercepts used to contour the seam in the plan view, with no stripping 3 0.15 0.15 required, ct/m3. Minimum commercial diamond grade in a reserves block, with no stripping required, ct/m3. 0.75 0.69 Minimum commercial diamond grade in an internal reserve block located among balance reserves, 0.34 0.37 with no stripping required, ct/m3. 4 Increase gradient per stripped unit (direct costs), ct/m3. 0.03 0.04 Increase gradient per stripped unit (total costs), ct/m3. 0.05 0.11 Minimum thickness of the diamond-bearing layer to be 0.4 m. Thinner layers to be estimated using the GT (grade x thickness) parameter. Off-balance reserves to include only reserves located outside the contour of the balance reserves with diamond grade above the 5 minimum grade in peripheral intercepts, but below the minimum commercial grade. 6 The reserves to be estimated for the conditional sieve class +2. Gold and platinum reserves mined as by-products to be estimated within the contour of the diamond balance reserves and to be 7 included in the balance reserves.

The reserves of the Ebelyakh River placer were assessed using the approved cut-off criteria and two estimation methods, the conventional linear method, utilising geological blocks, and the “extension” method. For the “extension” method blocks are successively extended using lower cut-off criteria. The extension volume is calculated as the difference in block volume at the lower and higher cut-off criteria. The thickness, grade and reserve volume of the extension is estimated via the conventional method for each block, using exploration samples located within the extension area. The reserves of the extension estimate were added to the reserves of the original block estimate using the higher cut-off criteria.

The results of both estimation methods showed reasonably good reconciliation, however, there are certain drawbacks in the geological block method. Therefore, it was decided to use the “extension” method for the principal reserve estimation.

The reserves of the Gusiny Stream placer were assessed using the cut-off criteria and the geological block estimation method, described previously in Section 3.2. It was concluded that the alluvial sediments in the river bed, and the sediments of the lower and upper terraces of the Ebelyakh River, may be attributed to one geological formation and therefore combined into one commercial contour that stretches continuously throughout the entire river valley.

The reserve estimate was approved by the GKZ on 2nd March 2012. The sand and diamond reserves for the Ebelyakh River placer and Gusiny Stream placer (licences ЯКУ 03245 KЭ and ЯКУ 03244 KЭ) as of 1st January 2016 are summarised in Table 10.3.

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Table 10.3: Balance Reserves of the Ebelyakh River and Gusiny Stream Placers as of 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct) Ebelyakh River Placer B 3,331.9 1.339 4,460.1 - - -

C1 11,673.0 1.445 16,872.2 477.5 0.384 183.6

B + C1 15,004.9 1.422 21,332.2 477.5 0.384 183.6

C2 3,150.2 0.710 2,235.2 1,415.9 0.343 485.1 Gusiny Stream Placer B 14.4 1.441 20.7 - - -

C1 1,480.8 1.350 1,999.4 89.9 0.370 33.3

B + C1 1,495.1 1.351 2,020.1 89.9 0.370 33.3

C2 0.6 4.932 2.9 85.8 0.448 38.4

10.3.1.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has prepared a mineral resource estimate for the Ebelyakh River and Gusiny Stream placers following the guidelines of the JORC Code (2012), as summarised in Table 10.4. The resources are inclusive of reserves.

Table 10.4: Mineral Resources of the Ebelyakh River and Gusiny Stream Placers as of 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category Description (k m3) +2 NSC +2 NSC (ct/m3) (kct) Indicated Ebelyakh River 14,714 1.42 20,891 Indicated Gusiny Stream 1,284 1.30 1,670 Total Indicated 15,997 1.41 22,561 Inferred Ebelyakh River 3,150 0.71 2,235 Inferred Gusiny Stream 1 4.93 3 Total Inferred 3,151 0.71 2,238

10.3.1.4 JORC Code Ore Reserve Statement

Micon has prepared an ore reserve estimate for the Ebelyakh River and Gusiny Stream placers in accordance with the guidelines of the JORC Code (2012). The ore reserve estimate is based on the Indicated mineral resources stated in Table 10.4, modified for dilution allowances of 5.45% for the Ebelyakh River placer and 5.11% for the Gusiny Stream placer (average values for 2015 and the first half of 2016). No allowance was made for ore losses. The ore reserve estimated is summarised in Table 10.5.

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Table 10.5: Ore Reserves of the Ebelyakh River and Gusiny Stream Placers as of 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category Description (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable Ebelyakh River 15,563 1.34 20,891 Probable Gusiny Stream 1,353 1.23 1,670 Total Probable 16,915 1.33 22,561

10.3.2 Istok Placer Deposit

10.3.2.1 Exploration

The Ebelyakh River and Istok placers were discovered in 1965. Between 1969 and 1988, the alluvial deposits of the Ebelyakh River basin were subjected to prospecting, exploration and evaluation. The main types of exploration at the Istok placers included excavation of exploration pits and trenches, bulk and technological sampling from potentially mineralised sands, mining and processing of diamond-bearing sands, and topographic and geodetic surveys. Reserves were estimated in 1988 within the Russian categories B and C1 and C2. From 1999, additional exploration was conducted in parallel with the mining activities. Mining began in 1997 and a large portion of the Istok placer mineral reserves have now been depleted.

Between 2004 and 2007, Almazy Anabara completed a new exploration programme, with the aim of updating the mineral reserves of the Istok and Kholomolokh placers.

10.3.2.2 Russian Mineral Reserve Estimate

The reserves of the Istok placer were estimated using the geological block method described in Section 3.2.

The first Istok Placer deposit reserve estimate was approved by the GKZ in 1988. Between 2004 and 2011 Almazy Anabara conducted an extensive exploration programme in the Ebelyakh River area. The Istok placer deposit has been in operation since 2008.

In March of 2012, the Ebelyakh River and Gusiny Stream placers reserves were approved by the GKZ. Some of the reserve blocks overlap the licence area covering the Istok placer. The reserves of the Istok placer were approved together with the reserves of the Ebelyakh River placer. The sand and diamond balance reserves for the Istok placer (licence ЯКУ 02647 KЭ) as of 1st January 2016 are summarised in Table 10.6.

Table 10.6: Balance Reserves of the Istok Placer as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct)

C1 426.5 0.838 357.6 310 0.344 106.7

C2 - - - 856 0.561 480.1

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10.3.2.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has prepared an estimate for the Istok placer mineral resources in accordance with the guidelines of the JORC Code (2012), as summarised in Table 10.7.

Table 10.7: Mineral Resources of the Istok Placer as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category Description (k m3) +2 NSC +2 NSC (ct/m3) (kct) Indicated Istok Placer 333 0.86 286

10.3.2.4 JORC Code Ore Reserve Statement

Micon has prepared an ore reserve estimate for the Istok placer sands in accordance with the guidelines of the JORC Code (2012). The ore reserve estimate is based on the mineral resources stated in Table 10.7, adjusted by an allowance of 12.6% for dilution (actual value for first half of 2016). No allowance has been made for ore losses. The ore reserves are summarised in Table 10.8.

Table 10.8: Ore Reserves of the Istok Placer as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category Description (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable Istok Placer 381 0.75 286

10.3.3 Morgogor Placers

10.3.3.1 Exploration

Mineral exploration started in 1965 and included several phases. Between 2004 and 2006, Almazy Anabara completed a programme of advanced exploration and sampling. The results from the exploration were used to update the mineral reserve estimate, applying new cut-off criteria. After test mining and technological sampling, the property was prepared for open pit exploitation. The Morgogor placer has been in production since 2007. Exploration work completed to date is listed in Table 10.9.

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Table 10.9: Geological Exploration Work Conducted at the Morgogor Placers (Licence ЯКУ 13004 КЭ)

Middle and Lower No. Types of Work Units Total Upper (0-96 line) (97-244 line) 1 Exploration Shafts ( in sands area 3 m2) m 3,694.0 2,051.1 1,642.9 2 Trenches (3 m2 to 4 m2) m 184.2 115.5 68.7 3 Exploration Sampling sample 557 394 951 4 Sample Processing m3 3,130.55 1,699.34 1,431.21 Technological Sampling 5 Large-Sized Samples (133.94 m3) sample 15 3 12 Small-Sized Samples (63.96 m3) sample 23 14 9 6 Channel Sampling sample 62 24 38 7 Special Sampling sample 306 149 147 Mechanical Drilling 8 - Auger Drilling m - - - - Core Drilling (371 Drill holes) m 2,139.8 912.9 1,226.9 Topographic and Geodetic Work 9 - Plane-Table Survey, Scale 1:25000 km2 17.7 - - - Tacheometric Survey 1:2000 km2 10.87 6.36 4.50

10.3.3.2 Russian Mineral Reserve Estimate

The cut-off criteria for the Morgogor placer, approved by the GKZ in 2006, are summarised in Table 10.10.

Table 10.10: Cut-Off Criteria for the GKZ Reserve Estimate for the Morgogor Placer

Morgogor No. Cut-Off Criteria Parameters and Application Placer 1 The reserves to be estimated in the economically justified contour defined in the design for open-pit mining. 2 The thickness of the diamond-bearing layer to be contoured within the geological boundaries. Minimum grade in peripheral intercepts used to contour the seam in the plan view, with no stripping 3 0.20 required, ct/m3. Minimum commercial diamond grade in a reserves block, with no stripping required, ct/m3. 0.59 Minimum commercial diamond grade in an internal reserve block located among balance reserves, 0.40 with no stripping required, ct/m3. 4 Increase gradient per stripped unit (direct costs), ct/m3. 0.03 Increase gradient per stripped unit (total costs), ct/m3. 0.20 Minimum thickness of the diamond-bearing layer to be 0.4 m. Thinner layers to be estimated using the GT (grade x thickness) parameter. Off-balance reserves to include only reserves located outside the contour of the balance reserves with diamond grade 5 above the minimum grade in peripheral intercepts, but below the minimum commercial grade. 6 The reserves to be estimated for the conditional sieve class +2.

The Morgogor placer reserves were estimated using the linear geological block method described in Section 3.2. The balance reserves of the Morgogor placer (licence ЯКУ 13004 KЭ), as at 1st January 2016, are presented in Table 10.11.

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Table 10.11: Balance Reserve Estimate for the Morgogor Placers as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct)

C1 540.0 0.884 477.5 238.2 0.319 76.0

C2 34.0 0.871 29.6 130.7 0.383 50.0

10.3.3.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has prepared a mineral resource estimate for the Morgogor placer, in accordance with the guidelines of the JORC Code (2012), as summarised in Table 10.12. The resources are inclusive of the reserves.

Table 10.12: Mineral Resources of the Morgogor Placer as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category Description (k m3) +2 NSC +2 NSC (ct/t) (kct) Indicated Morgogor Placer 425 0.95 405 Inferred Morgogor Placer 34 0.87 30

10.3.3.4 JORC Code Ore Reserve Statement

Micon has prepared an ore reserve estimate for the Morgogor placer in accordance with the guidelines of the JORC Code 2012. The ore reserve estimate was based on the Indicated mineral resources stated in Table 10.12, adjusted by an allowance of 3.18% for ore dilution (actual average value for 2015 and first half of 2016). No allowance was made for losses. The ore reserves estimated by Micon are summarised in Table 10.13.

Table 10.13: Ore Reserves of the Morgogor Placers as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category Description (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable Morgogor Placer 442 0.92 405

10.3.4 Right Bank Morgogor Placers

10.3.4.1 Exploration

Mineral exploration of the Right Bank Morgogor placers started in 1965 and included several exploration programmes. Between 2008 and 2012, Almazy Anabara completed an advanced exploration and sampling programme on all three placers: Khotugu-Balaganakh, Kamenystyj and Bystryj. A summary of the exploration conducted on these placers is provided in Table 10.14.

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Table 10.14: Geological Exploration Work Conducted at the Right Bank Morgogor Placers

Right Bank Morgogor Placers No. Types of Work Units Khotugu- Total Kamenistyj Bystryj Balaganakh 1 Exploration lines number 71 32 26 13 2 Exploration Pits (in sands-1.5 m2) m 643 315 238 109 3 Trenches sample 581 290 200 91 Sample Processing m3 2,168.55 1,085.25 740.85 338.45 Drill Core Sampling sample 69 31 38 - 4 Technological Sampling: Granulometry and Mineralogical Sampling sample 48 22 16 10 Geotechnical (Special) Sampling samples 34 13 11 8 Mechanical Drilling (drill holes) number 85 34 51 0 5 Core Drilling m 387.1 180.7 206.4 0 Topographic and Geodetic Work 6 - Plane-Table Survey, Scale 1:25000 km2 24.64 13.44 8.51 2.69 - Tacheometric Survey 1:2000 km2 24.64 13.44 8.51 2.69

10.3.4.2 Russian Mineral Reserve Estimate

The cut-off criteria, approved by GKZ in 2006 and used in the reserve assessment, are listed in Table 10.15.

Table 10.15: Approved Exploration Cut-Off Criteria for the Right Bank Morgogor Placers

Right Bank No. Cut-Off Criteria Parameters and Application Morgogor Placers The reserves to be estimated in the economically justified contour defined in the design for 1 open pit mining 2 The thickness of the diamond-bearing layer to be contoured within the geological boundaries. Minimum grade in peripheral intercepts used to contour the seam in the plan view, with no 3 0.47 stripping required, ct/m3. Minimum commercial diamond grade in a reserves block, with no stripping required, ct/m3. 0.27 Minimum commercial diamond grade in an internal reserve block located among 0.22 balance reserves, with no stripping required, ct/m3. 4 Increase gradient per stripped unit (direct costs), ct/m3. 0.10 Increase gradient per stripped unit (total costs), ct/m3. 0.02 Minimum thickness of the diamond-bearing layer to be 0.4 m. Thinner layers to be estimated using the GT (grade x thickness) parameter. Off-balance reserves to include only reserves located outside the contour of the balance reserves with diamond grades 5 above the minimum grade in peripheral intercepts, but below the minimum commercial grade. 6 The reserves to be estimated for the conditional +2 NSC (+1mm).

The reserves of the Right Bank of Morgogor placers were assessed using the geological block method, described in Section 3.2. The cut-off parameters and mineral reserve were approved by the GKZ on 27th October 2006. The Right Bank of Morgogor placers have been mined since 2007. Table 10.16 summarises the balance reserve estimate of the Right Bank of Morgogor placers (licence ЯКУ 02650 КЭ) as at 1st January 2016.

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Table 10.16: Balance Reserves of the Right Bank Morgogor Placers as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct)

C1 1,048.6 0.787 825.4 73.1 0.415 30.3

C2 244.3 0.867 211.7 114.6 0.459 52.6

10.3.4.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has prepared a mineral resource estimate for the Right Bank Morgogor placers, as summarised in Table 10.17. The resources are inclusive of the reserves.

Table 10.17: Mineral Resources of the Right Bank Morgogor Placers as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Khotugu-Balaganakh Placer Indicated 879 0.78 683 Inferred 25 0.92 24 Kamenistyj Placer Indicated 68 1.04 71 Inferred 52 1.23 64 Bystryj Placer Inferred 167 0.74 124 Total Indicated 947 0.80 753 Inferred 244 0.87 212

10.3.4.4 JORC Code Ore Reserve Statement

Micon has prepared an ore reserve estimate for the Right Bank Morgogor placers in accordance with the guidelines of the JORC Code (2012). The ore reserve estimate was based on the Indicated mineral resources stated in Table 10.17, modified by dilution allowances averaging 23.53% (actual average value for 2015 and the first half of 2016). No allowance was made for ore losses. The ore reserves are summarised in Table 10.18.

Table 10.18: Ore Reserves of the Right Bank Morgogor Placers as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable 1,238 0.61 753

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10.3.5 Olom and Ruchey Log 325 Placers

10.3.5.1 Exploration

The Olom (Istok Site) and Ruchey Log 325 placers were discovered between 2001 and 2007. Sampling included bulk and technological samples from potentially mineralised sands, test mining and processing of diamond-bearing sand, topographic and geodetic surveys. The exploration programmes used the same practices as those described in Section 10.3.1.1. Sampling was conducted using large exploration shafts. Samples were taken from the channel facies of Upper Quaternary alluvium, from the lower levels of slope sediments with increased sand, debris and detritus content, as well as from the gravel-clay-boulder weathering cores in dolomite. All samples were processed using the same flowsheet, with QA/QC procedures.

10.3.5.2 Russian Mineral Reserve Estimate

The sampling results along exploration lines 76 to 136 were used for the calculation of reserves for the Olom placer, and results from exploration lines 2 to 22 were used to estimate the reserves for the Ruchey Log 325 placer. The calculations are based on all data obtained from the exploration completed between 2004 and 2007.

In total, the reserve assessment includes data from 49 exploration pits dug along 18 exploration lines within Olom placer and six exploration pits along four lines in the Ruchey Log 325 placer. The exploration pits were dug on a grid of 400 m by 20 m.

The reserves of the Olom (Istok Site) and Ruchey Log 325 placers were assessed using the geological block method described in Section 3.2. The cut-off criteria used are summarised in Table 10.19.

Table 10.19: Cut-Off Criteria for the Olom (Istok Site) and Ruchey Log 325 Placers

Olom and No. Cut-Off Criteria Parameters and Application Ruchey Log 325 Placers 1 The reserves to be estimated in the economically justified contour defined in the design for open-pit mining. 2 The thickness of the diamond-bearing layer to be contoured within the geological boundaries. Minimum grade in peripheral intercepts used to contour the seam in the plan view, with no stripping 3 0.15 required, ct/m3. Minimum commercial diamond grade in a reserves block, with no stripping required, ct/m3. 0.60 Minimum commercial diamond grade in an internal reserve block located among balance reserves, 0.36 with no stripping required, ct/m3. 4 Increase gradient per stripped unit (direct costs), ct/m3. 0.031 Increase gradient per stripped unit (total costs), ct/m3. 0.020 Minimum thickness of the diamond-bearing layer to be 0.4 m. Thinner layers to be estimated using the GT (grade x thickness) parameter. 5 Off-balance reserves to include only reserves located outside the contour of the balance reserves 6 The reserves to be estimated for the conditional +2 NSC (+1 mm).

Within the Olom (Istok Site) placer, the reserve was assessed for eighteen blocks, with five exploration blocks assessed within the Ruchey Log 325 area. The reserve estimate of the Olom (Istok Site) and Ruchey Log 325 placer deposits was approved by the TKZ on 28th March 2008. The State balance reserves for the diamond placers (licence ЯКУ 15790 КЭ) as of 1st January 2016 are summarised in Table 10.20.

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Table 10.20: 10.20: Balance Reserves of the Olom (Istok Site) and Ruchey Log 325 Placer Deposits as of 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct) Olom (Istok Plot) Placer

C1 190.2 0.562 106.9 129.6 0.347 45.0

C2 3.3 0.46 1.5 13.6 0.24 3.3 Ruchey Log 325 Placer

C2 36.7 1.26 46.4 11.43 0.32 3.7 Total for Olom (Istok Site) and Ruchey Log 325 Placers

Total C1 190.2 0.562 106.9 129.6 0.347 45.0

Total C2 40.0 1.199 47.9 25.0 0.278 7.0

10.3.5.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has prepared an estimate of the mineral resources for the Olom (Istok Site) and Ruchey Log 325 placers following the guidelines of the JORC Code (2012), as summarised in Table 10.21. The resources are inclusive of the reserves.

Table 10.21: Mineral Resources of the Olom (Istok Site) and Ruchey Log 325 Placers as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Indicated 190 0.56 107 Inferred 40 1.20 48

10.3.5.4 JORC Code Ore Reserve Statement

Micon has prepared an ore reserve estimate for the Olom (Istok Site) and Ruchey Log 325 placers in accordance with the guidelines of the JORC Code (2012). The ore reserve estimate was based on the Indicated mineral resources stated in Table 10.21, modified by an average allowance for dilution of 17.27%. No allowance was made for ore losses. The reserves are summarised in Table 10.22.

Table 10.22: Ore Reserves of the Olom (Istok Site) and Ruchey Log 325 Placers as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable 230 0.47 107

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10.3.6 Kholomolokh Placer

10.3.6.1 Exploration

The Kholomolokh placer was discovered in 1968 during detailed prospecting. Between 1985 and 1987, the diamond-bearing sands were subjected to detailed exploration, including trenching and exploration pits, excavation along survey lines, bulk and technological sampling, topographic and geodetic surveys. The placer was explored using gridlines at 800 m, 400 m and 200 m, with excavations at 10 m to 20 m. Exploration shafts were also driven into the river bed, typically through the entire unconsolidated sediments, with a further 10 cm to 20 cm penetration into bedrock.

Core drilling was carried out to study the morphology of the Neogene to Lower Quaternary gravel, sand and weathered rocks. The results were used to map the fluvial terraces and the Late Quaternary sediments of the Kholomolokh valley.

Exploration samples were processed using the standard flowsheet.

Commercial mining began in 1997. From 1999, exploration was conducted in parallel with mining activities. Mining at the Kholomolokh deposit was suspended during 2013 to 2016. The remaining deposit reserves are not significant.

10.3.6.2 Russian Mineral Reserve Estimate

The Kholomolokh placer reserves were estimated using the geological block method described in Section 3.2, and the reserves were approved by the TKZ on 1st April, 1988. The cut-off criteria were the same as those approved by the GKZ for the Istok placer reserve assessment.

From 2004 to 2011, Almazy Anabara conducted an extensive exploration programme in the Ebelyakh River area. The mineral reserves for the Kholomolokh placer were subsequently revised, using updated geological information and the cut-off criteria designed for the Ebelyakh River. The deposit balance reserves (licence ЯКУ 02646 КЭ) as of the 1st January 2016 are provided in Table 10.23.

Table 10.23: Balance Reserves of the Kholomolokh Placer as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct)

C1 55 4.58 254 716 0.60 432

C2 28 0.86 24 1,125 0.63 710

10.3.6.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has prepared a mineral resource estimate for the Kholomolokh placer in accordance with the guidelines of the JORC Code (2012), as summarised in Table 10.24. The resources are inclusive of reserves.

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Table 10.24: Mineral Resources of the Kholomolokh Placer as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Indicated 56 4.58 254 Inferred 28 0.86 24

10.3.6.4 JORC Code Ore Reserve Statement

Micon has prepared an ore reserve estimate for the Kholomolokh placer sands in accordance with the guidelines of the JORC Code (2012) (Table 10.25). The ore reserves estimate is based on the Indicated mineral resources stated in Table 10.24, adjusted by an average allowance of 17.24% for dilution (average value for placers of this area). No allowance was made for ore losses.

Table 10.25: Ore Reserves of the Kholomolokh Placers as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable 67 3.79 254

10.3.7 Uchakh-Ytyrbat River and Khara-Mas River Licence Area

10.3.7.1 Exploration

Between 2008 and 2011, AO Almazy Anabara completed prospecting and evaluation work in the Uchakh-Ytyrbat River and Khara-Mas River area, resulting in the outlining of three prospective sites:

 Late Quaternary placer in the Uchakh-Ytyrbat River valley (the left tributary of the Anabar River);  Late Quaternary placer in the Urung-Yuryakh Stream (the Khara-Mas River tributary); and,  Neogene fragments of a placer in the Uchakh-Ytyrbat River valley.

The exploration of these placers was completed between 2011 and 2014.

A series of Late Quaternary placers with potential commercial diamond content have been traced discontinuously along the valleys. In the Uchakh-Ytyrbat River valley, the placer stretches for 8.0 km; in the Urung-Yurakh Stream valley, the placer is located along a strike of 0.4 km, while in the Saiylyk Stream valley, the placer also extends over 0.4 km. Neogene fragment placers with commercial grades have been outlined in the Uchakh-Ytyrbat River valley. The potentially commercial placers can be grouped into two sites: the Uchakh-Ytyrbat site (Uchakh-Ytyrbat River placers) and the Urung-Yurakh site (Urung-Yuriakh Stream placer and Saiylyk Stream placer), separated by approximately 8 km.

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The main types of exploration undertaken at these placers include exploration pits, bulk sampling of coarse clastic rock, processing of bulk samples, technological and special sampling, and topographic and geodetic surveys.

A core drilling programme was undertaken in order to complete geological mapping, study of the placer lithology and mineralogy, examination of local geotechnical settings and permafrost conditions. Cable drilling was completed to provide a preliminary evaluation of the diamond content in deep layers of the Neogene placer.

Exploration samples were processed at a stationary processing plant for the -16 mm to +0.5 mm class, using a conventional gravity concentration flowsheet with X-ray separation. A summary of the exploration conducted within the licence area is provided in Table 10.26.

Table 10.26: Geological Exploration Work Conducted at the Uchakh-Ytyrbat and Khara-Mas Placers

Parameters Units Saiylyk Urung Yuryakh Uchakh-Ytyrbat Total 1. Exploration Pits ( 2m2 – 3 m2) Drilling and Blasting Exploration Lines number 16 38 44 98 Exploration Pits number 154 448 552 1,154 Length of Excavation m 527.0 1,767.6 3,042.6 5,337.2 2. Core Drilling Exploration Lines number - - 8 8 Drill Holes number - - 100 100 Drilling Length m - - 1,216.3 1,216.3 3. Cable Drilling (Diameter 219mm) Exploration Lines number - - 8 8 Drill Holes number - - 161 161 Drilling Length m - - 2,201.0 2,201.0 4. Cable Drilling (Diameter 495mm) Exploration Lines number - - 3 3 Drill Holes number - - 81 81 Drilling Length m - - 1,543.0 1,543.0 5. Sampling and Processing number 161 534 655 1,350 Bulk Sampling (Pits) m3 363.9 1856,4 2,370.5 4,590.8 number - - 3,581 3,581 Boring Sludge Sampling m3 - - 426.6 426.6 number - - 57 57 Core Sampling m3 - - 0.92 0.92 number - - 134 134 Channel Sampling m3 - - 1.34 1.34 Geochemical Sampling number - - 13 13 Geotechnical Sampling number - 16 18 34 Metallurgical Sampling number - 4 11 15 Bulk Samples Processing m3 363.9 1,856.4 2,370.5 4,590.8 Large Samples Processing m3 - 396.0 624.0 1,020.0 Boring Sludge Samples Processing m3 - - 426.6 426.6 Sample Processing for Gold number 58 154 277 489

10.3.7.2 Russian Mineral Reserve Estimate

The approved cut-off parameters used for the reserve estimate Uchakh-Ytyrbat and the Uchakh-Ytyrbat River placers completed in 2015 are presented in Table 10.27. Reserves were estimated by the geological block method described in Section 3.2.

