PETROPAVLOVSK PLC Annual R Overview Corporate highlights 01 Petropavlovsk at a Glance 02 Chairman and • Earnings per share up 263% Chief Executive’s Review Earnings per share of US$0.98 up 263% versus 2008 BUILDING 04 Strategy to Deliver 06 Gold Mining in Russia • Dividend restored 08 The Amur Region Interim dividend of £0.07 per share declared in January 2010 10 Gold and Iron Ore Markets Overview • Net debt reduced by 95% to US$19 million 12 Investing in Expertise Low-cost US$380m convertible bonds issued in February 2010 14 Our Skills and Resources A RUSSIAN • Proven and Probable Reserves 16 Key Performance Indicators 103% increase to 6.75Moz gold compared to November 2008 estimate 18 Operational Structure • Aricom acquisition completed Aricom acquisition completed on 22 April 2009 Performance eport & Accounts 2009 eport FAR EAST MINING • Move to Main Market of London Stock Exchange completed 20 Financial Review The Group completed its move from AIM to the Main Market 24 Operations and Development: of the London Stock Exchange and gained inclusion in the Precious Metals Division FTSE 250 index 36 Operations and Development: CHAMPION Non-precious Metals Division 41 Operations and Development: Operational highlights In-House Divisions Annual Report & Accounts 2009 44 Sustainability Report • Attributable gold production* up 21% 47 Principal Risks Report Total attributable gold production* increased by 21% to 486,800oz • Group total cash costs of US$309/oz Group total cash costs of US$309/oz confirm the Group as one of the lowest-cost gold producers in the world

Governance • Pioneer’s second milling line helps to deliver 234,100oz 52 Board of Directors Second line commissioned in September 2009 with third milling line 54 Directors’ Report brought forward to H1 2010 Underlying EBITDA is a profit for the period before financial income, financial expenses, foreign exchange gains and losses, fair losses, and gains is exchange EBITDA foreign underlying expenses, and year financial the for income, profit of financial before Reconciliation period the for impairment. and profit a is amortisation EBITDA Underlying depreciation, taxation, changes, value . financial statements 39 of the consolidated set out in note

62 Corporate Governance Statement **  70 Directors’ Remuneration Report

Financial highlights 82 Audit Committee Report 85 Statement of Directors’ Year to Year to 31 December 31 December Responsibilities 2009 2008 86 Independent Auditors’ Report to the US$million US$million Variable % Members of Petropavlovsk PLC Group Revenue 472 382 +24% Underlying EBITDA** 225 136 +65% Earnings per share (US$) 0.98 0.27 +263%

Financial statements Net debt (19) (389) (95%) 87 Consolidated Income Statement Group average gold price 88 Consolidated Statement of realised (US$/oz) 975 845 +15% Recognised Income and Expense 89 Consolidated Statement of Group total cash costs per oz Changes in Equity (US$/oz) 309 319 (3%) 90 Consolidated Balance Sheet 91 Consolidated Cash Flow Statement 92  Notes to the Consolidated Precious Metals Division – Summary of Mineral Resources and Ore Reserves Financial Statements 140 Statement of the Directors’ Ore Grade Gold Responsibilities – Company Category (Mt) (g/t) (Moz) PETROPAVLOVSK PLC 141 Independent Auditors’ Report to the Resources Measured 68.76 1.31 2.90 Members of Petropavlovsk PLC 11 Grosvenor Place Other information Indicated 130.70 1.27 5.33 London 142 Company Balance Sheet SW1X 7HH 143 Notes to the Company Measured+Indicated 199.46 1.28 8.23 United Kingdom Financial Statements Inferred 101.70 1.12 3.65 T +44 (0)20 7201 8900 Reserves Proven 54.08 1.33 2.32 F +44 (0)20 7201 8901 150 Appendix Probable 110.06 1.23 4.44 E [email protected] 151 Glossary and Definitions . Cumulative gold production, as stated throughout this Annual Report and Accounts, consists of gold physically recovered and this Annual Report and Accounts, consists of gold physically recovered throughout as stated . Cumulative gold production, 152 Shareholder Information Proven+Probable 164.15 1.26 6.75 www.petropavlovsk.net Notes • This summary comprises Mineral Resources and Ore Reserves from the Group’s Pokrovskiy, Pioneer, Malomir, Albyn, Tokur and Yamal operations. It excludes other licence areas held by the Group, including joint ventures; • Mineral Resources are reported inclusive of Ore Reserves; • Contained Gold represents estimated contained metal in the ground and in surface stockpiles and has not been adjusted for metallurgical recovery. gold in circuit. Accordingly gold produced in the year consists of gold recovered during the period and adjusted for the movement in gold circuit. during the period and adjusted in the year consists of gold recovered gold produced Accordingly gold in circuit. Total attributable gold production, as stated throughout this document, is comprised of 100% of production from the Group’s subsidiaries and the relevant relevant the and subsidiaries Group’s the from production of 100% of comprised is document, this throughout stated as in production, gold interest indirect attributable and direct Total Company’s The has held c.1.1% The Group accordingly. restated period are figures. for the comparative and other investments. Figures joint ventures from of production share Group the in included are 2009; no attributable ounces since March Mining Ltd in Rusoro interest Rudnik is 98.61 % Pokrovskiy *  Our business regions Amur region and EAO Petropavlovsk’s main operations As well as being the third-largest are based in the Amur region and gold-producing region in Russia, the EAO (Evreyskaya Avtonomnaya the Amur region also has other Oblast or Jewish Autonomous significant industries involved in Region) in the far east of Russia, power generation, coal, timber close to the border with China. and agriculture. Petropavlovsk’s London The Amur region has a total area presence in the neighbouring EAO of 361,600km² and a population includes a major iron ore project, of approximately 1 million. K&S. The EAO itself is located to The region boasts excellent the south-east of the Amur region infrastructure and an accessible and covers an area of 36,300km² energy supply. with a population of approximately 200,000.

For further details about 08 Amur region potential

Krasnoyarsk region

Yamal region RUSSIA

Magadan region

St. Petersburg

Krasnoyarsk Moscow Buryatia region Amur region Irkutsk Chita region Blagoveschensk

EAO On China’s doorstep Petropavlovsk’s operations are located on China’s doorstep (some as close as 60km to the border). Proximity to this large market for natural resources and Design and production: Radley Yeldar www.ry.com low cost consumables gives the Group Print: Granite Colour are ISO 14001 and FSC accredited. one of its competitive advantages. Paper: The cover and text material used for this report is printed on Cocoon Silk 50 a recycled paper containing 50% recycled waste and 50% virgin fibre and manufactured CHINA at a mill certified with ISO 14001 environmental management standard. The pulp used in this product is bleached using a Elemental Chlorine Free process (ECF) Our business regions Amur region and EAO Petropavlovsk’s main operations As well as being the third-largest are based in the Amur region and gold-producing region in Russia, the EAO (Evreyskaya Avtonomnaya the Amur region also has other Oblast or Jewish Autonomous significant industries involved in Region) in the far east of Russia, power generation, coal, timber close to the border with China. and agriculture. Petropavlovsk’s London The Amur region has a total area presence in the neighbouring EAO of 361,600km² and a population includes a major iron ore project, of approximately 1 million. K&S. The EAO itself is located to The region boasts excellent the south-east of the Amur region infrastructure and an accessible and covers an area of 36,300km² energy supply. with a population of approximately 200,000.

For further details about 08 Amur region potential

Krasnoyarsk region

Yamal region RUSSIA

Magadan region

St. Petersburg

Krasnoyarsk Moscow Buryatia region Amur region Irkutsk Chita region Blagoveschensk

EAO On China’s doorstep Petropavlovsk’s operations are located on China’s doorstep (some as close as 60km to the border). Proximity to this large market for natural resources and Design and production: Radley Yeldar www.ry.com low cost consumables gives the Group Print: Granite Colour are ISO 14001 and FSC accredited. one of its competitive advantages. Paper: The cover and text material used for this report is printed on Cocoon Silk 50 a recycled paper containing 50% recycled waste and 50% virgin fibre and manufactured CHINA at a mill certified with ISO 14001 environmental management standard. The pulp used in this product is bleached using a Elemental Chlorine Free process (ECF) PETROPAVLOVSK PLC Annual R Overview Corporate highlights 01 Petropavlovsk at a Glance 02 Chairman and • Earnings per share up 263% Chief Executive’s Review Earnings per share of US$0.98 up 263% versus 2008 BUILDING 04 Strategy to Deliver 06 Gold Mining in Russia • Dividend restored 08 The Amur Region Interim dividend of £0.07 per share declared in January 2010 10 Gold and Iron Ore Markets Overview • Net debt reduced by 95% to US$19 million 12 Investing in Expertise Low-cost US$380m convertible bonds issued in February 2010 14 Our Skills and Resources A RUSSIAN • Proven and Probable Reserves 16 Key Performance Indicators 103% increase to 6.75Moz gold compared to November 2008 estimate 18 Operational Structure • Aricom acquisition completed Aricom acquisition completed on 22 April 2009 Performance eport & Accounts 2009 eport FAR EAST MINING • Move to Main Market of London Stock Exchange completed 20 Financial Review The Group completed its move from AIM to the Main Market 24 Operations and Development: of the London Stock Exchange and gained inclusion in the Precious Metals Division FTSE 250 index 36 Operations and Development: CHAMPION Non-precious Metals Division 41 Operations and Development: Operational highlights In-House Divisions Annual Report & Accounts 2009 44 Sustainability Report • Attributable gold production* up 21% 47 Principal Risks Report Total attributable gold production* increased by 21% to 486,800oz • Group total cash costs of US$309/oz Group total cash costs of US$309/oz confirm the Group as one of the lowest-cost gold producers in the world

Governance • Pioneer’s second milling line helps to deliver 234,100oz 52 Board of Directors Second line commissioned in September 2009 with third milling line 54 Directors’ Report brought forward to H1 2010 Underlying EBITDA is a profit for the period before financial income, financial expenses, foreign exchange gains and losses, fair losses, and gains is exchange EBITDA foreign underlying expenses, and year financial the for income, profit of financial before Reconciliation period the for impairment. and profit a is amortisation EBITDA Underlying depreciation, taxation, changes, value . financial statements 39 of the consolidated set out in note

62 Corporate Governance Statement **  70 Directors’ Remuneration Report

Financial highlights 82 Audit Committee Report 85 Statement of Directors’ Year to Year to 31 December 31 December Responsibilities 2009 2008 86 Independent Auditors’ Report to the US$million US$million Variable % Members of Petropavlovsk PLC Group Revenue 472 382 +24% Underlying EBITDA** 225 136 +65% Earnings per share (US$) 0.98 0.27 +263%

Financial statements Net debt (19) (389) (95%) 87 Consolidated Income Statement Group average gold price 88 Consolidated Statement of realised (US$/oz) 975 845 +15% Recognised Income and Expense 89 Consolidated Statement of Group total cash costs per oz Changes in Equity (US$/oz) 309 319 (3%) 90 Consolidated Balance Sheet 91 Consolidated Cash Flow Statement 92  Notes to the Consolidated Precious Metals Division – Summary of Mineral Resources and Ore Reserves Financial Statements 140 Statement of the Directors’ Ore Grade Gold Responsibilities – Company Category (Mt) (g/t) (Moz) PETROPAVLOVSK PLC 141 Independent Auditors’ Report to the Resources Measured 68.76 1.31 2.90 Members of Petropavlovsk PLC 11 Grosvenor Place Other information Indicated 130.70 1.27 5.33 London 142 Company Balance Sheet SW1X 7HH 143 Notes to the Company Measured+Indicated 199.46 1.28 8.23 United Kingdom Financial Statements Inferred 101.70 1.12 3.65 T +44 (0)20 7201 8900 Reserves Proven 54.08 1.33 2.32 F +44 (0)20 7201 8901 150 Appendix Probable 110.06 1.23 4.44 E [email protected] 151 Glossary and Definitions . Cumulative gold production, as stated throughout this Annual Report and Accounts, consists of gold physically recovered and this Annual Report and Accounts, consists of gold physically recovered throughout as stated . Cumulative gold production, 152 Shareholder Information Proven+Probable 164.15 1.26 6.75 www.petropavlovsk.net Notes • This summary comprises Mineral Resources and Ore Reserves from the Group’s Pokrovskiy, Pioneer, Malomir, Albyn, Tokur and Yamal operations. It excludes other licence areas held by the Group, including joint ventures; • Mineral Resources are reported inclusive of Ore Reserves; • Contained Gold represents estimated contained metal in the ground and in surface stockpiles and has not been adjusted for metallurgical recovery. gold in circuit. Accordingly gold produced in the year consists of gold recovered during the period and adjusted for the movement in gold circuit. during the period and adjusted in the year consists of gold recovered gold produced Accordingly gold in circuit. Total attributable gold production, as stated throughout this document, is comprised of 100% of production from the Group’s subsidiaries and the relevant relevant the and subsidiaries Group’s the from production of 100% of comprised is document, this throughout stated as in production, gold interest indirect attributable and direct Total Company’s The has held c.1.1% The Group accordingly. restated period are figures. for the comparative and other investments. Figures joint ventures from of production share Group the in included are 2009; no attributable ounces since March Mining Ltd in Rusoro interest Rudnik is 98.61 % Pokrovskiy *  Overview Performance Governance Financial statements Other information

& Accounts 2009 – 01 00,000oz per annum annum per 00,000oz eport c.4

scale iron ore projects ore scale iron For further details about about details further For K&S/Garinskoye For further details about about details further For Malomir - Large Production scheduled to commence commence to scheduled Production in H2 2010 development Two-phased : production Full Financing negotiations ongoing ore 8.3mt iron production: Full per annum concentrate 38 29 •  Malomir • •  •  K&S/Garinskoye •  •  Petropavlovsk PLC Annual R PLC Petropavlovsk 1 2010 0,000oz 400,000oz

– – 300,000oz lance lance g For further details about about details further For Kuranakh For further details about about details further For Pioneer uranakh per annum project ore iron Medium-sized commence in H to Production /ilmenite 1.2mt iron production: Full per annum concentrate Production commenced in 2008 commenced Production 234,100oz 2009 production: : production Full 37 27 K •  •  •  •  •  •  Pioneer

vsk at a a at vsk o ,000oz per annum ,000oz avl 205

op

For further details about about details further For Albyn For further details about about details further For Pokrovskiy

: production Full Production scheduled to commence commence to scheduled Production at the end of 2011 work commenced Infrastructure Our first gold mine in West Amur Amur West in mine gold first Our in 1999 commenced Production 190,100oz 2009 production: 30 25 •  •  Albyn • •  •  Pokrovskiy •

We are building a natural resources a natural building are We East with an the Russian Far champion in portfolio of assets based onexceptional Petr . knowledge and experience our wealth of Chairman and Chief Executive’s review

From left Peter Hambro, Chairman with Dr Pavel Maslovskiy, Chief Executive Officer. 2009 was a successful year in the life of our Company but not without some challenges, and as we move into 2010, we find ourselves in a strong position that is reflected in our financial performance for the year. Earnings have risen by 263% versus 2008 to US$0.98 per share. In line with these results and the Board’s previously-stated aim to return money to investors from profits, we felt able to resume dividend payments. Three corporate initiatives defined the year for Petropavlovsk. The Aricom acquisition strengthened the Company’s financial and strategic position, the move to the Main Market of the London Stock Exchange confirmed our place in the mining mainstream and the rebranding of the Company as Petropavlovsk reinforced its historical and geographical significance. The team delivered record full year production of 486,800oz in spite of a maintenance delay at Pioneer and small pit-wall movement at Pokrovskiy. This record production figure demonstrates the effectiveness of our phased approach to the development of our project pipeline. The production increase has coincided with gold price strength in 2009 and we are confident that we will be able to deliver our forecasted production growth over the next few years. Thanks to the nature of our deposits, the skill of the workforce and management control, our mines are producing gold at a consistently low total cash cost, putting Petropavlovsk in the “ A s we move into 2010, we lowest cost quartile for global gold producers. find ourselves in a strong The Pokrovskiy mine continued its resilience in 2009 producing some 190,100oz and remains an important base for the position that is reflected in development of the Group’s other assets in the Amur region. It is expected that current exploration work will provide sufficient our financial performance resources to extend the life of the mine to 2020 and beyond. for the year. Earnings have Pioneer has become the engine driving our current production increase. During the year we commissioned the second stage risen by 263% versus 2008 of the modular processing plant and thus the mine was able to increase production by 56% to 234,100oz. Delivering Stage 2 to US$0.98 per share.” without incident allowed us to bring forward the anticipated completion of Stage 3 of the Pioneer processing circuit from the second half of 2010 to the first half of 2010, which will enable us to increase immediate production capacity. Exploration at the Pioneer mine has also continued during the year providing an increase in the quality of reserves and resources, including two new ore bodies with high-grade samples, and the establishment of a continuation of the high-grade Andreevskaya ore zone.

02 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview

The cornerstone of our business to date has been the Group’s Outlook

ability to progress greenfield deposits thanks to our phased Performance developmental process, supported by our in-house technical Every Spring we try, with the help of our colleagues, to give you a teams. In this regard, the progress of our next gold projects at vision of the road ahead of us. We are sure that 2010 will present Malomir and Albyn confirm the robustness of this model. Malomir the Group with further opportunities and challenges and that these remains on track to begin production in the second half of 2010 and will again be caused as much as anything by movements in the ongoing exploration of the deposit has confirmed the potential for international financial system. We also believe that the gold price – additional, non-refractory resources that may allow the mine to and thus our Group – will benefit from this. employ the simpler and cheaper, direct cyanidation technology for We also expect that the movement of economic power from a longer period. As a result of active exploration activities, the Albyn West to East will continue apace and expect that our iron ore deposit’s potential has grown significantly during 2009 so as to business, with its comparatively short delivery distances to China, become a profitable development for the future. With its location will benefit from this. close to Malomir in the north-east of the Amur region, the project is currently expected to start production at the end of 2011 ramping Commercially, the third production line at Pioneer and the start of up to an anticipated full production output rate of 205,000oz, double production at Kuranakh (both due in the first half of 2010), Malomir’s commissioning in the second half and the achievement of third our initial estimates. Governance party funding for our iron ore strategy are our short-term strategic Crucial to the Group’s phased developmental strategy is the role goals. We believe that the Albyn deposit and our other development of our in-house technical teams, made up of the engineering, projects will ensure longer-term success for the Group. construction and exploration divisions. Many of the technological and engineering advances that have driven the mine development From a management point of view, we have been lucky enough have been down to the investment made in our in-house expertise. to add the experience of Dr Graham Birch to our team of An example this year has been the commissioning of the Group’s non‑executive directors. We welcome Dr Birch, who has recently new metallurgical testing plant in Blagoveschensk which enables retired from BlackRock where he was in charge of major investment us to test, at bulk sample rates, almost any metallurgical in the mining industry, and believe his insight will benefit us greatly. recovery process. We remain confident that the Group has the right team, the right We continue to believe that our iron ore business is a source of expertise and the right experience to ensure that the achievements significant potential value and will be a major contributor to our of the last 15 years will continue to be built upon as we move into value creation. The acquisition of Aricom plc delivered a developing another key phase of our growth trajectory. As founders and shareholders, we would like to thank the whole team – directors, Non-precious Metal Division with a range of iron ore projects, all Financial statements with the potential to deliver shareholder value because of the managers and employees, as well as our banking, legal, accounting logistical advantage that they enjoy over a number of other and technical advisers – for their contributions to our 2009 success suppliers to China. With construction being finalised at the Group’s and we look forward to the Group continuing to move forward first iron ore mine at Kuranakh, concentrate production is due to in 2010. ramp up to its full output by the middle of 2010. However, the main focus of the division has been the financing for the development Peter Hambro Dr Pavel Maslovskiy of the larger iron ore projects at Kimkanskoye, Sutarskoye and Chairman Chief Executive Officer Garinskoye, a term sheet for which was announced on 23 March 2010. It is hoped that this financing will be finalised during 2010. Petropavlovsk took several decisive steps in 2009 to strengthen its balance sheet including the acquisition of Aricom, the repurchase in full of the US$180m gold equivalent exchangeable bonds and a US$105m equity placing. Later in the year, thanks to a rising share Other information price, holders were able to convert nearly all US$140m of our 7.125% convertible bonds into equity. The result of these transactions was that, with the addition of cash-flow throughout the year, the Group had net debt at the 2009 year end of only US$19m reduced from US$389m a year ago. We further strengthened our balance sheet in February 2010 by the issuing of US$380m of 4% convertible bonds due 2015.

Petropavlovsk PLC Annual Report & Accounts 2009 – 03

strategy to DELIVER Petropavlovsk’s consistent and focused strategy since its inception in 1994 is based around the core strength of low-cost mining assets in the Amur region progressing through the pipeline from greenfield sites to producing operations. The Group utilises a phased development approach and an experienced team to deliver maximum value to the Group’s stakeholders in the region and worldwide.

A model of low-cost organic growth The growing strength in the Amur region has allowed Petropavlovsk to adjust and perfect its model of development to suit the complicated deposits encountered. The organic growth strategy has been a success with low-cost world-class deposits historically acquired at very competitive purchase prices and progressed through the Company’s development pipeline all the way from undeveloped greenfield sites to full Strong knowledge base Creation of a Far East production operations. The acknowledged Petropavlovsk’s key operational mining champion success of this strategy at both the management possess an enormous Pokrovskiy mine and now Pioneer has The combination of a low-cost organic wealth of experience in Russia and the enhanced the Group’s reputation and has developmental model, a wealth of Amur region in all aspects of the mine provided confidence that the schedule opportunities in a rapidly-growing Russian development process, from exploration for the next developments at Malomir, region, an advantageous location on the to feasibility through to construction and Albyn and in the Group’s Non-Precious doorstep to the world’s growth engine and day-to-day operation. This knowledge Metals Division can be achieved. a bedrock of knowledge with considerable base has been cascaded throughout the investment in the Group’s expertise has Location provides unique organisation and has inspired the strategic placed Petropavlovsk in a strong position commitment to supplement this solid to create a regional mining champion in opportunities platform with considerable investment in the Far East of Russia. The Group firmly The organic growth model detailed the Group’s other key competitive areas of believes that its core strategic attributes above has been made possible with the technology and innovation. In this regard, of the right assets, a highly-qualified team, singular attributes of the Group’s location the in-house capabilities encompassing the right technology and level of innovation in the Amur region. The region has a long exploration, engineering, construction will continue to generate an increase tradition of gold mining and remains highly and laboratory divisions have played a in profitability. prospective with deposits of gold still major role in advancing the Group to its remaining to be explored. Petropavlovsk current position in the Russian gold-mining has capitalised on this and has built up a industry and will continue to be crucial in considerable portfolio of assets throughout the coming years as the Group’s strong the Amur region, providing opportunities rate of growth is projected to continue. for further production growth over the next decade and beyond.