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Table 10.27: Reserve Estimation Cut-Off Criteria for the Uchakh-Ytyrbat and Urung-Yuryakh River Placers

No. Cut-Off Criteria Parameters and Application Unit Value 1 Minimum commercial diamond grade in a reserves block at average conditions. ct/m3 0.70 Minimum commercial diamond grade in an internal reserve block located among balance 2 ct/m3 0.44 reserves at average condition. 3 Minimum commercial diamond grade in a reserves block, with no stripping required. ct/m3 0.56 Minimum commercial diamond grade in an internal reserve block located among balance 4 ct/m3 0.34 reserves, with no stripping required. Minimum grade in peripheral intercepts used to contour the seam in the plan view, with no 3 5 stripping required. ct/m 0.23 6 Increase gradient per stripped unit (direct costs). ct/m3 0.03 7 Increase gradient per stripped unit (total costs). ct/m3 0.07 8 The thickness of the diamond-bearing layer to be contoured within the geological boundaries. 9 The reserves to be estimated for the conditional sieve class +1mm according to the lower limit of recovery. Off-balance reserves to include only reserves located outside the contour of the balance reserves with diamond 10 grade above the minimum grade in peripheral intercepts, but below the minimum commercial grade.

The reserve estimate was approved by the GKZ on 30th September 2015. A summary of the reserve assessment for the Uchakh-Ytyrbat and Urung-Yuryakh River placers (licence ЯКУ 02663 КР) is provided in Table 10.28.

Table 10.28: Balance Reserves of the Uchakh-Ytyrbat and Urung-Yuryakh River Placers (including the Saiylyk Stream Placer) as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct)

C1 1,131.6 0.890 1,006.6 188.6 0.545 102.9

C2 1,186.0 0.902 1,069.3 338.9 0.462 156.5

10.3.7.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has prepared a resource estimate for Uchakh-Ytyrbat and the Uchakh-Ytyrbat River placers (including the Saiylyk Stream Placer) in accordance with the guidelines of the JORC Code (2012), as summarised in Table 10.29. The stated resources are inclusive of reserves

Table 10.29: Mineral Resources of Uchakh-Ytyrbat and Urung-Yuryakh River Placers (including the Saiylyk Stream Placer) as at 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Indicated 1,132 0.89 1,007 Inferred 1,186 0.90 1,069

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10.3.7.4 JORC Code Ore Reserve Statement

Micon has prepared an ore reserve estimate for Uchakh-Ytyrbat and the Uchakh-Ytyrbat River placers (including the Saiylyk Stream Placer) in accordance with the guidelines of the JORC Code (2012), based on the Indicated mineral resources stated in Table 10.29, adjusted for a dilution allowance averaging 20.64% (data from the 2015 TEO). No allowance has been made for ore losses. The reserves estimate is summarised in Table 10.30.

Table 10.30: Ore Reserves of Uchakh-Ytyrbat and Urung-Yuryakh River Placers (including the Saiylyk Stream Placer) as of 1st July 2016

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable 1,426 0.71 1,007

10.4 MINING

10.4.1 Design and Operation

The Almazy Anabara placer deposits are all mined by open pit methods. The stripping, loading and hauling is completed by bulldozers, front-end loaders and mine trucks, with partial use of direct waste dumping by bulldozers. These techniques have proven to be both efficient and environmentally safe.

Stripping is completed in winter and spring (February to the end of May). Frozen topsoil is primarily ripped and removed by bulldozers, or drilled and blasted if necessary. Waste rock is dumped in either outside waste piles or mined out areas.

From March to the end of May, the frozen sand is mechanically ripped with bulldozers. It is then loaded into trucks by front-end loaders and hauled to the stockpiles at the sorting units or at the processing plants. In the summer (from mid-June to mid-September), thawed sand at the stockpiles is sorted and fed by front-end loaders to a washing stage.

Prior to the commencement of mining and sorting, a definite scope of pre-production development and construction of the hydro-technical facilities takes place. The pre-production development entails the removal of snow, sparse wood, shrubs from the designated areas. This includes future mining fields, external waste dump sites, dumping and levelling of industrial sites for the sorting units, fuel stations, etc., as well as site roads construction and maintenance. The work on the hydro-technical facilities includes the construction and maintenance of retaining dams, water wells, channels, water diversion ditches, and other earth work.

The production activities are then followed by reclamation, the scope of which includes the flattening of open pit walls and waste dumps, the backfilling of exploration pits and trenches, the strengthening of river banks, the salvage of topsoil/fertile soil and the levelling of sorting unit sites.

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The sites selected for the mobile sorting and processing units are, as a rule, selected in such a way as to ensure two seasons of operation without the need for relocation. The location of the sites is selected as close as possible to the centre of the reserves to be mined.

The principal mining equipment used includes: D-375A-5D Komatsu, D-375А-5 Komatsu, D-155 Komatsu, PR744L LIEBHERR, and D 65E-12 Komatsu tracked bulldozers; WA-600-3 Komatsu, САТ-988H, WA-500-3 Komatsu, WA-380 Komatsu wheeled loaders; BelAZ-7540 and MAZ-5516 mine trucks; РС-750-7 Komatsu and РС-400-7 Komatsu backhoes and various ancillary equipment.

The duration of the mining season is ten months per year. No work is planned during January and February. During operations, work is conducted on two 12-hour shifts per day, seven days per week.

10.4.2 Mining Production

The actual production data for all the placer deposits operated by Almazy Anabara from 2013 to 1st July 2016 are summarised in Table 10.31. The Kholomolokh, Olom (Istok Site) and Ruchey Log 325, Uchakh-Ytyrbat and Urung-Yuryakh River Placers (including the Saiylyk Stream) have not been mined during this period.

Micon has produced a production schedule for the Almazy Anabara placers incorporating the data from ALROSA’s long term production plan to 2030 and included the production schedule data suggested by the TEO reports for the placers yet to be developed, all adjusted to conform to Micon’s ore reserve estimates. Further exploration of the mineral resources may allow an increase in ore reserves and an extension of the life of these placer deposits.

The production schedule for exploitation of the Almazy Anabara considered deposits are shown in Table 10.32.

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Table 10.31: Almazy Anabara Placers Actual Production

2013 2014 2015 2016 H1 Parameter Planned Actual % Planned Actual % Planned Actual % Planned Actual % Ebelyakh River Placer Sands Mined (k m3) - - - 1,055 - 1,200 1,093 91 300 308 103 Diamond Grade (ct/m3) - - - 1.45 - 1.33 1.80 135 1.32 1.43 108 Contained Diamonds (k ct) - - - 1,525 - 1,596 1,963 123 396 441 111 Preparation Work (k m3)1 - - - 279 - - - - - Waste Stripping (k m3) - - - 1,180 - 160 153 96 300 306 102 Gusiny Stream Placer Sands Mined (k m3) - - - 502 - 500 613 123 220 223 101 Diamond Grade (ct/m3) - - - 1.50 - 1.17 1.25 107 1.32 1.48 112 Contained Diamonds (k ct) - - - 751 - 586 769 131 290 329 114 Preparation Work (k m3) - - - 321 - 42 42 100 50 62 124 Waste Stripping (k m3) - - - 1 167 - 1,500 1 803 120 550 563 102 Istok Placer (Ebelyakh Plot) Sands Mined (k m3) 451 - 304 - 300 302 101 105 107 102 Diamond Grade (ct/m3) 0.79 - 0.86 - 0.68 0.77 114 0.67 0.67 100 Contained Diamonds (k ct) 357 - 261 - 204 233 114 71 72 102 Preparation Work (k m3) 214 - 172 - 95 95 100 50 52 104 Waste Stripping (k m3) 800 - 426 - 650 662 102 370 379 102 Morgogor and Right Bank Morgogor Placers Sands Mined (k m3) 1,531 - 638 - 600 653 109 240 244 102 Diamond Grade (ct/m3) 0.62 - 0.79 - 0.71 0.77 109 0.58 0.59 101 Contained Diamonds (k ct) 948 - 506 - 427 505 118 140 144 103 Preparation Work (k m3) 539 - 463 - 65 65 100 100 50 50 Waste Stripping (k m3) 3,074 - 1.319 - 3,900 4,326 111 1,020 531 52

1 Preparation work includes the pre-production development and the work on hydro-technical facilities

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Table 10.32: Almazy Anabara Placers Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Total Ebelyakh River Placer Sands Mined and Washed (k m3) 495 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 668 15,563 Diamond Grade (ct/m3) 1.33 1.30 1.30 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.34 Contained Diamonds (kct) 658 1,554 1,554 1,622 1,622 1,622 1,622 1,622 1,622 1,622 1,622 1,622 1,622 902 20,891 Preparation Work (k m3) 0 317 317 317 317 317 317 317 317 317 317 317 317 176 3,979 Waste Stripping (k m3) 350 417 618 656 578 404 1,002 799 536 821 1,292 1,081 1,499 839 10,891 Recovery (%) 96 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 Recovered Diamonds (kct) 632 1,492 1,492 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 866 20,056 Gusiny Stream Placer Sands Mined and Washed (k m3) 300 600 453 ------1,353 Diamond Grade (ct/m3) 1.32 1.21 1.21 ------1.23 Contained Diamonds (kct) 395 727 548 ------1,670 Preparation Work (k m3) 25 50 25 ------100 Waste Stripping (k m3) 400 800 400 ------1,600 Recovery (%) 96.0 96.0 96.0 ------96.0 Recovered Diamonds (kct) 379 698 526 ------1,603 Istok Placer (Ebelyakh Plot) Sands Mined and Washed (k m3) 150 231 ------381 Diamond Grade (ct/m3) 0.75 0.75 ------0.75 Contained Diamonds (kct) 113 173 ------286 Preparation Work (k m3) 25 50 ------75 Waste Stripping (k m3) 185 370 ------555 Recovery (%) 96.0 96.0 ------96.0 Recovered Diamonds (kct) 108 166 ------274

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Table 10.32: Almazy Anabara Placers Production Schedule (cont.)

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Total Morgogor and Right Bank Morgorgor Placers Sands Mined and Washed (k m3) 350 700 631 ------1,681 Diamond Grade (ct/m3) 0.69 0.69 0.69 ------0.69 Contained Diamonds (kct) 241 482 435 ------1,158 Preparation Work (k m3) 100 200 180 ------480 Waste Stripping (k m3) 492 984 886 ------2,361 Recovery (%) 96.0 96.0 96.0 ------96.0 Recovered Diamonds (kct) 232 463 417 ------1,112 Olom (Istok Site) and Ruchey Log 325 Placers Sands Mined and Washed (k m3) - - 230 ------230 Diamond Grade (ct/m3) - - 0.47 ------0.47 Contained Diamonds ( ct) - - 107 ------107 Preparation Work (k m3) - - 100 ------100 Waste Stripping (k m3) - - 345 ------345 Recovery (%) - - 96.0 ------96.0 Recovered Diamonds (kct) - - 103 ------103 Kholomolokh Placer Sands Mined and Washed (k m3) - 67 ------67 Diamond Grade (ct/m3) - 3.79 ------3.79 Contained Diamonds (kct) - 254 ------254 Preparation Work (k m3) - 50 ------50 Waste Stripping (k m3) - 87 ------87 Recovery (%) - 96.0 ------96.0 Recovered Diamonds (kct) - 244 ------244

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Table 10.32: Almazy Anabara Placers Production Schedule (cont.)

Parameter 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Total Uchakh-Ytyrbat River and Khara-Mas River Basins Placers Sands Mined and Washed (k m3) - - 300 600 526 ------1,426 Diamond Grade (ct/m3) - - 0.71 0.71 0.71 ------0.71 Contained Diamonds (kct) - - 212 424 371 ------1,007 Preparation Work (k m3) - - 50 100 70 ------220 Waste Stripping (k m3) - - 390 780 684 ------1,854 Recovery (%) - - 96.0 96.0 96.0 ------96.0 Recovered Diamonds (kct) - - 203 407 356 ------966 Total Almazy Anabara Sands Mined and Washed (k m3) 1,295 2,798 2,813 1,800 1,726 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 668 20,700 Diamond Grade (ct/m3) 1.09 1.14 1.02 1.14 1.16 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.23 Contained Diamonds (kct) 1,407 3,191 2,856 2,046 1,993 1,622 1,622 1,622 1,622 1,622 1,622 1,622 1,622 902 25,373 Preparation Work (k m3) 150 667 672 417 387 317 317 317 317 317 317 317 317 176 5,004 Waste Stripping (k m3) 1,427 2,658 2,638 1,436 1,262 404 1,002 799 536 821 1,292 1,081 1,499 839 17,693 Recovery (%) 96.0 96.2 96.3 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.1 Recovered Diamonds (kct) 1,351 3,068 2,750 1,964 1,914 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 866 24,372

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10.5 PROCESSING

Almazy Anabara has been mining placer deposits since 1999 on a seasonal basis, with processing originally carried out in centralised processing and sorting plants, using jigs and X-ray sorters. Since, in the mid-2000’s, however, processing has been performed by mobile KSA-100 units, recovering diamonds down to 1 mm in size, with the centralised plants used only for upgrading and final recovery operations. In 2005 and 2006, modular Bateman DMS units were incorporated into the mobile units, processing the -25 to +1 mm size fraction to produce concentrates for further upgrading. In general, the use of grease separation has declined in favour of X-ray sorters. Studies have confirmed that it is not economic to recover diamonds below 1 mm in size.

The primary processing of sands occurs over a 100 day period from June to September, operating 20 hours per day. The design capacity of one processing unit is 15 m3/h. The schematic flowsheet of the mobile plants, incorporating the Bateman DMS unit, is shown in Figure 10.4.

Figure 10.4: Equipment Flow Sheet for the Sorting Complex with the DMS Unit

Source: Almazy Anabara 2013

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Due to the low clay content, the washing efficiency of the trommel is high with excellent recovery, after spiral classification and screening of the productive -25 to +1 mm size fraction that reports to the Bateman DMS unit. The DMS concentrate from the mobile units is hauled to the seasonal processing Plants No. 2 and No. 3 for final recovery. The mobile processing unit operates a closed-water recycling system: clarified water from the tailings facilities, after filtering in settling ponds, is pumped back to the wash plant.

The DMS concentrate is upgraded using X-ray sorters. The concentrate is initially screened into -25 to +10 mm, -10 to +5 mm, -5 to +2 mm and -2 to +1 mm fractions, and individually processed, using several stages of X-ray sorters. Concentrates from the X-ray sorters are dried and manually sorted.

10.5.1 Production

The Almazy Anabara mobile processing units processed in total, 2.802 million m3 of sands in 2015 and 882 thousand m3 of sands for the first six months of 2016. The processing of sands in 2014, 2015 and for the first six months of 2016 is reported in Table 10.33.

Table 10.33: Almazy Anabara Production Summary for Sands Processed in 2014 to 1st July 2016

Parameter Unit 2014 2015 2016, H1 Sands Processed k m3 2,802 2,611 882 Average Diamond Grade ct/ m3 1.15 1.24 1.33 Contained Diamonds kct 2,706 2,829 986 Recovery % 96.00 96.0 96.0 Diamonds Recovered kct 2,598 2,716 947 Over-Estimate Factor % 1.18 1.22 1.27 Total Diamonds Produced kct 3,059 3,309 1,203

Note: Over-Estimate Factor is when the weight of diamonds actually recovered exceeds the projected weight of diamonds indicated in the approved ore reserve. Micon has ignored the Over-Estimate Factor in its assessment.

Micon has prepared a future production schedule for sands mining and processing and diamond recovery for all Almazy Anabara deposits covered by this Report, assuming 96% total recovery of diamonds which corresponds to the actual value. The production summary is presented in Table 10.32.

10.6 INFRASTRUCTURE

10.6.1 Transport

Saskylakh, an administrative centre of the Anabarsky Ulus, is located on the Anabar River, 115 km north (downstream) of the Ebelyakh River and Gusiny Stream placer deposits. There is an airport adequate for Antonov AN-24 and AN-26 aircraft, and helicopters, all year round. To the north of Saskylakh in the lower stream of the Anabar River, 145 km away, is Yuryung-Khaya, which can be accessed by sea vessels.

There are no all year-round roads in the region. In summer, light cargo and staff are transported to Saskylakh by hovercraft up the Anabar River to the Mayat River estuary.

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Beyond the Mayat River estuary, transport is via trucks on gravel roads constructed and maintained by Almazy Anabara in the mining area. Helicopters are used when necessary.

Yuryung-Khaya is the transfer base for most cargo which is transported to the settlement by sea. Berthing, warehouse and fuel storage facilities owned by Almazy Anabara are present in the settlement.

In winter, all cargo is transported by ice roads, which are in operation from the end of December until the beginning of May.

10.6.2 Power and Water

Heat is supplied to the shift team camps and other facilities of Almazy Anabara by boiler houses burning liquid fuel.

Potable and domestic water is supplied from surface water bodies in the summer and is transported by tanker from the nearest water bodies in the winter.

Power is supplied to all the facilities by diesel generators.

10.7 ENVIRONMENTAL, HEALTH AND SAFETY AND SOCIAL ISSUES

10.7.1 Environmental and Health and Safety Management

Environmental and health and safety management at Almazy Anabara is structured independently of the ALROSA corporate capability. The management of the Ebelyakh operation is fully integrated into a management system and structure that encompasses all of Almazy Anabara’s operations in this area. In this context, Almazy Anabara has developed a formalised Regulation on Industrial Environmental Control, Environmental Management System and Regulation on Production Control for Compliance with Safety Requirements at Hazardous Facilities covering all operations, which are broadly compatible with the ALROSA corporate environment, health and safety policy. These internal “regulations” adapt the corporate environmental management and health and safety management systems to local circumstances and are aimed principally at ensuring compliance with relevant Federal and local regulations.

The technical bases for environmental and health and safety management of the various Almazy Anabara mining operations are established in the relevant TEO documentation approved for each deposit.

10.7.2 Key Environmental and Safety Issues

10.7.2.1 Hydrological Impacts

The Ebelyakh River is a tributary of the Anabar River, the principal river of the region that flows north to the Leptev Sea. The fisheries in the Ebelyakh River, as in many parts of the Leptev catchment, are considered of high quality. The existing river channels have been (or will be) diverted temporarily where necessary to facilitate access to the deposit and to minimise impacts downstream. Nevertheless, given the proximity of the river channel to operations, there is a potential risk to the quality of surface water with the release of water containing elevated levels of suspended solids and oils, both during construction and operations.

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There is a requirement for abstraction of water for processing and potable supply. Water demand is minimised by the use of a closed water recycling system at the processing plant. However, there will be some reduction of the natural flows as a consequence of water impoundment and abstraction.

Surface run-off and wastewaters are kept separated and treated to remove oil and sediments. Biological methods are used to treat domestic wastewaters. Areas for oil and lubricant storage are bunded and have impermeable bases. Diversion ditches will be constructed to direct surface flows away from the operational areas.

10.7.2.2 Ecological Impacts

The operations will impact on the local ecology through the removal of soil and vegetation cover, as well as disturbance of local fish spawning grounds, disruption of migration routes and the potential for increased poaching. Terrestrial and riverine habitats are also vulnerable to pollution. Almazy Anabara has established practical management strategies to minimise these impacts. Workforce training forms an integral part of this strategy.

10.7.2.3 Waste Management

Municipal solid wastes are collected in designated containers and periodically transported to the site landfill. There is centralised collection of waste oils and industrial wastes for storage and ultimate disposal.

10.7.2.4 Air Quality

Fugitive dust from blasting, un-surfaced access roads and waste dumps can be problematic, giving rise both to environmental damage and to reduced visibility on access roads and in working areas. Dust suppression techniques are applied to operational areas and site roads.

10.7.2.5 Waste Rock and Tailings Management

The workings generate a substantial quantity of soil, peat and sands; process tailings will also be generated. The disposal of these wastes will occupy large areas of land that will ultimately require re-vegetation.

10.7.3 Mine Closure and Rehabilitation

Rehabilitation will be undertaken on an on-going basis throughout the mine life, focusing on worked-out areas, overburden dumps and plant sites. These activities will involve initially the re-establishment of the natural topography, re-contouring of the dumps, dams and embankments and the implementation of erosion control. While re-growth typically appears on soil cover, this frequently dies back and can result in bare areas prone to erosion. Re- vegetation strategies are being refined through trials at existing operations at Mayat and Morgogor. In 2015 74.4 ha were recultivated and returned to the State Forest Fund. Further recultivation work is planned on the Mayat site in 2016.

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10.7.4 Health and Safety Management

Health and safety management is an integral part of all operations, and the existing operations of Almazy Anabara are understood to comply with all the required regulations, systems and practices, including those concerning the industrial safety of hazardous production facilities.

Safety statistics from Almazy Anabara are collected in a slightly different format from those of the other ALROSA operations. Nevertheless, the data indicate that the safety performance is broadly comparable with that of other ALROSA operations (Table 10.34).

Table 10.34: Almazy Anabara Safety Performance

Parameter 2011 2012 2013 2014 2015 Average Almazy Anabara Total number of recorded incidents 1 0 3 2 0 1.20 Recorded incidents/1,000 employees 0.92 0 1.45 1.12 0.00 0.70 Number of fatalities 0 0 1 0 0 0.20 Fatalities/1,000 employees 0.00 0.00 0.49 0.00 0.00 0.10 Number of serious incidents 0 0 0 1 0 0.20 Serious incidents /1000 Employees 0 0 0 0.56 0.00 0.11 Total ALROSA Recorded incidents/1,000 employees 0.81 0.84 0.92 0.38 0.28 0.65 Fatalities/1,000 employees 0.14 0.19 0.18 0.09 0.00 0.12 Serious incidents/1,000 employees 0.19 0.09 0.32 0.00 0.05 0.13

 “Total ALROSA” is for mining operations” only and includes data from Aikhal GOK, Mirny GOK, Nyurba GOK, Udachny GOK and all mining related support functions. Data for other ALROSA group companies are excluded. Data from Almazy Anabara, Nizhne-Lenskoe and Lomonosov are not included due to the incompatibility of the data.

10.7.5 Regulatory Compliance

10.7.5.1 Sub-Soil Licences

The sub-soil licences covering the Almazy Anabara mining operations are as follows:

 Ebelyakh River placer (ЯКУ 03245 КЭ);  Gusiny Stream placer (ЯКУ 03244 КЭ);  Istok placer (ЯКУ 02647 КЭ);  Morgogor placer (ЯКУ 13004 КЭ);  Right Bank of Morgogor placers (ЯКУ 02650 КЭ);  Olom (Istok Plot) and Ruchey Log 325 placers (ЯКУ 15790 КЭ);  Kholomolokh placer (ЯКУ 02647 КЭ); and,  Uchakh-Ytyrbat River and Khara-Mas River basins placers (ЯКУ 02663 КЭ).

The environmental, health and safety and social conditions attached to these licences are broadly consistent.

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10.7.6 Permits for Nature Use

All of Almazy Anabara’s sites are managed under a series of permits, licences and agreements that encompass all operations and support activities in the area (Table 10.35).

Table 10.35: Almazy Anabara GOK Permits for Nature Use

Issuing Validity Expiry No. Type of Licensed Activity Licence No. Issue Date Authority Period Date Air Sanitary-Epidemiological Federal Service for Supervision of Conclusion of the compliance 14.01.01.000.T. Consumer Rights 8th June 2016 1 000337.06.16 - - with MPC design, fuel storage Protection and in Yuryung-Khaya Human Welfare Sanitary-Epidemiological Federal Service for Supervision of 29th Conclusion of the compliance 14.01.01.000.Т. Consumer Rights February 2 000138.02.16 - - with MPC design, Morgogor Protection and 2016 site Human Welfare Waste Almazy Anabara (renewal of The Federal Service for 14 No. 00209 4th May 2016 1 license 14 No. 00006 dated Supervision of - - February 2, 2011) Natural Resources Water 14- Department of 31st Unnamed river (Kamenisty) - 18,01,00.0001- Water Affairs of 27th June 1 2.5 years December water use P-PDBV-C- the Republic of 2014 2014-02704/00 Sakha (Yakutia) 2016 14- Department of 31st 18,01,00.0001- Water Affairs of 2nd July 2014 16.5 years December 2 River Ebelyakh – water use P-PDBV-C- the Republic of 2014-02709/00 Sakha (Yakutia) 2030 14- Department of 31st Unnamed river No. 4091 18,01,00.0001- Water Affairs of 3rd April 3 4.5 years December Gusiny Stream - water use P-PDBV-C- the Republic of 2014 2014-02590/00 Sakha (Yakutia) 2018 14- Department of 30th Istok (River Ebelyakh) – water 18,01,00.0001- Water Affairs of 23rd May 4 5.3 years September use P-PDBV-C- the Republic of 2013 2013-02294/00 Sakha (Yakutia) 2018 14- Department of 18,01,00.0001- Water Affairs of 29th May 1st June 5 River Morgogor – water use 7 years P-PDBV-C- the Republic of 2012 2019 2012-01717/00 Sakha (Yakutia)

10.7.7 Risk Categorisation

Micon considers the overall risk associated with environmental and health and safety considerations at the Almazy Anabara deposits to be moderate. The river system, however, supports a high quality fishery and valuable biodiversity resources and is vulnerable to the impacts of mining, should the necessary environmental measures not be implemented rigorously.

10.8 COSTS

10.8.1 Operating Costs

The data on actual average Almazy Anabara operating costs for 2015 and planned average operating costs for 2016 are presented in Table 10.36. The data corresponds to calculations

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provided by Almazy Anabara and the presented costs are calculated as average values for all the company deposits (operations); they exclude amortisation.

When evaluating and using the data on operating costs Micon assumed that with sufficient accuracy the average unit cost of the main production processes can be used for all the company deposits covered by the report. The same methods of mining and processing are used at all the deposits and a single fleet of equipment and a single infrastructure are shared by all the operations.

In addition to the production costs directly related to the mining and processing of the deposits, Micon’s assessment incorporates the reported general and administrative costs and commercial costs. Micon assumed that these reported costs include all taxes and charges except profit tax, royalty, property tax and customs tax.

Unit operating costs used in Micon’s economic evaluation are presented in Table 10.36.

Table 10.36: Almazy Anabara Actual Operating Costs

Parameters 2015 2016 Mining and Sands Washing Costs Direct Cost of Sands Mining (RUB/m3 of sands) 139.7 150.0 Direct Cost of Preparation Work (RUB/m3 of work) 109.1 126.2 Direct Overburden Removal Cost (RUB/m3 of overburden) 115.3 129.7 Direct Sands Washing Cost (RUB/m3 of sands) 245.5 260.4 Haulage of Mined Material Costs Volume of Transported Material (k m3) 5,244 4,395 Direct Haulage Cost (RUB/m3) 48.7 80.5 General Production Costs Total General Production Cost (000’RUB) 1,913,557 1,928,691 General and Administrative Costs of the Company Total General and Administrative Costs of the Company (000’RUB) 471,500 503,936 Commercial Costs Total Commercial Cost (000’RUB) 778,141 858,479

10.8.2 Capital Costs

In estimating future capital expenditures, Micon used the actual capital costs data provided by Almazy Anabara up to and including 2015, the Almazy Anabara 2016 budget and the capital expenditures plan proposed in 2015 for 2016 to 2018.

After analysing the data, Micon used a specific value 372.5 RUB/m3 of mined material for the capital expenditures forecast for the entire period under evaluation up to 2030. This value corresponds to the 2016 budget and is conservative.

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11.0 NIZHNE-LENSKOE

11.1 BACKGROUND

AO Nizhne-Lenskoe was established in 1995 and became part of the ALROSA Group in 2013. The headquarters of Nizhne-Lenskoe are in Yakutsk, the capital of the Republic of Sakha (Yakutia), and the Company holds sub-soil licences for a number of placer diamond deposits in three different districts in the northern region of Yakutia, as summarised in Table 11.1.

Table 11.1: AO Nizhne-Lenskoe Diamond Placer Deposits

Date of Deposit Area Licence and Validity Status of Mining Approved

District Reserves Diamondiferous ЯКУ 13260 КР Billyakh River Billyakh

ar 16.08.2005 - In operation 27.12.2013

Anab Placer Tributaries 20.08.2025 Talakhtakh ЯКУ 13662 КЭ Lower Placer 04.06.2006 - In operation 26.10.2014 2 Talakhtakh 0.63 km 01.08.2018 River Placer Talakhtakh ЯКУ 02649 КР Upper Valley 08.04.2008 - 26.10.2014 Placer 3.15 km 2 15.04.2028

Kuonamka Explored Bolshaya Bolshaya Kuonamka Kuonamka ЯКУ 02649 КР 26.10.2014 Placer Placer ЯКУ 15887 КЭ Molodo 26.06.2015 - Molodo River 30.06.2035 07.11.2008 and In operation Placer ЯКУ 01935 КЭ 28.09.2015

Prilenskij Upper Molodo 12.04.2002 - and Molodo 31.12.2016

The first group of Nizhne-Lenskoe deposits, consisting of the Billyakh River, Billyakh Tributaries and Billyakh (Reliktovy) placers is located in the Anabar River basin within the Anabar Ulus (administrative district) of the Sakha Republic. These deposits belong to the same diamondiferous district as the Almazy Anabara deposits. The second group of placers is located in the Kuonamka diamondiferous district and consists of the Talakhtakh and Bolshaya Kuonamka placer deposits, within the Oleneksky Ulus (administrative district) of Yakutia. The third group of deposits is located in the Prilenskij diamondiferous district of the Bulunsky Ulus (administrative district) of northern Yakutia, where the placers are associated with the Molodo River. The locations of the Nizhne-Lenskoe deposits are illustrated in Figure 11.1.

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Figure 11.1: Location of the Nizhne-Lenskoe Deposits

Anabar Ulus Deposits

Oleneksky Ulus Deposits

Bulunsky Ulus Deposits

Legend Mining Sites

Exploration Areas

Transit Bases

Fuel Storage

Source: Nizhne-Lenskoe 2015

All three areas are poorly developed and remote with respect to transportation, and are characterised by severe climate conditions, similar to those described for Almazy Anabara in Section 10.1.

The Olenek settlement is located in the centre of the Oleneksky Ulus. It has a diesel station, hospital, shops, post office and an airport accommodating helicopters and AN-2 and AN-26 aircraft. The resident population of the Oleneksky district is 4,100 people, of which 2,400 live in the village. Indigenous communities (the Yakut and the Evenkis) represent the majority of the inhabitants. The population is mainly involved in deer breeding, hunting and fishing.

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The Saskylah settlement of is an administrative centre of the Anabar Ulus, located on the right side of the Anabar River. The Nizhne-Lenskoe deposits are located approximately 100 km south of Saskylah. The village has a third category airport, accommodating AN-24, AN-26 and smaller aircraft year round. The nearest locality to the Nizhne-Lenskoe Anabar Ulus deposits is the uninhabited Ebelyakh settlement, which lies on the right side of the Anabar River, close to the mouth of the Ebelyakh River.

The Tiksi settlement of is an administrative centre of the Bulunsky Ulus, located 350 km to the north-northeast of the Molodo River placer. The Zhigansk settlement is located 300 km south from the deposit and is an administrative centre for the Zhigansk Ulus. Both the Zhigansk and Tiksi settlements have harbours and airports, operating all year round. Tiksi also has a seaport. The Siktyakh settlement is the nearest populated area to the deposit (within 116 km) and is located at the mouth of the Molodo River. It is a small settlement, with an indigenous community who are involved in traditional activities.

11.2 GEOLOGY

11.2.1 Talakhtakh River Placer

The Talakhtakh River placer deposit is located 200 km north of Olenek. The lower part of the deposit (0.63 km2) lies within the licence area ЯКУ 13662 КЭ, granted to Nizhne-Lenskoe on 4th July 2006, and valid until 1st August 2018. The upper part of the placer includes a portion of the Talakhtakh River Valley, covered by licence ЯКУ 02649 КР, granted to Nizhne-Lenskoe on 8th April 2008 and valid until 15th April 2028. The deposit is located a distance away from the other Anabar diamondiferous district deposits, towards the south. The licence areas are shown in Figure 11.2 and the geological map of the area is provided in Figure 11.3. Figure 11.4 contains the legend for Figure 11.3.

The Talakhtakh River Valley is composed of terrigenous-carbonate rocks from the Vendian and Lower Cambrian, which form the basement of the diamond placers. The geological structure of the placers includes river bed and Quaternary alluvial sediments of the upper valley terraces, with poorly distinguished alluvium accumulation. The lower floodplain terraces can be traced in the form of narrow dissociated areas ranging from 6 m to 8 m high.

The valley placers extend over of 6.16 km. In cross-sectional view, the bedrock and poorly weathered clayey-carbonaceous rocks are overlain by a productive layer identified by river bed facies, boulder-gravel-cobbles (sands). These sands are further overlain by glacial silt and loam surficial facies (peat). Within the valley sediments, diamond mineralisation occurs as discontinuous braided lenses. The background sediments have a diamond grade of 0.15 ct/m3 to 0.30 ct/m3, with numerous linear sections with diamond grades greater than or equal to 0.60 ct/m3. The zones with higher diamond grades are identifiable by crystals with larger sizes.

The terrace placer covers a distance of 1.5 km of discontinuous diamond mineralisation in braided lenses. Distinct zones of higher diamond grades form stringers and lenses and are characterised by diamond grades of more than 0.30 ct/m3. The average diamond grade is 0.80 ct/m3 within the mined areas.

Gemstone quality diamonds account for only 15% of the total diamond volume, but their value accounts for 53.8% of the total revenue.

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Figure 11.2: Location of the Talakhtakh River Placer and Bolshaya Kuonamka Licences

Source: Nizhne-Lenskoe 2015

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Figure 11.3: Geological Map of the Talakhtakh River Placer and Bolshaya Kuonamka Deposits

Source: Nizhne-Lenskoe 2015

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Figure 11.4: Legend for Figure 11.3

Upper Section (contemporary stage). Lacustrine-boggy deposits. Clay loam, silt, peat, clay, lenses of ice (up to 8 m)

E Alluvial riverbed formations of low and upper river terraces (combined).

HOLOCEN Boulders, gravel, sands, clay loam, clay sand.

Alluvial I overbank terrace. Cobbles, gravel, sands, clay and peat.

Alluvial and deluvial sediments of debris cones.

Upper Section, III stage (contemporary stage). Alluvial II overbank terrace. Cobbles, sands, silt, clay sands (up to 27 m). Covering formations and alluvial sediments of buried valleys. Argillaceous QUATERNARY SYSTEM SYSTEM QUATERNARY cobbles, unsorted glacial gravel and cobble sediments with silt impurities. PLEISTOCENE PLEISTOCENE Upper Section, first and second stages. Alluvial III overbank terrace. Sands, NEO-PLEISTOCENE NEO-PLEISTOCENE cobbles, clay loam, silt, clay, peat (up to 16 m). Middle Section, third and fourth stages. Alluvial IV overbank terrace (Anabar and Malaya Kuonamka River basins). Cobbles, sands, clay loam, silt (up to 15 m). Upper Pliocene – Middle Quaternary sediments, poorly defined. Covering NEOGENE formations. Relics of a composite complex with lacustrine-boggy deposits and QUATERNARY alluvial sediments of old depositional plain. SYSTEM Silt, clay loam, sands, with occasional cobbles.

Sand strata. Upper Sands, clay, siltstones, brown coal, cobbles and gravel (up to 4.5 m) SYSTEM SYSTEM CRETACEOUS

Alkali – Ultrabasic Breccia pipes with carbonatite alkali-ultrabasic rocks. carbonatite formation Kimberlites: Early Mesozoic а) sub-alkaline tuff and tuff breccia pipes with mixed composition. kimberlite formation b) dolerite and gabbro-dolerite dykes. Early Mesozoic а) sub-alkaline tuff and tuff breccia pipes with mixed composition. trappean formation b) dolerite and gabbro-dolerite dykes.

Siligirskaya Suite. Limestones; argillaceous, silty, dolomitic, bituminous limestones; chalky clay, clay marl, calcareous conglomerate – breccia, chalcedony (230 m). Dzhakhtarskaya Suite. Limestones; argillaceous, silty, dolomitic, sandy and clay, brecciated limestones; chalky clay, dolomite-calcareous clay, argillite, bituminous Upper Upper argillite (150 m to 165 m). Olenekskaya Suite. Limestones; argillaceous, dolomitic, sandy and clay, brecciated limestones; chalky clay (75 m to 120 m). Kuonamskaya Suite. Limestones; argillaceous, bituminous, organo-clastic limestones; bituminous, siliceous shale; siliceous and calcareous argillites; siltstone, calcareous - clayey shale, chalky clay, silicite, anthraconite (35 m to 44 m).

CAMBRIAN SYSTEM Anabarskaya Suite. Dolomites; argillaceous, stromatolitic, oolitic and micro-

Lower- Middle clastic dolomites (70 m to 100 m).

Emyaksikanskaya Suite. Limestones; argillaceous, dolomitic, organo-clastic, ballstone, algal and silty limestone; chalky clay (150 m to 215 m). Lower

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Manykaiskaya Suite. Limestones; dolomitic, argillaceous, sandy, silty, Vendian- bituminous, pseudo-oolitic, oncolite, stromatolitic, organo-clastic limestone; Lower dolomites; argillaceous, calcareous, ballstone, silty dolomites; chalky clay, Cambrian sandstone, shale, argillite, conglomerate, conglobreccia, gravel. Starorechenskaya Suite. Dolomites; algal, chemical, sandy, silty, argillaceous, SYSTEM SYSTEM VENDIAN calcareous, oolitic, bituminous, clastic dolomites; sandstones, chalky clay, clayey shale, gravel, conglomerate (110 m to 60 m).

Diabase and gabbro-diabase dykes. Late Proterozoic formations Trachyte dykes.

Yusmastakhskaya Suite. Dolomites; stromatolitic, calcareous, oncolite, silty and clastic dolomite; sandstone, siltstone, gravel, conglomerate

Middle Middle (110 m to 235 m).

Kotuikanskaya Suite. Dolomites; stromatolitic, sandy, argillaceous dolomite, gravel conglobreccia (100 m to 160 m). RIPHEAN PROTEROZOIC PROTEROZOIC

Lower Labazstakhskaya Suite. Sandstones, silicified sandstone, conglomerate, gravel, siltstone, dolomite (100 m to 170 m). Early Proterozoic intrusive and Biotite sub-alkaline granite, sub-alkaline leucogranite and alaskite. metamorphic formations Khaptasynnakhskaya Suite. Malacolite, hypersthene, garnetiferous - hypersthene, garnetiferous, two pyroxene, sillimanite - cordierite, amphibole - hypersthene, amphibole - two pyroxene gneiss and plagiogneiss; calciphyre, carbonate; scapolite-malacolite, andradite - clinopyroxenic rocks; amphibole-pyroxene- plagioclase rocks; amphibole-pyroxene-plagioclase crystalline schist, quartzite, magnetite schist (1,500 m to 2,000 m) Verkhneanabarskaya Series, poorly defined. Leuco-mesocratic hypersthene, two

ARCHAEN pyroxene biotite, amphibole and garnetiferous gneiss and plagio-gneiss; two pyroxene plagioclase, clinopyroxene, hypersthene-plagioclase, amphibole and with biotite crystalline schist; clinopyroxenic, sillimanite cordierite, sillimanite gneiss; quartzite, magnetite crystalline schist (5,000 m to 6,500 m) Karst forms, filled with: а) chalk sediments (sands, clay with pebbles and debris, fragments of weathering crust); b) Quaternary sediments (cobbles with sand and pebbles)

Geological boundaries between formations of different ages: а) defined, b) inferred

Lines of disconcordant formations

Licence outline of the Bolshaya Kuonamka Mine

Licence outline of the Talakhtakh Mine

Source: Nizhne-Lenskoe 2015

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11.2.2 Bolshaya Kuonamka Placer

The Bolshaya Kuonamka placer includes the Bolshaya Kuonamka River placer and its right tributary, the Talakhtakh River, and is located 200 km north of Olenek. The major portion of the deposit covers the upper and mid-stream sections of the Bolshaya Kuonamka River valley and occurs in licence area ЯКУ 02649 КР (Figure 11.2). The licence was granted to Nizhne-Lenskoe on 8th April 2008 and is valid until 15th April 2028.

The geology is composed of terrigenous-carbonate rocks from the Riphean, Vendian and Cambrian, which are cut through by Proterozoic and Mesozoic basic intrusions, and Triassic and Jurassic kimberlites and alnoites. The geological map of the deposit is shown in Figure 11.3.

Quaternary sediments of three terraces above the floodplains, Upper Quaternary sediments of buried valleys and re-transported river bed sediments (upper and lower plains) are widely spread in the Bolshaya Kuonamka River Valley and the Talakhtakh River.

The Bolshaya Kuonamka River placer can be divided into the river placer and the terrace placer. The Bolshaya Kuonamka River placer is over 130 km long (commercial portion 111.5 km), with a thickness varying from 1.07 m to 0.97 m, on average. The diamond distribution is macro and micro braided.

The Bolshaya Kuonamka terrace placer areas are composed of fragments from previously large and partially eroded placer deposits. They are characterised by a relatively constant thickness and irregular diamond distribution within which relatively broad zones of high grades can be distinguished.

The Bolshaya Kuonamka River placer accounts for over 95% of the diamond reserves in the two deposit types.

Within the Bolshaya Kuonamka River placer, there are three areas of varying geological structure and diamond grade: Verkhnee (Upper), located from the upper licence border to the Talakhtakh River mouth; Nizhniy (Lower), located from the Talakhtakh River mouth to the commercial placer outcrops, and the Priustyevoy area with a low diamond grade, but of commercial value.

Based on the exploration work, the highest diamond grades are found in the river bed alluvials. The diamond grades in the sand banks, which host the majority of the Bolshaya Kuonamka placer alluvial reserves, are significantly less.

Approximately 98% of the deposit is represented by colourless diamond varieties, comprising 79% by mass. The content of undamaged and slightly damaged gemstone diamonds is low (slightly more than 16%), but their overall value is still predominant, at approximately 60%.

11.2.3 Billyakh Tributaries Placer

The placer deposits of the Billyakh Tributaries also belong to the Anabar diamondiferous district, and are associated with the Shlikhovoy, Lagerniy and Tiglikit Stream valleys. The streams form valleys within the Middle Cambrian Anabar suite carbonate rocks, frequently with a developed weathering crust. The most productive deposits are from the Upper

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Quaternary period within the U-shaped valleys. In general, the diamond content of the various alluvial types is not significantly different, although higher grades are more likely for sediments with a significant proportion of sand and silt. High diamond mineralisation can be clearly observed in the vertical section of the productive seam adjacent to the bedrock.

The Lagerny, Shlikhvoy and Tiglikit Stream deposits are composed of Upper Quaternary buried placers, with average diamond grades of 0.71 ct/m3, 1.14 ct/m3 and 0.71 ct/m3, respectively.

11.2.4 Molodo River Placer

The Molodo River Placer is located in the northeast of the Siberian Platform, within the contact zone of the Anabar anticline and Predverkhoyansky foreland basin, and within the Prilensky diamond mineralisation area.

Sedimentary formations from the Cambrian, Permian, Triassic, Jurassic, Neogene and Quaternary Systems are widely spread within the deposit area. Volcanic rocks within the area are composed of interbedded intrusions of dolerite and kimberlite. Granite and pegmatite veins are also present on the southern slopes of the Oleneksky High. A geological map of the Molodo River placer is displayed in Figure 11.5, the legend for which is provided in Figure 11.6.

Figure 11.5: Geological Map of the Molodo Placer Deposit

Source Nizhne-Lenskoe 2015

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Figure 11.6: Legend to Figure 11.5

Undifferentiated Lower, Middle and Upper Series. Clay, loamy clay, silt, sandy clay, sand and gravel.

System System Quaternary Quaternary

Pliocene to Lower Quaternary Sediments. Watershed gravel. Loamy clay, sand and gravel.

System System Quaternary Quaternary Neogene to to Neogene

Undifferentiated sediments of the Lower Series. Sand, aleurolite, sandstone, argillite, carbonaceous shale, coal, lignite and conglomerate.

System System Cretaceous

Undifferentiated Lower, Middle and Upper Series. Sand, aleurolite, loamy sand, clayey loam, sand and conglomerate.

System System Jurassic Jurassic

Undifferentiated Sediments. Sandstone, aleurolite, argillite and conglomerate lenses.

Lower Series, lava-tuff series. Tuffaceous sandstone, tuff, tuffite, basalt, dolerite System System Triassic (torleite, affantite, and ataxite varieties).

Undifferentiated Lower and Upper Series. Sand, sandstone, carbonaceous clayey shale, carbon and conglomerate.

System System Permian Permian

Lower Series. Limestone, calcareous dolomite, gypsum and conglomerate.

System System Carboniferous Carboniferous

Undifferentiated Lower, Mid, and Upper series. Limestone, clayed limestone, marl, dolomite, sandstone, aleurolite, conglomerate, clay shale.

System System Cambrian

Undifferentiated sediments. Dolomite, gravelite, conglomerate, sandstone, argillite, aleurolite, clay shale, limestone.

Vendian

Undifferentiated sediments. Dolomite, sandstone, limestone, metamorphic sandstone and aleurolite, fillite, gravelite, conglomerate.

Proterozoic Proterozoic

Dolerite intrusion, microdolerite intrusion, gabbro-dolerite intrusion.

Mesozoic Mesozoic Intrusions Intrusions

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Granite intrusion.

Intrusions Intrusions Proterozoic Proterozoic

Fault

Geological Boundary

Diamondiferous Kimberlite Body

Modern Diamond Placer Grades

Over 0.5 ct/m3

From 0.2 to 0.5 ct/m3

Under 0.2 ct/m3

Source Nizhne-Lenskoe 2015

The diamond mineralisation occurs in the Quaternary alluvial sediments of the midstream section of the Molodo River valley. Commercial diamond exploration has been completed on two areas of the placer to date, the Molodo placer and the Verkhnee Molodo placer (also referred to as the Upper placer). The placers are separated by a 25 km length of the Srednee Molodo Valley, which has only background diamond mineralisation.

The river valley bedrock is composed of carbonate rocks and terrigenous-carbonate sediments from the Lower and Middle Cambrian. In the Molodo area, the river valley cuts through Jurassic sandy-silty-clayey strata, Permian coal and Lower Triassic lava-tuffs. Alluvial sediments have been deposited on a thin (5 cm to 10 cm) crust of weathered Palaeozoic rocks, with sections at the base of the alluvium on weathered limestone crusts 3 m to 4 m thick.

The alluvial sediments vary from recent in age (river bed, upper and lower floodplains) down to Upper to Lower Pleistocene (five terraces above floodplain). The second to fifth floodplain terrace sediments are characterised by low diamond grades.

Fragments of the first floodplain terrace are observed in the middle part of the Molodo placer and can be traced discontinuously to the lower and middle sections of the Verkhnee (Upper) Molodo placer. From the sampled volumes, the average diamond grade for the first floodplain terrace is 0.24 ct/m3.

Alluvium from the upper floodplain can be discontinuously traced on both river banks. The average diamond grade within the upper floodplain alluvium is 0.20 ct/m3. Overall, the upper floodplain alluvium comprises approximately 38.8% of the diamond reserves estimated across the deposit.

Recent alluvium within the river bed facies contains diamonds across its area and is the major productive level within the valley sediments. It contains 47.8% of the estimated deposit diamond reserves and resources. The average diamond grade from the total sample volume is 0.47 ct/m3 in the Molodo area and 0.22 ct/m3 in the Verkhnee (Upper) Molodo.

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11.3 MINERAL RESOURCES AND RESERVES

11.3.1 Talakhtakh River Placer

11.3.1.1 Exploration

Diamond mineralisation in the Quaternary sediments of the Talakhtakh River valley was discovered in the mid-1960’s and the high diamond content of the valley was confirmed in 1992, based on a small sized sample collected from the river bed alluvium in the area adjacent to the bedrock of the river. The sample showed a very high diamond grade of 50.86 ct/m3, with a high average crystal size of 53.4 mg.

Between 1999 and 2001, an area adjacent to the bedrock of the placer was explored by shallow shafts. Detailed exploration was completed between 2004 and 2007 in the lower area of the Talakhtakh River placer. The results, along with the data from previous exploration and appraisal works, were used as the basis for estimation and economic evaluation of the Talakhtakh River placer reserves.

Exploration at the deposit included exploration pits, bulk sampling of developed coarsely clastic rocks, processing of bulk sand samples, topographic and geodesic surveys and limited drilling to confirm the geological structure and to study the composition of the productive sediments. Evaluation and exploration in the upper part of the valley placer was completed from 2009 to 2010. The total scope of completed exploration work on the Talakhtakh River placer is summarised in Table 11.2.

Table 11.2: Exploration of the Talakhtakh Stream Placer

Scope of Works by Stage № Type of Work Units Prospecting Exploration Total (appraisal) 1. Mining Operations r.m. 1,060.4 3,776.2 4,836.6 1.1. Exploration Pits hole 242 748 990 1.2. Trenching over ice m3 61,8 51,8 113,6 1.3. Trenching m3 - 11,530 11,530 r.m. 701.6 701.6 2. Borehole Drilling - hole 86 86 3. Sampling m3 789.8 3,081.9 3,871.7 3.1. Bulk Sampling sample 584 2,037 2,621 3.2. Channel Sampling sample 257 746 1,003 3.3. Small Size Technological Sampling sample 28 148 176 3.4. Technical sample - 10 10 3.5. Special (Palynological) sample - 80 80 m3 3,824.2 3,824.2 3.6. Bulk Sectional Sampling - sample 10 10 3.7. Heavy Mineral Concentrate Sampling sample 28 450 478 4. Processing m3 789.8 3,081.9 3,871.7 4.1. Processing of Bulk Samples sample 584 2037 2621 Processing of Large Size Sectional m3 3,824.2 3,824.2 4.2. - Samples sample 10 10

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Processing of bulk (exploration) and sectional (large-scale) sand samples was completed in stationary mechanical concentration plants, the flowsheet for which included the extraction of diamonds from the -16 + 0.5 mm fraction. Regular internal quality control of sample processing was performed for all operations by a site geologist. In addition, intermittent monitoring was carried out over all the processing operations. External control of X-ray luminescent separation tailings was carried out by ALROSA.

11.3.1.2 Russian Mineral Reserve Estimate

The approval of GKZ reserves last took place in 2014. The reserves were estimated within the boundaries of licences ЯКУ 02649 КР (Bolshaya Kuonamka River placer and the Talakhtakh River Upper valley placer) and ЯКУ 13662 КЭ (Talakhtakh River Lower placer). The parameters outlined in Table 11.3 were applied to the reserve calculations for the Talakhtakh River placer.