Above left Computer modelling. Above right Worker at the Group’s Kuranakh project.

04 – Petropavlovsk PLC Annual Report & Accounts 2009

Overview Performance Governance

Profitability and efficiency

Technology and innovation

Teams and skills Financial statements

Assets

Technology Profitability Assets Teams and skills and innovation and efficiency

A portfolio of 124 licences in Excellent local knowledge A growing technical and An emphasis on Assets, Team Other information ten prospective regions of combined with a strong scientific resource base and Skills and Technology and Russia incorporating a number management team and supporting dynamic future Innovation allied to a strong of low development cost dedicated local workforce development and a continual efficiency drive and rising deposits with a series of provide the Group with introduction of innovations production has led to increased promising exploration targets to a comprehensive talent enhances the Group’s profitability and laid the sustain growth in the long term. pool to choose from which ability to progress all types foundations for sustainable is supplemented by of deposits through the future development and Petropavlovsk’s long- project pipeline. shareholder value generation. standing programme of support of regional education.

Petropavlovsk PLC Annual Report & Accounts 2009 – 05 Strategy to deliver: Assets GO LD MINING I N RUSSIA There has been a history of gold mining in Russia for well over 250 years with one of the country’s oldest mines, Berezovskoye, located in the Urals, still in production after more than 200 years. Elsewhere, the Amur, Krasnoyarsk and Irkutsk regions have over 100 years of gold-mining history behind them and remain some of Russia’s most important gold-producing regions.

Major producing gold mines Major gold mines and deposits and deposits Areas of gold-bearing alluvial fields

Kyuchus Talnakh Kupol Novogodnee Monto Petropavlovskoye RUSSIA Kubaka

Nezhdaninskoe Lunhoye Titimukhta Natalka Voro Sukhoi Log Dukat Blagodatnoye Vysochaishy Olympiada Zapadnoye Verninskoye Khakanja Berezitovy Pioneer Malomir Mnogovershinnoe Tokur Pokrovskiy Albyn Albazino

For further details on the 24 Precious Metals Division

06 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview

Mine production – Winners and losers (tonnes) The Russian gold-mining The Russian legal industry today environment -30 0 +30 +60 1 – Indonesia For many years during the Soviet period, The Russian legal framework for mining 2 – China the Russian gold-mining industry was one companies includes royalty taxes 3 – Russia of the main leaders in the global gold- on mining and minerals exploitation, mining industry. During the mid to late environmental requirements and a high 4 – Australia 1990s, mine production began to come degree of scrutiny from governments at all 5 – Burkina Faso under private control and gold output fell levels. This provides a tightly regulated but 6 – Kyrgyzstan appreciably because of lack of investment fair environment for companies to explore, 7 – South Africa and the withdrawal of government financial develop and generate high returns from 8 – USA support. In recent years, however, the their assets. Source: GFMS. Figures represent year-on-year industry has begun to recover and appears

The use of mineral resources in Russia is Performance change, 2009E less 2008. to have embarked on a new era. based on three main principles: Investment in the industry has increased and this has coincided with a shift away 1) State ownership of subsoil; World gold reserves and resources – mm oz from the seasonal alluvial operations 2) Private ownership of the extracted 1 – South Africa 997 29.7% towards year-round hard-rock mining. minerals; 2 – Russia 225 6.7% Petropavlovsk is at the forefront of this 3 – Australia 193 5.8% trend. Overall, gold-mine production in 3) Paying for subsoil use. Russia has been increasing in recent years 4 – Indonesia 193 5.8% State licences to explore and exploit countering the worldwide downwards 5 – USA 177 5.3% a deposit are available to any business trend and in 2009 grew by over 8% 6 – Canada 135 4.0% enterprise (including foreign ones) through versus 2008. open tender or auction. The licence holder 7 – China 132 3.9% The Group is contributing to the restoration is entitled to conduct geological studies 8 – Chile 109 3.3% of the Russian gold industry’s lost and/or mining within a certain time period 9 – Mexico 109 3.3%

competitive position and demonstrating deemed sufficient to complete work Governance 10 – Ghana 87 2.6% the attractiveness of one of the most on pre-negotiated terms. For foreign 11 – Brazil 80 2.4% inviting and dynamically developing companies, the Russian state has the Other 916 27.2% industries within the world mining right to impose restrictions on the use Total 3,353 100% community. of subsoil areas deemed to have strategic significance. Source: USGS Tradition Cost advantages Throughout the long history of gold mining in Russia, the problem of depletion has Key to the development of gold mining never been an issue with the country in Russia has been its relatively low cost currently second in the world in terms of compared to the global industry averages. estimated gold reserves. Historically a Many of the leading Russian gold producers major part of gold has been produced from have production costs far below global alluvial deposits. The major gold-bearing averages. The low cost has been due to Financial statements deposits are located in very remote areas the availability of local skilled workers and are yet to be fully exploited. Those that and highly-qualified engineers thereby have been mined, or are currently being negating the need for comparatively mined, have a relatively high gold content higher expatriate labour expenses, and suitable for open-pit operations. cheaper electricity and fuel costs and also the wealth of available scientific Expertise and technical expertise in the country. In addition, many mining regions of Russia The Russian mining tradition favoured the have well-developed energy and transport development of scientific and technical infrastructure with the obvious example expertise within the country that is still being the longest railway in the world – prevalent today. For example, Irgiredmet, the Trans-Siberian Railway. the Petropavlovsk-owned leading research and scientific consulting institute for

Below Gold-bearing ore from the Group’s Other information Pioneer mine. precious and rare metals and diamonds, will celebrate its 140th anniversary on 18 January 2011. New technology has allowed Russian companies to increase mining and processing cost efficiencies and economically develop more complex ore bodies. The Group’s gold mine at Pioneer, for example, launched the first commercial application of direct cyanidation technology using the innovative resin “PuroGold”, in the 1990s.

Petropavlovsk PLC Annual Report & Accounts 2009 – 07 Strategy to deliver: Assets Amur Region P otential In terms of gold resource potential, it is believed that Amur region offers, perhaps, the greatest potential of all the Russian regions.

Below Exploration work at the Group’s Albyn project. Economy and infrastructure main foreign trading partners are not surprisingly China but also Japan, The Amur region has a total area of and Korea. 361,600km², roughly the size of Germany and a population of approximately Geology and mining one million. The Amur River extends along 1,246km of the southern border of the The Amur region lies across the middle region and is the official frontier line section of one of the world’s major belts between Russia and China. Being at of mineralisation, the Mongolo-Okhotskiy China’s doorstep is a key locational zone. This linear zone represents an competitive advantage for the Group’s ancient tectonic plate boundary (between portfolio of assets particularly in the Amur and Eurasian plates) in which non‑precious metals. The region’s own the plates collided at about the end of the economy is diversified with key industries Cretaceous period, some 65 million years in power, coal, food and forestry. There are ago – approximately the same time as the also two large hydroelectric power stations formation of the Alps from a similar collision. with plans for the construction of three more. The region has a very varied geological The Amur region has a well‑developed history; the most significant mineralisation gold‑mining regions, with annual production infrastructure and includes the Bureiskaya was associated with very active Hydroelectric Power Plant, the Trans- of about 7 tonnes. It was the first region in hydrothermal systems developed before, Russia to employ mechanised mining Siberian Railway, the Baikal-Amur Railway, during, and after the plate collision, when the Moscow-Vladivostok Highway and methods and a steam dredge to exploit ocean-floor rocks, saturated with water, alluvial gold. Total production from the Blagoveschensk international airport. were subducted deep into the earth’s In addition, the region is close to China region up to the present time is estimated crust and mantle. The superheated water, at some 700 tonnes of gold with the main and Far Eastern ports for access to the finding its way to the surface through international seaborne markets. hardrock deposits apart from an intense fracture network, dissolved Petropavlovsk’s being the Berezitovoye The Amur region is part of the Far Eastern minerals such as silica, alkali metals, and Bamskoye deposits owned by High Economic District, which is one of the gold and other heavy metals at depth River Gold and Polyus Gold respectively. country’s largest districts and has recently and re-deposited them near the surface. It also possesses a wealth of other minerals, started to move to the forefront of Russian Worldwide there are only a small number including iron ore which Petropavlovsk is developmental plans, supported by of regions with such favourable conditions also developing, as well as base and a thriving financial system and the for formation of mineral deposits: these precious metals, coal and diamonds. growing attraction of foreign investment include sections of the Rocky Mountains In recent years, the Amur region has spearheaded by Petropavlovsk’s own and Andes in the Americas, sections of the growth and the increasing establishment been one of the leading Russian gold- Urals, and more ancient mineral districts in mining regions with total annual production of an economic environment conducive geologically similar environments such as to joint ventures with global partners. rising from around 10 tonnes in 2003 to the Variscan belt (parts of Spain, Portugal over 20 tonnes in 2009. In terms of Most of the main economic activity tends and south-west England). possible gold resources, it is believed that to be located along the two main railway The Amur region has a long history of the Amur offers, perhaps, the greatest lines mentioned above. However, the Amur gold mining with gold being mined there potential of all the Russian regions. region’s geographic location makes it since 1867. At the turn of the 20th century, particularly suitable for external economic the region boasted 206 gold mines and cooperation with countries of the Asia- For further details on ranked in second position among Russia 24 Pacific region. Consequently the region’s Operations and Development

08 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview

Kuranakh RUSSIA

Tynda BAM Railway Performance

Solovyevskiy

Pioneer Pokrovskiy Tokur Malomir Amur region Albyn

Osipkan Garinskoye Governance

Trans-Siberian CHINA Railway

Blagoveshchensk Financial statements Gold mine K&S Birobidjan Iron ore mine Railway EAO RUSSIA City/town Khabarovsk

Cross-border CHINA bridge site

Trans-Siberian and EAO Baikal-Amur Railways The EAO (Evreyskaya Both railways pass through Avtonomnaya Oblast, or Jewish the Amur region and EAO Autonomous Region) borders Other information and provide instant access to the Amur region to the west, the Chinese markets and the China to the south and east and Eastern seaboard as well as the Khabarovsk Krai on the east connections to Western Russia. and north. The EAO has an The majority of Petropavlovsk’s area of c.36,300km² (just slightly key gold and iron ore projects larger than Belgium) and a are located close to the population of approximately Trans-Siberian Railway and 200,000 with its administrative indeed the K&S iron ore project centre in Birobidzhan. in the EAO is located only 4 kilometres away.

Petropavlovsk PLC Annual Report & Accounts 2009 – 09 Strategy to deliver: Assets GOLD AND IRON O RE MARKETS The performance of gold and iron ore markets over the last few years has differed immensely with the steady rise in the gold price contrasting with iron ore price volatility.

Gold have been volatility on the financial markets, country-by-country. Although a number of increased risk aversion, inflation concerns central banks increased their gold reserves Background and the weakening of the US Dollar. in the past decade, the sector as a whole Since 1971, when the US Federal was a net seller from 1989 for the next The change in attitude to commodities Reserve closed its “gold window”, no ten years, contributing an average of in general has also contributed to gold’s longer standing ready to provide gold 447 tonnes to annual supply flows rising price. The development of the to central banks at US$35/oz, gold has between 2004 and 2008. However the gold Exchange Traded Funds (ETFs) in been left to find an equilibrium price level global recession has prompted various the Australian, UK, South African and US in market trading. This, at times, has central banks to halt sales and even turn markets has helped to broaden the access resulted in significant fluctuations in the net buyers. gold price. From its former fixed US$35/oz to gold for the average retail investor price, the price rose to a high of US$1,023/oz as well as the high net worth individual. Demand Gold is fabricated for various markets such in March 2008. In the recent market Supply as jewellery, medical uses, electronics, turmoil, gold dropped back down According to recent figures, there are dentistry and environmental uses. to US$692.5/oz in October 2008 but about 400 operating gold mines worldwide Generally, jewellery demand, of which India recovered to reach an all-time high and with new mines often taking up to ten is the biggest consumer, is driven by a of US$1,212.5/oz in December 2009. years to come on stream, mining output is combination of affordability and desirability unable to react quickly to a change in price As a result of gold’s past monetary role, by consumers, and tends to rise during outlook. According to recent figures, the its market fundamentals do not play a large periods of price stability or gradually rising majority of mine supply of gold comes part in the longer-term price direction. prices, and declines in periods of price from China and the US, followed by South The basic gold market balance volatility. A steadily rising price reinforces Africa which has slipped from its historic (i.e. fabrication less mine supply) has been the inherent value of gold jewellery, which top ranking. Russia continues to be an in deficit for many years and has been is an intrinsic part of its desirability. increasingly more significant producer brought into balance by disinvestment. Jewellery consumption in the developing globally in terms of mine supply. This disinvestment is from central banks markets has been expanding rapidly in and selling back of coins, bars and Recycled gold or scrap supplies ensure recent years following a period of jewellery. Physical buying in the gold there is easily-traded supply when needed, sustained decline, but several countries, market provides some demand, but it and this helps to stabilise the gold price. including China, still offer considerable is investment demand that is key to the The value of gold means that it is potential for future growth in demand. gold price. economically viable to recover it from most Industrial, medical and dental uses of its uses, where it is capable of being Gold maintains a role as an alternative account for around 11% of gold demand melted down, re-refined and re-used. asset as it tends to be inversely correlated (an annual average of over 440 tonnes Between 2004 and 2008, recycled gold to the US Dollar, thereby providing portfolio from 2004 to 2008 inclusive). Gold’s high contributed an average 28% to annual diversification for investors. Historically thermal and electrical conductivity, and its supply flows. when the US Dollar is weak gold prices outstanding resistance to corrosion, are typically higher because it makes gold Central banks and official international explain why over half of all industrial cheaper to purchase in other currencies. institutions currently hold just over one-fifth demand arises from its use in electrical As a result of the current economic climate, of global above-ground stocks of gold as components. Gold’s use in medical a new investment-driven phase has reserve assets. On average, governments applications has a long history and today emerged under a favourable macro hold around 10% of their official reserves various biomedical applications make use environment, the key features of which as gold, although the proportion varies of its biocompatibility, resistance to bacterial colonisation and corrosion, and other attributes.

10 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview

Gold and iron ore market performance – Indexed gold price Gold Iron ore

1,500

1,300

1,100

900 Performance 700

Iron ore 500

300 Gold 2006 2007 2008 2009 2010

Source: Bloomberg, rebased to Gold as at 1 July 2005. Gold: U$/Troy Ounce. Iron Ore: China Iron Ore fines cfr main China port $/tonne.

Investment demand is not easily and the global nature of the production However, crude steel production and iron measurable because a significant portion (and hence reliance on bulk shipping to ore demand have stagnated or fallen in of this is transacted in the over-the-counter reach market) has resulted in a pricing the major industrialised regions since 2000. market. However, there is no doubt that structure for iron ore that makes

Pricing and recent trends Governance identifiable investment demand in gold has assumptions regarding the “value-in-use” The vast majority of iron ore is sold under increased considerably in recent years. associated with different materials. long-term contractual arrangements. Since 2003, investment has represented The iron ore business is closely linked to The normal structure of these contracts the strongest source of growth in demand, the steel industry, with over 98% of mined is that volumes are established within an with an increase in value terms of around iron ore being used as direct feedstock for agreed range on a multi-year basis and 412% by the end of 2008. Additionally, steel production. The key driver of the iron prices are renegotiated annually according identifiable investment demand reached ore market, therefore, is the outlook for to prevailing market conditions. There US$30.0 billion in 2008 compared to global steel production – specifically, blast is also a significant, and now rapidly US$14.6 billion in 2007, an increase furnace/basic oxygen furnace (BF/BOF) expanding, spot market. Price negotiations of just over 100%. steel production. for annual contracts typically take place in two stages. The first of these involves Iron ore Supply discussions between the major iron ore China, Australia and Brazil are the leading producers and representative groups Background producers of iron ore with China producing of European, Japanese and Chinese steel Financial statements Iron ore is the main raw material in the approximately 37% of the world’s supply, mills. These negotiations are primarily steelmaking process and is measured in while Brazil and Australia contributed about the proposed overall percentage hundreds of dollars per tonne. It is about 15% each. Chinese ore tends to change in the price of very widely-traded estimated that the global resource base be particularly low-grade (with an average ores such as Hamersley lump and fines, exceeds 800 billion tonnes of crude ore, iron content of approximately 33%), but Itabira/Carajás fines, and/or Vale pellets. containing more than 230 billion tonnes of production volume has nevertheless It was recently announced that an iron. Price hikes which peaked in 2008 almost trebled since 2000. The iron ore agreement reached between certain major relate to the reduced short-term availability industry itself is highly consolidated, and iron-ore producers and Japanese and of easily accessible, high-grade ore, rather production is dominated by the ‘Big Three’ Chinese mills may mark the end of the old than any absolute medium-term or companies: Vale of Brazil, Rio Tinto and system of price negotiations and annual long-term scarcity. BHP Billiton, which operate predominantly contracts for iron ore. in Australia and have about two-thirds of Iron exists in the ore in oxide form usually Spot prices are essentially driven by global seaborne trade. as magnetite or haematite. Haematite short-term market fundamentals: supply, deposits are mined predominantly in South Demand demand and stock levels. They are Other information America (especially Brazil), Australia and When evaluating the demand for iron ore, typically volatile, and will rise very sharply parts of Asia. Magnetite ores, such as the main focus is on China. It is the growth in the event of, for example, a shortage those of Petropavlovsk, tend to be of lower in Chinese steel production that is largely (or a perceived shortage) and fall sharply grade, and require beneficiation to improve responsible for the acceleration in iron as well, as was seen in late 2008 and their iron content. Chinese ore production ore demand. The majority of new steel the first half of 2009. consists largely of low-grade magnetite. production capacity has been in the form Source: World Gold Council, CRU 2009 Iron ore is marketed in various forms of new integrated steelworks that are but most commonly as lump, fines, based on iron ore. Overall China has concentrate, pellets and nuggets. The grown its share of consumption in variability in the technical specifications the last few years to well over 50%.

Petropavlovsk PLC Annual Report & Accounts 2009 – 11 Strategy to deliver: Team and skills I NVESTING I N EXPERTISE Petropavlovsk has a long-term programme of “I chose to specialise in analytical investing in various educational projects within the chemistry during my fifth year regions where it operates, enabling the Group to at the Blagoveschensk State Pedagogical University after visiting supply its production facilities with locally-qualified the Petropavlovsk laboratory in Blagoveschensk. I was attracted personnel and meet its future human resource by its state-of-the-art facilities at the laboratory. Our class was the first to requirements. be run on the joint University/Company scheme. My university education has given me a good practical and The Group’s education policy Group’s laboratories. In addition experts theoretical base. The result is that from the Non-Precious Metals Division I now work with cutting-edge The Group recognises the importance have collaborated with a university in the equipment which is operated by of developing the next generation of Amur region to establish a new minerals experienced specialists. I am therefore skilled labourers, engineers, technicians curriculum, to prepare specialists in consistently improving my qualifications and middle-managers, as well as key staff benefication for the Group’s future and experience and am aiming to at project level. This has led the Group to iron-ore projects in the region. Well over be promoted to engineer in the very develop a wide-ranging educational policy, 200 people are now studying on this near future.” which in turn has ensured that individuals and other university programmes are able to reach their full potential, has providing Petropavlovsk, and the Tatiana Filippova improved the prospects and quality of life Russian mining industry as a whole, Technician for many people, and has benefited the with a future talent pool. Analytical Services Laboratory Amur region as a whole. Employee training Investing in local education programmes The Group’s education policy envisages The Group is committed to improving and supporting kindergartens and primary and broadening the qualifications, horizons secondary schools throughout the Amur and job progression opportunities of its region. The Group believes that this policy employees via internal and external training offers children an opportunity to obtain seminars and courses. The Group is proud the best possible start in life which will to offer its employees the opportunity to guarantee their future professional study for higher-education diplomas. In development and success either within 2009, 63 employees were studying at or outside Petropavlovsk. higher education institutions throughout “I came to the Pokrovskiy mine after Russia, from Vladivostok to St. Petersburg. graduating from the Blagoveschensk Supporting further Polytechnic College. I started work as and higher education Fostering expertise a crusher operator at the heap leaching institutions site and having worked for two years, The Group’s research institutions and I approached our management with In 2008 Petropavlovsk established a laboratories are developing new the idea to obtain a higher education mining college in the village of Zeya, technologies and innovations that can diploma in geology in order to further close to the Pokrovskiy mine to train future be used at all stages of mine development, my career. Such initiatives have always employees for skilled positions within the from geological exploration and the been encouraged. Subsequently whilst Group. The college offers students the feasibility stage through to extraction studying as a distance-learning student chance to study for one of 42 mining and production. Petropavlovsk’s current I became a shift foreman at Pokrovskiy, and engineering professions. experts are encouraged to cascade their then a technician geologist, and later a Also, the Group has developed and knowledge and experience throughout geologist at the Pioneer mine. My future implemented a targeted curriculum in one the Group to ensure the culture of plans involve becoming a site foreman of the universities in Blagoveshchensk in innovation endures. and working at our new projects, such order to train specialists for work at the as Malomir.” Aleksandr Bashev Geologist Regis

12 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information – 13

on Report & Accounts 2009 studying supported courses supported ying each year 150 students stud Mining College at Pokrovskiy Group Group and work placements Internships to local students ered off Supporting education • • Over 200 students • • Petropavlovsk PLC Annual PLC Petropavlovsk cant ed specialists ed the future the contribution to local community. A long-term policy which has supported the development of the education at every level, of investment in regional the Group’s rapid growth rapid the Group’s and provided a signifi for the Group’s operationsfor the Group’s resulted in a constant supply of highly-qualifi and courses and education diplomas Support provided for nurseries, for Support provided primary secondary schools and schools equipment and Employee training programmes training Employee seminars and internal External • 63 employees studying for higher • Investing in in Investing • of funds, booksProvision • local communities back to Giving • on and centres and technology to expertise current Cascading of specialists generations future For further details For Sustainability • World-class research laboratories research World-class • Development of new innovations • • Fostering expertise 44

Strategy to deliver: Technology and innovation OUR SKILLS AND RESOURCES The Group is building a natural resources champion in the Russian Far East using the Group’s exceptional portfolio of assets and wealth of experience and expertise.