Table 11.3: Parameters for Calculating the Reserves of Talakhtakh Stream Placer as at 1st January 2016

№ Parameters and Application Unit Value 1 Minimum commercial diamond grade in a reserve block, with no stripping required. ct/m3 0.47 Minimum commercial diamond grade in an internal reserve block located among balance 2 ct/m3 0.27 reserves, with no stripping required. Minimum grade in peripheral intercepts used to contour the seam in plan view, with no 3 ct/m3 0.22 stripping required. 4 Cut-off diamond grade in peripheral intercepts to contour the seam thickness. ct/m3 0.10 5 Increase gradient per stripped unit (direct costs) ct/m3 0.02 6 Increase gradient per stripped unit (total costs) ct/m3 0.07 7 Productive seam to be contoured by thickness within geological boundaries of diamond-bearing sediments 8 The reserves to be estimated for the conditional screen class +1.0 mm (-2 NSC) as per the lowest processing limit. Off-balance reserves to include only reserves located outside the contour of the balance reserves with diamond 9 grades above the minimum grade in peripheral intercepts, but below the minimum commercial grade. Gold and platinum reserves mined as by-products to be estimated within the contour of diamond-bearing sands 10 reserves

The Talakhtakh River placer reserves were estimated using all the data obtained from the prospecting, appraisal and exploration work. The productive seam sections were contoured using a combined method by identifying the geological (lithological) alluvium boundaries of the riverbed facies, and by identifying areas where no clear geological boundaries were evident using a cut-off grade of 0.10 ct/m3.

The extension method, described in Section 10.3.1.2 (description of reserve calculations for Ebelyakh river placer), was used as the basic method of reserve estimation. This method was used for most of the riverbed placers in the Anabar diamondiferous district.

The geological block reserve estimation, as described in Section 3.2, was used as the alternative method. The difference between the results of the two estimation methodologies was not significant.

The reserve estimates were approved by the GKZ on 26th November 2014. The balance reserves of the Talakhtakh River Placer (licence ЯКУ 13662 КЭ), as at 1st January 2016, are summarised in Table 11.4.

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Table 11.4: Balance Reserves of Talakhtakh Stream Placer as at 1st January 2016

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct)

С1 633 0.83 524.5 166 0.51 84.1

C2 172 0.68 118.2 159 0.42 66.3

11.3.1.3 JORC Code Mineral Resource Statement

Micon has prepared a mineral resource estimate for the Talakhtakh River placer (within the boundaries of licence ЯКУ 13662 КЭ) in accordance with the guidelines of the JORC Code (2012), using the methodology and sources of information described in Section 3.3. Micon’s resource estimate is summarised in Table 11.5. The stated resources are inclusive of the reserves.

Table 11.5: Mineral Resources of the Talakhtakh River Placer as at 1st July 2016 (Licence ЯКУ 13662 КЭ)

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Indicated 378 1.13 426 Inferred 172 0.69 118

11.3.1.4 JORC Code Ore Reserve Statement

Micon has prepared an ore reserve estimate for the Talakhtakh River placer sands in accordance with the guidelines of the JORC Code (2012), based on the Indicated mineral resources summarised in Table 11.5, adjusted for dilution of 15.66% (actual average value for 2015 and first half of 2016). No adjustment was made for mining losses. The reserve estimate is summarised in Table 11.6.

Table 11.6: Ore Reserves of the Talakhtakh River Placer as at 1st July 2016 (Licence ЯКУ 13662 КЭ)

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable 448 0.95 426

11.3.2 Bolshaya Kuonamka Placer

11.3.2.1 Exploration

The diamond mineralisation in the alluvial sediments of the Bolshaya Kuonamka River valley and Talakhtakh River valley were discovered between 1963 and 1966. Prospecting and evaluation work was carried out from 2008 to 2011, with exploration completed from 2011 to 2013.

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The conventional exploration technique of sinking exploration pits at 10 m, 20 m and 30 m intervals down to the bedrock contact, and sampling the extracted material, was implemented for the near-surface and shallow-depth diamond deposits. The diamond content evaluation of the river bed placer of the Bolshaya Kuonamka River is based on samples extracted from the exploration pits and trenches dug cross the strike of the valley.

Core drilling was also carried out in order to provide samples for mapping the geology and mineralogy of the sediments in the floodplain and upper valley. The drilling was also utilised to undertake a study of the geotechnical settings and permafrost conditions within the deposit area.

Batch sampling was undertaken to verify the data gained from exploration pits and to collect a representative sample for crystal analysis. The types and scope of exploration work undertaken at the deposit are summarised in Table 11.7.

Table 11.7: Geological Exploration Work Conducted at the Bolshaya Kuonamka Placer

Number No. Type of Work Units of Volume Workings 1 Exploration Pits 1.1 Firing and Digging Method (4.0 m² area) m 3,340 4,419.3 1.2 Drilling and Blasting (2.0 m² area) m 600 4,615.8 1.3 Drilling and Blasting (1.5 m² area) m - - 2 Trenching in Sands 2.1 By Manual Method m³ 1,149 2,101.2 2.2 By Mechanical Excavation Method m³ 529 4,289.1 3 Trenching in the Ice m³ - 37,023.6 4 Core Drilling 4.1 In Terraces m 1,165 8,287.0 4.2 In the River Bed m 419 1,739.6 5 Channel Sampling sample 829 6 Core Sampling and Washing sample 6.243 7 Geotechnical Sampling sample 34 8 Small Technological Sampling sample 281 9 Gold Panning sample 346 10 Bulk Sampling 10.1 Total m³ 8,763 26,328.3 10.2 Exploration Pits (4.0 m²) m³ 5,216 16,882.2 10.3 Exploration Pits (2.0 m²) m³ 1,628 3,055.8 10.4 Trenches by Manual Method m³ 1,390/278 2,101.2 10.5 Trenched by Mechanised Method m³ 529 4,289.1 11 Bulk Sampling m³ 2 19,213.0 12 Processing 12.1 Geological Samples m³ - 26,328.3 12.2 Bulk Samples m³ - 19,213.0 Note: Unit sample 2 m; aggregated sample 10 m.

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In order to gather a representative sample of diamonds to assess their class sizes, evaluate their potential market price, and determine the grades and recovery of diamonds from the sand with associated pay minerals (gold and platinum group metals), two bulk samples were taken within the Bolshaya Kuonamka placer. Specific gravity measurements were also performed.

Small technological sampling was also carried out to establish the technological characteristics of sands and to design a flowsheet for the processing of the exploration samples. The processing of bulk samples was undertaken by portable processing plants on site. The concentrate was delivered to Nizhne-Lenskoe’s sorting house in Yakutsk. The sample processing was controlled by QA/QC technicians and Nizhne-Lenskoe geologists.

11.3.2.2 Russian Mineral Reserve Estimate

The mineral reserves have been evaluated for the Bolshaya Kuonamka River placer and Upper Talakhtakh River Upper valley placer (licence ЯКУ 02649 КР), based on the cut-off parameters listed in Table 11.8.

Table 11.8: Permanent Exploration Cut-Off Criteria for Reserve Estimation of the Bolshaya Kuonamka Placer

No. Cut-Off Criteria Parameters and Application Units Lower Site Upper Site Minimum commercial diamond grade in a reserve block, with 1 ct/m3 0.33 0.21 no stripping required. Minimum commercial diamond grade in an internal reserve 2 block located among balance reserves, with no stripping ct/m3 0.19 0.12 required. Minimum grade in peripheral intercepts used to contour the 3 ct/m3 0.14 0.07 seam in plan view, with no stripping required. Diamond cut-off grade in peripheral intercept used to contour 4 ct/m3 0.07 0.04 the seam thickness. 5 Increase gradient per stripped unit (direct costs). ct/m3 0.02 0.01 6 Increase gradient per stripped unit (total costs). ct/m3 0.03 0.02 Outlining of the thickness of the productive seam in the river bed placer is to be carried out within the 7 geological boundaries of the diamond-bearing sediments. 8 The reserve class +1.0 mm (-2 NSC) diamonds shall be assessed to match the recovery lower limit. Off-balance reserves to include only reserves located outside the contour of the balance reserves with 9 diamond grades above the minimum grade in peripheral intercepts, but below the minimum commercial grade. The reserves of associated components (gold and platinum) are to be evaluated within the contour of 10 the diamond-bearing sands.

The reserve evaluation method used for the Bolshaya Kuonamka placer reserve is the same as that used for the Talakhtakh River placer (Section 11.3.1.2.). The reserve estimate was approved by the GKZ in November 2014. The balance reserves of the Bolshaya Kuonamka River placer and part of the Talakhtakh River placer (licence ЯКУ 02649 KР), as of 1st January 2016, are summarised in Table 11.9.

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Table 11.9: Balance Reserves of the Bolshaya Kuonamka River and Talakhtakh River Upper Placers as at 1st January 2016 (Licence ЯКУ 02649 KР)

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 mm +2 mm (k m3) +2 mm +2 mm (ct/m3) (kct) (ct/m3) (kct) Bolshaya Kuonamka River Placer B 470.3 0.542 254.8 - - -

C1 3,475.7 0.401 1,392.0 - - -

B+C1 3,946.0 0.417 1,646.8 - - -

C2 5,770.3 0.485 2,801.3 - - - Talakhtakh River Placer

C2 485.6 0.691 335.5 - - - Total for Licence ЯКУ 02649 КР B 470.3 0.542 254.8 - - -

C1 3,475.7 0.401 1,392.0 80.0 0.186 14.9

B+C1 3,946.0 0.417 1,646.8 - - -

C2 6,255.9 0.501 3,136.8 1,145.0 0.426 487.8

11.3.2.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has estimated the mineral resources of the Bolshaya Kuonamka River placer and part of the Talakhtakh River placer covered by licence ЯКУ 02649 KР, in accordance with the guidelines of the JORC Code (2012), as summarised in Table 11.10. The resources reported are inclusive of the reserves.

Table 11.10: Mineral Resources of the Bolshaya Kuonamka River and Talakhtakh River Placers as at 1st July 2016 (Licence ЯКУ 02649 KР)

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 mm +2 mm (ct/t) (kct) Indicated 3,861 0.42 1,623 Inferred 6,256 0.50 3,137

11.3.2.4 JORC Code Ore Reserve Statement

Micon has prepared an ore reserve estimate for the Bolshaya Kuonamka River placer in accordance with the guidelines of the JORC Code (2012), based on the Indicated mineral resources as stated in Table 11.11, and adjusted for a dilution allowance of 15.94% (actual average value for the first half of 2016). No allowance was made for mining losses. The reserve estimate is summarised in Table 11.11.

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Table 11.11: Ore Reserves of the Bolshaya Kuonamka River Placer as at 1st July 2016 (Licence ЯКУ 02649 КР)

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 mm +2 mm (ct/t) (kct) Probable 4,593 0.35 1,623

11.3.3 Billyakh Tributaries Placer

11.3.3.1 Exploration

Prospecting and evaluation of the valleys of the four tributaries of the Billyakh River (Tiglikit, Meridionalny, Lazurny and Ozerny Creeks) was completed between 2006 and 2007. By the end of 2009, exploration had commenced in the most promising creek valleys (Lagerny, Tiglikit, and Shlikhovoy), with exploration work being completed in the autumn of 2012.

The Lagerny and Shlikhovoy Creek valleys have been studied by a series of pits on a 10 m to 20 m grid along exploration lines at 400 m intervals. To define the geology in the Shlikhovoy Creek valley, a series of exploration pits was dug on a 200 m by 10 m to 20 m grid. An additional series of pits was dug to explore the lower portion of the Tiglikit Creek placer. A single diamond-bearing sands bulk sample was taken along the Shlikhovoy Creek valley.

The types and volumes of exploration work conducted within the Billyakh River tributaries are summarised in Table 11.12.

Table 11.12: Geological Exploration Work Conducted at the Billyakh River Tributaries

Pit Development Sampling No. of No. Tributary No. of Length Volume Lines Quantity Pits (m) (m3) Prospecting and Evaluation in 2006 to 2009 1 Tiglikit Creek 5 86 319.1 139 270.40 2 Lagerny Creek 3 40 184.6 55 92.38 3 Shlikhovoy Creek 3 40 197.0 64 107.74 Sub-Total Prospecting and Evaluation 11 166 700.7 258 470.52 Exploration in 2009 to 2012 1 Tiglikit Creek 1 15 43.7 29 46.51 2 Lagerny Creek 13 150 700.5 241 408.36 3 Shlikhovoy Creek 19 276 1,508.0 421 720.14 Sub-Total Exploration 33 441 2,252.2 691 1,175.01 Total 44 607 2,952.9 949 1,645.53

Additional sampling was undertaken to determine the specific gravity of the rocks, their fracture frequency and ice content.

Samples were processed at mechanical processing modules, using a gravity flowsheet, with final sorting at the Billyakh sorthouse. Quality control of all washing, screening, desliming, sorting and X-ray screening operations was undertaken.

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11.3.3.2 Russian Mineral Reserve Estimate

The diamond reserves in the valleys of the Billyakh River Tributaries, within licence ЯКУ 13260 КР, were approved in 2013, based on the approved cut-off criteria contained in Table 11.13.

Table 11.13: Cut-Off Criteria for the Reserve Estimate of the Billyakh River Tributaries (2013)

No. Cut-Off Criteria Parameters and Application Units Values Minimum grade in peripheral intercepts used to contour the seam in plan 1 ct/m3 0.24 view, with no stripping required. Increase gradient for minimum diamond grade in peripheral intercepts 2 ct/m3 0.041 per geological stripped unit. Minimum commercial diamond grade in a reserve block, with no stripping 3 ct/m3 0.56 required. Minimum commercial diamond grade in an internal reserve block located 4 ct/m3 0.37 among balance reserves, with no stripping required. Increase gradient for minimum commercial grade per geological 5 ct/m3 0.041 stripped unit. Minimum thickness of productive layer; if less then the GT (grade x 6 m 0.4 thickness) parameter shall be applied. Contouring the thickness of the productive seam is to be done within geological boundaries of 7 diamond-bearing sediments. 8 The reserve class +1.0 mm (-2 NSC) diamonds shall be assessed to match the lower limit of recovery. Off-balance reserves to include only reserves located outside the contour of the balance reserves with 9 diamond grades above the minimum grade in peripheral intercepts, but below the minimum commercial grade.

Reserves were estimated by the geological block method described in Section 3.2, and were approved by the GKZ. The reserves within the Billyakh River Tributaries covered by licence ЯКУ 13260 КР, as of the 1st January 2016, are summarised in Table 11.14.

Table 11.14: Balance Reserves of Billyakh River Tributaries as at 1st January 2016 (Licence ЯКУ 13260 КР)

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 mm +2 mm (k m3) +2 mm +2 mm (ct/m3) (kct) (ct/m3) (kct)

C1 328 0.959 314.6 - - -

C2 139 1.234 171.5 94.0 0.409 38.4

11.3.3.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has prepared a mineral resource estimate for the Billyakh River Tributaries placers (licence ЯКУ13260 КР), in accordance with the guidelines of the JORC Code (2012), as summarised in Table 11.15. The resources are inclusive of reserves.

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Table 11.15: Mineral Resources of the Billyakh River Tributaries Placers as at 1st July 2016 (Licence ЯКУ 13260 КР)

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 mm +2 mm (ct/m3) (kct) Indicated 158 1.16 183 Inferred 139 1.23 172

11.3.3.4 JORC Code Ore Reserve Statement

Micon has prepared an ore reserve estimate for the Billyakh River Tributaries placers in accordance with the guidelines of the JORC Code (2012), based on the Indicated mineral resources stated in Table 11.15, and adjusted by an allowance for dilution of 18.48% (actual average value for 2015 and the first half of 2016). No allowance was made for mining losses. The reserves are summarised in Table 11.16.

Table 11.16: Ore Reserves of the Billyakh River Tributaries Placers as at 1st July 2016 (Licence ЯКУ 13260 КР)

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 mm +2 mm (ct/ m3) (kct) Probable 194 0.94 183

11.3.4 Molodo and Verkhnee Molodo River Placers

11.3.4.1 Exploration

A geological survey of the Molodo and Verkhnee Molodo River placer area was completed between 1957 and 1961, following which a large programme of prospecting and preliminary exploration was completed between 1959 and 1983.

In 1991, detailed prospecting and evaluation began in this area. A bulk sample (800 m3) was collected from the river bar pebbles, from which a batch of high quality diamonds was recovered (average grade 1.29 ct/m3). Quality evaluation of these diamonds confirmed very high values for the crystals (approximately US$150/ct). From 1994 to 1996, prospecting and evaluation were completed. Cut-off criteria were approved and an updated reserve estimate was developed as of 1st December 1996. In 1997, pilot mining was started and full-scale exploitation, accompanied by on-going exploration, has been carried out since 2002.

In 2003, exploration of the terrace areas of the Molodo River placer and the lower part of the Verkhnee Molodo placer was completed. The deposit balance reserves were significantly increased, diamond carats by 2.5 times and sand volumes (m3) by 3.2 times.

Exploration included excavation of prospect and exploration pits, core drilling, bulk sampling of the exposed coarse fragmental rocks, processing of bulk sand samples, and topographic and geodetic surveys. Specific gravity measurements were also made. The main exploration activities completed at the Molodo River and Verkhnee Molodo placer sites are presented in Tables 11.17 and 11.18, respectively.

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Table 11.17: Geological Exploration Work Conducted at the Molodo River Placer

Scope of Work Types of Work Units Preliminary and Exploration Exploitation Detailed Exploration of Terraces Exploration Total (1973-1976) (2003-2007) (1997-2006) Mining m 4,029.0 4,061.1 1,276.2 9,366.3 Prospect/Exploration Pits pit 1,084 500 322 1,906 Trenches m3 - 1,890.6 - 1,890.6 m - 3,171.2 - 3,171.2 Drilling drill hole - 443 - 443 Sampling m3 5,517.3 3,528.4 1,590.8 10,636.5 Bulk Sampling of Prospect Pits sample 2,149 1,872 979 5,000 Process Sampling a) grain-size composition sample 94 137 - 231 b) petrographic composition sample 73 30 - 103 Technical (special) Sampling sample 15 8 - 23 m 3 - 855.4 - 855.4 Large Volume Bulk Sampling sample - 11 - 11 Palynological Sampling sample - 52 - 52 Core Sampling sample - 2,864 - 2,864 Processing m 3 5,517.3 3,528.4 1,590.8 10,636.5 Processing of Bulk Samples sample 2,149 1,872 979 5,000 Processing of Large Volume m 3 - 855.4 - 855.4 Bulk Samples sample - 11 - 11

Table 11.18: Geological Exploration Work Conducted at the Verkhnee Molodo Site

Scope of Work Types of Work Units 1961-2007 2007-2011 Total pit 2,613 2,047 4,660 Prospect/Exploration Pits m 9,569.1 8,149.7 17,718.8 sample 4,584 4 651 9,235 Bulk Sampling of Prospect/Exploration Pits m3 11,190.78 8,818.67 20,009.45 Process Sampling sample 265 206 471 Technical Sampling sample 10 - 10 sample 4,584 4,651 9,235 Processing of Bulk Samples m3 11,190.78 8,818.67 20,009.45

Processing of the bulk exploration samples was conducted at stationary mechanical sorters, for recovery of -16 to +0.5 mm diamonds. Internal quality control was carried out for all the washing, screening, deslushing, jigging and X-ray sorting operations.

11.3.4.2 Russian Mineral Reserve Estimate

The most recent approval of reserves by the TKZ was in November 2008. Reserves were estimated for the Molodo River and Verkhnee Molodo placers based on the cut-off criteria presented in Table 11.19.

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Table 11.19: Cut-Off Criteria for the Reserves Estimation of the Molodo River Placers (2008)

Cut-Off Criteria Parameters and Application Units Value For Balance Reserves Minimum commercial diamond grade in the block intended for annual mining ct/m3 0.43 and processing (capacity 400 k m3) if no stripping required. Minimum commercial diamond grade with average stripping. ct/m3 0.49 Increase gradient of minimum commercial grade per geological stripping unit. ct/m3 0.044 Minimum grade in peripheral intercepts used to contour the seam in plan view, ct/m3 0.22 with no stripping required. Minimum diamond grade in the peripheral intercept for contouring the seam, ct/m3 0.26 with average stripping ratio applied. Increase gradient of minimum grade in the contoured working per geological ct/m3 0.030 stripping unit. Diamond cut-off grade in peripheral intercepts used to contour the seam thickness in the absence of clear geological boundaries (for the placers on the ct/m3 0.10 high floodplain and terraces). Reserve estimation to be carried out: within the riverbed part of the placer for the entire thickness of the seam; within high floodplain and terraces in the absence of clear geological boundaries using the cut-off grade. Reserves of size class +1 mm (-2 NSC) are estimated, reserves of class -1+0.5 mm are calculated within the commercial contour for reference only. Off-Balance Reserves Off-balance reserves to include only reserves located outside the contour of the balance reserves with diamond grades above the minimum grade in peripheral intercepts, but below the minimum commercial grade.

The reserves were estimated by the geological block method described in Section 3.2. The balance reserves within the outline of licence ЯКУ 01935 KЭ (Molodo and Upper Molodo areas) are presented in Table 11.20. The balance reserves within the outline of licence ЯКУ 15887 KЭ (Molodo area) are presented in Table 11.21.

Table 11.20: Balance Reserves of the Molodo River Placer (Molodo and Upper Molodo areas) as at 1st January 2016 (Licence ЯКУ 01935 KЭ)

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct)

С1 366 0.708 259.3 55 0.424 23.3

C2 114 0.708 80.7 62 0.468 29.0

Table 11.21: Balance Reserves of the Molodo River Placer (Molodo areas) as at 1st January 2016 (Licence ЯКУ 15887 KЭ)

Balance Reserves Off-Balance Reserves Diamond Contained Diamond Contained Category Sands Grade Diamonds Sands Grade Diamonds (k m3) +2 NSC +2 NSC (k m3) +2 NSC +2 NSC (ct/m3) (kct) (ct/m3) (kct)

С1 1,043 0.745 777.5 398 0.381 151.5

C2 1,353 0.853 1,153.9 869 0.426 370.3

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11.3.4.3 JORC Code Mineral Resource Statement

Using the methodology and sources of information described in Section 3.3, Micon has prepared a mineral resource estimate for the Molodo River placers (licences ЯКУ 01935 KЭ and ЯКУ 15887 KЭ), in accordance with the guidelines of the JORC Code (2012), as summarised in Tables 11.22 and 11.23. The resources are inclusive of reserves.

Table 11.22: Mineral Resources of the Molodo River Placer (Molodo and Upper Molodo areas) as at 1st July 2016 (Licence ЯКУ 01935 KЭ)

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Indicated 264 0.73 193 Inferred 114 0.71 81

Table 11.23: Mineral Resources of the Molodo River Placer (Molodo area) as at 1st July 2016 (Licence ЯКУ 15887 KЭ)

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Indicated 735 0.88 650 Inferred 1,353 0.85 1,154

11.3.4.4 JORC Code Ore Reserve Statement

Micon has estimated the ore reserves of the Molodo River placers in accordance with the guidelines of the JORC Code (2012), based on the Indicated mineral resources stated in Tables 11.22 and 11.23, and modified to include an average allowance of 10.41% for dilution for licence area ЯКУ 01935 KЭ and 15.47% for dilution for licence area ЯКУ 15887 KЭ (actual average values for 2015 and the first half of 2016). No allowance was made for ore losses. The reserves are summarised in Tables 11.24 and 11.25.

Table 11.24: Ore Reserves of the Molodo River Placer (Molodo and Upper Molodo area) as at 1st July 2016 (Licence ЯКУ 01935 KЭ)

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable 295 0.65 193

Table 11.25: Ore Reserves of the Molodo River Placer (Molodo area) as at 1st July 2016 (Licence ЯКУ 15887 KЭ)

Diamond Contained Sands Grade Diamonds JORC Category (k m3) +2 NSC +2 NSC (ct/m3) (kct) Probable 870 0.75 650

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11.4 MINING

11.4.1 Design and Operation

The mining of all of the Nizhne-Lenskoe diamond placer deposits is carried out using the same methods and equipment types as those described in Section 10.4.1 for the Almazy Anabara deposits.

11.4.2 Production

The actual production results for the Nizhne-Lenskoe operations, from 2013 to 1st July 2016, are summarised in Table 11.26.

Mining at the Talakhtakh placer (licence ЯКУ 13662 КЭ) began in 2015, at the Bolshaya Kuonamka placer (licence ЯКУ 02649 КЭ) in 2016 and at the Molodo placer (licence ЯКУ 15887 КЭ) in 2016.

Micon has produced a production schedule for the Nizhne-Lenskoe placers incorporating the data from ALROSA’s long term production plan to 2030 and included the production schedule data suggested by the TEO reports for the placers yet to be developed, all adjusted to conform to Micon’s ore reserve estimates. Further exploration of the mineral resources may allow an increase in ore reserves and an extension of the life of these placer deposits.

The mining schedules for the Nizhne-Lenskoe deposits covered by the current report are shown in Table 11.27.

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Table 11.26: Nizhne-Lenskoe Placers Actual Production

2013 2014 2015 2016 H1 Parameter Planned Actual % Planned Actual % Planned Actual % Planned Actual % Talakhtakh River Placer (Licence ЯКУ 13662 КЭ) Sands Mined (k m3) ------317 319 101 240 304 127 Diamond Grade (ct/m3) ------0.80 0.53 66 0.47 0.32 69 Contained Diamonds (kct) ------254 169 66 112 99 88 Off-balance Sands Mined (k m3) ------33 68 207 0 0 - Preparation Work (k m3)2 ------81 81 100 80 105 131 Waste Stripping (k m3) ------1,076 1,092 101 700 840 120 Bolshaya Kuonamka River Placer (Licence ЯКУ 02649 КР) Sands Mined (k m3) ------240 101 42 Diamond Grade (ct/m3) ------0.32 0.23 74 Contained Diamonds (kct) ------76 24 31 Preparation Work (k m3) ------0 0 - Waste Stripping (k m3) ------100 106 106 Billyakh River Tributaries Placers (Licence ЯКУ 13260 КР) Sands Mined (k m3) 1,061 1,209 114 450 367 82 400 402 101 200 202 101 Diamond Grade (ct/m3) - - - - 0.80 - 0.77 0.97 126 0.61 0.65 106 Contained Diamonds (kct) - - - - 292 - 309 392 127 122 131 107 Preparation Work (k m3) 680 409 60 200 423 211 116 116 100 100 100 100 Waste Stripping (k m3) 1,213 1,368 113 1,786 1,831 103 1,434 1,435 100 1,800 1,807 100 Molodo River Placer (Molodo and Upper Molodo areas Licence ЯКУ 01935 КЭ) Sands Mined (k m3) 535 603 113 1,405 1,515 108 1,319 1,262 96 120 121 101 Diamond Grade (ct/m3) ------0.6 0.7 109 0.5 0.6 106 Contained Diamonds (kct) ------798 829 104 63 67 107 Preparation Work (k m3) 107 309 289 145 182 126 100 106 105 0 0 - Waste Stripping (k m3) 691 788 114 847 1 024 121 610 615 101 250 253 101 Molodo River Placer (Molodo area Licence (ЯКУ 15887 КЭ) Sands Mined (k m3) ------360 364 101 Diamond Grade (ct/m3) ------0.48 0.35 73 Contained Diamonds (kct) ------172 128 74 Preparation Work (k m3) ------100 0 0 Waste Stripping (k m3) ------600 634 106

2 Preparation work includes the pre-production development and the work on hydro-technical facilities

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Table 11.27: Nizhne-Lenskoe Placers Production Schedule

Parameter 2016 H2 2017 2018 2019 2020 Total Talakhtakh River Placer (Licence ЯКУ 13662 КЭ) Sands Mined and Washed (k m3) 448 - - - - 448 Diamond Grade (ct/m3) 0.95 - - - - 0.95 Contained Diamonds (kct) 426 - - - - 426 Preparation Work (k m3) 105 - - - - 105 Waste Stripping (k m3) 449 - - - - 449 Recovery (%) 96.0 - - - - 96.0 Recovered Diamonds (kct) 409 - - - - 409 Bolshaya Kuonamka River Placer (Licence ЯКУ 02649 КР) Sands Mined and Washed (k m3) 175 1,050 1,050 1,350 968 4,593 Diamond Grade (ct/m3) 0.33 0.45 0.32 0.32 0.32 0.35 Contained Diamonds (kct) 58 473 341 438 314 1,623 Preparation Work (k m3) 326 100 100 100 100 726 Waste Stripping (k m3) 47 283 283 364 261 1,239 Recovery (%) 96.0 96.0 96.0 96.0 96.0 96.0 Recovered Diamonds (kct) 112 56 454 327 420 1,558 Billyakh River Tributaries Placers (Licence ЯКУ 13260 КР) Sands Mined and Washed (k m3) 194 - - - - 194 Diamond Grade (ct/m3) 0.94 - - - - 0.94 Contained Diamonds (kct) 183 - - - - 183 Preparation Work (k m3) 10 - - - - 10 Waste Stripping (k m3) 563 - - - - 563 Recovery (%) 94.4 - - - - 94.4 Recovered Diamonds (kct) 173 - - - - 173

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Table 11.27: Nizhne-Lenskoe Placers Production Schedule (cont)

Parameter 2016 H2 2017 2018 2019 2020 Total Molodo River Placer (Molodo and Upper Molodo areas Licence ЯКУ 01935 КЭ) Sands Mined and Washed (k m3) 229 66 - - - 295 Diamond Grade (ct/m3) 0.53 1.06 - - - 0.65 Contained Diamonds (kct) 122 70 - - - 193 Preparation Work (k m3) 60 17 - - - 77 Waste Stripping (k m3) 182 53 - - - 235 Recovery (%) 96.0 96.0 - - - 96.0 Recovered Diamonds (kct) 117 67 - - - 185 Molodo River Placer (Molodo area Licence ЯКУ 15887 КЭ) Sands Mined and Washed (k m3) 465 405 - - - 870 Diamond Grade (ct/m3) 0.49 1.04 - - - 0.75 Contained Diamonds (kct) 230 420 - - - 650 Preparation Work (k m3) 362 315 - - - 677 Waste Stripping (k m3) 943 821 - - - 1,764 Recovery (%) 96.0 96.0 - - - 96.0 Recovered Diamonds (kct) 221 403 - - - 624 Total for Nizhne-Lenskoe Sands Mined and Washed (k m3) 1,511 1,521 1,050 1,350 968 6,400 Diamond Grade (ct/m3) 0.68 0.63 0.32 0.32 0.32 0.48 Contained Diamonds (kct) 1,020 963 341 438 314 3,075 Preparation Work (k m3) 862 432 100 100 100 1,595 Waste Stripping (k m3) 2,183 1,157 283 364 261 4,249 Recovery (%) 95.7 96.0 96.0 96.0 96.0 95.9 Recovered Diamonds (kct) 976 924 327 420 301 2,949

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11.5 PROCESSING

The sand processing plant and flowsheet used by Nizhne-Lenskoe are similar to the processing method described in Section 10.5 for the Almazy Anabara deposits. Modular sorting plants are combined with DMS plants.

The existing processing facilities include two sorting plants and a seasonal processing plant at the Tiglikit site (the Billyakh River), two plants at the Billyakh River Tributaries site (Shlikhovoy and Lagerny), and three plants at the Verkhnee Molodo site. The sorting plants of the Tiglikit site are not equipped with DMS plants. The total annual production capacity of all the modular sorting plants is 2.42 M m3.

Table 11.28 summarises processing plant performance in the period from 2013 to 1st July 2016.

Table 11.28: Nizhne-Lenskoe Production Summary for Sands Processed from 2013 to 1st July 2016

Parameter Unit 2013 2014 2015 2016 H1

Sands Processed k m3 2,669 2,907 2,820 1,092 Diamond Grade ct/m3 0.73 0.59 0.77 0.49 Contained Diamonds kct 1,943 1,721 1,887 448 Recovery % 94.65 95.21 95.28 95.53 Recovered Diamonds kct 1,839 1,638 1,798 428 Over-Estimate Factor - 1.09 1.11 1.09 1.06 Total Diamonds kct 2,010 1,818 1,964 454

Note: Over-Estimate Factor is when the weight of diamonds actually recovered exceeds the projected weight of diamonds indicated in the approved ore reserve. Micon has ignored the Over-Estimate Factor in its assessment.

Micon has developed a future production schedule for sands mining, processing of sands and diamond production for the Nizhne-Lenskoe deposits, assuming a recovery of 95.9%, which corresponds to the actual recovery maintained over the last few years. The summary mining schedule is presented in Table 11.27.

11.6 INFRASTRUCTURE

11.6.1 Transport

11.6.1.1 Anabar Ulus District

Saskylakh, the administrative centre for the Anabarsky Ulus, is located on the Anabar River approximately 100 km to the north of the Nizhne-Lenskoe deposits. The settlement has an airport which accommodates Antonov AN-24, AN-26 passenger and cargo aircraft, and helicopters, all year round.

Yuryung-Khaya is located 145 km downstream on the Anabar River from Saskylakh and has a shipping terminal for cargo delivered by sea. Nizhne-Lenskoe warehouses and the POL (fuel and lubricant) storage facilities are located here.

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There are no year-round roads in the area and cargo is transported in winter along the frozen rivers. In summer, transportation is only possible by air.

There is an alternative cargo transportation route through Lensk. It involves 1,179 km from Ust-Kut station along the Lena River, which is linked with Udachny via an 834 km year-round road. From Udachny to Ebelyakh, cargo is transported along 770 km long winter roads, or by air for a distance of 585 km.

11.6.1.2 Oleneski Ulus District

The Oleneksky Ulus administrative centre is Olenek, which has a diesel power station, a hospital, shops, a post office and an airport. The second settlement in the Oleneksky Ulus is Dzhelinda (Zhilinda), located 40 km to the east of border of the Kuonamskaya area, on the Malaya Kuonamka River. The deposits in this area are located approximately 70 km to the south of Nizhne-Lenskoe’s deposits in the Anabarsky Ulus.

There are no year-round roads in the local area, and cargo is transported in the winter along ice roads. Transport to the mine sites also occurs through the Yuryung-Khaya port and Saskylakh, via winter roads of 300 km and 170 km, respectively.

There are alternative year-round cargo routes from Lensk to Mir to Udachny, a distance of 834 km, or via the winter road through Olenek and Dzhelinda to Ebelyakh and the Kuonamsky mine, a distance of 810 km. In summer, transportation is only possible via air transport.

11.6.1.3 BulunskyUlus District

Tiksi, the administrative centre of the Bulunsky Ulus, is located 350 km to the north-northeast of the Molodo River placer. Zhigansk is an administrative centre of the Zhigansky Ulus municipality and is located 300 km to the south of the deposit area. Zhigansk and Tiksi have year-round ports and airports. The shipping port is equipped with POL storage, a pier and a helipad, and is located 90 km from the mine site. Cargo is delivered to the depot along the river, and then to the mine site along the winter road for approximately 200 km.

There are no year-round roads in the local area. In winter, cargo and personnel are transported along temporary roads and, for the rest, of the year by air transport.

11.6.2 Power and Water

Site camp heating for the facilities in the deposit areas is provided by modular liquid fuel boilers. Potable water is obtained from surface water sources in the spring/summer and delivered from the nearest natural reservoirs in winter. Power for all the facilities is provided by diesel generators.

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11.7 ENVIRONMENT, HEALTH AND SAFETY AND SOCIAL ISSUES

11.7.1 Environmental and Health and Safety Management

Environmental and health and safety management at Nizhne-Lenskoe is structured independently of the ALROSA corporate capability. The management of the various operations is fully integrated into Nizhne-Lenskoe’s management system and structure. In this context, Nizhne-Lenskoe has developed formalised provisions, which are broadly compatible with the ALROSA corporate environment, health and safety policy. These provisions adapt the corporate environmental management and health and safety management systems to local circumstances, and are aimed principally at ensuring compliance with relevant Federal and local regulations.

The technical basis for environmental and health and safety management of the various Nizhne-Lenskoe mining operations is established in the relevant TEO documentation approved for each deposit.

11.7.2 Key Environmental and Safety Issues

11.7.2.1 Hydrological Impacts

Given the close relationship of workings with the various river channels, there are potential impacts on the quality of surface water, and hence, on regional fisheries, with the release of water containing elevated levels of suspended solids and oils, during both construction and operation. To minimise this impact, overburden removal and mining operations take place in the winter when there is no surface water flow. Water demand (and water discharge) is minimised by the use of a closed water recycling system at the processing plants.

Procedures are in place to control wastewater discharge, spillages and surface run-off. Surface run-off and wastewaters are kept separate and treated to remove oil and sediments. Biological methods are used to treat domestic wastewaters. Areas for oil and lubricant storage are bunded and have impermeable bases with waste oils collected for recycling. Diversion ditches are constructed to direct surface flows away from the operational areas. Sediment loads in run-off and other discharges are removed through silt settling tanks.

11.7.2.2 Ecological Impacts

Terrestrial and riverine habitats are vulnerable to disturbance and pollution. The operations can impact the local ecology through the removal of soil and vegetation cover and disturbance of the natural river channel. The operations are within the catchment for the Anabar River. Many of its tributaries are of high quality and include local fish spawning grounds and migration routes.

Disturbance of terrestrial habitats can include removal of natural habitats (land-take), fire damage, noise, pollution and waste impacts, and increased hunting.

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11.7.2.3 Air Quality Impacts

During mining there is a risk of adverse impacts on air quality from mining and transportation, process plants, garages and mechanical workshops, fuel storage, and helipads. Gases such as CO, NO and NO2, SO2 and hydrocarbons are principally generated from fuel combustion, while particulate matter can be generated during blasting, drilling, haulage and dumping. In a permafrost region, thawing of overburden dumps can also facilitate dust blow under dry, windy conditions. Temperature inversions, and the consequent adverse air quality, that are experienced at other ALROSA sites are not experienced at the Nizhne-Lenskoe operations.

Nizhne-Lenskoe implements measures to control emissions to the atmosphere including exhaust monitoring, regular vehicle inspection and maintenance, etc. A statutory sanitary protection zone has been established around the mining sites, in accordance with regulations.

11.7.2.4 Waste Rock and Tailings Management

The mine and process workings will generate a substantial quantity of soil, peat, sands and process tailings. The disposal of these materials will occupy large areas of land that will ultimately require re-vegetation. The waste rock is geochemically benign, but can give rise to suspended soils in drainage waters.

11.7.2.5 Waste Management

Municipal solid wastes from the shift camps are collected in designated containers and periodically transported to the site landfill. There is centralised collection of waste oils and industrial wastes for storage and ultimate disposal.

11.7.3 Mine Closure and Rehabilitation

Nizhne-Lenskoe is committed to undertaking rehabilitation works and, in 2014, planned to return 427 hectares to the Forest Fund. The technical requirements for reclamation, particularly slopes and drainage, are varied, dependent on whether the land will be returned to forestry or agriculture, although rehabilitation to forestry predominates. Soil materials are graded for different uses within the rehabilitation scheme; coarser materials are used for structural elements of the scheme, with the more fertile materials being retained to form the final plant root zone. However, the original ‘top-soils’ may be damaged during original stripping, and hence, soil structure and fertility generally require further management to enable plant growth.

11.7.4 Safety Management

The existing operations of Nizhne-Lenskoe are understood to comply with all required regulations, systems and practices, including those on the industrial safety of hazardous production facilities. Whilst adequate consideration of safety aspects based upon systematic risk assessments and the development of a system of safe working practices are integral parts of all design documents, the consistent implementation of the designated safe working practices is not always evident.

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Nizhne-Lenskoe has experienced no reportable incidents for the period between 2013 and 2016.

11.7.5 Regulatory Compliance

Operations at Nizhne-Lenskoe are covered by seven principal licences:

 Licence No. ЯКУ 01925 КЭ covers the Billyakh Placer Deposit;  Licence No. ЯКУ 01935 КЭ and No. ЯКУ 15887 КЭ covers the Molodo Placer Deposit;  Licence No. ЯКУ 02649 КР covers the Bolshaya Kuonamka Placer Deposit;  Licence No. ЯКУ 13260 КР covers the Billyakh Tributaries Placers;  Licence No. ЯКУ 13661 КЭ covers the Khara-Mas Placer; and,  Licence No. ЯКУ 13662 КЭ covers the Talakhtakh Placer Deposit.

The environmental, health and safety and social conditions attached to these licences are broadly consistent and similar to those in place for other ALROSA operations, but with an added requirement to provide training programmes for local people, and to utilise local contractors and suppliers where practical.

11.7.6 Permits for Nature Use

Nizhne-Lenskoe operates under a series of separate permits for water abstraction from a number of local rivers and air emissions from its different industrial operations, although all operations are covered by a single waste permit (Table 11.29). Micon has not identified any significant breaches of the conditions attached to these permits. It is standard Russian practice for an excess fee to be paid where the limits associated with the water, air and waste permits are exceeded.

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Table 11.29: Nizhne-Lenskoe Permits for Nature Use

Date of Validity Expiry No. Type of Licensed Activity Licence No. Issuing Authority Issue Period Date Air Emissions Directorate for Federal 31st Molodo Open Pit Environmental Supervision Service 1st January 1 PDV 11/34 4 Years December (various operational facilities) (Rosprirodnadzor) in the Republic 2011 2015 of Sakha (Yakutia) Directorate for Federal 31st Environmental Supervision Service 1st January 2 Tiglikit Mining Site PDV 11/33 4 Years December (Rosprirodnadzor) in the Republic 2011 2015 of Sakha (Yakutia) Billyakh Directorate for Federal Billyakh Mining Site 31st Environmental Supervision Service 1st January 3 (various operational PDV 11/32 4 Years December (Rosprirodnadzor) in the Republic 2011 facilities) 2015 of Sakha (Yakutia) Waste Directorate for Federal Nizhne-Lenskoe including Yakutsk Environmental Supervision Service 21st April 21st April 1 (Highway), Billyakh/ Tiglikit, 14/00029 5 Years (Rosprirodnadzor) in the Republic 2011 2016 Dzahrdzhan and Moloda of Sakha (Yakutia) Water 14-18.01.00.001-Р- 1 Water usage - Billyakh (R. Izvilisty) ДХИО-С-2013- 02184/00 14-18-01.00.001-Р- 2 Water usage - Billyakh (R. Reliktovy) ДХИО-С-2013- 02185/00 14-18.01.00.001-Р- 3 Water usage - Billyakh (R. Lagevny) ДЗВХ-С-2014- 02763/00 14-18.01.00.001-Р- Water usage - Billyakh (R. 4 ДЗВХ-С-2014- Shlikhovoy) 02764/00 14-18.01.00.001-Р- Water usage – Bolshaya Kuonamka 5 ДЗИО-С-2012- (R. Anabar) 01584/00 Additional details for these permits are not currently available to Micon 14-18.01.00.001-Р- Water usage – Bolshaya Kuonamka 6 ДЗИО-С-2011- (R. Anabar) 01369/00 14-18.03.09.002-Р- 7 Water usage – Molodo (R. Molodo) ДЗИО-С-2009- 00716/00 14-18.03.09.002-Р- 8 Water usage – Molodo (R.Molodo) ДЗВХ-С-2014- 02761/00 14-18.03.09.001-Р- 9 Water usage – Molodo (R. Lena) ДХИО-С-2011- 01246/00 14-18.03.09.002-Р- 10 Water usage – Molodo (R.Molodo) ДЗИО-С-2009- 00716/00

11.7.7 Risk Categorisation

Micon considers the overall risk associated with environmental and health and safety considerations at Nizhne-Lenskoe to be moderate.

ALROSA Group of Companies 319 November 2016 Nizhne-Lenskoe

11.8 COSTS

11.8.1 Operating Costs

Micon’s assessment of future Nizhne-Lenskoe operating costs considered the similarity of the mining operations, mining methods, and the numbers and types of equipment used to mine and process the sands at all of the Almazy Anabara and Nizhne-Lenskoe deposits. Micon has used the same unit operating cost values for Nizhne-Lenskoe as those described in Section 10.8.1 for Almazy Anabara.

11.8.2 Capital Costs

In estimating future capital expenditures, Micon used actual capital costs data provided by Almazy Anabara up to and including 2015, the Almazy Anabara 2016 budget and capital expenditures plan proposed in 2015 for 2016 to 2018.

After analysing the data, Micon used planned capital expenses for 2016 that amounted to 449,984 thousand RUB and a specific value of 400.0 RUB/m3 of mined material for the capital expenditures forecast from 2017 to 2020. This value is conservative.

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12.0 ECONOMIC ANALYSIS

12.1 BASIS FOR ECONOMIC ASSESSMENT

12.1.1 General Provisions

Micon conducted an economic evaluation of the ALROSA mineral resources and operating assets by conventional discounted cash flow techniques in order to estimate their net present values (NPV). A separate cash flow model has been prepared for each of ALROSA’s production divisions discussed in this Report, including the Udachny, Aikhal, Mirny and Nyurba GOK’s, the Lomonosov GOK of PAO Severalmaz, AO Almazy Anabara and AO Nizhne-Lenskoe. The data from each production division have then been consolidated in an aggregate economic assessment of ALROSA’S diamond assets in the Russian Federation.

The Micon economic assessment covers from the second half of 2016 to 2030. This period st was selected as the ore reserves included in the Report were declared as at 1 July 2016. The cut-off of 2030 was selected by Micon based on the availability of ALROSA’s long term production plan up to 2030 and on the assumption that the accuracy and consistency of production planning and economic evaluation of the production results in future years will be low.

The completed economic analysis is based on the diamond production plans produced by Micon for each of the considered production divisions of the ALROSA group of companies. These production plans in turn correspond to the mining schedules for the deposits incorporating the ore reserves evaluated in this report. Mining schedules have been produced by Micon to encompass all the available information from the long term plans of ALROSA and its subsidiaries, with amendments and additions that correspond to the relevant quantitative and qualitative parameters for estimated reserves.

The schedules for each of the deposits assume full depletion of the reserves if mining is completed before 2030. Otherwise, the schedules include mining and production of diamonds up to 2030.

The Micon mineral resource and ore reserve assessment does not include off-balance material mined and processed at a number of the ALROSA deposits. These tonnages were included in production schedules as waste only. The Micon cash flow forecasts exclude any processing and recovery of diamonds from this material or from any accumulated low-grade stockpiles. Therefore, the Micon cash flow forecast may be regarded as conservative.

The Micon mineral resource and ore reserve assessment includes only diamond size classes meeting the current cut-off criteria. Accordingly, the Micon cash flow models do not include the associated recovery of smaller diamonds, which occurs at a number of ALROSA processing operations. This fact also provides conservatism to the cash flow forecasts.

Bain & Company Russia, LLC (Bain) was commissioned by the Antwerp World Diamond Centre to prepare forecasts of certain macroeconomic factors in relation to the global diamond market. In preparing its economic assessment for the ALROSA assets, Micon has relied upon the forecasts contained within the Bain Report (The Global Diamond Industry, 2015).

ALROSA Group of Companies 321 November 2016 Economic Analysis

12.1.2 Structure of Cash Flow Models

The structure of the Micon cash flow models and their underlying logic comply with the standard methods used for such assessments and in particular with the methods applied by Micon. They also match the particular structure of cost data provided by ALROSA. Each model includes the following data, for each year of the period analysed:

1. Forecast sales revenue; 2. Operating production costs forecast, including the cost of mining, haulage, processing and auxiliary production; 3. General, management, sorting and commercial costs forecast; 4. Taxes not already included in general costs and management cost forecasts; 5. Annual profit; 6. Capital investments planned; 7. Working capital movements; 8. Free cash flow; and, 9. Net present value (NPV) of the free cash flow at selected discount rates.

The cash flow models have been analysed using NPV figures and charts representing the dynamics of the principal indicators at each of the facilities (GOK’s), and in total for the Company. The analysis also included sensitivity diagrams of the base case NPV to variations in the principal indicators of project economic efficiency: revenue, operating, capital costs and discount rate value.

12.1.3 Forecast Macroeconomic Parameters

All operating and capital cost estimates used by Micon in the cash flow models have been converted to equivalent constant US$ dollars as at 1st July 2016, and do not take into account inflation.

The exchange rate used was 64.18 RUB/US$, which is the official value at the date of the mineral resource and ore reserve declaration.

The projected annual capital expenditure values, as presented by ALROSA for the Udachny GOK, Aikhal GOK, Mirny GOK and Nyurba GOK, are expressed in terms of current roubles, including inflation. When constructing the cash flow models in real terms, Micon used capital investment deflator values provided by ALROSA, to reduce these inflated estimates to constant money values of the used nominal forecast. Micon considers that the capital expenditure deflator forecast proposed by ALROSA is acceptable for use in the estimate.

The forecast values of the capital expenditure deflator used by Micon in its cash flow projections are given in Table 12.1.

ALROSA Group of Companies 322 November 2016 Economic Analysis

12.1.4 Forecast Rough Diamond Prices

ALROSA uses two sets of prices for the rough diamonds produced at its operations. All statutory reporting and royalty calculations in respect of diamond production are performed using the official Price List of the Russian Federation Ministry of Finance, whereas actual diamond sales are executed at current market prices. Accordingly, Micon has made its forecast of royalties payable using official prices, whereas revenues have been forecast using market prices.

Table 12.2 gives average official prices for rough diamonds for each ALROSA deposit considered in the report. These prices correspond to ALROSA’s forecast of diamond quality and are based on the Price List of the Russian Federation Ministry of Finance, November 2015. Average prices presented in Table 12.2, consider only diamond size classes meeting the current cut-off criteria, Micon followed these cut-off sizes when assessing the deposit reserves. The data presented for 2016 are actual average values supplied by ALROSA.

To forecast the market price of rough diamonds for the period under consideration, Micon used data from the global diamond market forecast from the Bain report «The Global Diamond Industry 2015» published in 2015.

Bain’s index of rough diamond market prices, in relation to 2016 prices, is presented in Table 12.3. Micon used this forecast in its assessment.

Using actual diamond sales data for 2016, ALROSA has produced ratios of 2016 average market prices to average prices based on the Russian Federation Ministry of Finance Price List. These price ratios, for each ALROSA production division, are presented in Table 12.4.

Micon notes that the price factors calculated according to the actual ALROSA production sale results have been consistently greater than one for many years. Within a few preceding years the price factor was close to 1.3 for all of the ALROSA Group divisions, resulting in the 2016 data being relatively conservative. Micon used these price factors in its assessment. The 2016 values were applied to the entire assessment period up to 2030. Accordingly, the market (sale) price forecast for each subsequent period was obtained by multiplying average prices based on the Russian Federation Ministry of Finance Price List (November 2015) by the product of this factor and the relevant price index given in Table 12.3.

The resulting diamond sale price forecasts for each deposit for the entire period of the evaluation are presented in Table 12.5.

ALROSA Group of Companies 323 November 2016 Economic Analysis

Table 12.1: Forecast of Capital Investment Deflator

Parameter 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2016 ALROSA Forecast for 2016 to 2030 Capital Investment Annual Inflation 1,000 1,059 1,045 1,042 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 Capex Cumulative Deflation Multiplier, leading to 2016 prices 1,000 1,059 1,107 1,153 1,199 1,247 1,297 1,349 1,403 1,459 1,517 1,578 1,641 1,707 1,775 2015 Severalmaz Forecast for 2015 to 2025 Capital Investment Annual Inflation 1,059 1,058 1,057 1,050 1,050 1,050 1,050 1,050 1,050 1,050 - - - - - Capex Cumulative Deflation Multiplier, leading to 2016 prices 1,000 1,058 1,118 1,174 1,233 1,295 1,359 1,427 1,499 1,574 - - - - -

Table 12.2: List Prices - Price List of Ministry of Finance of Russia “November 2015” (US$/ct)

Diamond Deposit 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Class Udachnaya Pipe Open Pit +0.5 mm 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 Udachnaya Pipe Underground +0.5 mm 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 84.2 94.0 94.0 94.0 94.0 94.0 Zarnitsa Pipe +0.5 mm 126.0 126.3 126.3 126.3 126.3 126.3 126.3 126.3 126.3 126.3 126.3 126.3 126.3 126.3 126.3 Zakonturnaya Deluvial Placer +0.5 mm - - 60.3 ------Kluch Piropovy Placer +0.5 mm 62.8 59.1 59.1 59.1 ------Verkhne-Munskoe Deposit +0.5 mm 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 Jubilee Pipe +3 NSC 133.0 133.0 133.0 133.0 133.0 133.0 133.0 133.0 133.0 133.0 133.0 133.0 133.0 133.0 133.0 Aikhal Pipe +0.5 mm 34.6 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 Komsomolskaya Pipe +0.5 mm 189.5 195.0 195.0 195.0 195.0 ------Zaria Pipe +0.5 mm - - - - - 180.0 180.0 180.0 180.0 180.0 180.0 180.0 180.0 180.0 180.0 Mir Pipe +0.5 mm 108.7 108.7 108.7 108.7 108.7 108.7 108.7 108.7 108.7 108.7 108.7 108.7 108.7 108.7 108.7 International Pipe +0.5 mm 162.7 162.7 162.7 162.7 162.7 162.7 162.7 162.7 162.7 162.7 162.7 162.7 162.7 162.7 162.7 Irelyakh Placer KSA1 +0.5 mm 116.3 116.3 116.3 116.3 116.3 116.3 116.3 116.3 116.3 116.3 116.3 116.3 116.3 116.3 116.3 Irelyakh Placer KSA2 +0.5 mm 163.1 163.1 163.1 163.1 163.1 163.1 163.1 163.1 163.1 163.1 163.1 163.1 116.3 116.3 -

ALROSA Group of Companies 324 November 2016 Economic Analysis

Table 12.2: List Prices - Price List of Ministry of Finance of Russia “November 2015” (US$/ct) (cont.)