1 3 Exploration division 2 3 Technological support Regis Laboratory complex Regis, based in Blagoveschensk, was established in 1994 The creation of the Group’s technical support base began and its acquisition by the Group was completed in 2006. Regis’s simultaneously with the launching of the Pokrovskiy mine in prime aim is to oversee predominantly the precious metals 1999 when a testing and analysis laboratory was founded. exploration needs of the Group. Regis performs the whole With the ongoing development of the Group and its increased spectrum of geological exploration from initial surveying to year-on-year gold production, its technological support base has detailed delineation of ore bodies and also the full scope of also expanded. Today the Group has a network of laboratories, engineering for final feasibility studies. As of 31 December 2009 equipped with the highest-quality, world-class equipment and Regis employed 620 specialists, qualified geologists, mine- staffed by extremely skilled and trained personnel. In 2009, the surveyors and computer modelling specialists. capacity of the entire laboratory network reached 860,000 samples per annum of which 300,000 were fire assay sampling. Regis provides a full range of exploration work for gold, iron-ore and non-ferrous ore bodies, as well as offering expertise in mineral resources of the Amur Region. The company is Metallurgical Test Plant equipped with the latest drilling and excavating technology as In 2009, this network of laboratories was supplemented with well as state-of-the-art GPS surveying equipment. In 2009, a state-of-the-art metallurgical test plant in Blagoveschensk Regis carried out almost 100,000 metres of drilling, and – a first of its kind in the Russian Far East. This project gives 0.7 million cubic metres of trenching. Petropavlovsk the flexibility to test any type of gold recovery process under conditions approximating real production. Dalgeologiya Such test work means that it will be possible to introduce the most cost-efficient, productive and innovative processes at the Dalgeologiya, based in Khabarovsk, was established in 2006 to Group’s mining projects in the Russian Far East. The capacity support the group with surveying and exploration work for the of the test plant is 0.5 tonnes per hour. establishment of reserves and resources, principally at the Group’s non-precious metal projects and to replace the Group’s external contractor in performing part of Petropavlovsk’s exploration Scientific Research Centre work. As at 31 December 2009, the company employed more The Group’s expertise in pressure oxidation is principally than 240 specialists involved in all phases of geological represented by Gidrometallurgiya, a scientific research centre surveying – from drilling experts to geological engineers. based in St. Petersburg, with certain specialists having previous Dalgeologiya’s basic work involves core drilling and the experience with Norilsk Nickel and with vast experience in the geophysical studies of bore holes whilst detailed exploration research and development of pressure oxidation technology. It is work includes different methods of geophysical and equipped with state-of-the-art autoclave laboratory facilities and geochemical studies. The firm utilises a wide array of geological is currently testing the most recent developments in this field. instrumentation, geophysical and mine-drilling equipment and It was established to undertake work on extraction methods that cross-country technical trucks. In 2009, Dalgeologiya carried could increase the productivity at projected and producing mines out almost 55,000 metres of drilling, and 0.4 million cubic metres and was acquired by the Group in 2008. The centre has particular of trenching. expertise in gold extraction from refractory sulphide ores, where it is necessary to use high pressure oxidation technology.

For further details on the For further details on the 41 41 Exploration division Group’s laboratories

14 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview

Exploration Feasibility Construction Production

4 3 Construction division

3 3 Engineering division

Greenfield 2 3 Technological support 3rdLargest gold Performance producer in Russia 1 3 Exploration division

3 3 Engineering division 3 3 Engineering division PHM Engineering Giproruda Governance PHM Engineering was established in 2005 and since then Based in St. Petersburg, Giproruda is one of the oldest leading has grown from a small group of experienced engineers into mining engineering institutes in Russia which was part-acquired a respected scientific institution and now has 142 employees, by Aricom plc (now part of the Group) in 2007. Its scope of six of which are PhD holders. As a key part of Petropavlovsk’s work includes the design, coordination of construction and engineering unit, it conducts project work for mining and commissioning of quarries and mines, including those in processing enterprises, energy facilities and infrastructure, takes challenging geological and climatic conditions. Since it was part in preparation of feasibility studies for the Group’s new established in 1931, the institute has made significant contributions projects and supervises the engineering and building of all to the ferrous and non-ferrous mining industry, the chemical and industrial units within the Group. This team was significantly salt industries and the production of building materials. strengthened by the acquisition of a 99% interest in OJSC As at 31 December 2009 the institute employed 165 specialists, Irgiredmet, a leading Russian geological consultancy. five of whom are PhD holders. Irgiredmet

4 Construction division Financial statements Irgiredmet, which is also known as the Irkutsk Research Institute 3 of Precious and Rare Metals and Diamonds is one of the largest and most respected gold prospecting institutes in Russia, Kapstroi which was founded in 1871. It was acquired by Petropavlovsk Established in 2005, Kapstroi has so far carried out most of the in 2006/2007 and, as at 31 December 2009, employed c.270 construction work for the Group. As of 31 December 2009 highly-skilled specialists including 27 PhD equivalent holders. Kapstroi employed 1,450 construction workers and building Irgiredmet provides the Group with metallurgical testwork, bulk engineers. Its General Director, Valery Alekseev, has been with the sampling, mine planning, infrastructure design, project evaluation Group since inception and has previous experience of the and preparation of feasibility studies. It has facilities for sample construction of world-class mines and production units in preparation and leaching, smelting, flotation and purification. Uzbekistan and other former Soviet republics. Within the last five years Irgiredmet has registered more than Although Kapstroi was formally established as a separate entity 25 patents in the fields of mining, metallurgy and environmental in 2005, the decision to develop mines in-house was one the protection. The institute houses ten specialised technological Group took at inception with the construction of the heap leach laboratories, a design division, an experimental-enrichment and RIP processing facilities at Pokrovskiy. The reason for this Other information factory, an analytical centre, a patent division, an information approach was because the Group perceived there to be a department and a dedicated department for the processing of deficiency of suitable companies in industrial contractors in the secondary precious metals. Far East of Russia and in-house mine development enable the Recently Irgiredmet and PHM Engineering worked together to Group to streamline costs. create an X-ray radiometric separation facility for the extraction In recent years Kapstroi’s construction projects include the of gold-bearing ore at the Group’s Tokur project. processing facilities at Pioneer, a processing plant at Odolgo, the mining and processing facilities at Kuranakh and the Blagoveschensk pilot plant.

For further details on the For further details on the 42 43 Engineering division Construction division

Petropavlovsk PLC Annual Report & Accounts 2009 – 15 Strategy to deliver: Profitability and efficiency Me asuring PRO GRESS Financial and non-financial Key Performance Indicators (“KPIs”) were set up by the Group to help to identify the progress of Petropavlovsk year-on-year, set out its business targets for the year and benchmark the Group’s performance against industry leaders.

Financial KPIs The Group’s success Revenue – US$million is reflected across 2009 472 all measures of 2008 382 2007 226 performance. 2006 261 2005 249

Underlying EBITDA – US$million*

2009 225 2008 136 2007 89 2006 63 2005 n/a**

Net profit – US$million

2009 145 2008 23 2007 40 2006 32 2005 14

Earnings per share – US$ 2009 0.98 2008 0.27 2007 0.48 2006 0.40 2005 0.17

Net debt – US$million 2009 19 2008 389 2007 175 2006 80 2005 (5)

* Underlying EBITDA is profit for the period before financial income, financial expenses, foreign exchange gains and losses, fair value changes, taxation, depreciation, amortisation and impairment. Reconciliation of profit for the year and underlying EBITDA is set out in note 39 to the consolidated financial statement. ** Data for 2005 was not published.

16 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance

Operational KPIs Non-financial KPIs

Attributable gold production – oz* Resource efficiency for 2009 (Pokrovskiy and Pioneer) 2009 486,800 Energy – GJ/kg Au 2008 401,600 Petropavlovsk 96

2007 297,300 Industry Average 143 G overnance

2006 261,300 Water – l/kg Au 2005 249,300 Petropavlovsk 80,050 Industry Average 691,000 Average gold price realised – US$ per oz 2009 975 Greenhouse gas emissions – t CO2-e/kg Au 2008 845 Petropavlovsk 5.6 2007 668 Industry Average 11.5 2006 586 Cyanide – kg CN/kg Au 2005 442 Petropavlovsk 147 Industry Average 141 Group total cash costs – US$ per oz

2009 309 Financial statements 2008 319

Pokrovskiy Mine total cash costs** – US$ per oz 2009 296 2008 293 2007 193 2006 175 2005 159

Pioneer Mine total cash costs – US$ per oz 2009 265 Other information 2008 226

* Total attributable gold production, as stated throughout this document, is comprised of 100% of production from the Group’s subsidiaries and the relevant share of production from joint ventures and other investments. Figures for the comparative period are For further details see the restated accordingly. The Group has held c.1.1% interest in Rusoro Mining Ltd since 20 Financial review March 2009; no attributable ounces are included in the Group figures. The Company’s direct and indirect interest in Pokrovskiy Rudnik is 98.61%. Cumulative gold production, For further details on as stated throughout this Annual Report and Accounts, consists of gold physically 24 recovered and gold in circuit. Accordingly gold produced in the year consists of gold Operations and Development recovered during the period and adjusted for the movement in gold in the circuit. For further details on the ** 2005/2006/2007 cash costs stated according to previously used Gold Institute Standard 44 (“GIS”) cash cost breakdown. Sustainability report

Petropavlovsk PLC Annual Report & Accounts 2009 – 17 Strategy to deliver: Profitability and efficiency OPERATIONAL STRUCTURE The Group has an organisational structure in place to ensure that its operations are managed efficiently and effectively. The Board of Directors is supported by an Executive Committee, appointed by the Board, and a strong and experienced operational management team.

Board of Directors The Executive Committee Board Committees The Board currently consists of nine The Board has appointed an Executive In addition to the Executive Committee, Directors: three Executive (Peter Hambro, Committee consisting of senior the Board has established an Audit Pavel Maslovskiy and Brian Egan) and six management and has delegated to this Committee, a Remuneration Committee, Non-Executive (Graham Birch, Sir Malcolm committee the authority to make decisions a Risk Committee, a Nomination Field, Lord Guthrie, Peter Hill-Wood, relating to the day-to-day management of Committee and an HSE Committee. Sir Roderic Lyne and Charles McVeigh). the Company and to ensure that the overall These committees monitor, review and Peter Hill-Wood is the Senior Independent objectives and targets set out by the Board make recommendations to the Board. Director. Biographies of the Directors may are achieved. The current membership of these be found on pages 52 and 53 of the committees is shown on page 66 The Executive Committee has the authority Annual Report and Accounts. of the Annual Report and Accounts. to approve transactions considered to The Board meets regularly during each be in the ordinary course of business year and details of the number of Board and to approve expenditure and financial Operational Management and Committee meetings held during the commitments in accordance with limits The Group has a strong and experienced year under review are found on page 63 previously agreed by the Board. The operational team on the ground, many of the Annual Report and Accounts. Executive Committee has a duty to further of whom have been with the Group since the strategy, business objectives and The Board is responsible for the inception. This team is responsible for targets established by the Board and determination and monitoring of the overseeing the day-to-day running of each to manage the Company’s operations, Company’s strategic aims, budgets, major of the Group’s key departments, operations financial, administration, health and safety items of capital expenditure and senior and subsidiaries. The operational team and environmental performance. The appointments, the direction and control has close contact with members of the Executive Committee is also responsible of the Company and the management of Executive Committee and regularly reports for maintaining relationships with the capital structure. The Board ensures both directly to them and to the Board shareholders and other key stakeholders, that the necessary financial and human and the Board Committees. for investigating merger and acquisition resources are, and will continue to be, in opportunities and for reviewing internal place to enable the Company to meet its Corporate Governance control and risk management. objectives. The Board works closely with The Company is committed to high the operational management to achieve Executive Committee members are based standards of corporate governance and the Company’s objectives. The Board has at the Group’s Head Office in London, details of how the Company has applied adopted a formal schedule of matters at its management office in Moscow and the Main Principles set out in Section 1 reserved for its decision, and further details at its regional offices in Blagoveschensk of The Combined Code on Corporate are found on page 63 of the Annual Report and Birobidjan in the Russian Far East. Governance published by the Financial and Accounts. The roles of the Chairman The Committee meets monthly. Reporting Council in June 2008 (the and Chief Executive are also clearly “Combined Code”) are set out in the defined and further details are found on Corporate Governance Report on pages pages 64 and 65 of the Annual Report 62 to 69 of the Annual Report and and Accounts. Accounts. The Board has also adopted terms of reference for its Committees, available on the Company’s website at www.petropavlovsk.net and the operation of these committees is within the scope For further details about of these terms of reference. 52 Board of Directors

18 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview

k k Governance k k

Board of Directors The Executive Committee Key Operational Management Performance Responsible for strategy Responsible for execution Responsible for delivery and governance and implementation

Executive Directors: Peter Hambro Sergei Ermolenko Chairman General Director of Petropavlovsk Peter Hambro Management Company Chairman Dr Pavel Maslovskiy Chief Executive Valery Alekseev Dr Pavel Maslovskiy Group Head of Construction and Chief Executive Brian Egan Engineering; General Director of Chief Financial Officer Kapstroi Brian Egan

Chief Financial Officer Alexei Maslovskiy Andrey Lushei Governance Group Head, Business Development Deputy General Director of

Petropavlovsk Management Company Non-Executive Directors: Dmitry Chekashkin Group Head, Precious Metals Nikolai Vlasov Dr Graham Birch Operations Group Head of Exploration Non-Executive Director Jay Hambro Vladimir Shevchenko Lord Guthrie of Craigiebank Chief Investment Officer Financial Director of Precious Non-Executive Director Metals Division Yuri Makarov Sir Malcolm Field Group Head, Non-Precious Metals Danila Kotlyarov Non-Executive Director Operations Financial Director of Non-Precious Metals Division Peter Hill-Wood Andrey Maruta

Senior Non-Executive Director Financial statements Group Financial Controller Alexei Karskanov General Director of Pokrovskiy Rudnik Sir Roderic Lyne Dr Alya Samokhvalova (Pokrovskiy and Pioneer mines) Non-Executive Director Group Head, External Communications Anatoly Kochubey Charles McVeigh Martin Smith General Director of Malomirskiy Rudnik Non-Executive Director Group Head, Technical Services (Malomir mine) Karolina Subczynska Group Head of Legal Affairs

Andrey Tarasov Head of Corporate Affairs, Russia

Other information

k

k k

Accountabilityv

Petropavlovsk PLC Annual Report & Accounts 2009 – 19 Financial review

Below Brian Egan, Chief Financial Officer Revenue 2009 2008 US$ million US$ million Revenue 472.3 381.7 including: Revenue from precious metal operations 430.6 290.8 Revenue from other operations 41.7 90.9

Physical volumes of gold production and sales

2009 2008 oz oz Gold sold from Pokrovskiy, Pioneer and alluvial operations 438,215 341,046 Change in gold in circuit and doré-bars 10,385 21,654 Gold produced by subsidiaries of the Group 448,600 362,700 Gold produced by joint ventures and other investments 38,200 38,900 Total attributable production 486,800 401,600

Group revenue in 2009 was US$472.3 million, 24% higher than the US$381.7 million achieved in 2008. Financial highlights The increase in revenue was attributable to growth in revenue from the Precious Metals Division of 48% from US$290.8 million in 2008 2009 2008 Variance up to US$430.6 million in 2009. Gold remains the key commodity US$ million US$ million % produced and sold by the Group, comprising 91% of total revenue Group revenue 472.3 381.7 24% generated during the year. The Group’s average gold price realised Operating profit 173.9 84.3 106% increased by 15% from US$845/oz in 2008 to US$975/oz in 2009, Underlying EBITDA 224.5 136.4 65% which contributed to a US$44 million increase in revenue from the Net profit 144.8 22.7 538% Precious Metals Division. The physical volume of gold sold Earnings per ordinary share (basic) US$0.98 US$0.27 263% increased by 28% from 341,046oz in 2008 to 438,215oz in 2009, Net debt (19.1) (388.7) (95%) which contributed to a US$95 million increase in revenue from the Precious Metals Division. Basis of preparation The increase in revenue from the Precious Metal Division was partially offset by a reduction in revenue from other operations. The consolidated financial statements of Petropavlovsk PLC and its This is primarily due to a decrease in services historically provided to subsidiaries have been prepared in accordance with International Aricom from US$47.2 million in 2008 to US$8.7 million in 2009 as a Financial Reporting Standards (“IFRS”) as endorsed by the result of such services becoming intra-group subsequent to Aricom European Union and under the accounting policies set out on being acquired on 22 April 2009. Revenue from other operations are pages 92 to 102 of this Annual Report. mainly comprised of construction and engineering services in Following the acquisition of Aricom plc completed on 22 April 2009, aggregate of US$20.2 million as well as US$15.2 million generated the Group’s results for 2009 comprise the results of Petropavlovsk by Irgiredmet on procurement of materials such as reagents and operations for the whole of 2009 together with the results of Aricom consumables and equipment for third parties. operations from 22 April 2009 to 31 December 2009.

20 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– 21

0.4 2.4 2.6 0.4 3.2 3.3 3.2 – (1.3) Total (2.7) 319 2008 2008 16.1 36.1) 85.6 17.4 84.3 16.8 ( (25.0) 145.0 144.5 288.0 290.8 144.5 108.9 341,046 US$ million US$ million

.9 9.7 2.5 3.3 3.5 4.2 (6.5) (3.2) (5.8) (2.2) (5.9) Total 309 9 2009 2009 04.4 51.6 24.2 32.2 54.1) ( 181.5 251.6 426.9 1 2 173.9 & Accounts 2009 38,215 US$ million US$ million

– – 2 – – – – 4 0.8 0.8 Other million of this increase in the the in increase this of million

US$ million

Alluvial Operations US$ million Petropavlovsk PLC Annual Report PLC Petropavlovsk .3 0.1 2 1.0 17.2 0.9 Mine 4 Pioneer US$ million dministration

––– .4 1.7 0.2 .6 1.7 0.2 0.5 1 1 296 265 769 Mine 45.3 11.4 11.9 0.9 59.7 56.3 18.5 0.9 135.4 196.6 207.3 23.0 197.1 209.6 23.1 0.8 430.6 Operating profit results, as contributed by business segments, segments, business by contributed as results, profit Operating set out below. are metals Precious Non-precious metals Non-precious Exploration Other a Central Construction and engineering Foreign exchange losses exchange Foreign Operating profit Operating 201,624 212,545 24,046 Pokrovskiy US$ million

(a) (a) (a) (1.6) 2008 84.3 (25.5) (25.0) 136.4 US$ million

– (5.9) 2009 44.7) ( 224.5 173.9 US$ million

(a) etals Division recious M recious December 2008 2008 December

financial expense items for year ended ended year for items expense within financial reported Bank charges 31 Non-cash element reflects the cost of mining incurred in previous periods but expensed in the current period when the gold was produced. expensed in the current periods but in previous the cost of mining incurred Non-cash element reflects  tockpiles, non-cash element tockpiles, Physical volume of gold sold, oz Total cash costs per oz, US$ cash costs per oz, Total

Operating expenses Operating in joint ventures of results Share Result of P Revenue Gold Silver Other

Operating cash expenses expenses cash Operating Expenses Refinery and transportation Depreciation, amortisation and impairment Depreciation, losses exchange Foreign items Other Royalties (a) Operating profit Operating (a) and expenses Underlying EBITDA Underlying EBITDA, operating profit operating Underlying EBITDA, Other taxes Precious Metals Division Precious set out below. Metals Division are of the Precious The results US$144.5 million in 2008. Higher to of US$251.6 million compared profit an operating Metals Division generated the Precious This year, US$108.0 contributed sed gold price reali in average as the increase volumes of gold sold during the year as well resulting in a further US$4.4 million this year, to US$309/oz in 2008 US$319/oz from Total cash costs per ounce decreased profit. operating profits. operating in increase Total cash costs Total Depreciation and amortisation Depreciation Impairment S Financial review continued

Non-precious Metals Division and other segments “Borrowing Costs”, a further US$14.8 million of interest expense The Non-precious Metals Division and other operations in total were capitalised as part of mine development costs within property, generated a loss of US$17.8 million in 2009 compared to plant and equipment in 2009. US$0.9 million profit in 2008, of which US$8 million was attributable to losses in relation to Aricom operations since Income tax its acquisition on 22 April 2009. 2009 2008 Central administration expenses US$ million US$ million The Group has head offices in London, Moscow and Income tax expense 52.6 17.6 Blagoveschensk which represent the central administration function. Central administration expenses increased by US$18 million from The Group pays current income tax under UK, Russian and US$36.1 million in 2008 to US$54.1 million in 2009, due to the Cypriot tax legislation. Income tax expense for 2009 comprised once-off cost of admission to the Main Market of the London US$52.6 million or 26.6% of the profit before tax, in line with Stock Exchange of US$5 million and US$10.8 million incremental corporation tax rates of 28% in the UK and 20% in Russia. overhead expenses in relation to Aricom subsequent to its This year, the Group made income tax payments in the aggregate acquisition on 22 April 2009. of US$35.6 million, out of which US$24.2 million were paid in cash and a further US$11.4 million were settled against other Financial income taxes receivable in Russia. 2009 2008 US$ million US$ million Financial position and cash flows Interest income 7.7 7.7 2009 2008 Gain on redemption of exchangeable bonds 23.7 – US$ million US$ million 31.4 7.7 Cash and cash equivalents 76.4 26.4 Borrowings (95.5) (373.7) The Group earned interest income on loans issued to Venezuela Derivative financial liability embedded Holdings Limited, subsidiary of Rusoro Mining Limited (“Rusoro”) within borrowings – (41.4) as well as joint ventures within the Precious Metals Division. Net debt at 31 December (19.1) (388.7) Interest income earned in 2009 is in line with interest income earned in 2008 as the underlying loans receivable arrangements Key movements in cash and debt are set out below. remained consistent. Cash Debt Net Debt During the year ended 31 December 2009, the Group purchased US$ million US$ million US$ million a total of $127.0 million nominal amount of its 7% gold exchangeable At 1 January 2009 26.4 (415.1) (388.7) bonds at an average price of US$95.00 plus accrued interest, Net cash from operating a total of US$51.9 million nominal amount at an average price of activities 139.6 US$109.00 plus accrued interest and a total of US$1.1million Issue of Ordinary Shares(a) 101.3 nominal amount at an average price of US$104.00 plus accrued Acquisition of Aricom plc(a) 225.6 interest. This resulted in a net gain of US$23.7 million. Capital expenditure (259.5) Financial expenses Repayment of loans (70.5) 70.5 Amounts drawn down under 2009 2008 US$60m facility with Sberbank(a) 59.3 (59.3) US$ million US$ million Amounts drawn down under up Interest expense 21.5 33.0 to US$150m facility(a) 37.5 (36.2)(b) Less interest capitalised (14.8) – Redemption of gold Other 0.4 0.3 exchangeable bonds (178.4) 202.1 7.1 33.3 Conversion of convertible Financial expenses decreased by US$26.2 million from bonds – 139.8 US$33.3 million in 2008 to US$7.1 million in 2009. This decrease is Other cash and non-cash due to a US$10.6 million decrease in interest on gold exchangeable movements, net (4.9) 2.7 bonds as a result of the bonds being repurchased by the Group At 31 December 2009 76.4 (95.5) (19.1) during the year and a US$1.7 million decrease in interest on (a) Net of transaction costs. convertible bonds as a result of the bonds being converted in (b) Including transaction costs of US$1.3 million unpaid as at 31 December 2009. November and December 2009. Following adoption of a new requirement set by a new accounting policy as required by IAS 23

22 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

23

– 2008 0.69 29.38 million in in million

31 December December 31 2009 0.63 30.24 & Accounts 2009 million 4.00% 4.00% million 31 December December 31

million. The dividends will be paid on on paid be will dividends The million.