Diamond Deposit 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Class Dredge 201 Irelyakh Placer until 2018, +0.5 mm 159.0 159.0 159.0 159.0 159.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 Gornoye placer after 2018 Dredge 202 Irelyakh Placer +0.5 mm 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 Dredge 203 Gornoye Placer +0.5 mm 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 Vodorazdelnye Galechniki Placer +0.5 mm 122.5 131.4 131.4 131.4 131.4 131.4 131.4 131.4 131.4 131.4 - - - - - Nyurbinskaya Pipe +2 NSC 75.7 75.7 75.7 75.7 75.7 75.7 75.7 75.7 75.7 75.7 75.7 75.7 75.7 75.7 75.7 Nyurbinskaya Placer Plant No 15 +2 NSC 73.8 73.8 73.8 73.8 73.8 73.8 73.8 73.8 73.8 73.8 73.8 73.8 73.8 73.8 73.8 Nyurbinskaya Placer Plant No 16 +2 NSC - 76.5 76.5 76.5 76.5 76.5 76.5 76.5 76.5 76.5 76.5 76.5 76.5 76.5 76.5 Botuobinskaya Pipe +2 NSC 100.1 94.3 94.3 94.3 94.3 94.3 94.3 94.3 94.3 94.3 94.3 94.3 94.3 94.3 94.3 Botuobinskaya Placer Plant No 15 +2 NSC 107.8 107.0 107.0 107.0 107.0 ------Botuobinskaya Placer Plant No 16 +2 NSC - 106.0 106.0 106.0 106.0 106.0 106.0 106.0 ------Maiskoye Kimberlite Body +2 NSC ------95.6 100.1 100.1 100.1 100.1 100.1 Arkhangelskaya Pipe +3 NSC 55.60 56.33 56.33 67.60 67.60 67.60 67.60 67.60 67.60 67.60 67.60 67.60 67.60 67.60 67.60 Karpinskogo-1 Pipe +3 NSC 52.97 52.06 52.06 62.47 62.47 62.47 62.47 62.47 62.47 62.47 64.25 64.25 64.25 64.25 64.25 Solur-Vostochnaya Placer +1 mm ------100.0 Ebelyakh River Placer +1 mm 42.44 42.44 42.44 42.44 42.44 42.44 42.44 42.44 42.44 42.44 42.44 42.44 42.44 42.44 42.44 Gusiny Stream Placer +1 mm 44.00 44.00 44.00 44.00 44.00 44.00 44.00 44.00 44.00 44.00 44.00 44.00 44.00 44.00 44.00 Istok Stream Placer +1 mm 88.60 88.60 88.60 88.60 88.60 88.60 88.60 88.60 88.60 88.60 88.60 88.60 88.60 88.60 88.60 Morgogor Stream Placer +1 mm 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 Right Bank Morgogor Placers +1 mm 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 61.00 Olom and Ruchey Log 325 Placers +1 mm 79.60 79.60 79.60 79.60 79.60 79.60 79.60 79.60 79.60 79.60 79.60 79.60 79.60 79.60 79.60 Kholomolokh Placer +1 mm 47.80 47.80 47.80 47.80 47.80 47.80 47.80 47.80 47.80 47.80 47.80 47.80 47.80 47.80 47.80 Uchakh-Ytyrbat River and Khara-Mas Placer +1 mm 48.54 48.54 48.54 48.54 48.54 48.54 48.54 48.54 48.54 48.54 48.54 48.54 48.54 48.54 48.54 Talakhtakh River Placer +1 mm 94.47 73.79 73.79 73.79 ------Bolshaya Kuonamka River Placer +1 mm 131.58 136.19 136.19 136.19 136.19 136.19 136.19 136.19 136.19 136.19 - - - - - Tributaries of the Billyakh River Placers +1 mm 66.46 ------Molodo River Placer ЯКУ 15887 КЭ +1 mm 122.08 125.47 125.47 125.47 125.47 125.47 125.47 125.47 125.47 ------Molodo River Placer ЯКУ 01935 КЭ +1 mm 116.20 116.20 116.20 116.20 116.20 116.20 116.20 116.20 116.20 ------

ALROSA Group of Companies 325 November 2016 Economic Analysis

Table 12.3: Forecast of Rough Diamond Sales Prices Index

Parameter 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Index Values 1.00 0.93 0.96 1.02 1.03 1.09 1.12 1.17 1.23 1.24 1.29 1.36 1.44 1.71 1.87

Table 12.4: Ratio of 2016 Price Factors

Company Ratio Market Price/List Price ALROSA: Udachny, Aikhal and Mirny GOK’s 1.16 ALROSA – Nyurba: Nyurba GOK 1.24 Severalmaz, Lomonosov GOK 0.89 Almazy Anabara 1.20 Nizhne-Lenskoe 1.18

Table 12.5: Forecast Diamond Sales Prices (US$/ct)

Diamond Deposit 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Class Udachnaya Pipe Open Pit +0.5 mm 97.7 90.4 93.5 99.8 100.8 106.0 109.1 114.3 120.5 121.6 125.7 133.0 140.3 167.3 182.9 Udachnaya Pipe Underground +0.5 mm 97.7 90.4 93.5 99.8 100.8 106.0 109.1 114.3 120.5 121.6 140.4 148.5 156.6 186.8 204.2 Zarnitsa Pipe +0.5 mm 146.1 135.6 140.3 149.6 151.2 159.0 163.7 171.4 180.8 182.4 188.6 199.5 210.4 250.9 274.3 Zakonturnaya Deluvial Placer +0.5 mm - - 66.9 ------Kluch Piropovy Placer +0.5 mm 72.8 63.5 65.6 70.0 ------Verkhne-Munskoe Deposit +0.5 mm 106.3 110.0 117.3 118.5 124.6 128.3 134.4 141.7 142.9 147.8 156.4 164.9 196.7 215.0 Jubilee Pipe +3 NSC 154.3 142.8 147.7 157.6 159.2 167.4 172.3 180.5 190.4 192.0 198.6 210.1 221.6 264.2 288.9 Aikhal Pipe +0.5 mm 40.1 37.6 38.9 41.5 41.9 44.1 45.4 47.5 50.1 50.5 52.3 55.3 58.3 69.6 76.0 Komsomolskaya Pipe +0.5 mm 219.8 209.4 216.6 231.0 233.4 ------Zarya Pipe +0.5 mm - - - - - 226.6 233.2 244.3 257.7 259.9 268.8 284.3 299.9 357.6 390.9 Mir Pipe +0.5 mm 126.1 116.7 120.7 128.8 130.1 136.8 140.8 147.6 155.6 156.9 162.3 171.7 181.1 216.0 236.1 International Pipe +0.5 mm 188.7 174.7 180.7 192.7 194.8 204.8 210.8 220.9 232.9 234.9 242.9 257.0 271.1 323.3 353.4 Irelyakh Placer KSA1 +0.5 mm 134.9 124.9 129.2 137.8 139.2 146.4 150.7 157.9 166.5 167.9 173.7 183.7 193.8 231.1 252.6 Irelyakh Placer KSA2 +0.5 mm 189.2 175.1 181.1 193.2 195.2 205.3 211.3 221.4 233.5 235.5 243.5 257.6 193.8 231.1 0.0

ALROSA Group of Companies 326 November 2016 Economic Analysis

Table 12.5: Forecast Diamond Sales Prices (US$/ct) (cont.)

Diamond Deposit 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Class Dredge 201 Irelyakh Placer until 2018, +0.5 mm 184.4 170.7 176.6 188.4 190.3 220.3 226.8 237.6 250.5 252.7 261.3 276.4 291.5 347.7 380.1 Gornoye placer after 2018 Dredge 202 Irelyakh Placer +0.5 mm 220.4 204.0 211.0 225.1 227.4 239.2 246.2 257.9 272.0 274.3 283.7 300.1 316.5 377.5 412.7 Dredge 203 Gornoye Placer +0.5 mm 203.0 187.9 194.4 207.3 209.5 220.3 226.8 237.6 250.5 252.7 261.3 276.4 291.5 347.7 380.1 Vodorazdelnye Galechniki Placer +0.5 mm 142.1 141.1 145.9 155.7 157.3 165.4 170.3 178.4 188.1 189.7 0.0 0.0 0.0 0.0 0.0 Nyurbinskaya Pipe +2 NSC 93.9 86.9 89.9 95.9 96.9 101.9 104.9 109.8 115.8 116.8 120.8 127.8 134.8 160.8 175.8 Nyurbinskaya Placer Plant No 15 +2 NSC 91.5 84.7 87.6 93.5 94.4 99.3 102.2 107.1 112.9 113.9 117.8 124.6 131.4 156.7 171.3 Nyurbinskaya Placer Plant No 16 +2 NSC - 87.8 90.8 96.9 97.9 102.9 106.0 111.0 117.1 118.1 122.1 129.2 136.2 162.5 177.6 Botuobinskaya Pipe +2 NSC 124.1 108.2 112.0 119.4 120.7 126.9 130.6 136.8 144.3 145.5 150.5 159.2 167.9 200.3 218.9 Botuobinskaya Placer Plant No 15 +2 NSC 133.7 122.8 127.0 135.5 136.9 ------Botuobinskaya Placer Plant No 16 +2 NSC - 121.7 125.8 134.2 135.6 142.6 146.8 153.8 ------Maiskoye Kimberlite Body +2 NSC ------147.5 159.8 169.0 178.3 212.6 232.4 Arkhangelskaya Pipe +3 NSC 49.5 46.4 48.0 61.4 62.1 65.3 67.2 70.4 74.2 74.9 77.4 81.9 86.4 103.0 112.6 Karpinskogo-1 Pipe +3 NSC 47.1 42.9 44.4 56.8 57.4 60.3 62.1 65.1 68.6 69.2 73.6 77.9 82.1 97.9 107.1 Solur-Vostochnaya Placer +1 mm 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 187.2 Ebelyakh River Placer +1 mm 50.9 47.1 48.8 52.0 52.5 55.3 56.9 59.6 62.8 63.4 65.6 69.3 73.1 87.2 95.3 Gusiny Stream Placer +1 mm 52.8 48.9 50.6 53.9 54.5 57.3 59.0 61.8 65.2 65.7 68.0 71.9 75.8 90.4 98.9 Istok Stream Placer +1 mm 106.3 98.4 101.8 108.6 109.7 115.4 118.8 124.4 131.2 132.3 136.9 144.8 152.7 182.1 199.1 Morgogor Stream Placer +1 mm 73.2 67.7 70.1 74.8 75.5 79.4 81.8 85.7 90.3 91.1 94.2 99.7 105.1 125.4 137.1 Right Bank Morgogor Placers +1 mm 73.2 67.7 70.1 74.8 75.5 79.4 81.8 85.7 90.3 91.1 94.2 99.7 105.1 125.4 137.1 Olom and Ruchey Log 325 Placers +1 mm 95.5 88.4 91.5 97.6 98.6 103.6 106.7 111.8 117.9 118.9 123.0 130.1 137.2 163.6 178.8 Kholomolokh Placer +1 mm 57.4 53.1 54.9 58.6 59.2 62.2 64.1 67.1 70.8 71.4 73.8 78.1 82.4 98.2 107.4 Uchakh-Ytyrbat River and Khara-Mas Placer +1 mm 58.3 53.9 55.8 59.5 60.1 63.2 65.1 68.2 71.9 72.5 75.0 79.3 83.7 99.8 109.1 Talakhtakh River Placer +1 mm 111.5 80.6 83.4 88.9 ------Bolshaya Kuonamka River Placer +1 mm 155.3 148.7 153.9 164.1 165.8 174.4 179.5 188.1 198.3 200.0 - - - - - Tributaries of the Billyakh River Placers +1 mm 78.4 ------Molodo River Placer ЯКУ 15887 КЭ +1 mm 144.1 137.0 141.8 151.2 152.8 160.7 165.4 173.3 182.7 ------Molodo River Placer ЯКУ 01935 КЭ +1 mm 137.1 126.9 131.3 140.0 141.5 148.8 153.2 160.5 169.2 ------

ALROSA Group of Companies 327 November 2016 Economic Analysis

12.1.5 Capital Costs

The Micon assessment of future capital expenditures is based on the capital cost schedules provided by ALROSA and its subsidiary companies.

The ALROSA forecasts for the Udachny, Aikhal, Mirny and Nyurba GOK’s used by Micon cover the period from 2016 to 2030. Capital cost nominal values suggested by the forecast are converted to 2016 conditions using the capital deflator values presented in Table 12.1. More detailed information on the forecasts used is contained in Section 4.8.2 for the Udachny GOK, Section 5.8.2 for the Aikhal GOK, Section 6.8.2 for the Mirny GOK and in Section 7.8.2 for the Nyurba GOK.

The Severalmaz forecast for the Lomonosov GOK is suggested in 2015 and covers the period from 2015 to 2025. Capital cost nominal values suggested by the forecast are converted to 2016 conditions using capital deflator values that accompanied the forecast; they are presented in Table 12.1. More detailed information on the forecast used for Lomonosov GOK is contained in Section 9.8.2.

Almazy Anabara and Nizhne-Lenskoe capital cost schedule forecasts for all their company operations involved in mining alluvial diamond deposits cover the period from 2016 to 2018.

After analysing the data from these forecasts, as well as data on actual costs, Micon used the unit cost value for capital expenditures equal to 372.5 RUB/m3 of rock mass for the entire considered period for the Almazy Anabara deposits and 400 RUB/m3 of rock mass for the Nizhne-Lenskoe deposits (in prices of 2016).

The Micon assessment includes only the capital costs directly related to the development and sustainment of the company's principal production capacities.

Forecast capital costs were reduced by the project costs for development and exploitation of the deposits excluded from the completed economic assessment. These excluded deposits did not have ore reserves as classified by Micon and were not presented in this Report.

12.1.6 Taxation Rates

All environmental taxes and charges, transport tax, land use payments and water use payments are understood to be included in the reported general expenses of each production division. Projection of these values for the considered period is based on available actual values.

Royalty tax has been calculated at a rate of 8%, based on prices from the Russian Federation Ministry of Finance Price List, which meet the requirements of the regulatory documents ALROSA refers to.

Profit tax has been included in the cash flow model at a rate of 20%. Property tax at a rate of 2.2% of net book value has also been included.

The actual ratio of the average market price to the average price, based on the Russian Federation Ministry of Finance Price List supplied by ALROSA, is calculated by deducting customs tax from actual revenue. Therefore cash flow models compiled by Micon account for customs tax by the use of this ratio in estimating market prices.

ALROSA Group of Companies 328 November 2016 Economic Analysis

Table 12.6: Capital Cost Forecast Used in the Micon Estimate (000,000’ RUB)

Company/Division H2 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total

Udachny GOK 5,158 11,078 10,414 5,151 3,826 3,459 2,457 1,321 1,393 3,710 4,839 2,851 3,104 3,359 2,602 64,724 Aikhal GOK 1,477 3,805 4,738 3,562 1,973 2,597 3,094 2,051 2,274 1,868 3,619 2,177 2,433 2,240 2,904 40,811 Mirny GOK 2,842 4,443 3,341 2,581 3,904 3,338 3,398 4,205 4,294 3,980 2,236 2,686 3,760 2,952 1,650 49,609 Nyurba GOK 663 644 1,612 1,195 2,541 2,066 2,307 3,658 3,463 1,005 1,684 790 780 806 873 24,088 Lomonosov GOK 366 534 447 1,113 1,910 999 1,008 979 256 549 549 549 549 549 549 10,908 (Severalmaz) Almazy Anabara 1,070 2,281 2,281 1,361 1,257 716 938 863 765 871 1,046 968 1,124 627 0 16,167 Nizhne-Lenskoe 250 420 420 540 387 0 0 0 0 0 0 0 0 0 0 2,017

ALROSA Group of Companies 329 November 2016 Economic Analysis

12.1.7 Off-Site Costs

In its evaluation of the Udachny, Aikhal, Mirny and Nyurba GOK’s, Micon has assigned corporate management expenses, as well as diamond sorting and selling expenses, to the individual production divisions. These costs are shown in Table 12.7.

Table 12.7: Off-Site Unit Costs

Costs Assigned to GOK Value Diamond Sorting Centre (RUB/ct) 4.88 United Selling Organisation (RUB/ct) 48.1 ALROSA Administrative Costs (RUB/RUB of revenue) 0.01 Commercial Costs (RUB/RUB of revenue) 4.88

When completing the evaluation for the ALROSA subsidiaries (Severalmaz, Almazy Anabara and Nizhne-Lenskoe) a similar rule for the calculation of off-site expenditures has not been applied. Commercial and general business expenses for the companies are accounted for in accordance with their planned 2016 values (see Cost Sections for each of the subsidiaries).

12.1.8 Depreciation

The Micon cash operating cost forecasts do not include depreciation. Depreciation is used only for the calculation of payable profit taxes. Micon has simplified the depreciation deduction by assuming that the aggregate value of fixed assets and current capital expenditures is depreciated using the straight-line method, at a constant rate of 1/15th (6.67%) per year. The salvage value of fixed assets is then used as the base for the property tax evaluation.

12.1.9 Discount Rate

In the discounted cash flow evaluations of corporate assets, the company’s weighted average cost of capital (WACC) is frequently used as the discount rate to be applied to future cash flows. ALROSA’s WACC has been estimated herein on an all-equity basis. The cost of equity can be determined using the Capital Asset Pricing Model:

βER R

Where:

E(Ri) - the expected return, or the cost of equity; Rf - the risk-free rate (usually taken to be the real rate on long term government bonds); E(Rm)-Rf - the market premium for equity (commonly estimated to be around 5%); and, β - the volatility of the returns for the relevant sector of the market compared to the market as a whole.

ALROSA Group of Companies 330 November 2016 Economic Analysis

Figure 12.1 illustrates the real return on US bonds computed by the Federal Reserve, taken as a proxy for the risk-free interest rate over the ten years ending 30th September 2016. Over that period, the rate has averaged approximately 1.32%, compared to around 0.80% over the past three years. Nevertheless, it is generally accepted that long term average rates will give a more reliable estimate of the cost of equity than short-term averages. Therefore, in its evaluation Micon has used values of 1.0%, 1.5% and 2.0% for its lower, middle and upper estimates of the long term risk-free rate, respectively.

Figure 12.1: Real Return on US Bonds

(Source: US Federal Reserve 2016)

Micon would expect the equity of ALROSA to have a beta value in the range 1.0 to 1.2. Applying these values to the CAPM gives a cost of equity for ALROSA of between 6% and 8%, as shown in Table 12.9. Micon has taken a figure in the middle of this range (7%) as its base case discount rate.

Table 12.8: Cost of Capital

Range Lower Middle Upper Risk Free Rate (%) 1.0 1.5 2.0 Market Premium for Equity (%) 5.0 5.0 5.0 Beta 1.0 1.1 1.2 Cost of Equity (%) 6.0 7.0 8.0

ALROSA Group of Companies 331 November 2016 Economic Analysis

12.2 UDACHNY GOK

The Udachny GOK is currently transitioning from open pit mining to underground mining at the Udachnaya pipe deposit. Open pit operation finished in 2016, while the underground mine is under construction with its design production rate scheduled to be reached in 2019. Construction of the underground mine requires considerable capital investment. The reduction in tonnage mined will be partly offset by drawing from a stockpile of Udachny open pit ore.

The Udachny GOK cash flow model is based on Micon’s forecast production schedule for the Udachnaya and Zarnitsa pipes, and the Kluch Piropovy placer and Zakonturnaya deluvial placer, in addition to the Verkhne-Munskoe deposit kimberlite pipes.

The long term production schedule up to 2030 does not include complete excavation of ore reserves from the Udachnaya pipe and the Verkhne-Munskoe deposit. As at 1st January 2031, in accordance with the schedule, the in-situ remaining balance for the Udachnaya pipe will be 29,307 kt of ore containing 38,484 kct of class +0.5 mm diamonds and for the Verkhne-Munskoe deposit 11,476 kt of ore containing 8,320 kct of class +0.5 mm diamonds.

The key indicators for the Udachny GOK cash flow model from the second half 2016 to 2030 are presented in Table 12.9. The net present value (NPV) at a discount rate of 7% amounts to US$1,174.9 billion. Figure 12.2 illustrates the dynamics of the key indicators for the second half of 2016 to 2030.

Figure 12.2: Udachny GOK Cash Flow (second half 2016 to 2030)

ALROSA Group of Companies 332 November 2016 Economic Analysis

Table 12.9: Udachny GOK – Key Indicators of the Cash Flow Model (second half of 2016 to 2030)

Indicator 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2.28 2029 2030 Total

Ore and Sands Mined (kt) 2,400 5,800 7,002 9,815 10,350 10,350 10,350 10,377 10,193 7,000 7,000 7,000 7,000 7,000 7,000 118,637 Diamond Grade in the Mined Material (ct/t) 0.48 0.75 0.71 0.78 0.77 0.77 0.77 0.76 0.78 1.02 1.02 1.02 1.02 1.02 1.02 0.85 Diamonds Contained in the Mined Material (kct) 1,155 4,355 4,999 7,653 7,918 7,918 7,918 7,935 7,935 7,135 7,135 7,135 7,135 7,135 7,135 100,599 Ore and Sands Processed (kt) 2,400 6,300 7,610 9,815 10,350 10,350 10,350 10,377 10,193 7,000 7,000 7,000 7,000 7,000 7,000 119,745 Diamond Grade in the Material Processed (ct/t) 0.48 0.74 0.71 0.78 0.77 0.77 0.77 0.76 0.78 1.02 1.02 1.02 1.02 1.02 1.02 0.85 Diamonds Contained in the Material Processed (kct) 1,155 4,692 5,409 7,653 7,918 7,918 7,918 7,935 7,935 7,135 7,135 7,135 7,135 7,135 7,135 101,346 Average Recovery (%) 96.2 96.5 96.6 96.6 96.6 96.6 96.6 96.6 96.6 96.8 96.8 96.8 96.8 96.8 96.8 96.7 Diamonds Recovered (kct) 1,111 4,530 5,225 7,394 7,649 7,649 7,649 7,665 7,667 6,907 6,907 6,907 6,907 6,907 6,907 97,979 Average Price (US$/ct) 110.9 95.8 98.3 108.7 110.3 116.0 119.4 125.1 131.5 127.2 142.3 150.6 158.8 189.4 207.0 134.9 Revenue from Diamond Sales (US$ ‘000) 123,187 434,140 513,339 803,461 843,557 887,040 913,129 958,823 1,008,497 878,646 983,086 1,039,959 1,096,831 1,308,073 1,429,943 13,221,711 Operating Costs (US$ ‘000) 134,098 378,282 448,749 605,486 631,801 655,892 665,871 679,617 680,363 583,387 596,633 602,497 608,377 635,903 650,092 8,557,048 Operating Costs (US$/t) 55.87 60.04 58.97 61.69 61.04 63.37 64.34 65.50 66.75 83.34 85.23 86.07 86.91 90.84 92.87 71.46 Operating Costs (US$/ct) 120.72 83.51 85.89 81.89 82.60 85.75 87.06 88.66 88.74 84.46 86.38 87.23 88.08 92.07 94.12 87.3 Capital Costs (US$ ‘000) 80,371 172,620 162,280 80,268 59,625 53,905 38,286 20,585 21,710 57,810 75,402 44,421 48,373 52,341 40,551 1,008,548 Capital Costs (US$/t) 33.49 27.40 21.33 8.18 5.76 5.21 3.70 1.98 2.13 8.26 10.77 6.35 6.91 7.48 5.79 8.42 Net Cash Flow (US$ ‘000) -177,448 -143,122 -151,606 81,941 115,308 142,248 170,150 218,988 291,481 192,624 250,291 322,670 355,903 502,561 596,777 2,768,766 Net Cash Flow @ 7% discount rate (US$ ‘000) 1,174,941

ALROSA Group of Companies 333 November 2016 Economic Analysis

12.3 AIKHAL GOK

The Aikhal GOK cash flow model is based on Micon’s production schedule produced for the ore reserves statement accordance with the guidelines of the JORC Code (2012). The production schedule covers the period from the second half of 2016 to 2030.

The cash flow model has been produced for the Jubilee, Aikhal, Komsomolskaya and Zaria operations.

The long term production schedule up to 2030 does not include complete excavation of the ore reserves from the Jubilee pipe and the Zaria deposit. As at 1st January 2031, in accordance with the schedule, the in-situ remaining balance for the Jubilee pipe will be 14,373 kt of ore containing 12,043 kct of class +1.2 mm diamonds, and for the Verkhne-Munskoe deposit 2,083 kt of ore containing 586 kct of class +0.5 mm diamonds.

The key indicators for the Aikhal GOK cash flow model from the second half 2016 to 2030 are given in Table 12.10.