Petropavlovsk PLC Annual Report PLC Petropavlovsk Pounds Sterling. Sterling. Pounds

dividend of £0.07 per share which is expected to result in the the balance sheet events Post in result to expected is which an interim approved of Directors On 20 January 2010, the Board share per £0.07 of dividend £12.6 of payment aggregate 2010. February at on the register 26 shareholders the Company’s 2010 to 30 March on business of close the Bonds”). (“the 2015 US$380 February 18 issued Group 2010, the In February on due bonds convertible the and per share The conversion price has been set at £12.93 £1. per Market US$1.6244 at has been fixed rate conversion exchange Securities Professional the on Authority on the Official List of the UK Listing listed The Bonds were trading to admitted and 2010. on 18 February Exchange Stock of the London Going concern consolidated the on when time statements the reasonable financial at the consolidated a 2.1 to As set out in note is Report, there adequate Annual and this authorised, of page 92 are liquidity statements sufficient has financial Group the that going the adopt expectation to continue Directors for the foreseeable existence continue operational to resources the Accordingly, future. financial statements. the consolidated concern basis in preparing currency. Foreign exchange differences arise on translation of differences exchange currency Foreign translation on functional arise their as differences Dollar US have the The principal subsidiaries exchange Foreign currency. currencies, in foreign monetary liabilities denominated assets and Russian Roubleand are subsidiaries of the Group which for the principal assets monetary GB and translate to used exchange of rates The set US Dollars are into currencies in foreign liabilities denominated per US dollar). out below (currency Sterling GB Pounds Russian Rouble US$5.9 of loss exchange Pounds GB a foreign and recognised The Group on assets primarily monetary net arising US$25 million in 2008 to 2009 compared denominated liabilities. Rouble monetary Russian net denominated Sterling

5.3 4.4 137 Total 95.5 54.4 34.1 19.0

and US$ million

– – – – – million million

9.0 14.1 5.5 203.4 3.0 3.0 26.5 29.7 3 million invested invested million

million were were million

US$ million investments Other CAPEX CAPEX Other

– –– – 34.1 US$ million expenditure Development Development

– –– 3.2 8.6 86.9 8.7 45.7 4.2 1.1 4.4 5.1 5.9 13.1 5.9 47.2 3.0 56.1 34.2 133.7 40.1 180.9 38.5 259.5 US$ million Exploration Exploration expenditure million increase in underlying EBIDTA as well as as well as EBIDTA underlying in increase million ivision

etals D ivision Metals Metals recious in 2009 compared to US$161.4 to compared 2009 in projects and iron Pokrovskiy Capital expenditure Capital of US$259.5 million on its gold spent an aggregate The Group of the Pioneer, Malomir and Kuranakh projects and ongoing ongoing and projects Albyn development Kuranakh Malomir, the and on of focus this year was area in 2008. The key Pioneer, Malomir Pioneer, Pokrovskiy, the the of to related exploration and KS projects. million in 2008, primarily reflecting with US$16.8 million in 2008, primarily compared US$88.1 capital. in net working US$28.8 million improvement US$99.6 million, net of raised 2009, the Group In February Shares. the placing of 16 million new Ordinary through expenses, Net cash flows from operations comprised US$139.6 comprised operations from flows cash Net In October 2009, the Group issued 156,250 shares under the issued 156,250 shares 2009, the Group In October in a further option scheme which resulted employee share US$1.7 million cash raised. and Générale two new loan facilities, a US$60 million loan into entered The Group Société Raiffeisenbank, US$150 million loan facility withfacility with Sberbank and an up to Bank, Unicredit Bank, ING set out on pages 120 of these facilities are The details BNP. 2009 the Group exercised its option to redeem all of the outstanding outstanding of this Annual Report. the of all redeem to Bondholders option its date. in November satisfaction of the conditions precedent, Following maturity exercised final Group the their to 2009 prior bonds Ordinary into convertible bonds their convert to of US$139.8 million of the nominal amount of theholding a total elected US$0.2 bonds remaining The convertible Company. the of Shares at par plus accrued interest.redeemed Pioneer Malomir Albyn Yamal Other P D Kuranakh KS Other Non-precious Non-precious M Total P recious M e t a l s Division Exceptional assets and a wealth of experience

This page View of the pit at Pokrovskiy, the Group’s first producing gold mine.

24 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

Gold (Moz) .

(g/t) 0.96 0.40 1.51 0.40 1.17 0.80 Grade 145,000oz. & Accounts 2009 – 25

t) Ore (M 8.31 2.66 1.35 0.12 13.01 11.45 0.91 0.33 10.49 0.89 0.30 Pokrovskiy Indicated 21.32 Blagoveshchensk from from life of the mine with production ine Probable 21.94 0.90 0.63 Resources Resources ineral Petropavlovsk PLC Annual Report PLC Petropavlovsk eserves* Category Measured Indicated + Measured Inferred Proven Probable + Proven R deposits. re RUSSIA CHINA 2009 gold production of 190,100oz 2009 gold production Potential to extend the extend to Potential satellite Pokrovskiy m Pokrovskiy In accordance with the JORC Code (2004) independently verified by WAI with the JORC Code (2004) independently verified In accordance

Key highlights Key • cash costs of US$296/oz. • Total be 135,000 – to expected • 2010/2011 production •  and O is It . years for ten first gold mined in 1999, has been in production assets of the Group. producing one of the key currently mineralisation of of zone consists broad Mongolo- the of side south the on the located is deposit deposit Pokrovskiy The The within volcanic of line margin. plate sequence a fold/thrust Okhotskiy ancient within this bodies with ore associated flat-lying large five of set a expectations, of ahead age.recovered of Mesozoic and sedimentary rocks performed 9,500oz mine (including Pokrovskiy the production 2009, In gold of 199,600oz yielding cash cost of US$296/oz. at Pioneer) mined at a total the ore from Pokrovskiy M Pokrovskiy Resources * mines gold producing largest the of one is mine Pokrovskiy The in the Amur Region and with the(by value of annual production) Contained Gold represents estimated contained metal in the ground and in surface contained metal in the ground estimated Contained Gold represents recovery. for metallurgical and has not been adjusted stockpiles Resources Mineral inclusive of those are Resources Mineral and Indicated Measured Reserves. the Ore to produce modified Reserves

full full he 2004) tate – it hastate /oz. US$1,087/oz. (2004) (2004) JORC beyond. in accordance with with accordance in saw some profit taking at relativelysaw some profit investment investment for ongoing trend the overall and India. reserves and resources resources and reserves the Group’s for reporting

is expected to continue into 2010 and into continue to is expected

robust performance in the face of a global recession was was recession global a of face the in performance robust a mineral expert’s report which is being prepared by WAI. WAI. by prepared being is which report expert’s mineral a this report, which states the Group’s reserves reserves Group’s the states which report, this summary table from Ore Reserves as prepared by the Joint Ore Reserves Committee of the Australian Australian the of Committee Reserves Ore Joint the by and Resources Results, Mineral Code for Reporting of Exploration The Australasian prepared as Reserves Ore of Geosciences and Minerals Institute Australian of Mining and Metallurgy, Institute Code (2004)”). (“JORC Council of Australia The Russian Reserves and Resources Classification System was approved by by approved was System Classification Resources and Reserves Russian The amended in 1981 and 2008). It is based (“GKZ”) in 1965 (and Committee the State them. extract ability to of geological knowledge and the technical principally on the degree extract to able be accordance with GKZ in to reserves holders must register Licence reserve. a mineral System Russian the with

 driven by a resumption in central bank purchases and investor and bank purchases in central driven by a resumption hedge as gold sought of value as investors demand for a store y against currenc volatility and protection against equity market and inflation. depreciation (“ETFs”) Funds Traded Exchange This high price levels. However, ETFs into During 2009, the price of gold averaged US$972.35/oz, up 12% US$972.35/oz, of gold averaged During 2009, the price year and ending at rising for the ninth consecutive Market overviewMarket

PRECIOUS METALS DIVISION METALS PRECIOUS S AND DEVELOPMENT: DEVELOPMENT: AND S OPERATION Jewellery demand was fragile in the first half of the year and the the and year the of half first the in fragile was demand Jewellery the end of the year was a major factorhigh price of gold towards in dampening demand across most markets with the notable notable the with markets most across demand an dampening to in contributed in trend Indonesia of China exception and overall the Russia China, industry However, the side, year. with supply last the On deteriorate production to in 6% of continue to increase likely is production global gold discoveries andfacing maturing mines, a lack of major new production. longer lead times for bringing deposits into * **  Reserves Resources and the Whilst Resources. on the system by the Group decision was taken In 2009 a strategic Mineral and Reserves its Ore of reporting * Russian System the – as this is use within the Russian legal environment in remains Russian S the to accountability basis of the Group’s the guidelines of the JORC Code ( the guidelines of the JORC Code resources and reserves on reporting Group’s the that decided been AuVerdi internal an consultant, up with the audiences will be carried out in accordance investor to set mineral to Group the independent An with JORC Code (2004)**. working been has Capital, results first The future in report modelling departmentresources. to and resources reserves and reserves fully JORC-compliant part form (“WAI”) Ltd International Armstrong by Wardell audited of A to its main deposits, according for and resources, T . of this report is set out at the front classification standards on the the Report is available on Summary of the WAI Executive at www.petropavlovsk.net. website Company’s OPERATIONS AND DEVELOPMENT continued Top Heap leach operations at Pokrovskiy. Bottom Resin-in-pulp (“RIP”) processing plant at Pokrovskiy.

The Pokrovskiy mine exceeded its 2009 production target by 13% at a rate of 135,000 – 145,000oz per annum which will then decline and operated successfully throughout 2009 with the plant in 2012 to 100,000oz when the main Pokrovskiy pit is expected processing 1,782,000t of ore. to be exhausted and remaining stockpiles will be processed. The Pokrovskiy ore body at the main pit is open at depth and the Following the rescheduling exercise, some mining has been continuing strength in the gold price may allow for an increase in diverted to the flanks of the main deposit where mining of the ‘inner the reserve base of the main pit. The current schedule for post-2012 flanks’ of the Pokrovka-2 area started. The revised plan envisages a is that production will move to a series of smaller open pits, the development of series of shallow open pits in this area. “Pokrovskiy Satellite Deposits,” producing at the rate of 70,000 – The assessment of Ore Reserves at Pokrovskiy carried out by WAI 100,000oz per annum. is based on new Mineral Resources estimated in accordance with The mining schedule for Pokrovskiy is optimised to balance ore the JORC Code (2004) and has been economically optimised using mining, waste mining and average grade each year. The mining cut-off grades based on a US$1,000/oz gold price. The table on the rate and amount of blending required is not significantly different previous page summarises the Mineral Resources and Ore Reserves to the current operational practices and therefore WAI considers under the guidelines of the JORC Code (2004) at Pokrovskiy. the schedule to be both practical and achievable. The Proven and Probable Ore Reserves derived by WAI under the guidelines of the JORC Code (2004) based on a US$1,000/oz gold Pokrovskiy mining and processing operations price are 21.9Mt of ore at an average grade of 0.9g/t of gold Year to Year to (economic COG of 0.4g/t Au) and require that 71.7Mt of waste 31 December 31 December be removed to access the orebody at a stripping ratio of 3.3 (t/t). Mining operations Units 2009 2008 A significant furtherI nferred Mineral Resource exists within Total material moved m³ ’000 5,445 5,594 the deposit. Ore mined t ’000 1,879 2,105 The Group’s mining schedule based on Ore Reserves reported Average grade g/t 2.7 3.0 under the JORC Code (2004) gives an inventory of mineable Gold content oz ’000 161 203 material of 14.2Mt at an average grade of 1.34g/t of gold and Year to Year to requires 58.2Mt of waste be removed to access the ore body. 31 December 31 December Processing operations Units 2009 2008 This mining schedule also includes Ore Reserves from stockpile Resin in Pulp Plant material. It is planned that in 2010 and 2011, the mine will produce Ore from pit t ’000 1,295 1,293 Average grade g/t 3.7 4.2 Ore from stockpile t ’000 452 223 Average grade g/t 3.4 3.8 Pioneer ore t ’000 35 180 Average grade g/t 10.0 15.4 Total milled t ’000 1,782 1,696 Average grade g/t 3.8 5.3 Gold content oz ’000 218 291 Recovery rate % 84.6 87.0 Gold produced oz ’000 184.6 253.4 Heap Leach Ore stacked t ’000 770 785 Average grade g/t 0.9 0.8 Gold content oz ’000 22 21 Recovery rate % 67.3 65.0 Gold produced oz ’000 15.0 13.7 Total Gold produced oz ’000 199.6 267.1 including Pokrovskiy oz ’000 190.1 189.5 Pioneer oz ’000 9.5 77.6

26 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

Gold (Moz)

AI. (g/t) Grade & Accounts 2009 – 27

t) processing line inprocessing Ore (M he plant is expected to to expected is plant he 23.37 1.48 1.11 37.80 1.07 1.30 14.49 0.85 0.40 26.10 1.33 1.12 43.63 1.00 1.40 grade Andreevskaya zone Andreevskaya grade - Indicated 61.16 1.22 2.41 Probable 69.73 1.08 2.42 his extra production facility, with a design design a with facility, production extra his Petropavlovsk PLC Annual Report PLC Petropavlovsk T Resources Resources ineral ategory eserves* C Measured Indicated + Measured Inferred Proven Probable + Proven R re re Reserves at Pioneer are based on the Mineral Resources Resources Mineral the on based are Pioneer at Reserves re actual capacity of the new line achieved after the ramp-up ramp-up the after achieved line new the of capacity actual O

200,000t of ore a month, principally due to the operational operational the to due principally month, a ore of 200,000t

eptember 2009. 2009. eptember n accordance with the JORC Code (2004) independently verified by W In accordance he Pioneer mine is located in the Amur Region, approximately approximately Region, Amur the in located is mine Pioneer he he he Pioneer mine is located on the Amur tectonic plate on the south south the on plate tectonic Amur the on located is mine Pioneer he Petropavlovsk’s as 2009 in position its confirmed mine Pioneer he successful the to due mainly was increase production he he

Pioneer M and O Resources * T mine. The Pioneer acquired licence was the Pokrovskiy 35km from first stage production Rudnik in 2001 and Pioneer’s by Pokrovskiy in April 2008. T production facility came into 60% approximately by capacity design the exceeded has period mining the of to size the increasing the During 2009, ongoing efficiency improvements. team’s included also work expansion of the mine expansion. meet the requirements to fleet during 2009, achieving the efficiently the plant operated Overall of 90%. rates designed annual recovery T basedand have been economically optimised using a cut-off grade The Pioneer mine consists of fouron a gold price of US$1,000/oz. ose Mineral Resources Resources Mineral inclusive of those are Resources Mineral and Indicated Measured Reserves. the Ore to produce modified material oxide of tonnes million 7.9 of capacity design full its achieve treat in 2014 to be converted per annum in 2011 and is planned to material. refractory junction. plate T this with associated side of the Mongolo-Okhotskiy fold/thrust line, but well within the mineralisation of with zone activity broad hydrothermal from and intrusive rocks by extrusive at Pioneer is hosted Mineralisation results and age, the Mesozoic form of that – Bakhmut and zones – ore volcanism. The deposit comprises the three Mesozoic Promezhutochnaya Yuzhnaya, nearby. In addition, the higher Pioneer structure. structures ore small other of whilst the southeast of the Pioneer structure, 1.3km to is located number a also are to 2008 there versus 208% by rising production T with operation flagship and a further 9,500oz cash cost of US$265/oz at a total 224,600oz mined at Pokrovskiy. the ore from recovered T of the second commissioning and ramp-up budget. S on and schedule on per month (without heap-leach capacity of 125,000t of ore constructed was operations), T Reserves – – – (11.1%) 7 9 52 7.7% 232 225 293 1% 2008 % change Year to to Year 31 December December 31 $14.9 million in the year year the in million $14.9 7 8 $296/oz were in line line in were $296/oz 56 US 232 225 296 2009 Year to to Year US Pioneer 31 December December 31 in 2009. Blagoveshchensk /oz s and and s reagent rising electricity, chemical ine shing and grinding line complete – third line on track for line on track – third shing and grinding line complete osts Pioneer, and partly due to a weaker Rouble. weaker a and partly to due Pioneer, RUSSIA ash c CHINA apacity of second milling line increased to 200,000 tonnes tonnes 200,000 to increased line milling second of apacity perating cash cash perating C per month. ne of the world’s lowest total cash cost gold mines with total cash lowest total One of the world’s cash costs of US$265 Second cru H1 commissioning. Pioneer m tate Royalties tate ncluding costs of Pioneer ore processed through the Pokrovskiy mill. the Pokrovskiy through processed Including costs of Pioneer ore otal cash costs at Pokrovskiy of of Pokrovskiy at costs cash otal

* •  •  Key highlights Key . of 234,100oz • 2009 gold production •  Refinery and and Refinery cost transportation costs operating Cash S Other taxes c Total O expenses US$/oz Costs T with 2008 in spite of with 2008 in spite cash operating the in Rouble his was offset by a decline- consumables costs. T of (part overheads depreciation. Rouble overall diesel prices and denominated administrative from 27% Pokrovskiy’s by decreased expenses) these of allocation the commissioning of US$8.6 million in 2009 due partly to 2008 to partial the for allowing , the Pioneer operations costs to costs* Pokrovskiy OPERATIONS AND DEVELOPMENT continued Below Pioneer processing operations. Opposite New workers’ accommodation camp at Malomir.

main open pits, Yuzhnaya, Promezhutochnaya, Bakhmut and Pioneer mining and processing operations Andreevskaya. In addition a new north-east extension to the Year to Year to Bakhmut zone was discovered as a result of geological exploration 31 December 31 December works in 2009. The Pioneer reserves as audited by WAI are based Mining Operations Units 2009 2008 on a US$1,000/oz gold price. This gives combined Proven and Total material moved m³ ’000 9,056 2,973 Probable Ore Reserves of 69.7Mt at an average grade of 1.08g/t Au Ore mined t ’000 1,286 399 and requires that 289.2Mt waste be removed to access the ore Grade g/t 6.2 12.5 bodies at an average stripping ratio of 4.1 t/t. Gold oz ’000 255 160 The Group’s mining schedule based on Ore Reserves reported Year to Year to under the JORC Code (2004) gives an inventory of mineable 31 December 31 December material of 43Mt at an average grade of 1.52g/t Au and requires Processing Operations Units 2009 2008 217Mt of waste be removed to access the ore body. Resin in Pulp Plant The Pioneer mining schedule anticipates production at the mine Ore from pit t ’000 951 434 reaching 375,000 – 420,000oz in 2010. Due to good progress in Average grade g/t 7.8 6.1 construction, the commissioning of the third line of the Pioneer plant Ore from stockpile t ’000 134 94 has been brought forward to the first half of 2010.T he decision has Average grade g/t 2.4 4.3 been taken to expand the plant further by adding in 2011 a fourth Total milled t ’000 1,085 528 line containing an additional 7.5m SAG mill which will increase the Average grade g/t 7.2 5.8 capacity of the mine to 7.9Mt p.a. The current plan provides for Gold content t ’000 250 99 modification and expansion of the plant to treat primary ore from 2014 with all equipment being used at the flotation-autoclave- Recovery rate g/t 90.0 74.1 cyanidation plant. Gold recovered oz ’000 224.6 72.9 The original mine design provided for the inclusion of heap leach operations from mine commissioning. This was designed for the Costs cost-efficient treatment of mill feed of less than 1.3g/t Au. Due to Total cash costs for 2009 at Pioneer increased by 17% versus the original underestimation of reserve grades, this implementation 2008 to US$265/oz. The inflation in electricity, chemical reagents has not been necessary until now. However, successful exploration and consumables was mitigated by Rouble-denominated diesel work in 2009 has identified a significant lower-grade resource base price falls and overall Rouble depreciation. However, with the (0.7-0.8g/t Au), for example at Vostochnaya, and in 2010, the Group commissioning of the mine’s second grinding circuit (fully intends to commence trial heap leach operations. commissioned in the second half of 2009), there was an upward The mining schedule proposed for Pioneer is optimised to balance processing cost movement in the second half as well as some ore mining, waste mining and average grade each year. Mining will additional cost in ramping up production. take place from four separate open pits and will thereafter be Pioneer costs blended in the combined processing facilities. WAI considers the proposed schedule to be both practical and achievable given the Year to Year to Group’s experience and management expertise gained through 31 December 31 December US$/oz 2009 2008 % change the Pokrovskiy operations. Operating cash expenses 193 157 22.9% Refinery and transportation cost 8 9 (11.1%) Cash operating costs 201 166 21.1% State Royalties 56 53 5.7% Other taxes 8 7 14.3% Total Cash Costs 265 226 17.3%

28 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

I Gold A (Moz) W tanks. tanks. 3

AI. (g/t) 1.32 1.80 Grade & Accounts 2009 – 29

t) Ore (M 4.70 1.67 0.25 5.34 1.52 0.26 41.14 1.58 2.09 42.34 40.48 1.46 1.91 esting of Malomir’s Malomir’s of esting T he construction of the main main the of construction he T Indicated 45.84 1.59 2.34 Probable 45.82 1.48 2.18 Petropavlovsk PLC Annual Report PLC Petropavlovsk Resources Resources ineral ategory eserves* he Group’s mining schedule based on Ore bodies. The Group’s C Measured Indicated + Measured Inferred Proven Probable + Proven R re re Reserves at Malomir are based on new Mineral Resource Resource Mineral new on based are Malomir at Reserves re O commission a second line for non-refractory material with with material non-refractory for line second a commission Malomir’s Quarzitovoye deposit, which is scheduled for first first for scheduled is which deposit, Quarzitovoye Malomir’s

n accordance with the JORC Code (2004) independently verified by W In accordance he he he annual capacity of the line is expected to be at 0.7Mt per per 0.7Mt at be to expected is line the of capacity annual he

infrastructure including roads, power lines, substations, warehouses, roads, including infrastructure been etc.) now has facilities is now completeworkshops, accommodation and storage excavators operations mining bulldozers, of stage and all the machinery (such as cranes, first the for required and tailings dam for the plant preparation ite S site. the to delivered crushing and and construction of the plant’s has been completed commenced. commenced has blocks (stripping) grinding mining first the 2009, December During 2010. of confirming half at results second the the with in completed production been has ore refractory the ore. feasibility of treating the technical cut-off a using optimised economically T Quarzitovoye been have bodies and ore estimates other two and body ore The Malomir deposit based on a gold price of US$1,000/oz. grade main the of consists by Reserves as audited and Ozhidaemoye. The Malomir Ore Malomir M and O Resources * and Malomir. made substantial construction During 2009, the Group at progress development ose Mineral Resources Resources Mineral inclusive of those are Resources Mineral and Indicated Measured Reserves. the Ore to produce modified to removed gold price. This gives combined based on a US$1,000/oz be are waste 343.5Mt that grade Reserves of 45.9 Mt at an average Ore and Probable Proven requires and Au 1.48g/t of access the ore under the JORC Code (2004) gives an inventoryReserves reported second of 1.77g/t Au grade of 34.8Mt at an average of mineable material the in commence to body. access the ore to be removed of waste 282Mt and requires expected is Malomir at extraction Gold half of 2010 with the commissioning of the milling/grinding line for mill, two 3.2m x including a 5.5m x 1.8m SAG ore, non-refractory with 200m 5.4m ball mills and a sorption/desorption circuit annum with the Group expecting 2010 production at Malomir Malomir at production 2010 T expecting Group the with annum In 2011 it is planned of 68,000 – 100,000oz. be in the range to to the capacity of 0.7 Mtpa. Reserves Malomir Blagoveshchensk ompany was awarded the combined combined the awarded was ompany or pit designing purposes, these separate separate these purposes, designing pit or C F eposit RUSSIA CHINA 2010 estimated production to be between 68,000 68,000 between be to production estimated 2010 . and 100,000oz per annum. of c.400,000oz full production Estimated Malomir d elemdja area of the Amur region, approximately 360km east of of east 360km approximately region, Amur the of area elemdja he Malomir deposit is situated along and above a major thrust thrust major a above and along situated is deposit Malomir he of zones thick multiple of consists deposit Malomir main he licence for the exploration and extraction of gold over the central central the over gold of extraction and exploration the for licence part of thepart of the Malomir deposit. The licence for the central in 2030. expire of 40km² and is due to deposit covers an area is carbonaceous and T mainly system locally thrust and and meta-sediments, fold the Mongolo-Okhotskiy zone close to metamorphism Palaeozoic associated upper regional with by hosted low-grade by silification) (mainly affected shales, alteration metasomatic intense mineralisation. hydrothermal major the above mostly lying rock T crushed and metasomatised zone. thrust “Diagonal” Key highlights Key for commissioning in H2 2010. on track • Malomir project . approach • A two-phase de-risked •  •  the in located is which deposit, for the explorationMalomirskiy Rudnik holds a combined licence Malomir area the of surrounding extraction and Malomir the for following 2005, licence May S in and exploration An 2003 in obtained Pokrovskiy. was deposits) (satellite the process, auction an zones are expected to merge into a single thick ore body to be be to body ore thick single a into merge to expected are zones open pit method. mined by the large OPERATIONS AND DEVELOPMENT continued Below Exploration work at Albyn.