The NPV, at a discount rate of 7%, is US$3,524.0 million. Figure 12.3 illustrates the dynamics of the key indicators from the second half of 2016 to 2030.

Figure 12.3: Aikhal GOK Cash Flow (second half 2016 to 2030)

ALROSA Group of Companies 334 November 2016 Economic Analysis

Table 12.10: Aikhal GOK – Key Indicators of the Cash Flow Model (second half 2016 to 2030)

Indicator 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2.28 2029 2030 Total

Ore Mined (kt) 3,975 6,710 6,010 5,510 4,971 5,725 5,725 6,425 6,025 6,225 6,925 6,330 5,825 6,525 6,525 89,431 Diamond Grade in the Ore Mined (ct/t) 1.34 1.49 0.98 1.00 1.06 0.97 0.97 0.95 0.96 0.96 0.94 0.85 0.69 0.70 0.70 0.96 Diamonds Contained in the Ore Mined (kct) 5,337 10,025 5,875 5,487 5,289 5,559 5,559 6,102 5,792 5,947 6,491 5,395 4,014 4,558 4,558 85,988 Ore Processed (kt) 3,975 6,710 6,010 5,510 4,971 5,725 5,725 6,425 6,025 6,225 6,925 6,330 5,825 6,525 6,525 89,431 Diamond Grade in the Ore Processed (ct/t) 1.34 1.49 0.98 1.00 1.06 0.97 0.97 0.95 0.96 0.96 0.94 0.85 0.69 0.70 0.70 0.96 Diamonds Contained in the Ore Processed (kct) 5,337 10,025 5,875 5,487 5,289 5,559 5,559 6,102 5,792 5,947 6,491 5,395 4,014 4,558 4,558 85,988 Average Recovery (%) 97.2 96.8 96.7 96.8 96.8 96.8 96.8 96.8 96.8 96.8 96.7 96.8 96.9 96.9 96.9 96.8 Diamonds Recovered (kct) 5,190 9,702 5,683 5,312 5,121 5,382 5,382 5,910 5,608 5,759 6,279 5,222 3,891 4,418 4,418 83,278 Average Price (US$/ct) 127 116 115 120 117 126 130 140 145 148 157 179 227 270 295 154 Revenue from Diamond Sales (US$ ‘000) 661,362 1,129,640653,373 638,592 600,652 678,537 698,494 827,107 814,763 850,764 983,072 934,868 883,787 1,193,271 1,304,445 12,852,728 Operating Costs (US$ ’000) 236,821 401,560 328,498 315,706 290,716 306,678 308,725 329,442 313,254 314,806 339,407 307,164 260,730 302,614 315,720 4,671,840 Operating Costs (US$/t) 59.6 59.8 54.7 57.3 58.5 53.6 53.9 51.3 52.0 50.6 49.0 48.5 44.8 46.4 48.4 52.2 Operating Costs (US$/ct) 45.6 41.4 57.8 59.4 56.8 57.0 57.4 55.7 55.9 54.7 54.1 58.8 67.0 68.5 71.5 56.1 Capital Costs (US$ ‘000) 23,010 59,289 73,831 55,501 30,745 40,464 48,208 31,954 35,431 29,111 56,390 33,925 37,919 34,904 45,246 635,927 Capital Costs (US$/t) 5.8 8.8 12.3 10.1 6.2 7.1 8.4 5.0 5.9 4.7 8.1 5.4 6.5 5.3 6.9 7.1 Net Cash Flow (US$ ‘000) 275,894 548,718 201,398 222,880 224,678 268,986 271,668 385,436 379,709 407,745 484,721 500,472 468,163 692,035 754,213 6,086,717 Net Cash Flow @ 7% discount rate (US$ ‘000) 3,524,043

ALROSA Group of Companies 335 November 2016 Economic Analysis

12.4 MIRNY GOK

The Mirny GOK cash flow model has been compiled to include production from the Mir and International pipes, and the Irelyakh, Gornoye and Vodorazdelnye Galechniki placer deposits. The key indicators from the Mirny GOK cash flow model from the second half 2016 to 2030 are presented in Table 12.12. The NPV, at a discount rate of 7%, is US$4,928 million. Figure 12.4 illustrates the dynamics of the key indicators from the second half 2016 to 2030.

The long term production schedule up to 2030 does not include complete excavation of the ore reserves from the Mir pipe and the Gornoye placer deposit. As at 1st January 2031, in accordance with the schedule, the in-situ remaining balance contained in the Mir pipe will be 23,248 kt of ore containing 77,890 kct of class +0.5 mm diamonds, and for the Gornoye placer sands 420 m3 containing 148 kct of diamonds.

The key indicators for the Mirny GOK cash flow model from the second half of 2016 to 2030 are given in Table 12.11.

The NPV, at a discount rate of 7%, is US$5,033.0 million. Figure 12.4 illustrates the dynamics of the key indicators from the second half of 2016 to 2030.

Figure 12.4: Mirny GOK Cash Flow (second half 2016 to 2030)

ALROSA Group of Companies 336 November 2016 Economic Analysis

Table 12.11: Mirny GOK - Key Indicators of the Cash Flow Model (second half 2016 to 2030)

Indicator 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total

Ore and Sands Mined (kt) 2,820 5,748 4,708 4,883 4,883 4,878 4,908 4,687 4,608 4,608 4,608 3,460 2,908 2,501 1,532 61,740 Diamond Grade in the 1.38 1.37 1.56 1.51 1.49 1.46 1.50 1.44 1.56 1.56 1.59 2.09 1.18 1.33 2.12 1.52 Mined Material (ct/t) Diamonds Contained in the 3,887 7,902 7,334 7,383 7,299 7,121 7,352 6,745 7,208 7,208 7,305 7,248 3,419 3,337 3,251 93,999 Mined Material (kct) Ore and Sands Processed (kt) 2,820 5,748 4,708 4,883 4,883 4,878 4,908 4,687 4,608 4,608 4,608 3,460 2,908 2,501 1,532 61,740 Diamond Grade in the 1.38 1.37 1.56 1.51 1.49 1.46 1.50 1.44 1.56 1.56 1.59 2.09 1.18 1.33 2.12 1.52 Processed Material (ct/t) Diamonds Contained in the 3,887 7,902 7,334 7,383 7,299 7,121 7,352 6,745 7,208 7,208 7,305 7,248 3,419 3,337 3,251 93,999 Processed Material (kct) Average Recovery (%) 97.2 96.5 96.7 96.7 96.8 96.8 96.8 96.8 96.9 96.9 96.8 97.1 96.8 97.0 97.4 96.8 Diamonds Recovered (kct) 3,777 7,627 7,090 7,136 7,067 6,893 7,118 6,529 6,983 6,983 7,070 7,036 3,311 3,237 3,166 91,023 Average Price (US$/ct) 156.4 145.3 149.5 159.1 162.3 169.8 175.9 181.3 194.1 195.8 202.2 217.5 184.0 219.2 237.6 180.2 Revenue from Diamond 590,902 1,107,889 1,059,708 1,135,316 1,147,142 1,170,443 1,252,435 1,183,599 1,355,739 1,367,427 1,429,158 1,530,303 609,245 709,545 752,023 16,400,875 Sales (US$ ‘000) Operating Costs (US$ ‘000) 221,749 413,190 399,514 413,841 412,603 415,243 425,626 407,546 426,149 427,527 432,832 393,783 233,661 238,967 233,911 5,496,142 Operating Costs (US$/t) 78.6 71.9 84.9 84.8 84.5 85.1 86.7 86.9 92.5 92.8 93.9 113.8 80.4 95.6 152.7 89.0 Operating Costs (US$/ct) 58.7 54.2 56.3 58.0 58.4 60.2 59.8 62.4 61.0 61.2 61.2 56.0 70.6 73.8 73.9 60.4 Capital Costs (US$ ‘000) 44,282 69,234 52,066 40,216 60,827 52,019 52,947 65,523 66,908 62,019 34,840 41,850 58,587 45,996 25,708 773,023 Capital Costs (US$/t) 15.7 12.0 11.1 8.2 12.5 10.7 10.8 14.0 14.5 13.5 7.6 12.1 20.1 18.4 16.8 12.5 Net Cash Flow (US$ ‘000) 203,544 504,974 487,598 552,979 542,824 567,369 631,636 571,457 696,020 709,624 800,315 926,229 264,436 356,422 399,088 8,214,516 Net Cash Flow @ 7% discount rate (US$ ‘000) 5,033,044

ALROSA Group of Companies 337 November 2016 Economic Analysis

12.5 NYURBA GOK

The Nyurba GOK cash flow model has been based on Micon’s production schedule for the Nyurbinskaya and Botuobinskaya pipes, and the Nyurbinskaya placer deposits. The assessment also includes production from the Botuobinskaya placer and Maiskoye kimberlite body.

The long term production schedule up to 2030 does not include complete excavation of the ore reserves from the Nyurbinskaya and Botuobinskaya pipes. As at 1st January 2031, in accordance with the schedule, the in-situ remaining balance for the Nyurbinskaya pipe will be 1,139 kt of ore containing 3,259 kct of class +2 mm diamonds and 5,058 kt of ore containing 29,716 kct of class +2 mm diamonds for the Botuobinskaya pipe.

The key indicators from the Nyurba GOK cash flow model from the second half of 2016 to 2030 are presented in Table 12.12.

The NPV, at a discount rate of 7%, is US$3,558.9 million.

Figure 12.5 illustrates the dynamics of the key indicators from the second half of 2016 to 2030.

Figure 12.5: Nyurba GOK Cash Flow (second half 2016 to 2030)

ALROSA Group of Companies 338 November 2016 Economic Analysis

Table 12.12: Nyurba GOK – Key Indicators Cash Flow Model (second half of 2016 to 2030)

Indicator 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2.28 2029 2030 Total

Ore and Sands Mined (kt) 773 2,010 1,980 2,060 2,112 2,010 2,010 1,506 1,500 1,500 1,500 1,500 1,500 1,500 1,500 24,961 Diamond Grade in the Mined Material (ct/t) 4.10 3.54 3.75 3.24 3.38 3.95 3.98 4.62 4.21 4.46 4.50 4.32 4.33 4.33 4.34 4.01 Diamonds Contained in the Mined Material (kct) 3,169 7,125 7,431 6,668 7,134 7,935 7,992 6,950 6,310 6,692 6,750 6,481 6,492 6,492 6,503 100,124 Ore and Sands Processed (kt) 773 2,010 1,980 2,010 2,010 2,010 2,010 1,658 1,500 1,500 1,500 1,500 1,500 1,500 1,500 24,961 Diamond Grade in the Processed Material (ct/t) 4.10 3.54 3.75 3.31 3.53 3.95 3.98 4.22 4.21 4.46 4.50 4.32 4.33 4.33 4.34 4.01 Diamonds Contained in the Processed Material (kct) 3,169 7,125 7,431 6,653 7,103 7,935 7,992 6,996 6,310 6,692 6,750 6,481 6,492 6,492 6,503 100,124 Average Recovery (%) 97.5 97.4 97.4 97.3 97.3 97.4 97.4 97.5 97.4 97.4 97.5 97.5 97.5 97.5 97.5 97.4 Diamonds Recovered (kct) 3,088 6,941 7,236 6,476 6,914 7,726 7,782 6,819 6,149 6,521 6,579 6,316 6,327 6,327 6,338 97,539 Average Price (US$/ct) 98.2 90.4 94.4 102.9 104.1 113.6 117.8 128.5 133.4 136.2 144.1 148.3 157.3 187.6 206.2 130.7 Revenue from Diamond Sales (US$ ‘000) 303,140 627,362 683,177 666,696 720,033 878,046 916,414 876,348 820,378 888,458 948,072 936,519 995,058 1,186,699 1,306,808 12,753,208 Operating Costs (US$ ‘000) 103,392 250,027 255,967 263,735 272,424 289,043 318,364 304,695 322,620 360,017 366,070 323,952 344,433 356,041 389,122 4,519,900 Operating Costs (US$/t) 133.8 124.4 129.3 131.2 135.5 143.8 158.4 183.8 215.1 240.0 244.0 216.0 229.6 237.4 259.4 181.1 Operating Costs (US$/ct) 33.5 36.0 35.4 40.7 39.4 37.4 40.9 44.7 52.5 55.2 55.6 51.3 54.4 56.3 61.4 46.3 Capital Costs (US$ ‘000) 10,333 10,036 25,116 18,621 39,590 32,196 35,951 57,005 53,961 15,658 26,237 12,315 12,158 12,564 13,602 375,345 Capital Costs (US$/t) 13.4 5.0 12.7 9.3 19.7 16.0 17.9 34.4 36.0 10.4 17.5 8.2 8.1 8.4 9.1 15.0 Net Cash Flow (US$ ‘000) 103,317 294,184 316,690 305,683 320,312 433,129 452,297 398,024 343,046 421,148 449,475 483,284 515,654 668,497 725,552 6,230,291 Net Cash Flow @ 7% discount rate (US$ ‘000) 3,558,937

ALROSA Group of Companies 339 November 2016 Economic Analysis

12.6 LOMONOSOV GOK (SEVERALMAZ)

The Lomonosov GOK cash flow model has been compiled to include the ore reserves of the Arkhangelsky and Karpinskogo-1 pipes from the M.V. Lomonosov deposit.

The long term production schedule up to 2030 does not include complete excavation of the Arkhangelsky pipe ore reserves. As at 1st January 2031, in accordance with the schedule, the in-situ remaining balance for the Arkhangelsky pipe will be 9,948 kt of ore containing 14,586 kct of class +3 mm diamonds.

The key indicators from the Lomonosov GOK cash flow model from the second half of 2016 to 2030 are presented in Table 12.13.

The NPV at discount rate of 7% amounts to US$793.8 million.

Figure 12.6 illustrates the dynamics of the key indicators from the second half of 2016 to 2030.

Figure 12.6: Lomonosov GOK Cash Flow (second half 2016 to 2030)

ALROSA Group of Companies 340 November 2016 Economic Analysis

Table 12.13: Lomonosov GOK – Key Indicators of the Cash Flow Model (second half 2016 to 2030)

Indicator 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2.28 2029 2030 Total

Ore Mined (kt) 2,000 3,760 3,980 4,000 4,000 4,000 4,000 4,000 4,000 4,000 3,733 3,000 3,000 2,000 2,000 51,473 Diamond Grade in the Ore Mined (ct/t) 0.49 0.61 1.07 1.20 1.21 1.14 1.15 1.16 1.17 1.17 1.13 1.00 1.02 1.05 0.69 1.05 Diamonds Contained in the Ore Mined (kct) 988 2,292 4,244 4,815 4,849 4,544 4,605 4,653 4,664 4,679 4,228 2,990 3,072 2,097 1,382 54,103 Ore Processed (kt) 2,000 3,760 3,980 4,000 4,000 4,000 4,000 4,000 4,000 4,000 3,733 3,679 3,000 2,000 2,000 52,152 Diamond Grade in the Ore Processed (ct/t) 0.49 0.61 1.07 1.20 1.21 1.14 1.15 1.16 1.17 1.17 1.13 0.96 1.02 1.05 0.69 1.05 Diamonds Contained in the Ore Processed (kct) 988 2,292 4,244 4,815 4,849 4,544 4,605 4,653 4,664 4,679 4,228 3,529 3,072 2,097 1,382 54,642 Average Recovery (%) 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 97.0 Diamonds Recovered (kct) 958 2,224 4,117 4 670 4,703 4,407 4,467 4,513 4,524 4,538 4,101 3,423 2,980 2 034 1,341 53,002 Average Price (US$/ct) 48.3 44.8 45.8 59.0 59.6 63.4 65.3 68.5 72.2 72.8 76.3 81.3 86.4 103.0 112.6 68.6 Revenue from Diamond Sales (US$ ‘000) 46,313 99,676 188,583 275,514 280,433 279,612 291,868 309,005 326,677 330,541 313,009 278,294 257,489 209,597 151,060 3,637,672 Operating Costs (US$*000) 78,791 113,369 124,891 130,196 122,706 116,024 115,279 115,233 114,146 111,308 107,232 95,607 93,843 82,892 76,011 1,597,527 Operating Costs (US$/t) 39.4 30.2 31.4 32.5 30.7 29.0 28.8 28.8 28.5 27.8 28.7 26.0 31.3 41.4 38.0 30.6 Operating Costs (US$/ct) 82.2 51.0 30.3 27.9 26.1 26.3 25.8 25.5 25.2 24.5 26.1 27.9 31.5 40.8 56.7 30.1 Capital Costs (US$ ‘000) 5,705 8,317 6,967 17,344 29,770 15,572 15,702 15,252 3,990 8,558 8,558 8,558 8,558 8,558 8,558 169,965 Capital Costs (US$/t) 2.9 2.2 1.8 4.3 7.4 3.9 3.9 3.8 1.0 2.1 2.3 2.3 2.9 4.3 4.3 3.3 Net Cash Flow (US$ ‘000) -48,975 -23,436 46,572 101,029 98,396 114,733 124,583 138,581 163,800 164,375 155,082 137,247 123,983 94,244 51,061 1,441,275 Net Cash Flow @ 7% discount rate (US$ ‘000) 793,882

ALROSA Group of Companies 341 November 2016 Economic Analysis

12.7 ALMAZY ANABARA

The cash flow model for the Almazy Anabara placer deposits was constructed on the basis of mining production schedules for the Ebelyakh River, Gusiny Stream, Istok Area of the Ebelyakh River, Morgogor River, Right Bank Morgogor River, Olom Stream, Ruchey Log 325, Kholomolokh Stream and the Uchakh-Ytyrbat River and Khara-Mas placers. The economic analysis covers all the Company’s deposits which have ore reserves estimated in this Report, classified in accordance with the guidelines of the JORC Code (2012).

The long term production schedule up to 2030 includes the complete excavation of the ore reserves, classified in accordance with the JORC Code (2012), from all the Almazy Anabara deposits by 2019.

The key indicators from the Almazy Anabara cash flow model from the second half of 2016 to 2030 are presented in Table 12.14.

The NPV at a discount rate of 7%, amounts to US$200.1 million.

Figure 12.7 illustrates the dynamics of the key indicators from 2016 to 2030 and includes full depletion of the ore reserves classified in accordance with the guidelines of the JORC Code (2012).

Figure 12.7: Almazy Anabara Cash Flow (second half 2016 to 2030)

ALROSA Group of Companies 342 November 2016 Economic Analysis

Table 12.14: Almazy Anabara – Key Indicators of the Cash Flow Model (second half 2016 to 2030)

Indicator 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2.28 2029 2030 Total

Sands Mined and Processed (k m3) 1,295 2,798 2,813 1,800 1,726 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 668 0 20,700 Diamond Grade of Sands (ct/m3) 1.09 1.14 1.02 1.14 1.16 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 - 1.23 Diamonds Contained in Sands (kct) 1,407 3,191 2,856 2,046 1,993 1,622 1,622 1,622 1,622 1,622 1,622 1,622 1,622 902 0 25,373 Average Recovery (%) 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 96.0 - 96.0 Diamonds Recovered (kct) 1,351 3,063 2,742 1,964 1,914 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 866 0 24,359 Average Price (US$/ct) 59.7 53.9 54.5 53.6 54.0 55.3 56.9 59.6 62.8 63.4 65.6 69.3 73.1 87.2 - 60.2 Revenue from Diamond Sales (US$ ‘000) 80,657 165,127 149,327 105,182 103,260 86,053 88,584 92,802 97,864 98,708 102,082 107,988 113,893 75,557 0 1,467,084 Operating Costs (US$ ‘000) 47,429 100,588 98,661 65,427 62,953 45,672 47,542 47,182 46,657 47,432 48,953 48,641 50,164 29,723 - 787,024 Operating Costs (US$/m3) 36.6 35.9 35.1 36.3 36.5 38.1 39.6 39.3 38.9 39.5 40.8 40.5 41.8 44.5 - 38.0 Operating Costs (US$/ct) 35.1 32.8 36.0 33.3 32.9 29.3 30.5 30.3 30.0 30.5 31.4 31.2 32.2 34.3 - 32.3 Capital Costs (US$ ‘000) 16,671 35,541 35,547 21,202 19,590 11,153 14,621 13,442 11,916 13,571 16,304 15,082 17,508 9,769 - 251,916 Capital Costs (US$/m3) 12.9 12.7 12.6 11.8 11.4 9.3 12.2 11.2 9.9 11.3 13.6 12.6 14.6 14.6 - 12.2 Net Cash Flow (US$ ‘000) -7,469 18,412 19,378 14,121 21,853 23,407 21,584 26,673 32,197 30,565 30,315 35,990 44,786 40,129 0 351,942 Net Cash Flow @ 7% discount rate (US$ ‘000) 200,072

ALROSA Group of Companies 343 November 2016 Economic Analysis

12.8 NIZHNE-LENSKOE

The cash flow model for the Nizhne-Lenskoe company was constructed from the mining plans for the following placer deposits: Talakhtakh, Bolshaya Kuonamka, Billyakh, Tributaries of the Billyakh Stream and the Molodo placer. The economic analysis covers all the Company’s deposits which have ore reserves classified in accordance with the guidelines of the JORC Code (2012).

The production schedule used for the assessment up to 2020 includes the full depletion of all the Nizhne-Lenskoe deposits ore reserves estimated in this Report, classified in accordance with JORC Code (2012). Further exploration could provide an increase in the Company’s resources.

The key indicators from the Nizhne-Lenskoe cash flow model from the second half of 2016 to 2027 are presented in Table 12.15.

The NPV, at a discount rate of 7%, amounts to US$102 million.

Figure 12.8 illustrates the dynamics of the key indicators for the second half of 2016 to 2021 for the depletion of all the ore reserves classified in accordance with JORC Code (2012). The key indicators from the cash flow model for the Nizhne-Lenskoe company, up until the current ore reserves are depleted, are presented in Table 12.15.

Figure 12.8: Nizhne-Lenskoe Cash Flow (second half 2016 to 2021)

ALROSA Group of Companies 344 November 2016 Economic Analysis

Table 12.15: Nizhne-Lenskoe – Key Indicators of the Cash Flow Model 2016 (second half 2016 to 2030)

Indicator 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Sands Mined and Processed (k m3) 1,511 1,521 1,050 1,350 968 ------6,400 Diamond Grade in Sands (ct/m3) 0.68 0.63 0.32 0.32 968 ------0.48 Diamonds Contained in Sands (kct) 1 020 963 341 438 314 ------3,075 Average Recovery (%) 95.7 96.0 96.0 96.0 96.0 ------95.9 Diamonds Recovered (kct) 976 924 327 420 301 ------2,949 Average Price (US$/ct) 118.6 142.0 153.9 164.1 165.8 ------141.2 Revenue from Diamond Sales (US$ ‘000) 115,760 131,256 50,303 68,985 49,995 ------416,299 Operating Costs (US$ ‘000) 54,873 51,844 29,637 38,277 27,812 ------202,443 Operating Costs (US$/m3) 36.3 34.1 28.2 28.4 28.7 ------96.0 Operating Costs (US$/ct) 56.2 56.1 90.7 91.1 92.3 ------408.7 Capital Costs (US$ ‘000) 10,773 7,357 6,714 6,343 6,343 ------37,530 Capital Costs (US$/m3) 7.1 4.8 6.4 4.7 6.6 ------11.7 Net Cash Flow (US$ ‘000) 39,765 63,146 7,238 22,345 21,415 ------153,909 Net Cash Flow @ 7% discount rate (US$ ‘000) 135,033

ALROSA Group of Companies 345 November 2016 Economic Analysis

12.9 AGGREGATE INDICATORS

The aggregate volumes of ore mined and diamonds extracted from 2016 to 2030 for each production division of ALROSA are presented in Table 12.16. Diamond production on the basis of the long term production schedule is shown graphically in Figure 12.9.

It should be emphasised that the production schedules compiled by Micon may vary from the ALROSA long term development plan, as the Micon schedules are restricted to ore reserves classified in accordance with the guidelines of the JORC Code (2012). Ore reserves for individual deposits meeting the JORC criteria could be increased in the future by further exploration and sampling. Respective comments have been made in this report with regard to the individual assets operated by ALROSA.

Figure 12.9: ALROSA Aggregate Production (second half 2016 to 2030)

The aggregate performance and economic indicators from Micon’s evaluations of the ALROSA assets studied in this Report are summarised in Table 12.17. Actual values may vary from those indicated, as the Micon schedules and economic models are restricted to the ore reserves stated as at 1st July 2016 and classified in accordance with the guidelines of JORC Code (2012).