The commissioning of the first line of the refractory ore plant is Albyn Mineral Resources scheduled for 2012. This line will include two 7.5m x 2.5m SAG mills, and Ore Reserves* four 4.0m x 6.0m ball mills and flotation and autoclaving circuits Ore Grade Gold with the capacity of the plant expected to reach 4.8Mt per annum. Category (Mt) (g/t) (Moz) Further expansion of this plant is expected to be completed in 2013 Resources Measured 16.00 1.21 0.62 with the addition of a second refractory ore line. This will include Indicated 28.37 1.05 0.96 a 7.5m x 2.5m SAG mill and two 4.0m x 6.0m ball mills, thus increasing the total capacity of the plant to 7.2Mt per annum. Measured+Indicated 44.37 1.11 1.58 Inferred 0.97 0.55 0.02 This gradual introduction of production lines will allow for optimal Reserves Proven 9.23 1.79 0.53 capital expenditure as revenues from the first line’s production (from Quartzitovoye) can be used to expand the plant. This technical Probable 13.33 1.77 0.76 decision will also allow for the simultaneous processing of refractory Proven+Probable 22.55 1.78 1.29 and non-refractory ores, which will have a positive effect on the cost * In accordance with the JORC Code (2004) independently verified by WAI. structure at the future mine. WAI considers the schedule to be both Measured and Indicated Mineral Resources are inclusive of those Mineral Resources practical and achievable. modified to produce the Ore Reserves. During 2009, exploration has continued and a technological study, Albyn deposit including testing of 25-tonne samples at the Blagoveshensk testing plant, was completed. Design work commenced in the second half of the year and construction of the main infrastructure including power lines, the substation, accommodation camp and the main deposit roads is planned for 2010. Contracts for the supply of the majority of the main mining machinery and equipment for the plant has been signed and for the remaining part is expected to be Albyn signed in 2010. As a result of exploration work and metallurgical tests by the Group, a pre-feasibility study was completed for the deposit in 2009. The mine is expected to be developed by open pit with an average RUSSIA Blagoveshchensk stripping ratio for the life of the mine of 15 (t/t) (within a framework of the optimal pit). Studies have also established that utilising gravity CHINA separation will achieve a recovery rate between 79.3% and 95.2%, using sorption/cyanidation technology between 92.0% and 97.3% Key highlights and using heap-leaching technology between 50.3% and 89.1%. • Commissioning of the plant at the end of 2011. The Ore Reserves at Albyn are based on the geological resources • Infrastructural works have commenced. and have been economically optimised using a cut-off grade based • Full production expected to be at 205,000oz per annum.

In 2005, the Group acquired 100% of ZAO Spanch, which holds a combined licence for the survey, exploration and extraction of the Albyn licence area, an area of 40km². The Albyn deposit is located approximately 45km south east of Tokur and approximately 485km from Pokrovskiy, in the Selemdja area of the Amur Region along the bank of the river Kharga. Since 1901, gold mineralisation has been known to exist in this area and it was worked until 1955 for gold and scheelite (tungsten). The Albyn deposit is situated within the Paleozoic Mongolo-Okhotskiy fold and thrust-belt. Mineralisation at Albyn consists of metasomatic rocks associated with low-angle fractures. Gold is present in these rocks, sometimes as coarse visible grains up to 2mm in size.

30 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

Gold (Moz)

AI. (g/t) Grade & Accounts 2009 – 31 okur mine

conomic conomic t) E Ore (M 1.97 1.16 0.07 2.13 1.14 0.08 okur in order to assay to okur in order 11.68 1.39 0.52 15.08 1.18 0.57 10.47 1.28 0.43 he principal mineralisation mineralisation principal he T -ray separation technology as as technology separation -ray his material is currently currently is material his T okur in quartz veins cutting Indicated 26.76 1.27 1.09 he resulting product yields of 4.5 g/t Au of of Au g/t 4.5 of yields product resulting he Probable 4.10 1.15 0.15 T Petropavlovsk PLC Annual Report PLC Petropavlovsk ategory okur, Malomir and Albyn. okur, eserves* C Measured Indicated + Measured Inferred Proven Probable + Proven R Resources Resources ineral okur mine is associated with a silicified zone along a along zone silicified a with associated is mine okur . his will involve a re-processing of dumps from the old old the from dumps of re-processing a involve will his T re T accredited laboratory was built at T laboratory accredited okur n accordance with the JORC Code (2004) independently verified by W In accordance okur underground mine using new X okur underground to a to mining by underground extensively okur has been mined

Resources * Resources Mineral inclusive of those are Resources Mineral and Indicated Measured Reserves. the Ore to produce modified in commissioning the for operations method at the T by the group operations First processing trial with processing 2009 future in a test commenced to 2009 of half first the characteristics deposit. technological same the T bears dumps the at ore the body. ore feed. main mill the as direct for suitable material Below T M Tokur and O m and to date has produced approximately approximately T produced related has date structure to and depth of about 400m thrust-sheet a within at T of gold. Gold occurs 35 tonnes shales, and in slates enrichment Palaeozoic secondary A exist. to belt. mobile the Mongolo-Okhotskiy believed to also is zone oxide the fault. Glavniy old the the as at known fault, thrust major mineralisation within this zone is concentrated in enriched zones zones enriched in concentrated is zone this within veins. quartz mineralisation gold-bearing with associated A fully- samples from T samples from Reserves C R -ray -ray O he Group’s Group’s he T okur/Albyn okur/Albyn T his gives combined combined gives his nnokentevskiy and and nnokentevskiy AG mill, 2 4.0m x 6.0m 6.0m x 4.0m 2 mill, AG T I S P plant for gravity gravity for plant P I Tokur he Albyn reserves as derived by by derived as reserves Albyn he T re Reserves reported under the J the under reported Reserves re O AG mill, two 4.0m x 6.0m ball mills with with mills ball 6.0m x 4.0m two mill, AG okur mine and the the and mine okur Blagoveshchensk S T . $1,000/oz gold price. price. gold $1,000/oz . $1,000/oz. $1,000/oz. US okur deposit is 100% owned by the Group. Group. the by owned 100% is deposit okur T US he exploration and mining licence covers the the covers licence mining and exploration he T eposit RUSSIA CHINA region, approximately approximately in the Amur region, okur deposit is located are based on a a on based are I -accredited laboratory to support Malomir/ support to laboratory ully-accredited A separation technology separation irst processing operations commenced in 2009 using new X operations First processing development cluster F d Tokur he licence for the the for licence he he Group plans to construct a 4.1mtpa R 4.1mtpa a construct to plans Group he he plan for 2010 involves the construction of the main infrastructure infrastructure main the of construction the involves 2010 for plan he aranakh deposits, which are associated with the Glavniy fault that associated deposits, which are aranakh he deposit, which has been mined previously, is well served byThe deposit, which has been mined previously, historic of intensive in an area and is located local infrastructure mining. alluvial The T 450km east of Pokrovskiy. Malomir and approximately 70km from T old the surrounding area •  T in the vicinity. the gold mineralisation control appears to Key highlights Key •  of 1.78 g/t Au and requires that 360Mt waste be removed to access access to removed be waste 360Mt that t/t. grade Reserves average of 22.6 Mt at an 15 Ore and Probable Proven of requires ratio and Au g/t stripping 1.78 of average an at orebodies the on based schedule mining on a gold price of of price gold a on W ode (2004) gives an inventory of mineable material of 23.6Mt at of mineable material Code (2004) gives an inventory of 1,80g/t of gold. grade an average T a 2.5m and x tanks 7.5m a the first line of the plant at commission to 200m³ and expects separation with comprising 2011, circuit of end the sorption/desorption a mills, ball annum. The capacity of this first line will be 2.0Mt per circuit. gravity and will be commissioned in 2012 The second line is planned to 2,5m x 7.5m a of consist the of 4.1Mt per annum. to capacity increasing preparation roads, camp, main line, T power fleet mining electric of part including main the of supply for expectingalso is Petropavlovsk damns. tailing and plant the for sites 2010 in contracts sign to and milling equipment for the plant. OPERATIONS AND DEVELOPMENT continued Below Exploration in the Yamal.

stockpiled until the main mining and processing operations Yamal assets Mineral Resources* commence. Gold recovery was 72% and the throughput of the Ore Grade Gold classifier/separator complex was 50 tonnes of ore per day. A Category (Mt) (g/t) (Moz) portion of alluvial gold was also produced during the process in line Resources Inferred 30.78 0.90 0.89 with the production schedule reported by the Group previously. * In accordance with the JORC Code (2004) independently verified by WAI. The Ore Reserves at Tokur are based on Mineral Resources and have been economically optimised using a cut-off grade based on After the completion of the majority of fieldwork at Petropavlovskoye a gold price of US$1,000/oz. The Tokur Ore Reserves as derived by deposit, a report on this asset has been completed and approved WAI are based on a US$1,000/oz gold price. This gives combined by the local department for subsoil use. Proven and Probable Ore Reserves of 4,103Mt at an average grade The current mine design provides for open pit operations. Average of 1.15g/t Au and requires that 42Mt waste be removed to access stripping ratio for the life of the mine is 9.5:1 t/t (within a framework the orebodies. The Group’s mining schedule based on Ore Reserves of the optimal pit). Subject to the Board’s investment decision and reported under the JORC Code (2004) gives an inventory of suitable finance being available, commissioning of the plant is mineable material of 4.1Mt at an average grade of 1.15g/t of gold planned for the second half of 2013. 90% of the overburden and requires 38Mt of waste be removed to access ore body. stripping is expected to produce high-quality gravel which is planned to be sold as construction aggregates. The project envisages production of 1.2mt per annum of construction material Yamal assets which is expected to improve the project’s economics substantially. Metallurgical studies of Yamal ores have established that the ore is moderately refractory. Tests have shown that a combination of flotation and cyanidation technologies yields an overall recovery of 82%. Throughput of 2.2mt per annum, yielding c.100,000oz, is envisaged using primary crushing in jaw crusher, followed by two-stage Yamal assets grinding in SAG and ball mills and flotation followed by cyanidation of the concentrate. It is planned to build two parallel processing lines simultaneously. Salekhard RUSSIA An Inferred Mineral Resource for Petropavlovskoye deposit is estimated to be 30.8Mt at an average grade of 0.9g/t Au. Although CHINA these estimates are reported as an Inferred resource, the deposit has been explored to a level of detail which may justify reclassification Key highlights of Mineral Resources into Measured or Indicated categories, but the metallurgical studies which would be required to demonstrate • Feasibility study finalised. the potential economic value are not yet fully completed. • 2.6 mtpa plan designed. • Full production capacity expected to be c.125,000oz per annum.

Novogodnee Monto, Petropavlovskoye and Toupugol-Khanmeishorskaya area The Group has held licences for the Novogodnee Monto deposit and the Toupugol-Khanmeishorskaya area, which includes the Petropavlovskoye deposit, since 2004. At Novogodnee Monto, all formalities have been completed in preparation for starting mining operations. At Petropavlovskoye, pre-feasibility study parameters have been agreed. At a distance of 0.8km to 3km from the deposit, small ore occurrences have been found. Mineralisation in them is similar to that at Petropavlovskoye. Alongside these, an ore occurrence has been established with magnetite mineralisation similar to Novogodnee Monto.

32 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

O more than than more he main main he & Accounts 2009 – 33 T of gold in 2009, 2009, in gold of ZDP Koboldo, ZA Koboldo, ZDP O A O with identification of a total with identification of a xtensive exploration was was exploration xtensive E , which is c.1,000oz ontinued encouraging exploration data data exploration encouraging ontinued C xploration has identified multiple ore bodies, has identified multiple ore Exploration Petropavlovsk PLC Annual Report PLC Petropavlovsk ignificant drilling results (157 holes) proved extension ofextension results (157 holes) proved ignificant drilling US$692/oz from increased otal cash cost of US$769/oz T . he satellite deposits (Zheltunak) he satellite a depth of up to 80m. a depth of up to km 6.5 Pioneer: S further a indicate data high‑gradetwo including north-eastwards, 780m zone Bakhmut the as aerogeophysical columns; established ore mill, the an to simply close as of the zone below the Neogene sediments. extension eastwards zone, ore considered Vostochnaya (previously right Pioneer: own its in body ore an zone). apophysis of the Yuzhnaya conventional in capping grade production the and in ore zone ore in Andreevskaya that Pioneer: Bonanza grades mean underestimate elsewhere substantially columns figures resource/reserve to survey 27%). (by up to results magnetic through in the “Magnetite Malomir: New discoverytraceable of gold mineralisation flanks), actively eastern (in deposit zone” Burinda the of body ore both west and east. central The vein area: epithermal Taldan gold/silver -processed with easily explored, mineralisation. deposit: Kirovskoye drilling intersections: columns at structural with identification of ore depths of 120m. establishes continuity to of three potentially economic mineralised zones, from surface to zones, from economic mineralised potentially of three flanks: flanks: iy and Pokrovsk t from Alluvial operations report Exploration he Group’s alluvial mining operations, operations, mining alluvial Group’s he urther exploration is being carried out at a number of prospective prospective of number a at out carried being is exploration urther zones have now been identified, associated with – but not confined confined not but was focused on the Zheltunak– at Pokrovskiy attention exploration with mineralised three associated where pit, 10km east of the main Pokrovskiy area, identified, been it now and have – zones depth 80m to winter during the thrust zone. Drilling and trenching – a flat-lying mineralisation to the traced have months open in all directions. remains •  • •  •  • •  and flanks Pokrovskiy to base F resources and reserves flanks) the deposits (the Pokrovskiy satellite within the Pokrovskiy areas reserves. increasing pit to main view a mine with Pokrovskiy the replenish which was a 7% increase on the same period in 2008. Gold sales sales Gold T 2008. in period same the on oz 24,400 and OOO Elga, produced Amur Dore increase 7% a was which 24,000oz approximately reached grades. last year lower to due mainly 2008, in highlights Key •  carried out at seven new sites with the potential to add to current add to to with the potential carried out at seven new sites gold reserves.

he he T nitial nitial I hkolnoye hkolnoye S erkhne-Aliinskoye erkhne-Aliinskoye V mchak allowed the Group Group the allowed mchak O 2 categories of c.590,000oz c.590,000oz of categories 2 C enture (formerly the Rudnoye Joint Joint Rudnoye the (formerly enture mchak produced 53,600oz of gold gold of 53,600oz produced mchak 1 and and 1 V O C elkobazoloto (an underground underground (an elkobazoloto xploration works at the the at works xploration N he formation of of formation he E T tandard tandard S dolgo Joint Joint dolgo O rkutsk region. region. rkutsk ompany’s strategy of organic growth is also implemented implemented also is growth organic of strategy ompany’s I olovevsky Rudnik assets (Petropavlovsk having a 13% 13% a having (Petropavlovsk assets Rudnik olovevsky C S mchak exploration activities are concentrated on four main main four on concentrated are activities exploration mchak Joint ventures xploration works at Bukhtinskaya ore field are ongoing with initial initial with ongoing are field ore Bukhtinskaya at works xploration he he enture with Petropavlovsk having a 50% attributable share) and having a 50% attributable share) with Petropavlovsk enture n line with expectations, expectations, with line n n 2009, the the 2009, n which contributed two principal assets to the joint venture, namely namely Omchak Joint Venture venture, joint the to the in assets deposits Shkolnoye, and Omchak was formed in 2003 with Susumanzoloto principal two alluvial of contributed number a which of operator (an Berelekh and region) Magadan and which are logistically challenging. and which are respectively. mine), through collaboration with other recognised players in the Russian Russian the in players recognised other with collaboration through enter to This has enabled the Petropavlovsk gold mining industry. it otherwise would have had no presence where regions prospective one of the oldest and largest in the Magadan region, operate to Russian gold provinces. and identify, acquire is to The primary objective of the joint venture of Russia which were gold deposits in regions develop promising the Group attributable to Production for the Group. new territories of gold annually. 40,000oz Omchak varies between 25,000 to from production of share attributable I Petropavlovsk’s with 2009, in 26,800oz. at O and one in the Zabaikalskiy Krai located of them are three projects: the in operations. be developed via underground to deposit is expected Au. g/t 5 – 4 at resources P2 of E 1Moz about of estimates T at a grade of 10g/t Au. An additional 500,000oz of category P1 P1 category of 500,000oz work. additional An Au. exploration of 10g/t of result a grade a as at estimated were resources Odolgo Joint Venture I deposit were completed with a feasibility study approving reserves reserves approving study feasibility a with completed were deposit Russian the in of gold of P1 and P2 2Moz studies assessed around exploration the by out field, whilst at the Birusinskiy, licence ore at the Kuliinskiy categories carried work on based made at 2g/t at 3 – 5g/t Au and 670,000oz of 980,000oz estimates area were resources P2 of Au former owners. V the an attributable produced together of production) attributable share 11,400oz, a 6% increase on 2008. a 6% increase 11,400oz, OPERATIONS AND DEVELOPMENT continued Left Geologists at Pioneer. Below Geological exploration at Malomir. Opposite Geologists’ camp at Albyn.

The Nikolaevskaya ore body was discovered about 1km to the south-east of the Andreevskaya zone. Trenching has continued in this area, supplemented by drill holes towards the end of the year. Gold ore zones have been traced, with some high-grade areas being identified, as well as separate zones of silver mineralisation. There are indications of possible higher grade (4.5 – 12.5g/t Au so far) ore columns along the gold zones (with grades outside the columns typically 0.7 – 1.4 g/t Au), similar to those of the Pioneer deposit. Exploration continues. Reconciliation of production data with reserves and resources estimates from exploration has established consistently that the exploration estimates under-report the bonanza gold grades in both the Andreevskaya zone and the high-grade ore columns in Bakhmut and Promezhutochnaya zones. The extent of this under-reporting may be up to 30%, and the reason for it has been shown to be the grade capping which is standard practice in both the Russian system and the western methods used for producing the Micromine models.

Malomir Exploration work at Malomir in 2009 concentrated on the Quarzitovoye ore zone where confidence in the level of reserves has improved. Some enriched areas at depth were also identified with the potential to be developed as an underground mining operation The easily-processed ores that could potentially be processed in future. Initial relatively easily-processed Quarzitovoye zone ore through the existing plant are from Pokrovka-2 and Zheltunak. reserves with very high gold grades have now been established for There is also low-grade but shallow ore available in the Bazoviy a first stage of open-pit mining.H owever, just as at Pioneer, the area in the south-east corner of the licence area. Other ore zones capping of high-grade gold grades has led to under-reporting of (Velike Luzhki, Proletarskiy, Vodorazdelny, Nadvigovy and Dalniy) reserves by an estimated 18%. are characterised by more refractory ore with gold recovery from There has been a new discovery of gold mineralisation in the cyanidation not likely to be higher than 40 – 60%. In the oxide zone, “Magnetite zone” (in the eastern flanks), traceable through magnetic at a depth of 20 – 30m, the recovery could go up to 80-90%. survey up to 75km eastwards, as well as westwards to the north of the Quarzitovoye zone. Pioneer Future potential at Pioneer comes from deeper levels of the ore zones of Bakhmut, Andreevskaya and Yuzhnaya and from extensions and satellite ore bodies. These include zones Nikolaevskaya, Zapadnaya, Babaevskaya, Zvezdochka and Denienovskaya. Significant drilling results from 157 holes have proved a 780m north-eastwards extension of the Bakhmut zone, including two high-grade ore columns each up to 120m in length at the surface. Of even greater potential significance is that aerogeophysical data indicates a further 6.5km eastwards extension of the zone below the Neogene sediments. The Vostochnaya ore zone, formerly considered merely an apophysis of the Yuzhnaya zone, has been found to be an extensive stockwork zone which is 400m x 250m in area, containing many ore intervals with thicknesses up to 136m.

34 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information dolgo dolgo his is a is his n general general n o.5, there there o.5, I T N & Accounts 2009 – 35 hese are being being are hese T n the Prirazlomnaya Prirazlomnaya the n ovogodnee Monto). Monto). ovogodnee I lenka deposit, which which deposit, lenka n ore zone zone ore n N I O plate boundary, boundary, plate -Okhotskiy trending tectonic structures. structures. tectonic trending SW - NE magnetite iron ore (on (on ore iron magnetite and and Petropavlovsk PLC Annual Report PLC Petropavlovsk W - E hese are the most promising of 40 such intersections intersections such 40 of promising most the are hese have been estimated for open-pit mining of gold, building have been estimated T bearing magnetite ore similar to Novogodnee Monto. similar to ore bearing magnetite enture) continues to yield very promising results. results. promising very yield to continues enture) o.5 ore zones, in the southern part of the area. area. the of part southern the in zones, ore o.5 xploration continues in this area as well as in the nearby area area nearby the in as well as area this in continues xploration he deposits remain open in all directions. directions. all in open remain deposits he oint V Krasnoyarsk regionKrasnoyarsk drill 4 and trenches, 20 area Verkhnetisskaya surveys, geophysical the and of potential Geochemical the confirmed have vertically. and holes laterally open zones, includes two 750 – 950m long and 20 – 110m thick gold-quartz- vein/stockwork sulphide assets Yamal Monto and Novogodnee Petropavlovskoye on the The resources partially and deposits identified been consists have which deposits both), and (on stone Anomalniy, is satellite which small of Additional significant most the explored, of gold‑ large deposit straddling the Mongolo deposit straddling large the south and partly in Archaean basin to partly within a Mesozoic identified. been high zones, some with consistently the north. Many ore to rocks already have grades, gold holes. and Prirazlomnaya, on the Shirotnaya, has concentrated drill Exploration inclined and trenches N of to (up series a by grades high four explored with least at far, so but 7.5g/t, 1.7 – in the range identified are grades the ore been have intersections columns which coincide with possible ore 65g/t), and representing of intersections Kirovskoye deposit Kirovskoye (part of the O area in the Kirovskoye Drilling and trenching J 120m depth. has been established to Continuity of mineralisation preliminary estimation of Russian for data already is sufficient There 13m, of length a zones. over parts of the ore in the explored resources P1 category 21.7g/t averaging T intersections trench two are gold. 64.5g/t with 1.1m is a zone there ore and 20.63 over 3.1m. In the Shirotnaya depth 45m at intersection ore zone there is an 11m long intersection averaging 10.86g/t gold averaging is an 11m long intersection zone there ore of 27 – 55m) averagingat a depth of 48 – 59m, and 28m (at a depth 5.77g/t. plate identified in 2009. the of north mine, Kirovskoye E underground old the around is gold mineralisation vein and stockwork boundary fault, where drilled. being currently

containing off containing . initial resources okur in the light of increased gold prices shows a shows prices gold increased of light the in okur T re bodies remain open along a strike and down dip dip down and strike a along open remain bodies re estimate of 4.1Mt of ore at 0.46g/t cut- of 4.1Mt of ore AI estimate O orth of the Zlatoustovsk settlement. orth of the Zlatoustovsk Burinda (Taldan licence area) Burinda (Taldan continues on an epithermal gold/silver vein deposit atExploration be to ore (44 drill holes and 20 trenchesthe Burinda, 100km west of Pokrovka shown has been has testing exercise Metallurgical modelling A depth. 200m to processable. easily relatively estimating substantial completed Production of gold concentrates from the old waste dumps dumps waste old the of gold. 151,000oz from concentrates gold of Production technology. separation continues, using radiometric 2009). in range of open pit reserves estimates (depending on cut-off grade) estimates of open pit reserves range with the W Other Amur assets Tokur of Re-modelling Albyn may licence area the existing in in resources increase A potential of the quartz that were veins the exploration be possible through the zone (which includes ore identified in Sukholozhskaya identified deposit). Thicknesses Karginskoye worked identified previously been has structure approximately up to 1 – 2m and the grades up to so far are ore similar Another 10 – 15g/t. the n to This page Worker at Kuranakh.

No n-Precious M e t a l s Divisio n Unlocking value in a powerful mix of geology and geography.

36 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information (kt) Metal ode (2004) (2004) ode lekminsky lekminsky C

O C

R Grade confident and contains O 2 & Accounts 2009 – 37 (% Fe Total) (% Fe eport ––– (kt) Tonnes 37,940 32.1 12,190 37,940 32.1 12,190 esources itanomagnetite and ilmenite deposit, and ilmenite itanomagnetite Blagoveshchensk . I uranakh licence area is 85km licence area uranakh roject Petropavlovsk PLC Annual R PLC Petropavlovsk roup currently expects to ramp-up production production ramp-up to expects currently roup roup’s in-house exploration, engineering engineering exploration, in-house roup’s G Kuranakh G uranakh project made further significant steps to steps significant further made project uranakh he he T K : : RUSSIA of delays over the last year, Petropavlovsk is Petropavlovsk of delays over the last year, CHINA Amur region, this time in bulk commodities, utilising Amur region, roup’s ability to construct and operate greenfield projects projects greenfield operate and construct to ability roup’s T construction expertise. prove prove performance of the mine will once again the future G the Resources reported in accordance with the guidelines of the J the of guidelines the with accordance in reported Resources independently verified by WA N Kuranakh p Kuranakh uranakh is a medium-sized t is a medium-sized uranakh

n 2009, the the 2009, n Kuranakh Mineral R Mineral Kuranakh Kuranakh¹ Indicated 1 K 100% a holds in the north-west Amur Region. The Group located subsidiary, OOO via its indirect in this project interest and developmentRudnik, which holds the licence for the exploration of the deposit. The K Key highlights Key to completion. close project ore first iron • Petropavlovsk’s in H1 2010. • First production signed. agreement offtake concentrate ore ron • I two ore bodies, with six more suggesting exploration potential. suggesting exploration bodies, with six more two ore full at I producing be to a and 2010 Despite of completion. 2010. of quarter half second second the the of during start the from capacity series that the in the exclusively and Inferred Total resources Total E

Fe Fe PM (Mt)

. . IVISIO N ALS D hinese hinese AI. hinese mills mills hinese C hinese iron ore ore iron hinese 32.1 12.2 (%Fe) Grade Grade C

about year low of about (Mt) These conditions whilst Tons Tons 37.937.9 32.1 12.2 201.5390.0127.4 32.6718.9 33.0 32.2 65.5 32.7 128.7 244.0146.9 41.1 235.4 390.9 34.2 31.6 33.2 83.4 46.4 129.9 n addition, in the short term a term short the in addition, n I hina’s steel requirements over the next next the over requirements steel hina’s C n line with this, domestic domestic this, with line n I whilst the iron ore market is set to continue its is set to market ore whilst the iron AND DLO S ANDEVE TION

ers and Japanese and and Japanese and ers produc ore ajor iron

ommentators agree that that agree ommentators W with the JORC Code (2004) independently verified by In accordance

t was recently announced that an agreement reached between reached announced that an agreement t was recently * Operation Kuranakh Measured Indicated Inferred Total K&S Measured Resources Mineral inclusive of those are Resources Mineral and Indicated Measured Reserves. the Ore to produce modified * Resources Metal Mineral Non-Precious Indicated Inferred Total Garinskoye Measured Indicated Inferred Total ET M ON-PR ECIOUS THE N the with market line spot in the middle of 2009 towards US$60 per tonne the on priced been has in the OECD countries. More especially global downturn in steel tonnage ore iron more and important, indicator if volatile, and it has become an increasingly I certain m and of price negotiations may mark the end of the old system ore. for iron annual contracts to significantly since June 2009 prices have recovered However, will that there are and expectations US$130 per tonne nearly reach years recent in producers ore price rises achieved by the iron be significant contract falling 2010. been of have middle grades the by overall where production, the reinforce C of supply to has seen its share have depleted, as reserves term short the in mills falling in favour of imports. steel uncertainty pricing providing similar magnetite competitive locational advantage of Petropavlovsk’s with Russia. the Chinese border close to deposits, located ore iron C as the urbanisation programme increase decade will continue to peak, its reaches ron ore spot prices reached a near five- spot prices reached ore Iron is expected that demand. Much of this expansion meet to expansion but producers Australian and Brazilian traditional the come from to parts. Russia and such as India, Ukraine other supply routes increasingly their play to expected are Market overviewMarket help demand in the OECD countries will in steel modest recovery prices. ore underpin the iron to OPERA OPERATIONS AND DEVELOPMENT continued

The expected transition to a steady-state of operation in 2010 will deliver the Group a medium-scale iron ore presence in the region, K&S and Garinskoye projects generate consistent cash flow and enable a further development of value adding relationships with trading partners and steel producers based in China in preparation for the future development of Petropavlovsk’s much larger magnetite iron ore projects at K&S and Garinskoye. The Group has entered into an iron ore concentrate offtake Garinskoye agreement with Heilongjiang Jianlong, a Chinese steel producer located in Heilongjiang, the area across the Sino-Russian border from the Amur region and EAO, to supply the titanomagnetite concentrate produced by Kuranakh. This concentrate contains RUSSIA Blagoveshchensk a significant quantity of vanadium pentoxide which is a valuable commodity used in the hardening of steel. In order to capture these CHINA K&S benefits and generate significant value by producing vanadium pentoxide, Petropavlovsk and Jianlong have established a joint Key highlights venture which envisages the construction of a plant which will source the vanadium slag from Jianlong, adjacent to the • Focus on Stage 1 K&S development. steel-maker’s current operations. • Garinskoye provides strong future upside potential. • Financing discussions continuing – loan term sheet agreed. 2009 Kuranakh development Mining continued in 2009 with the development of the Saikta open K&S and Garinskoye Mineral Resources pit with operations concentrating on bench development at the Tonnes Grade Metal 730 – 700m elevations with some preparation also happening on K&S¹ (kt) (% Fe Total) (kt) the 690 – 670m elevations. The total amount of overburden moved Measured 201,500 32.60 65,600 in 2009 was 1.69 million m3 and the total amount of ore mined was Indicated 390,000 33.00 128,700 52,000 tonnes. This ore was stockpiled at the crushing and Inferred 127,400 32.23 41,100 screening plant pending the commissioning of the process plant Total Resources 718,900 32.70 235,400 during the first half of 2010. As at 31 December 2009, 117,000 Kostenginskoye (Inferred)³ 163,900 31.60 51,790 tonnes of ore have been stockpiled. Tonnes Grade Metal The crushing and screening plant commenced production of Garinskoye² (kt) (% Fe Total) (kt) pre-concentrate in 2008, but due to the downturn in the market for Indicated 244,000 34.20 83,460 iron ore pre-concentrate the plant did not operate in 2009. Some additional infrastructure construction took place at the plant during Inferred 146,900 31.60 46,400 2009 including administration buildings, maintenance workshops Total Resources 390,900 33.20 129,860 and a water treatment facility. Garinskoye Flanks (Inferred)³ 6,300 41.30 2,600 Progress on the Olekma processing plant was relatively slow during 1 Resources reported in accordance with the guidelines of the JORC Code (2004) independently verified by WAI. the first half of 2009 due to the delay in receiving the 50 tonnes 2 full consolidated figures show, however, that Petropavlovsk’s interest in the capacity overhead crane (necessary for installing all of the Garinskoye deposit is only 99.6%. Resources reported in accordance with the processing equipment) but good progress was made in the second Russian Standard Classification System independently verified by RJC Consulting half and by the end of the year the large majority of the equipment St Petersburg and converted to JORC by WAI. necessary to produce magnetite concentrate had been installed. 3 where no independent verification of resources has taken place, Petropavlovsk has converted Russian Standard Classification System numbers to JORC using C1+C2 At the end of December c.90% of the iron concentrate circuit and as Inferred Resources – as agreed with WAI. c.65% of the ilmenite circuit were complete. The new plant is expected to be producing concentrate in the first half of 2010 The K&S (Kimkanskoye and Sutarskoye) deposits are located in and to reach full capacity in the second half of 2010. the Obluchensky district of the EAO. The Company’s interest in this project is 100% via its indirect subsidiary, Kimkano-Sutarskoye Mining and Processing Enterprise (“KS GOK”), which holds the licences for the exploration and development of the K&S deposits. The licence area for Kimkanskoye is 22.4km2 and for Sutarskoye, is 27km2; there are seven ore zones at Kimkanskoye and three at Sutarskoye.

38 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information 11 Year Year

10

Year Year 9 Year tage 1 for the the for 1 tage ull production hilst the the hilst 8 S W Year . . & Accounts 2009 – 39 zvestkovoye zvestkovoye 7 S I & Year K roup believes that the the that believes roup next projected -grade eport tudy Conditions report 6 G tages 2 and 3 of the the of 3 and 2 tages nitially, the processing processing the nitially, Year S I imkanskoye required required imkanskoye 5 K onsequently the preparation preparation the onsequently Year C 4 echnical S 10 10 10 10 10 10 10 10 $400m. $400m. eptember 2009 with revised licence licence revised with 2009 eptember Year return, higher return, - S imkanskoye, and is expected to take take to expected is and imkanskoye, 3 US K 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 Year n addition, all required geotechnical geotechnical required all addition, n hina and the expected long-term strength strength long-term expected the and hina I 2 imkan deposit. deposit. imkan n line with this, the mineral licence licence mineral the this, with line n I C K Year arinskoye project was announced by Aricom Aricom by announced was project arinskoye 1 – 2–– 8 G Petropavlovsk PLC Annual R PLC Petropavlovsk Year and and S & site the clearing of land continued during the year year the during continued land of clearing the site K S & iron ore concentrate ore the K&S iron markets, ore ar East Asian iron K et out below is a proposed production schedule of of schedule production proposed a is below out et plant will have a design capacity capable of processing 10mtpa 10mtpa c. at processing of estimated is capable capacity expenditure design a have will plant from ore run-of-mine of arinskoye deposit of the Garinskoye envisage the development project and the further beneficiation of the 65% concentrate to a form form a to concentrate 65% the of beneficiation further the and of metallised nuggets. is confident that, given the advantageous location Petropavlovsk with border the to close generate in the F and product a highly-competitive be to will prove cash flows for the Group. significant long-term S life. F K&S deposit for the first 11 years of the project’s is currently expected to be reached in 2013. 2013. in reached be to expected currently is including around the proposed accommodation camp site, process process site, camp accommodation proposed the around including ash dump, pulp-line, access roads, site, explosives plant site, Concentrate Mt of aCompletion of a full feasibility study for the development combined the unfolding global economic upheaval. 2008 prior to in October RC resources deposit, with almost 400mt of JO The Garinskoye expanded an to an to will contribute opportunities thereafter), (and further expansion transported then and with pre- output of 8.3mtpa site concentrate ore iron expanded at at plant produced beneficiation concentrate capacity ore of 20mtpa the and downturn, robust be expected over the last year was to market ore volatility in the iron economic remained have external the region given the in fundamentals long-term a higher represents Garinskoye development. ore iron stage for the Group’s the out carry to Dalgeologia with 2009 K&S development signed was contract a 2009 During T geological section of the Project will years. construction three of next start the the for and milestones documentation technical the of 30 December 2013. be done before the At sites. disposal waste and Ore minedOre Mt authorities for the regional to for the deposit which will be submitted with in accordance created during 2010. This contract, approval at which combine the geological studies for K&S to GKZ, proposes drilling additional entail will year. one in approximately changed were of requirements postponement the including , terms between connection rail new the for exploration station and the process plant site, a distance of 4.3km, was was 4.3km, of distance a site, plant process the and station 2009. in March completed e otal capital capital otal T he loan term is is term loan he % F heet for the loan, loan, the for heet T S he loan amount is 85% 85% is amount loan he T Train erm- T he he T tage 1. 1. tage as part of the mandate, covers covers mandate, the of part as S $500 million. million. $500 C B ramework Agreement for the the for Agreement ramework US IC F Market annum overburden 3 o-operation o-operation ompany and and ompany C C Concentrate Concentrate @ 65.8 • Output of 3.2 mtpa ore Wet magnetic separation Wet magnetic separation Wet @ 61.1% Fe • 3.6 mtpa ore Mining operations Mining operations • 14 million m • 10 mtpa ore @ 31.8% Fe • 10 mtpa ore project development contemplates a 10mtpa development contemplates tage 1 of the K&S project ommercial Bank of China (ICBC)Commercial erm-Sheet with Industrial and with commercial production commencing in 2013. S 2013. in concentrate ore commencing iron yielding c.3.2mtpa of 65.8% mining operation production commercial with up to ten years and is guaranteed by the Group. years and is guaranteed ten up to Simplified K&S Stage 1 product flowsheet Stage 1 product Simplified K&S roup announced the agreement of a announced the agreement 2010, the Group On 23 March T (CNEEC),Equipment Corporation and China National Electric a with together of the total amount of the proposed engineering, procurement of the procurement by agreed development the engineering, for facility proposed the the of amount total the of of limit at c. US$400 estimated (currently and construction (EPC) contract total a with and million) . . K&S project implementation of the OPERATIONS AND DEVELOPMENT continued Opposite The central laboratory in Blagoveschensk.

The first section of a permanent accommodation camp was started in In 2009, the engineering design of the plant was completed by the March 2009 consisting of two accommodation blocks (for 200 people Shenyang Aluminium and Magnesium Institute (SAMI). The each) and an administration block with the camp expected to be fully planning of the plant site is complete. complete by the end of 2010, accommodating about 1,500 people. A tender was issued for the construction of the camp buildings in April Bridge project and this was won by a local company from Birobidjan. In keeping with the Group’s ongoing education programme, five A number of meetings were conducted during the year between the students were selected and sent to Zeya’s mining college to study Russian and Chinese Government representatives. The main issues as mining technicians. of these meetings were the possibility of state investment and cooperation on the development of the bridge, the reconstruction of Developments at Garinskoye in 2009 the railway between Birobidjan and Leninsk and the building of the railway between Gar and Shimanovsk near to the Garinskoye project. 673 core samples were taken during the year. The sampling took place mainly in the Group laboratory in Blagoveschensk with control The project was recommended to the governmental commission samples being sent for external quality control to the Republican to be considered for budgetary allocations from State funds. In Analytical Center in Ulan-Ude in Buryatia. This latest information, addition, discussions were held with the representatives of the when analysed with drilling results from 2008, has shown the Fe Chinese State Committee of Development and Reforms on (total) grade in the confirmation drilling to be 42.83%, marginally co-operation in attracting further investment and in the joint higher than the grade in the 1950s’ exploration samples (41.75%). implementation of the design of the bridge. In September, Regis commenced work on the hydrogeological In October, the decision was made to develop the co-operation with evaluation of the deposit and by the end of the year, initial China National Machinery Industry Corporation (SINOMACH) as hydrogeological and geophysical logging of the holes was complete the general contractor for construction of Russian part of the bridge. and were proceeding with the detailed drilling and pump testing. An agreement has been reached that SINOMACH will complete a “turnkey” construction of the bridge, under the terms of an EPC New magnetic anomalies have been identified in the proposed area with the participation of Russian contractors. for infrastructure facilities which has considerably changed the overall picture of the project. The result is that the project’s schedule Negotiations were conducted with Russian Railways on determining is likely to be altered to take into account the additional drilling and a the location and technical specifications of the connection point for project redesign. the railway bridge to the rail line Birobidjan-Leninsk and subsequently official permission was issued by the Russian Railways to connect Further exploration work has also been carried out at the Orlovsko– the bridge to the line. Sokhatinskaya area (formerly known as the Garinskoye flanks), a license that covers a total area of 3,530km2. Potential forms of financial co-operation are being discussed with leading banks. SINOMACH will support Petropavlovsk in Discussions continue regarding the road and rail route from the organisation of the application for project financing by a Garinskoye to Chagoyan and the potential for construction Chinese Bank. by a state-private partnership. As part of the iron ore development plan, in 2009 the Group Seaport project acquired the Ushumun coal deposit, situated in the EAO approximately 40km to the south of Birobidjan. This will be a source During 2009, the process continued for granting the project the of coal for the Group’s heating plant requirements and for the status of a Special Economic Zone (SEZ) with the result that on metallisation plant to be built at K&S. 31 December 2009, the Russian Prime Minister approved the creation of a SEZ at Sovetskaya Gavan. This status will give Titanium sponge project the project a number of benefits including state investment and lower taxes. The titanium sponge joint venture between Aricom and Chinalco, In June 2009, discussions took place with the Deputy Chairman of the Chinese state-owned producer of non-ferrous metals was the Russian Parliament’s Committee on Public Private Partnership formed on 3 September 2008. The planned design capacity of the regarding possible State involvement in the project. A draft contract plant located in Jiamusi City, Heilongjiang is 15,000t per annum of for cooperation with the Government of Khabarovsk region was aerospace-quality titanium sponge with the potential for expansion agreed between Petropavlovsk and the Ministry of Economic up to 30,000t per annum. The joint venture is indirectly owned 65% Development. The draft decision of the Russian Government by Petropavlovsk PLC and 35% by Chinalco. It is expected that on the creation of the Special Economic Zone was received Petropavlovsk will supply approximately 60,000t per annum of in August 2009. ilmenite concentrate for the project’s needs from its Kuranakh mine and Chinalco will off-take 100% of the product for 15 years, for sale into the Chinese domestic market.