ALROSA Group of Companies 346 November 2016 Economic Analysis

Table 12.16: ALROSA Key Indicators for the Second Half of 2016 to 2030 Estimated by Micon

GOK/Company Unit 2016 H2 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total Ore and Sands Mined and Processed (kt, k m3) Udachny GOK kt 2,400 6,300 7,610 9,815 10,350 10,350 10,350 10,377 10,193 7,000 7,000 7,000 7,000 7,000 7,000 119,745 Aikhal GOK kt 3,975 6,710 6,010 5,510 4,971 5,725 5,725 6,425 6,025 6,225 6,925 6,330 5,825 6,525 6,525 89,431 Mirny GOK kt 850 1,728 1,728 1,903 1,900 1,920 1,950 1,729 1,650 1,650 1,650 1,405 1,150 1,049 1,000 23,262 Mirny GOK Dredges k m3 864 1,770 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 799 650 650 266 16,248 Nyurba GOK kt 773 2,010 1,980 2,010 2,010 2,010 2,010 1,658 1,500 1,500 1,500 1,500 1,500 1,500 1,500 24,961 Lomonosov GOK kt 2,000 3,760 3,980 4,000 4,000 4,000 4,000 4,000 4,000 4,000 3,733 3,679 3,000 2,000 2,000 52,152 Almazy Anabara k m3 1,295 2,798 2,813 1,800 1,726 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 668 0 20,700 Nizhne-Lenskoe k m3 1,511 1,521 1,050 1,350 968 0 0 0 0 0 0 0 0 0 0 6,400 Total 1 kt 17,336 32,686 31,534 32,038 31,120 28,905 28,935 29,089 28,268 25,275 25,708 23,911 22,175 20,709 18,557 396,247 Diamonds Contained in Processed Ore and Sands (ct/t, ct/m3)2 Udachny GOK ct/t 0.48 0.74 0.71 0.78 0.77 0.77 0.77 0.76 0.78 1.02 1.02 1.02 1.02 1.02 1.02 0.85 Aikhal GOK ct/t 1.34 1.49 0.98 1.00 1.06 0.97 0.97 0.95 0.96 0.96 0.94 0.85 0.69 0.70 0.70 0.96 Mirny GOK ct/t 4.35 4.32 4.04 3.70 3.71 3.58 3.64 3.76 4.22 4.22 4.28 5.07 2.91 3.11 3.22 3.90 Mirny GOK Dredges ct/m3 0.22 0.24 0.28 0.27 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.15 0.12 0.12 0.12 0.21 Nyurba GOK ct/t 4.10 3.54 3.75 3.31 3.53 3.95 3.98 4.22 4.21 4.46 4.50 4.32 4.33 4.33 4.34 4.01 Lomonosov GOK ct/t 0.49 0.61 1.07 1.20 1.21 1.14 1.15 1.16 1.17 1.17 1.13 0.96 1.02 1.05 0.69 1.05 Almazy Anabara ct/m3 1.09 1.14 1.02 1.14 1.16 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 - 1.23 Nizhne-Lenskoe ct/m3 0.68 0.63 0.32 0.32 0.32 ------0.48 Total 1 ct/t 0.98 1.11 1.06 1.08 1.12 1.20 1.21 1.17 1.19 1.32 1.30 1.31 1.16 1.18 1.23 1.50 Recovered Diamonds (kct) Udachny GOK kct 1,111 4,530 5,225 7,394 7,649 7,649 7,649 7,665 7,667 6,907 6,907 6,907 6,907 6,907 6,907 97,979 Aikhal GOK kct 5,190 9,702 5,683 5,312 5,121 5,382 5,382 5,910 5,608 5,759 6,279 5,222 3,891 4,418 4,418 83,278 Mirny GOK kct 3,777 7,627 7,090 7,136 7,067 6,893 7,118 6,529 6,983 6,983 7,070 7,036 3,311 3,237 3,166 91,023 Nyurba GOK kct 3,088 6,941 7,236 6,476 6,914 7,726 7,782 6,819 6,149 6,521 6,579 6,316 6,327 6,327 6,338 97,539 Lomonosov GOK kct 958 2,224 4,117 4,670 4,703 4,407 4,467 4,513 4,524 4,538 4,101 3,423 2,980 2,034 1,341 53,002 Almazy Anabara kct 1,351 3,063 2,742 1,964 1,914 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 866 0 24,359 Nizhne-Lenskoe kct 976 924 327 420 301 0 0 0 0 0 0 0 0 0 0 2,949 Total kct 16,452 35,011 32,419 33,373 33,669 33,614 33,955 32,993 32,489 32,266 32,493 30,462 24,973 23,790 22,170 450,130 Notes: 1 Assuming an average Specific Gravity of Sands is 2.0 t/m3. 2 Indicated diamonds grades have been determined for only those crystals for sizes meeting the approved cut-off grade criteria (Recovery Limits).

ALROSA Group of Companies 347 November 2016 Economic Analysis

Table 12.17: ALROSA Key Indicators for the Second Half of 2016 to 2030 Estimated by Micon

Udachny Aikhal Mirny Nyurba Lomonosov Almazy Nizhne- Indicator Unit Total GOK GOK GOK GOK GOK Anabara Lenskoe Mining Diamond-Bearing Material Mined 1 kt 118,637 89,431 61,740 24,961 51,473 41,399 12,800 400,441 Average Diamonds Grade ct/t 0.85 0.96 1.52 4.01 1.05 0.61 0.24 1.16 Diamonds Contained in Material Mined kct 100,599 85,988 93,999 100,124 54,103 25,373 3,075 463,262 Processing Material Processed kt 119,745 89,431 55,758 24,961 52,152 41,399 12,800 396,247 Average Grade ct/t 0.85 0.96 1.69 4.01 1.05 0.61 0.24 1.17 Diamonds Contained in Processed Material kct 101,346 85,988 93,999 100,124 54,642 25,373 3,075 464,548 Diamonds Recovered kct 97,979 83,278 91,023 97,539 53,002 24,359 2,949 450,130 Average Recovery (%) 96.7 96.8 96.8 97.4 97.0 96.0 95.9 96.9 Prices and Revenue Average Price US$/ct 134.9 154.3 185.9 130.7 68.6 60.2 141.2 135.0 Total Revenue from Sales US$ M 13,221.7 12,852.7 16,400.9 12,753.2 3,637.7 1,467.1 416.3 60,749.6 Operating Costs Total Operating Costs US$ M 8,557.0 4,671.8 5,496.1 4,519.9 1,597.5 787.0 202.4 25,831.9 Operating Costs US$/t 71.5 52.2 98.6 181.1 30.6 19.0 15.8 65.2 Operating Costs US$/ct 87.3 56.1 60.4 46.3 30.1 32.3 68.6 57.4 Capital Costs Total Capital Cost US$ M 1,008.5 635.9 778.9 439.0 165.3 251.9 37.5 3,317.1 Capital Costs US$/t 8.4 7.1 14.0 17.6 3.2 6.1 2.9 8.4 Capital Costs US$/ct 10.3 7.6 8.6 4.5 3.1 10.3 12.7 7.4 Profit Tax Profit Tax US$ M 719.2 1,445.2 1,911.3 1,564.0 353.9 92.1 41.1 6,127.0 Free Cash Flow and NPV Free Cash Flow US$ M 2,768.8 6,086.7 8,214.5 6,230.3 1,441.3 351.9 153.9 25,247.4 NPV at 7% Discount Rate US$ M 1,174.9 3,524.0 5,033.0 3,558.9 793.9 200.1 135.0 14,420.0 Notes: 1 Assuming an average Specific Gravity of Sands is 2.0 t/m3.

ALROSA Group of Companies 348 November 2016 Economic Analysis

Figure 12.10 represents an aggregate ALROSA cash flow diagram, which has been generated by the summation of the cash flow models available for all the studied assets.

Figure 12.10: ALROSA Aggregate Cash Flow the Second Half of 2016 to 2030

12.10 SENSITIVITY ANALYSIS

Micon has analysed the sensitivity of the net present values calculated for each production division, and for the aggregate cash flow, for a range of both positive and negative variations of total revenue, operating costs, capital costs, and discount rate from the base case values.

12.10.1 Revenue (Product Sale Price)

Table 12.8 shows the variation in net present value for each division, and the company as a whole, for a range of diamond sale prices of plus or minus 30% of the base levels. Labels in Figure 12.11 illustrate the relative variations of the net present values from the base case value.

As is universally the case for mining companies, the NPV is highly sensitive to the commodity price. A 20% decrease of revenue reduces the NPV of the Udachny GOK to a negative value.

ALROSA Group of Companies 349 November 2016 Economic Analysis

Table 12.18: NPV Sensitivity to Diamonds Sale Price

Sale Price NPV @ 7% (US$ M) (Revenue) Udachny Aikhal Mirny Nyurba Lomonosov Almazy Nizhne- Total Variances GOK GOK GOK GOK GOK Anabara Lenskoe 70% -653.5 1,761.5 2,698.3 1,867.9 286.1 -35.3 47.6 5,972.6 80% -3.7 2,349.0 3,476.6 2,431.6 456.7 44.8 76.7 8,831.7 90% 590.5 2,936.5 4,254.8 2,995.3 625.3 122.4 105.9 11,630.7 100% 1,174.9 3,524.0 5,033.0 3,558.9 793.9 200.1 135.0 14,420.0 110% 1,745.3 4,111.6 5,811.3 4,122.6 962.5 277.7 164.2 17,195.1 120% 2,315.7 4,699.1 6,589.5 4,686.3 1,131.0 355.4 193.3 19,970.3 130% 2,886.1 5,286.6 7,367.8 5,249.9 1,299.3 433.0 222.5 22,745.2

Figure 12.11: NPV Sensitivity to Revenue

12.10.2 Operating Costs

Table 12.19 represents changes in net present value for each division, and the company as a whole, for a relative change of plus or minus 30% in total operating costs. Labels in Figure 12.12 illustrate relative variations of the net present values from the base case value.

Changes in operating cost influence the NPV values to a lesser degree than the same relative change of sale revenue (diamond prices). However a 30% increase of total operating costs will reduce the NPV of the Udachny GOK to a negative value.

ALROSA Group of Companies 350 November 2016 Economic Analysis

Table 12.19: NPV Sensitivity to Operating Costs

NPV @ 7% (US$ M) Operating Cost Udachny Aikhal Mirny Nyurba Lomonosov Almazy Nizhne- Variances Total GOK GOK GOK GOK GOK Anabara Lenskoe 70% 2,407.6 4,230.3 5,873.9 4,200.9 1,039.2 329.6 177.2 18,258.7 80% 1,996.7 3,994.9 5,593.6 3,986.9 957.8 286.4 163.1 16,979.5 90% 1,585.8 3,759.5 5,313.3 3,772.9 875.9 243.2 149.1 15,699.7 100% 1,174.9 3,524.0 5,033.0 3,558.9 793.9 200.1 135.0 14,420.0 110% 751.2 3,288.6 4,752.7 3,344.9 711.9 156.9 121.0 13,127.3 120% 325.9 3,053.2 4,472.5 3,131.0 629.9 113.7 106.9 11,833.1 130% -124.0 2,817.8 4,192.2 2,917.0 547.9 70.6 92.9 10,514.3

Figure 12.12: NPV Sensitivity to Operating Costs

12.10.3 Capital Costs

Table 12.20 represents changes in net present value for each division, and the company as a whole, for a relative change of plus or minus 30% in total capital costs. Labels in Figure 12.13 illustrate relative variations of the net present values from the base case value.

As can be seen in Figure 12.13 relative variations of the capital costs impact the NPV values to a lesser degree than the same relative change of operating costs and far less than a similar change of sales revenue. Within the studied range of variations, all the NPV values remain positive.

ALROSA Group of Companies 351 November 2016 Economic Analysis

Table 12.20: NPV Sensitivity to Capital Costs

NPV @ 7% (US$ M) Capital Cost Udachny Aikhal Mirny Nyurba Lomonosov Almazy Nizhne- Variances Total GOK GOK GOK GOK GOK Anabara Lenskoe 70% 1,387.7 3,646.6 5,181.6 3,629.8 825.4 252.5 144.8 15,068.5 80% 1,316.8 3,605.8 5,132.1 3,606.2 814.9 235.0 141.5 14,852.3 90% 1,245.9 3,564.9 5,082.6 3,582.6 804.4 217.6 138.3 14,636.1 100% 1,174.9 3,524.0 5,033.0 3,558.9 793.9 200.1 135.0 14,420.0 110% 1,104.0 3,483.2 4,983.5 3,535.3 783.4 182.6 131.8 14,203.8 120% 1,033.1 3,442.3 4,934.0 3,511.7 772.9 165.1 128.5 13,987.6 130% 962.2 3,401.5 4,884.5 3,488.0 762.4 147.6 125.3 13,771.4

Figure 12.13: NPV Sensitivity to Capital Costs

12.10.4 Discount Rate

Table 12.21 contains the net present for each project, and the aggregate, for a relative change of plus or minus 4 percentage points in the discount rate, from the base value of 7%. Figure 12.14 illustrates these fluctuations of NPV values from the base case.

The net present value of each production division, and of ALROSA as a whole, is sensitive to changes of the discount rate, although the fluctuations of this rate are not as critical as variations in the diamond sale prices as the NPV remains positive for all studied rates.

ALROSA Group of Companies 352 November 2016 Economic Analysis

Table 12.21: NPV Sensitivity to Discount Rate

NPV @ 7% (US$ M) Discount Rate Udachny Aikhal Mirny Nyurba Lomonosov Almazy Nizhne- Variances Total GOK GOK GOK GOK GOK Anabara Lenskoe 3,0% 1,916,3 4,737,2 6,576,9 4,829,6 1,106,3 273,0 145,2 19,584,5 5,0% 1,501,2 4,064,2 5,730,7 4,126,4 934,5 232,8 139,9 16,729,9 7,0% 1,174,9 3,524,0 5,033,0 3,558,9 793,9 200,1 135,0 14,420,0 9,0% 916,7 3,086,7 4,453,4 3,097,0 677,9 173,2 130,5 12,535,4 11,0% 711,1 2,729,6 3,968,3 2,717,9 581,7 150,9 126,2 10,985,8

Figure 12.14: NPV Sensitivity to Discount Rate

12.10.5 Aggregate Sensitivity Analysis

Figure 12.15 illustrates the sensitivity of the aggregate NPV, at the base discount rate of 7%, to all three factors analysed above. The NPV is most sensitive to revenue factors, less sensitive to variance in operating cost and least sensitive to variance in capital expenditures; decreased at a 30% variance by 27.1% in the first case and by only 4.5% in the second. This is the case for most mining companies.

ALROSA Group of Companies 353 November 2016 Economic Analysis

Figure 12.15: Sensitivity of Aggregate NPV

ALROSA Group of Companies 354 November 2016 Glossary and Abbreviations

13.0 GLOSSARY AND ABBREVIATIONS

13.1 GLOSSARY

Adit: A horizontal or inclined mine working driven from the day surface and used for servicing the underground mining operations.

Alluvial deposit, placer: An accumulation of fragmented rock containing valuable minerals, mining of which is economically and technically feasible. Alluvial deposits are formed due to physical and chemical weathering of rocks and minerals.

Amenability to processing: The ability of minerals to separate into certain products in the course of processing. It depends on the contrast range of the mineral diversification properties. Amenability to processing is a metallurgical evaluation of a possibility to extract minerals from ore by means of processing.

Autoliths: Spatially defined rounded kimberlite contractions with fragments of various size and composition acting as the central cores. Autoliths form the primary part of autolith breccias.

Ball Mill: A steel cylinder filled with steel balls into which crushed mill feed is fed. The ball mill is rotated, causing the balls to cascade and grind the mill feed.

Balance ore: Ore that meets the cut-off criteria approved by GKZ and has been recorded on the Russian Federation State balance once approved by GKZ reserve estimation.

Brecciated (breccia): Fragmented rock consisting of angular particles that have not been worn by water (unlike conglomerates).

Carat: Standard unit of diamond weight, 1 carat = 0.2 grams

Carbonate rock: Rock primarily composed of carbonate minerals: calcite, aragonite, dolomite, magnesite, siderite etc. The majority of carbonate rock is formed by sedimentation in sea and lake basins.

Core: A cylindrical rock monolith obtained by circular disruption of a drill hole bottom during drilling. Core is extracted onto the surface and is used as the principal material for studying the geological structure of the drill hole section.

Crosscut: A horizontal underground mine working driven transversely to ore body strike.

Cut-off criteria: A set of requirements for the quality and quantity of a mineral in subsoil, for mining and other conditions of the deposit development that define the commercial value of the deposit. The cut-off criteria are used to calculate mineral reserves.

Cut-off grade: The minimum concentration of a valuable component in a marginal sample of the mineral. The cut-off grade is used to delineate parts of the deposit to be mined.

Dense medium separation: The process of gravity separation of minerals based on using a dense medium (suspension).

ALROSA Group of Companies 355 November 2016 Glossary and Abbreviations

Diatreme: A volcanic pipe or orifice in the form of vertical or nearly vertical pipe that widens upwards in the shape of a funnel. Diatremes are formed in the result of major gas emissions. A broader and more geologically specific term in comparison with a “kimberlite pipe” that per se is a diatreme filled with kimberlite.

Dilution: Waste rock that is, by necessity, removed along with the ore in the mining process subsequently lowering the grade of the ore.

Dip angle: The angle between the direction of the described geological structure and horizontal plane.

Due diligence: The procedure of forming an objective opinion about the investment facility that includes investment risks, independent assessment of the facility, comprehensive research on the company's operation, complex inspection of its financial status and market position. Due diligence is usually performed prior to a business purchase, a merger (acquisition) deal or start of cooperation with the company.

Dyke: An intrusive geological body with transversal contacts. The length of a dyke many times exceeds its width, whereas the planes are nearly parallel. As such, a dyke is a fracture that has been filled with magmatic melt.

Flotation: A mineral separation process whereby a froth created in water by a variety of reagents floats some finely crushed minerals whereas others sink.

Geological fault: Discontinuity of rock with or without a shift on the surface. Faults occur due to the movement of rock masses.

Gosudarstvennaya Komissia po Zapasam (GKZ): State Commission for Mineral Reserves. Founded in 1927, GKZ manages mineral reserves on behalf of the Ministry for Environmental Protection and Natural Resources of the Russian Federation.

Grease separation: The process of recovering diamonds based on their surface behaviour (sticking to a grease coating).

Hard rock deposit: Primary accumulation of a mineral substance in subsoil that has not been altered or destroyed near the ground surface. Hard rock deposits are opposed to placer deposits formed by the result of disintegration of hard rock deposits and mineralised rock.

Host rock: Wall rock that confines the mineral occurrence zone.

Intrusion: A body of igneous rock that invades older rock. The invading rock may be a plastic solid or magma that pushes its way into the older rock.

Jaw crusher: A device in which rock is broken by a reciprocating compressive action between two steel plates.

Jigging machine: A device used for processing minerals by separating a mineral mixture, primarily by density, when exposed to a pulsating water or air flow.

JORC Code: The Australasian Code for Reporting of Mineral Resources and Ore Reserves prepared by the Joint Ore Reserve Committee of the Australasian Institute of Mining and

ALROSA Group of Companies 356 November 2016 Glossary and Abbreviations

Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia. The current edition is dated 2012.

Karst: A combination of processes and phenomena related to the exposure to ground water that results in rock dissolution and cavitation, as well as formation of peculiar relief forms that occur in the areas composed of rock easily dissolved in water.

Kimberlite: Magmatic ultramafic brecciated rock that fills volcanic pipes. Kimberlite mainly comprises olivine, pyroxene, pyrope-almandine garnet, picroilmenite, phlogopite and other minerals included in fine-grained ground mass generally altered into serpentine-carbonate composition due to postvolcanic processes.

Kimberlite pipe: Vertical or nearly vertical geological body formed as a result of the outbreak of magmatic solutions and gases along a pipe-shaped channel in the earth’s crust with subsequent consolidation of volcanic fragments (breccia) cemented by the solutions or tuff-type greenish-grey mass (kimberlite) in the channel.

Magmatic: Consisting of, relating to or of magma origin.

Mine: A mineral mining enterprise. The term is often used to refer to an underground mine.

Mineral Deposit: A body of mineralisation that represents a concentration of valuable metals. The limits can be defined by geological contacts or assay cut-off grade criteria.

Mineral Resource: The JORC Code (2012) defines a mineral resource as “is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade (or quality), and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade (or quality), continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge including sampling. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories”.

Mining method: A combination of technical solutions that define the geometry, technology and sequence of mining.

Nominal sieve class: The size of diamonds based on the mesh size of the upper and the lower sieves used for diamond classification.

Off-balance ore: Ore that does not meet the GKZ approved cut-off criteria, but is of potential interest.

Open pit: A complex of mine workings formed in the course of mining a mineral by open method; a mining enterprise engaged in open-pit mining of minerals.

Ore: Natural mineral formation that contains valuable components in such compounds and concentrations that make the mining technically and economically feasible.

Ore body: A natural accumulation of ore confined to a certain structural and geological element or a combination of such elements. A kimberlite pipe is a pipe-shaped ore body elongated in a nearly vertical direction.

ALROSA Group of Companies 357 November 2016 Glossary and Abbreviations

Overburden: Waste rock overlying and hosting mineral deposits that is subject to excavation in the course of open-pit mining. The process of overburden removal to access and mine the mineral is called stripping.

Ore Reserve: The JORC Code (2012) defines a mineral reserve as “the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level (as appropriate) and include application of Modifying Factors. Such studies demonstrate that, at the time of reporting extraction could reasonably be justified”.

Overturned fault: A fault with more or less horizontal axial plane.

OVOS: The Russian equivalent to an Environmental and Social Impact Assessment.

Placer: A placer deposit is an accumulation of valuable minerals formed by gravity separation during alluvial sedimentary processes.

Porphyritic (with porphyritic structure): Rock that contains relatively large crystals (phenocrysts) cemented by a groundmass of smaller crystals, glassy or non-holocrystalline material.

Primary Ore: Ore that is in its primary mineralised state and has not undergone the process of natural oxidation.

Processing: A combination of processes for primary treatment of solid minerals in order to extract the products amenable to further technically and economically feasible chemical or metallurgical treatment or use.

Saleable ore: The term used to describe ore of average grade coming from the mine.

Sampling: The process of studying the qualitative and quantitative composition and properties of natural formations comprising a deposit.

Sedimentary rock: Rock formed by sedimentation of substances in water, less often from air and due to glacial actions on the land surface and within sea and ocean basins. Sedimentation can be mechanical (under the influence of gravity or environment dynamics changes), chemical (from water solutions upon their reaching saturation concentrations and as a result of exchange reactions), or biogenic (under the influence of biological activity).

Semi-Autogenous (SAG) Mill: A mill for grinding rock into fine powder, in the form of a steel cylinder of high aspect ratio (diameter/length), in which the grinding media consists of large pieces of rock and large steel balls.

Stripping ratio: The relation of overburden volume to a mineral volume. A stripping ratio largely defines the economic feasibility of open-pit mining.

Suite: An aggregate of conformable rock beds with similar general properties that differentiate them from overlying or underlying rocks.

Tailings: Liquid wastes of mineral processing with valuable component grade lower than that of the initial material.

ALROSA Group of Companies 358 November 2016 Glossary and Abbreviations

Tailings facility: A complex of special structures and equipment used for storage of liquid wastes of mineral processing (tailings).

TEO of cut-off criteria: Russian standard form of reporting. The document that justifies the cut-off criteria used for reserve estimation. These are used to decide upon technical and economic feasibility of investments into construction of a mining enterprise.

Terrigenous: Fragmentary sediments and fragmentary rock comprising rock fragments and mineral grains entrained from the land. These are formed both in water bodies (seas and fresh water bodies) and on the land.

Territorialnaya Komissia po Zapasam (TKZ): Territorial Commission for Mineral Reserves.

Thickener: A large, round tank used in milling operations to separate solids from liquids; clear fluid overflows from the tank and rock particles sink to the bottom.

Vein: Tabular geological body formed as a result of mineral substance filling a fracture or due to metasomatic replacement of rock with mineral(s) along a fracture. Unlike dykes formed primarily by magmatic rock, a vein is composed of vein and ore minerals (quartz, carbonated, sulphides etc.).

Volcanogenic: Of volcanic origin.

Waste dump: An artificial dump formed as a result of disposing of overburden (waste rock) at specially designated sites.

Xenolith: A fragment of foreign rock within the magmatic rock that has been entrapped by magma in the process of movement towards the ground surface.

X-ray luminescence separation: The process of separating minerals (particularly diamonds) based on their ability to fluoresce when exposed to X-rays.

13.2 ABBREVIATIONS

The metric system has been used throughout this Report unless otherwise stated. All currency is in either U.S. dollars or Russian roubles. Diamond prices are reported in US$ per carat. The following abbreviations are typical to the mining industry and may be used in this Report.

° Degree (Angle) °C Degree Centigrade Ag Silver Al Aluminium As Arsenic Au Gold AWDC Antwerp World Diamond Centre B Boron Ba Barium Ca Calcium COV Coefficient of Variation ct/ht Carats per Hundred Tonne

ALROSA Group of Companies 359 November 2016 Glossary and Abbreviations

COD Chemical Oxygen Demand Cr Chromium CRM Certified Reference Material ct Carat ct/t Carats per Tonne Cu Copper Deg Degree DMS Dense Medium Separation EHS Environment Health and Safety ESIA Environment and Social Impact Assessment Fe Iron G and A General and Administration Ga Gallium g/t grammes/tonne GGP Gosudarstvennoe Geologicheskoe Predpriyatie. State Geological Enterprise GKZ State Commission for Mineral Reserves HPGR High Pressure Grinding Rolls HQ size Tube sizes for drills ID2 Inverse Distance Weighting to the Power of Two IRR Internal Rate of Return K Potassium kct Thousand Carats kg Kilogramme km Kilometre km2 Square Kilometre km3 Thousand Cubic Metres koz Thousand Ounces kt Thousand Tonnes kt-km Kilotonne/Kilometre kV Kilovolt LOM Life-of-Mine M RUB Million Roubles m Metre masl Metres above sea level m2 Square Metre m3 Cubic Metre MAC Maximum Acceptable Concentration Micon Micon International Co Limited Min Minute mm Millimetre mm/a Millimetres per year Mn Manganese Mo Molybdenum MNR Ministry of Natural Resources Moz Million Ounces Mt Million Tonnes Mt/a Million Tonnes per Year MW Megawatt Na Sodium Ni Nickel

ALROSA Group of Companies 360 November 2016 Glossary and Abbreviations

NN Nearest Neighbour NPV Net Present Value NQ size Tube size for drills NSC Nominal sieve class Ohm A unit of electrical resistance oz Ounce P Phosphorus Pd Palladium PGE Platinum group elements PGM Platinum group metals Pt Platinum POL Fuel and lubricant storage facilities QP Qualified Person Report Technical Report RIP Resin-in-Pulp ROM Run of Mine RQD Rock Quality Designation RUB Russian Rouble S Sulphur SAG Semi-Autogenous Grinding Sec Second SEE State Environmental Expertise SEHS Social Environment Health and Safety SEM Scanning Electron Microscope SMU Selective Mining Unit Sn Tin t Tonne t/a Tonnes/Year t/d Tonnes/Day t/h Tonnes/Hour t-km Tonne/Kilometre TEO Techniko-Ekonomicheskie Obosnovie TMF Tailings Management Facility US$ United States Dollar V Vanadium VAT Value Added Tax XRF X-ray fluorescence Zr Zirconium

ALROSA Group of Companies 361 November 2016