40 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

iy iy

urrently the the urrently & Accounts 2009 – 41 C explored satellite explored eport ; and and ; analytical assay laboratory. ollege, following completion of a specially- Petropavlovsk PLC Annual R PLC Petropavlovsk enture assay laboratory assay enture ; field laboratory ining C uranakh) uranakh) : : he laboratory services of the Company include: . The laboratory y T ork has continued on prolonging the mine life at Pokrovsk ork has continued on prolonging okur assay iy; iy; at Pokrovsk plant analytical assay laboratory A central T . bodies ore and Buryatiya. have been identified in the Urals areas New gold ore in Blagoveschensk; analytical laboratory A central Odolgo Joint V Olekma (K autoclave leaching.autoclave W of the newly- inclusion of several the through preparation for the construction it was discovered that the the that discovered was it and During the at Malomir has been completed. materials Exploration construction the for construction in rich preparation also is area surrounding in the eventual which can be utilised rocks carbonate N • • • • be extended network is scheduled to In August 2010, the laboratory Malomir. at laboratory with the inclusion of a new • • laboratoryGroup services process, mines services for the Group’s provide laboratories The Group’s developmental the with of stages accordance and deposits during all in accredited the are stage. All the production to through exploration initial from laboratories Petropavlovsk has one of the Petropavlovsk standards. Russian and international in the Russian gold-mining systems most developed laboratory industr • the from is being equipped and staffed with graduates laboratory M Pokrovskiy analytical assay at the central programme developed training laboratory analytical assay and the central at Pokrovskiy laboratory in Blagoveschensk. 2009 progress • E PM

roup roup G he he T owever, owever, tate Mission that Mission tate stablished in 1994 1994 in stablished EVELO H E lasov who, prior to his his to prior who, lasov roup hasar East. The Group V roup was able to draw on the the on draw to able was roup AND D AND G S he he T N , which are intended for production once the for production intended , which are TIO anks) , come on-stream. on-stream. come Malomir and Albyn,

RA E roup’s geological team is also responsible for the exploration exploration the for responsible also is team geological roup’s its of two to belong teams exploration and geological roup’s

G G 2010. P ncouraging exploration results obtained at many of the the of many at obtained results exploration ncouraging roup’s geologists with more than 85% of them undergoing undergoing them of 85% than more with geologists roup’s Malomir laboratory to be commissioned in the second half half the central and laboratory Modernisation of the Pokrovskiy second the in ; complete in Blagoveschensk laboratory commissioned be to laboratory Malomir of ; projects Group’s E Exploration division and technological division Exploration support he he he Nikolai by headed is team geological he the Pokrovskiy fl the Pokrovskiy

ns divisio in-house O will be maintained when its gold production in growth has maintained a steady its Petropavlovsk when maintained be that will since inception, a process , projects next the identify to teams exploration and geological its of knowledge . in which it could expand as areas in these sites potential T and Pioneer mines. This work Pokrovskiy at the control and grade that the and ensures mine life of these projects the has extended Pokrovskiy, At being mined in an optimal way. are pits current deposits, satellite identified several geological team the Group’s ( main pit is exhausted. T initial on subsidiary companies, Regis and Dalgedogiya. work undertakes Regis in 2006, by the Group and acquired . deposit reserves surveying, modelling and estimation of ore the in involved is Dalgeologiya was established in 2006 and . projects geophysical and geochemical surveying at all the Group’s T of the S was in charge with Petropavlovsk, career the by in the Russian F gold resources evaluated annually taken are and detailed local knowledge. capitalise on his expertise been able to samples channel and core divisions. C.400,000 geological Petropavlovsk’s G at analysis and assaying •  industry. Geological survey and exploration depletion a is mining nature, very its By pening of new metallurgical test plant in Blagoveschensk; test • Opening of new metallurgical •  Key highlights Key •  and Pioneer Pokrovskiy and its existing these projects, acquired sites. greenfield as mines, OPERATIONS AND DEVELOPMENT continued

Following the start-up of the second processing line at Pioneer, During 2009, Irgiredmet gained patents for new developments and the assay laboratory at Pokrovskiy has been reorganised in order inventions in the field of ore flotation and copper-gold ore processing. to analyse samples from both Pokrovskiy and Pioneer. Specifically, the institute’s work included: Consequently, the overall laboratory productivity on the solid • The development and introduction of new high-flotation reagents samples has increased by two and a half times and currently (fluoride, nitrogen-, phosphorus-, sulphur-containing compounds) numbers c.25,000 samples per month. At the same time polymetallic and other types of ore processing; a laboratory has been opened at Pioneer. • The development of bacterial heap-leaching technology; and During 2009, the mineralogy department at the Blagoveschensk laboratory was extended. An ARL diffractometer was • The assessment of the potential for pressure oxidation-sorption commissioned, allowing work on X-ray-phase mineral analysis. extraction of gold from refractory sulphide concentrates. In addition, the LECO spectrometer was commissioned allowing During 2009, Irgiredmet worked on more than 16 projects including express analysis to determine sulphur and carbon in ores using Malomir, Pioneer, Pokrovskiy, Albyn, Tokur, Kuranakh, Verkhnoe the infrared spectroscopy method. Aliinskoye (Omchak) and K&S. Irgiredmet also supervised the Since April 2009, a new department for soils and chemical delivery and installation of equipment at the first processing line analysis for the purposes of geological engineering survey has at Malomir and the second processing line at Pioneer. been operational. Giproruda Engineering division Located in St. Petersburg, Giproruda is one of the leading mining engineering institutes in the Russian mining industry. The institute was part-acquired by Aricom plc in 2007 and is now part of the Key highlights Group. Its scope of work includes the design, coordination • Opening of a metallurgical test plant in Blagoveschensk construction and commissioning of quarries and mines, including co‑developed by Irgiredmet and PHM Engineering. those located in challenging geological and climatic conditions. The institute has worked with more than 200 enterprises throughout Russia and the CIS. Giproruda is one of the leading organisations Irgiredmet in the design of mining and processing plants for the extraction of The Irkutsk Research Institute for Precious, Rare Metals and iron ore. Diamonds (Irgiredmet) is a subsidiary of the Group. It is a recognised In 2009, Giproruda made a number of significant steps to improve scientific and engineering centre and an acknowledged leader in its design capabilities and technology. The institute has updated its Russia’s gold-mining industry. Next year will mark the Institute’s software, making the move to 3D modelling for the conceptual 140th anniversary. However, despite its age, it is a modern, dynamic design of quarries and their expansion, production, planning institution, annually executing more than 150 studies and projects, and optimisation. including the ongoing development of new deposits. Within Irgiredmet are ten specialised technological laboratories, PHM Engineering analytical and commercial centres, a design centre and a Established in 2005, PHM Engineering has worked on mining department for industrial safety. projects, processing plants, energy facilities and transport Irgiredmet is equipped with the latest technology and software infrastructure, usually carrying out technical and economic feasibility necessary to carry out any scientific and technical challenge within studies and designing and technically supervising the construction its remit. During 2009, Irgiredmet acquired the following equipment: of many of the Group’s industrial facilities. • X-ray radiometric separator SRF1-100-L for laboratory tests; Project work is carried out using computer programs such as MicroMine, AutoCAD, DigiMine, GrandSmeta Prof and EnergyCS • Apparatus for intensive gravity concentrated cyanidation made by Line. As a result of its work, the Group has been supplied with the the Australian firm Gekko Systems; and latest technologies in mining, crushing and energy redistribution • A Gekko Viking Cone to carry out fractional density analysis. including: • The use of ‘PuroGold’ sorbents; • Power supply technology; • The imported and domestic mining fleet equipment, such as a modern hydraulic excavator with a large bucket capacity and highly manoeuvrable articulated dump trucks; and • The use of emulsion explosives in blasting which are manufactured on-site.

42 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information , which O Russian Russian arinskoye arinskoye G roup’s roup’s SC ederation G & Accounts 2009 – 43 onstruction and and onstruction he financing of this this of financing he C eport he greatest progress progress greatest he eninist. onstruction on this project project this on onstruction C orporation Bank for Corporation tate t was approved in 2009 by the the by 2009 in approved was t I ommission. ommission. nder the agreement, RZD has has RZD agreement, the nder C U hinese and Russian railways, significantly significantly railways, Russian and hinese ctober 2009 became a member of the the of member a became 2009 ctober he agreement covers project The agreement rans-Baikal. Petropavlovsk PLC Annual R PLC Petropavlovsk C he final decision is likely to be made in 2010 2010 in made be to likely is decision final he O Railways hinese border at Nizhneleninskoye and the city at Nizhneleninskoye -Chinese border state-owned Russian Russian und and would be a 100% state-owned ”) to modernise the railway infrastructure of of infrastructure railway the modernise to RZD”) overnmental overnmental G Russian ar East and T . bridge of the proposed impression Artist’s , as well as the reconstruction of a bridge to the the to bridge a of reconstruction the as well as ongjiang, the railways themselves and ensure their integration into into integration their ensure and themselves railways the transportation costs and increased competitiveness in the the in competitiveness increased and costs transportation

he design and construction of a 148 km branch rail line from from line rail branch km 148 a of construction and design he

n addition, RZD will assist in the construction and operation operation and construction the in assist will RZD addition, n transportation of future iron ore production from the the from T the production ore facilitate iron deposit, which will the Garinskoye Shimanovskaya to future of transportation T S plant for final processing. the K& to project the Russian F come from potentially could project Investment F project. construction capital Investment Commission of the Ministry for Regional Development and Vnesheconombank, the S reducing the distance between the iron ore projects and their their and projects ore the iron the connect will between distance the reducing in China; and market potential Development. T the by by 2014. begin in 2011 and be complete is scheduled to he creation of a cross-border railway bridge in the EA bridge railway of a cross-border The creation Strategic partnership between PetropavlovskStrategic and a regarding J signed and was agreement Petropavlovsk an 2009, 18 On September between partnership strategic the Shimanovsk to from design and construction of the railroad the Amur river bridge across deposit, the railway Garinskoye on the Russo of T L station, Birobidjan- railway proposed in Russia. transport development plan for rail the general Railways (“ the F reduction potential a allow will infrastructure this of upgrading projects. in infrastructure markets. railway of cost Asia-Pacific the reduce to undertaken I of ey infrastructure projects include: projects ey infrastructure ignificant progress was also made in 2009 on the the on 2009 in made also was progress ignificant elow • B constructionInfrastructure S has arguably been made in developing railway infrastructure infrastructure Amur the railway in developing projects T in the Amur region. projects in infrastructure ore made iron been future arguably has Petropavlovsk’s for projects subsidiary, roup’s being handled by the G are Such projects region. in which Rubicon Builders’ Association of Russia. K •

River River roup, roup, uring 2009 at mine the the mine S & K . uranakh the the on hen it has also worked ; and and ; Chinese border ussian Railways (“RZD”). he expansion in production at Pioneer, and the planned planned the and Pioneer, at production in expansion he uranakh mine, construction and installation of equipmenturanakh , housing the crushing, grinding, fine grinding, and sorption sorption and grinding, fine grinding, crushing, the housing , ite preparation for the plant and tailings dam has been been has dam tailings and plant the for preparation ite S including power lines, the substation, the the substation, the lines, power including also commenced trategic cooperation agreement signed between Petropavlovsk Petropavlovsk signed between agreement cooperation trategic and JSC R on the Russo- S completed. line at Pioneercompleted. processing Construction of the second ; in 2010 line expected Construction of the third K&S; Ongoing construction work at Malomir and the Amur bridge across Design work begun on the railway onstruction and development progress was made d onstruction and development progress Construction division Construction construction of Pioneer, Malomir and K construction of Pioneer, was created more than 15 years ago in order to build the the build and mining to for the construction of the Group’s responsible order in ago years and power supply 15 mining infrastructure operations, processing than more created was lines. It t mine and since Pokrovskiy 2009 in Kapstroi mine Pokrovskiy Modernisation work has been ongoing at the Kapstroi a specialist construction division within the G is Kapstroi throughout the year with the construction of a new women’s dormitory the year with the construction of a new women’s throughout sidings. and rail access roads the mine’s to and renovation and repairs •  •  •  •  Key highlights Key for the crushing and screening plant was completed as well as near as well plant was completed for the crushing and screening the At plant. completion at the processing administration buildings, shift workers’ dormitories and some site site some and dormitories workers’ an shift including buildings, underway is complex administration the on work preparation new accommodation. innovative design for the mine’s to house shift workers were constructed. constructed. were workers shift house to accommodation C workshops, warehouses, including roads, The construction of the main infrastructure Malomir. substations, lines, power the to delivered and all machinery (such as was completed facilities and storage been now has the for operation for construction and and excavators) bulldozers cranes, mining the of stage first site. grinding crushing and and construction of the plant’s completed blocks has commenced. elements at AlbynThe construction of the main infrastructural has , accommodation camp and foundations for the main deposit road for the supply sign contracts to planned for 2010. It is also intended of all the main mining machinery and equipment for the plant and to for the mine in 2010. the main construction materials acquire the K At expansion of the mine in 2010 when the third processing line is due due is line processing third the workers’ when expand 2010 to facilities. T in need mine the the of facilitated expansion has commissioned, be to new dormitoriesaccommodation at the mine. During 2009 three n 2009, processing facilities were built for the second milling line at built for the second milling line facilities were In 2009, processing Pioneer Sustainability report

Governance The Board of Directors sets and reviews the Group’s sustainability policy. A Health, Safety and Environmental Committee (“HSE Committee”) was established at Board level to monitor, review and make appropriate recommendations to the Board on the industry best practices, the most recent requirements of the London market and the state of health, safety, environment, social and community relations issues within the Group, making use of an independent consultancy and management reports where appropriate. Regular reports on operational HSE performance are submitted to the Board. Internal HSE audits are undertaken on a frequent basis and independent assurance audits and reviews and undertaken on a regular basis. More information regarding the Group’s Corporate Governance and the committees established at Board level can be found on page 62 to 69 of this Annual Report and Accounts.

Workforce engagement and support Qualified, experienced and motivated staff are central to the success of the Group. From the outset, the Group has focused on the training and development of its staff.T he continued growth and success of the Group depends on its ability to attract, train, develop and retain the best possible workforce. The Group is one of the top three employers in the Amur region, with approximately 5,500 of its workers living and working in the Key highlights region. The Group seeks to align wage levels to the regional average and provide workers with long-term career and personal • Integration of health and safety management systems across the development opportunities. Group following the merger with Aricom; • Independent health, safety and environmental operations reviews The Group seeks to recruit staff from nearby settlements. However, undertaken concluded that the Group’s operations are well-run due to the remote location of some of its projects, large numbers and meet Russian regulatory requirements; of the Group’s workforce come from further afield and stay on-site in purpose-built accommodation during the time of their shift. • The commissioning of an independent gap analysis against The Group is committed to providing first-rate accommodation compliance with the International Cyanide Management Code for staff working at its mines. At the Pokrovskiy mine worker (“ICMC”), which concluded that the Pokrovskiy and Pioneer accommodation includes and canteen facilities and recreational mines were broadly compliant with the Code; and and sporting facilities. There is a fully-equipped medical facility • The commissioning of an Environmental and Social Impact on-site together with trained full-time medical staff. Assessment (“ESIA”) for the Malomir gold project. The Group offers off-site housing to some of its workforce and their families who have worked for the Group for over five years. Our approach Since 2003, an independent trade union has represented workers’ Petropavlovsk recognises that operating in a safe and responsible interests to the Group. Company management undertakes regular manner will ensure that its business is respected at a local level, consultation sessions with employees to ensure that there is clear federal level and by the investment community worldwide. The communication within the Company. The Company publishes a Group takes compliance with Russian health and safety and monthly internal newspaper to keep employees up to date with environmental legislation seriously and is seeking to go beyond Company developments. this by bringing its projects in line with international best practice. The Group seeks to ensure that its workforce feel valued and respected through the provision of first-rate facilities and safe and comfortable working conditions. It is committed to supporting local educational institutions, providing its operations with a suitably- qualified workforce and allowing individuals to reach their personal full potential.

44 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information 3.80 89.00 55.97 23.30 roup is is roup G & Accounts 2009 – 45 eport ealth and safety monitoring and and monitoring safety and ealth H roup is now seeking to integrate Russian Russian integrate to seeking now is roup Petropavlovsk PLC Annual R PLC Petropavlovsk G he he T Education (RUR 4 million in 2009); and sport (RUR 6 million in 2009); Culture (RUR 6 million in 2009). Healthcare 2009 2009 2008 2007 Lost time Injury frequency rate (LTIFR)* Health and safety expenditure – million RUR * per million hours worked. internal inspections of working environments are undertaken to to undertaken are environments working of requirements. inspections regulatory Russian internal with compliance ensure have in place to required companies are operating All of the Group’s meet Russian regulatory to health and safety management systems requirements. Petropavlovsk recognises that it is obliged to protect the health of all all of health the protect to obliged is Health and Safety it that recognises the of part as Petropavlovsk training safety and in a safe workingto operate and that its staff have a right its workers health receive staff All . environment within is then provided Job-specific training initial induction process. department/workplace. each best practice. with international compliance-based systems roup undertakes an active programme of community undertakes an active programme The Group areas: key sponsorship in three • • these • present, At organisations. and the but regularly Requests for financial support or other assistance are residents basis local from case-by-case a on received with dealt are requests roup-wide community of a Group-wide the introduction evaluating currently investment fund. University; roup is is roup ollege, ollege, orporate orporate G roup’s roup’s C C venk people tate tate G he he S takeholder T Dialogue goes egion. local students; -school students students -school venk way of life. life. of way venk E guidelines has recently been been recently has guidelines hina, and whose traditional lands are in in are lands traditional whose and hina, IFC project, and similar plans have have plans similar and old project, C roup staff in undertaking degree courses courses degree undertaking in staff roup G uranakh iron ore project in the north-west of the the of north-west the in project ore iron uranakh K unset near the Pokrovskiy mine. Pokrovskiy Sunset near the roup is committed to developing long-term and positive positive and long-term developing to committed is roup he medical centre at the Pokrovskiy mine. Pokrovskiy at the The medical centre venk people – an indigenous community who are found in in found are who community indigenous an – people venk G E upporting over 90 90 over upporting who are entering higher education; entering who are to and work placements Offering internships ies, financial support,ies, books and equipment for nurser Providing primary secondary schools and schools; high to promising support financial Providing Providing lecturers for chemistry courses at Amur chemistryat courses for lecturers Providing leading universities throughout Russia; and at leading universities throughout exchange to conferences technical internal Hosting regular best practice. and spread experience S roup policies and procedures and supported by the the by supported and procedures and policies roup ngagement Plan to meet meet to Plan ngagement he he • Education of investing in various programme has a long-term The Group This includes: educational projects. • • Opposite Below beyond Russian regulatory requirements and encompasses encompasses and requirements Communications department in Blagoveschensk. regulatory Russian beyond for community engagement. good practice international undertakes active community dialogue as part of theThe Group A S for new projects. development process project E g for the Malomir prepared for the previously been developed and implemented are . projects ore iron region Amur the in encountered One specific ethnic group the and Russia north-eastern a as foods the and the vicinity of goods traditional of with the E has good relations The Group Amur region. range wide a purchases and traditional the supporting of way Plan, which it will sign with the an Indigenous Peoples’ preparing of the Amur r Association of Indigenous Peoples relationships with the communities within which it operates. operates. it which within communities the with with relationships dialogue active and undertake an ongoing All operations standard using authorities, local communities and regulatory G and stakeholder engagement engagement stakeholder and Community T located in the village of Zeya, close to the Pokrovskiy mine. mine. Pokrovskiy the to close Zeya, for of village disciplines the in technical located 42 in training year. per The College provides students 150 approximately • • Mining Pokrovskiy the established In 2008, the Group • SUSTAINABILITY REPORT CONTINUED Below The canteen facilities at the Pokrovskiy mine.

Health and safety is managed at an operating company level, with support provided at a Group level. Following the acquisition of Aricom, health and safety management systems have been reorganised to operate in an integrated manner across gold and Attributable gold production – oz* ironResource ore divisions. efficienc A seniory for 2009 full-time (Pokrovskiy Executive and C ommitteePioneer) member 2009 486,800 basedEnergy in – AmurGJ/kg hasAu been appointed to coordinate and drive forward 2008 401,600 thePetropavlovsk implementation of new health and safety management systems95.8 and report directly to the HSE Committee on health and safety 2007 297,300 matters.Industry AverageAt the Group’s principal projects these health and safety143 2006 261,300 managementWater – l/kg Au systems are being, or have been, aligned with 2005 249,300 international best practice. Petropavlovsk 80,050 ExternalIndustry Averageauditors appointed by the HSE Committee visit the 691,000 Average realised gold price – US$ per oz company’s operations annually. OAO Pokrovskiy Rudnik (the entity Greenhouse gas emissions – t CO2-e/kg Au 2009 975 that holds the Pokrovskiy and Pioneer licences) has implemented 2008 845 independentlyPetropavlovsk verified health and safety management systems in5.6 2007 668 accordanceIndustry Average with OHSAS 18001. 11.5 While iron ore concentration relies on physical and magnetic 2006 586 TCyanidehe Federal – kg authorities CN/kg Au (Rostekhnadzor) visit each of the Group’s processes, gold processing requires the use of cyanide in 2005 442 operations three times a year to inspect explosives storage, industrialPetropavlovsk facilities and to check health and safety procedures 146.9 extraction. During 2009, an independent cyanide audit of andIndustry documentation. Average 141 Pokrovskiy and Pioneer was conducted which found existing Total Group cash costs – US$ per oz procedures broadly in compliance with the requirements of the 2009 309 Serious environmental incidents and permit violations International Cyanide Management Code (“ICMC”). The Group is seeking to bring outstanding procedures into compliance with the 2008 319 2009 00.00 ICMC in the near future. 2008 00.00 Pokrovskiy Mine total cash costs** – US$ per oz 2007 00.00 Emissions from Group’s operations are managed in strict 2009 296 compliance with Russian regulatory requirements. Monitoring data at Pokrovskiy and Pioneer has identified no air or water 2008 293 Health and safety expenditure – million RUR Environment quality impacts. 2007 193 2009 89.00 Petropavlovsk manages the environmental impacts of its Petropavlovsk’s operations utilise electricity supplied from 2006 175 2008 55.97 operations across the full project lifecycle in accordance with hydropower. As a result, the only significant emissions from 2005 159 Russian2007 regulatory requirements and is seeking to align these 23.30 operations are from haul trucks and other vehicles. Consequently, practices with international best practice. carbon emissions per ounce of gold or tonne of iron ore are Institute Standard (“GIS”) cash cost breakdown Lost time Injury frequency rate (LTIFR) Pioneer Mine total cash costs – US$ per oz All of the Group’s projects are subject to rigorous permitting significantly lower than at many comparable mining operations. 2009 265 requirements2009 by the Russian authorities. Russian regulation requires3.80 There is an ongoing rehabilitation programme at all operating mines 2008 226 a report assessing the impact that the mine will have on the to rehabilitate completed waste rock stockpiles in accordance with environmentFunds spent (an on “communityOVOS” report) and to education be drawn initiative up for eachs – RU miningR regulatory and permit requirements. Outline closure plans have project.All Operations Mining operations are also subject to rigorous ongoing been prepared for operating mines as part of the initial licensing environmental monitoring. 2009 57,132,293 process and these will be updated as mines approach the end of As part of the alignment of Group activities to reflect international their operating lives. bestPokrovskiy practice, and current Pioneer and planned OVOS assessments will be *Total attributable gold production, as stated throughout this document, is comprised of combined2009 with an Environmental and Social Impact Assessment52,246,000 100% of production from the Group’s subsidiaries and the relevant share of production from joint ventures and other investments. Figures for the comparative period are restated (“ESI2008A”) to integrate risk-based approaches to environmental50,000,000 accordingly. The Group has held c.1.1% interest in Rusoro Mining Ltd since March 2009; management.2007 This will enable Group operations to minimise1,300,000 no attributable ounces are included in the Group figures. The Company’s direct and risks by going beyond compliance where necessary. It is believed indirect interest in Pokrovskiy Rudnik is 98.61%. **2005/2006/2007 cash costs stated according to previously used that this approach will also help in planning the closure and Gold Institute Standard (“GIS”) cash cost breakdown. decommissioning of facilities, once mines have reached their end of life. Currently an ESIA to meet international requirements is being undertaken for the Malomir gold project, alongside the OVOS.

46 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

& Accounts 2009 – 47 eport Petropavlovsk PLC Annual R PLC Petropavlovsk the manner of conducting of foreign investments into companies investments into of foreign the manner of conducting the defence of the country significance for securing having strategic of investors foreign and together (the Amendment Law State” and the security of the by Russian acquisition the of the Investment on the Laws). The Foreign Investment Law, with the Foreign sectors a restrictions of strategic in imposes excess in Law interests reserves indirect gold or of direct respect in including economy, metals. of platinum group specified amount or any occurrences Government. included on the list of Strategic assets were Russian None of the Group’s the by published Areas in general environment the legal and regulatory to Risks relating production toxic development, safety, subject to are activities of the Group and extraction site The exploration prospecting, health, governing laws occupational various Group standards, the of labour taxes, activities and rules production and applicable believe that Although the Directors substances and other matters. all development with accordance exploration, in the out those carried under currently permits are and assurance no licences stage of development and that the current to approvals, relevant activities, regulations current necessary all Group’s hold the they for or regulations and production laws exploration, curtail or will not be applied in acan be given that new rules and regulations regulations limit and could laws which current to manner Amendments development. operations for and extraction and activities of exploration governing operations business, the on impact thereof, stringent implementation or more resources, of mineral adverse material a have could and the financial performance of the Group. Group the on effect the of material a course with litigation Risks associated have not ordinary do the in which time to time proceedings from Legal arise operations its or litigation being cannot prevent business and the Directors Group’s or any of its subsidiaries in the future. against the Group brought Country-specific risks operates the jurisdictions in which the Group to Risks relating by changes in economic, may be adversely affected The Group other as well as factors taxation or other regulatory political, judicial, administrative, assets, major its hold or will operates in which the Group policy in the areas or foreign will or holds and operate affect matters.unforeseen adversely may economy global the in Fluctuations economy Russia’s dependent become increasingly economy has recently Russia’s downturns and economic slowdowns elsewhere in the world, world, the in of elsewhere prices market to vulnerable and is more on global economic trends slowdowns the in economic and fluctuations and downturns reductions to as well as and minerals. hydrocarbons

22 April 2009 22 April 2009 21 January 2008 12 February 2010 12 February Date of Appointment to the Committee of Appointment to Date Executive Directors and two two and Directors Executive - FZ dated 29 April 2008 “On introducing introducing “On 2008 April 29 dated FZ -

Guthrie Guthrie Legal and regulatory risks Legal by, investment legislation may impact transactions Russian foreign Russian the the of in sectors and investments in, the Group introduced was strategic into legislation 2008, investment May 7 foreign On regulating Federation Law No. 57-FZ of 29 April 2008: Russian economy – the Federal companies investments into “On the manner of conducting foreign for securing the defence of the country significance having strategic Investment Law) and (the Foreign and the security of the State” 58 No Law Federal by executive management. by executive the to relating risks Principal Company/Group and Federation Russian Russian the the of of acts acts legal legal of certain in provisions certain amendments void and null declaring Law on in connection with the adoption of the Federal Federation The Risk Committee meets at least three times a year and has has and year a times the three by least at identified meets areas risk Committee all Risk The Committee covering Risk items the by with agenda approved Committee an is Risk agenda Each The interest of meeting. Committee. each matters of on advance reports in require Chairman to right the has member items. routine in addition to risk management to its approach review to Board The Company intends The management. and for risk review with the aim of placing responsibility executive the with management reports by means of regular responsibility ultimate will retain Meetings (Chairman of the Risk Committee) Lord Composition of the Risk Committee Name Birch Graham Hill-Wood Peter the of Chairman the Sir Roderic Lyne by reviewed is Company the and Committee any the of Board Committee the to Membership Nomination the recommend they and normally Committee, is Risk intervals Committee The regular at Committee. Chairman the to Non appointments new three least at of comprised The Risk Committee is appointed by the Board from the from the Board by is appointed The Risk Committee Terms has defined of the Company and Directors Non‑Executive The Risk Committee members comprise a quorum.

of Reference, which are available on the Company’s website. website. Company’s the on available are which Reference, of PRINCIPAL RISKS REPORT RISKS PRINCIPAL PRINCIPAL RISKS REPORT CONTINUED

Financial risks Currency risk The Group is dependent on revenue from key gold mines The Company reports in US Dollars, being the currency in which gold is principally traded and therefore in which most of its revenue A substantial portion of the Group’s revenues and cash flows are is generated. A large part of the Group’s operating expenses are derived from sales of gold mined at Pokrovskiy and Pioneer, and denominated in Roubles and a substantial portion of corporate the Directors expect that these mines will continue to provide a overheads are denominated in GB Pounds Sterling. The Company’s substantial portion of the Group’s operating revenues and cash financial condition and results of operations could be adversely flows in at least the short to medium term. Consequently, the affected by changes in the exchange rates between the currencies Group’s results of operations, cash flows and financial condition in which it operates. could be materially and adversely affected by fluctuations in the price of gold realised by Pokrovskiy Rudnik or the Group, or by Operational risks the failure of the Pokrovskiy and Pioneer mines to produce the expected amounts of gold. Notwithstanding anything in the operational risk factors, these risk factors should not be taken as implying that the Group will be The Malomir project is currently being prepared for production and unable to comply with its obligations as the Group with securities it is expected that the commissioning of the Malomir mine will take admitted to the Official List. place in the second half of 2010. It is intended that the Malomir project will commence works processing non-refractory material The Group’s future profitability is dependent on changes in its similar to Pokrovskiy ore; subsequently, it is expected that pressure technology for gold extraction oxidisation processing methods will be introduced to process refractory material. Historically, the Group used heap leach and resin-in-pulp (RIP) recovery routes at Pokrovskiy to extract gold from mined ore. The profitability of the Group’s operations and the cash flows The Group’s level of profitability, results of operations and financial generated by its operations is affected by changes in the market condition are dependent on the continued ability satisfactorily to price for relevant metals and related products, which in the past operate the RIP plant. The consistency of the head grade of ore have fluctuated significantly processed through the mill and heap leach operations can affect Although the Group’s anticipated cash operating costs, total cash the productivity and profitability of that process. Both the Pioneer costs and total production costs at Pokrovskiy are each expected to and Malomir mines will, in the future, need to switch to pressure be relatively low by world standards, the Group’s ability to achieve oxidation methods for part of their gold recovery. Technical failure or maintain earnings, pay dividends in the future and undertake or delays in their implementation could have an adverse effect capital expenditure may be affected in the event of a sustained on the Group’s profitability at these mines. material fall in the price of gold and/or related products. There can also be no assurance that the Group’s actual costs (including cash The Group’s operations are subject to the inherent hazards operating costs, total cash costs and total production costs) will and risks associated with the exploration for and development not be higher than currently anticipated. of mineral deposits The majority of the Group’s revenues and cash flows have Any metals exploration programme entails risks relating to the historically come from the sale of gold. Traditionally, the market location of economically viable ore bodies or gold deposits, the price for gold has fluctuated significantly and has been affected development of appropriate metallurgical processes, the receipt of by numerous factors, over which the Group has no control. necessary governmental permits and the construction of mining and processing facilities. The geology in which vein gold occurs can In addition, the current demand for, and supply of, gold affects the make evaluations of the potential size of deposits especially difficult price of gold, but not necessarily in the same manner as current to determine, as the veins in which they occur have inherently demand and supply affect the prices of other commodities. unpredictable characteristics. No assurance can be given that any Historically, gold has tended to retain its value in relative terms minerals exploration programme will result in any new commercial against basic goods in times of inflation and monetary crisis. As a mining operation or in the discovery of new resources. result, central banks, financial institutions, and individuals hold large amounts of gold as a store of value, and production in any given Other hazards and risks include unusual and unexpected geological year constitutes a very small portion of the total potential supply formations, rock falls, flooding and other climatic conditions, any of gold. Since the potential supply of gold is large relative to mine one of which could result in damage to, or destruction of, the production in any given year, normal variations in current production Group’s facilities, damage to life or property, environmental damage will not necessarily have a significant effect on the supply of gold or pollution and legal liability which could have a material adverse or its price. impact on the business, operations and financial performance of the Group. Although precautions to minimise risk are taken, even a combination of careful evaluation, experience and knowledge may not eliminate all of the hazards and risks.

48 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information & Accounts 2009 – 49 eport Petropavlovsk PLC Annual R PLC Petropavlovsk Because the ore reserve and resource estimates are calculated calculated are estimates resource and reserve ore the Because prices, and product costs of production estimates based on current life of of the economic as assurances they should not be interpreted experience. operations. future of the Group’s the deposits or the profitability production actual and based on revisions may require estimates figures Reserve and resource exploration definitive a require prices could market a sustained decline in relevant Furthermore, ultimately and recover to and/or containing lower grades and resources reserves ore render uneconomic mineralisation related and resources. of reserves (and restatement licences under obligations other and Payment may not be complied with which may and contracts agreements) agreements) related (and licences which at worst, loss of mineral lead to, or licences Group the mineral in the may under companies or are Licences: relevant the companies by such held are such future, If which the in them in obligations. by held other be performed, and may be to payment due state to the when to subject with become available complied be not may are which obligations remedies other any to addition licences. in the loss of such mineral authorities, this could result which and in parties or in become, companies future such which Group to the agreements contractual are there Contracts: by in may held or are, interests companies indirect or direct to such relate under any to obligations other addition company does not licences. If the relevant or such mineral of in respect payment could performed, its this be with to due parties, comply are other they to when available be agreements may which remedies other held by such companies. of interests or forfeiture in dilution result mining tenements, with obtaining access rights to Risks associated party rights land rights and third additional rights to requires the Group may be cases where There commonly terms obtain and to mining projects. future exploit access or to obliged legislation is Russian works holder with licence a geological accordance certain In agreements, where lease licence area in obtain to licensed included the holder of part licence the the to rights requires This out. carried are be to state the to of those areas and mine allotment acts in respect agreements with be registered can be fines also Land Rights). land rights (together, it has all of the required ensure must obtained, not agreements are lease Rights The Land the If enforceable. imposed on licence holders.

completion of joint joint of completion - the ore bodies; the ore to fulfil their obligations. fulfil to of sampling ongoing an and drilling exploratory of results the take action contrary to the policies or objectives of the other party party other the of objectives or proposals policies vetoing the by to example contrary for action take investments, its to respect with or on operations; of financial or other difficulties, be unable or unwillingas a result • past experience with mining properties; and with mining properties; • past experience estimates. of the person making the reserve • the experience Any of these may have a material adverse effect on the results of results the on effect adverse material a have may these of Any non or delay the or through of the Group financial condition or prospects operations, arising issues operational restatement may be subject to Reserves and resources within stockpiles and are ground estimates the in of estimates are of the Group estimates and resource The reserve resource and resources and reserve ore reserves The the areas. licence existing including: based on many factors, • venture development projects.venture The Group may not be able to manage the expansion of its its of expansion the manage to able be not may Group and The structures will necessary support its operations. to or have the resources operations Group has it the that that believes guarantee operations no Group be the mining can its While of there place, expansion in the management effectively manage to able be operations. mining will and controls procedures personnel, systems, its or that its current support to adequate be in nature, may not be successful arrangements joint venture The Group’s their by ventures joint in involved involved in a number of joint ventures. are Members of the Group risks special are There may: counterparties particular that relevant economic or business goals; • have different • •  Except to the extent that the Group conducts successful exploration reserves, additional or find and develop acquire fails to exploration If the Group successful conducts levels current their from will decline and production its reserves and/or Group the licences that further extent the to acquires or Except activities volume the development addition, and In produced. are willore reserves or both, the Group’s containing reserves properties iron and gold as decline additional are declines as reserves generally the properties from of production developing total and Group’s acquiring is dependent upon growth production the future The Group’s depleted. or this, in finding in success unsuccessful is its Group the If reserves. will decline. and production reserves PRINCIPAL RISKS REPORT CONTINUED

Operational failures, the impact of climatic conditions and other Dependence on certain key personnel unscheduled interruptions The Group’s growth and future success will depend in significant The achievement of the Group’s operational targets will be subject part upon the continued contributions of a number of the Group’s to the completion of planned operational goals on time and key senior management and personnel, in particular the Group’s according to budget, and will be dependent on the effective Chairman, Peter Hambro, and the Group’s Chief Executive, Pavel support of the Group’s personnel, systems, procedures and Maslovskiy. controls. Any failure of these may result in delays in the achievement There is no certainty that the services of these key persons will of operational targets with a consequent material adverse impact on continue to be available to the Group and, if the Group is not the business, operations and financial performance of the Group. successful in retaining or attracting highly-qualified individuals The location of the Group’s deposits means that climatic conditions in key management positions, its business may be harmed. have an impact on operations and, in particular, severe weather could disrupt operations, including the delivery of supplies, Risks not covered by insurance equipment and fuel. It is, therefore, possible that exploration and The Group’s insurance coverage may not satisfy future claims extraction activity levels may fall as a result of meteorological factors. against the Group or protect the Group against natural disasters Unscheduled interruptions in the Group’s operations due to or operational catastrophes. mechanical or other failures or industrial relations-related issues, The Group, as a participant in exploration and mining programmes, or problems or issues with the supply of goods or services may may become subject to liability for hazards that cannot be insured occur and could have a material adverse impact on the financial against, which could exceed policy limits or against which it may performance of those operations. elect not to be so insured because of high premium costs. The Group may incur a liability to third parties in excess of any insurance Lack of infrastructure or difficulties with state-owned infrastructure cover arising from pollution or other damage or injury. Although a number of the Group’s deposits are in regions with well-developed state infrastructure, some of its assets which are Costs of environmental compliance and rehabilitation not currently in production are situated in areas lacking some of The Group accrues estimated rehabilitation costs over the operating the necessary infrastructure, which must be developed. The Group life of a mine. Estimates of ultimate rehabilitation costs are subject to must invest heavily in the construction of the required mining and revision as a result of future changes in regulations and cost auxiliary infrastructure if it decides to proceed with the development estimates. of these deposits. Construction and operation of this infrastructure will require substantial capital expenditure by the Group and no Risks in relation to licences, permitting and assurance can be given that market conditions will continue to environmental issues make such investments financially viable. Risks relating to the licensing regime and extensions of Labour risks including health and safety issues existing licences Certain of the Group’s operations are carried out under potentially The Group’s production licences are granted for a defined period hazardous conditions. Whilst the Directors intend to continue to as specified in the terms of the relevant licence. operate in accordance with relevant health and safety regulations Currently, the Subsoil Law does not provide for an automatic and requirements, the Group remains susceptible to the possibility extension of a mining licence or the upgrading of an exploration that liabilities might arise as a result of accidents, fatalities or other licence to a mining licence to its current holder, but allows the workforce-related misfortunes, some of which may be beyond the current holder to apply to the licensing authority for the extension Group’s control. The occurrence of any accidents could delay of an existing licence or upgrading of an exploration licence to a production, increase production costs and/or result in liability for mining licence provided that it has complied with the terms and the Group. conditions of the licence. While the Group has been successful in renewing and/or extending several of its gold extraction licences in the past, no assurances can be given that the Group’s licences will be in a position to achieve renewal by way of extension. The Group would be adversely affected if any extension, upgrade or renewal applied for was not granted. The Group’s mineral licences may be challenged.

50 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information & Accounts 2009 – 51 eport Petropavlovsk PLC Annual R PLC Petropavlovsk Guthrie Lord Chairman of the Risk Committee 2010 24 March Approval and signed on its behalf by: by the Board was approved This report As a result of its work undertaken during the year, the Risk Risk the year, the its during Overview with undertaken accordance work in its be acted of will has it result a that As Committee Risk concluded the any of has answer to Chairman Committee The Meeting reference. General of Annual terms year’s this at available questions about the work of the Risk Committee. to environmental pollution, and must comply with maximum maximum regular is subject to the Group its operations, During the conduct of with comply must and of issues relating for a range requirements inspections and reporting pollution, environmental to these of breach authorities, for airany state by determined acceptable concentrations, and/or Group. processes the sediments. Any issues identified in quality, soils and quality, water for reporting or consequences inspections adverse such have could requirements investigations by Rosprirodnadzor, may be subject to The Group such investigations to announcements relating which may make of any stage and in advance at a very preliminary when they are on the Group. findings, which could have an adverse impact compliance. However, the the However, compliance. - Directors are unable to predict the extent and effect of additional additional of effect and extent the in the adopted predict be to may unable which are would regulations Directors its regulations and or laws affect laws or such any business environmental doing whether of cost including Group’s future, the increase materially in any area. operations Environmental risks and issues arising from compliance with with compliance from arising issues and risks Environmental environmental extensive the the to and permitting requirements regulations environmental Although subject are industry. operations processing and Group’s The mining the in inherent environmental risks applicable and with licences respects in companies are Group that the relevant believe Directors approvals, material risks all necessary in all certain are hold compliance and there undertake will regulations regulations, and Group and laws the laws which those those under and permits activities their to in Group inherent the checks, subject to could subject that is such as risks of accidental spills, leakages or otherin the future, Group the Russian circumstances, the addition, In unforeseen including liability. regulators various considerable by checks, are spot these which including in manner the and legislation Environmental Rosprirodnadzor. regulator, environmental requirements well as permitting and enforcement, stricter and higher in a manner which will require evolve to likely are enforced standards non for demanding more penalties and and fines increased as The Group’s operations depend on the Group’s ability to to ability Group’s the on depend operations Group’s will The regulations government obtain necessary permits various with compliance Generally, obtain permits issued by Russian to the Group require implement new developments or both to governmental agencies, the and permit, for ongoingthe or review renewal or on the basis of periodic projects requiring the cause operations may a permit may cause the of Non-renewal activities or operations. the permit a on discontinue to conditions Group additional of imposition compliance costs, either of which could incur additional to Group financial condition adverse effect on the Group’s have a material operations. of results licence and the with respects, all in complied or may voluntarily decide not to, may not be able to, The Group have not may or comply, regulators law, fulfil fails to for some or all of the licences. If the Group requirements Russian violates that in operates terms of any of its licences or if the Group manner the specific a in areas adverse licence the material a have could which of or not or suspend or withdraw may impose fines on the Group any licences, its renew Group. and financial position of the effect on the operational Board of directors

Peter Hambro Dr Pavel Maslovskiy Brian Egan Chairman Chief Executive Chief Financial Officer Mr Hambro is one of the co-founders of the Dr Maslovskiy is a founding shareholder Brian Egan is Chief Financial Officer of the Company and has been Chairman of the Group and Director of the Company and has been Company having previously been finance since its formation in 1994. In addition to this Chairman of Pokrovskiy Rudnik since 1994. director of Aricom plc which he joined in role, Mr Hambro is a director of many of the Dr Maslovskiy is also a director of several July 2007. Prior to joining the Aricom Group, subsidiaries of the Group. He is also a other subsidiary companies of the Group. he was the group chief financial officer of co-founder and a Non-Executive Director of Prior to embarking on his business career, Gloria-Jeans Corporation, a leading Russian Russian Timber Group Limited and non- Dr Maslovskiy was an Associate Professor apparel manufacturer and retailer. He has over executive chairman of Sundeala Limited and of Metallurgy at the Moscow Aircraft 15 years’ experience in senior financial roles of several family companies. He started his Technology Institute. with Associated British Foods Plc, Georgia- banking career with his family bank and, prior Pacific Ireland Limited and Coca-Cola HBC. to founding the Group, became Joint Managing He is a member of the Institute of Chartered Director of Smith St. Aubyn Holdings Limited Accountants in Ireland. before joining the Mocatta Group, the world’s largest bullion traders, as Deputy Managing Director of Mocatta & Goldsmid Limited and Group Marketing Director.

Peter Hill-Wood Graham Birch Sir Malcolm Field Senior Non-Executive Director Non-Executive Director Non-Executive Director Mr Hill-Wood joined the Board in 2003. Dr Birch was appointed to the Board on Sir Malcolm Field was appointed to the Board He has been chairman of Arsenal Football Club 12 February 2010. Prior to his retirement in 2009 on 22 April 2009 having previously been a since 1982 and was formerly vice-chairman of he was a director of BlackRock Commodities non-executive director of Aricom plc since 2003. Hambros Bank and chairman of its Investment Investment Trust plc and manager of He was formerly CEO of WH Smith PLC and a Division. Mr Hill-Wood is currently on the board BlackRock’s World Mining Trust and Gold and non-executive director of Scottish & Newcastle, of advisers of the Russian Technology Fund. General Unit Trust. He gained his PhD in mining MEPC, The Stationery Office, Evolution Group geology at Imperial College, London and Plc and a number of private companies. He was worked at Kleinwort Benson Securities and most recently chairman of the Civil Aviation Ord Minnett/Fleming Ord Minnett before joining Authority and Tube Lines Limited. Sir Malcolm is Mercury Asset Management in 1993, where the senior independent director of Hochschild he launched a number of mining and natural Mining PLC. resources funds. In 1997, Mercury Asset Management was acquired by Merrill Lynch Investment Managers which was itself eventually acquired by BlackRock in 2006. Dr Birch is vice chairman of Rothamsted Research.

52 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information & Accounts 2009 – 53 eport Petropavlovsk PLC Annual R PLC Petropavlovsk Executive Director in June 2009. 2009. June in Director Executive - Charles McVeigh Director Non-Executive as Group the joined McVeigh Charles Non He is the chairman of Citigroup’s Corporate Corporate Citigroup’s of chairman Wealth the is Global He Banking director a Investment and and Partnership Management of EFG-Hermes and Savills PLC.

Sir Roderic Lyne Board Director the Non-Executive to appointed a was been Lyne Roderic previously Sir having 2009 April 22 on 2006. of Aricom plc since October director Sir Roderic served as British Ambassador to to Ambassador British as 2004, served August Roderic until Sir 2000 Service January from Diplomatic Russia the from consultant, a retired as he works when and now He Russia on years. 34 after businesses advising principally Board the of member a the CIS and in this capacity is a Senior Adviser is He the and Morgan. J.P. University to Kingston of Governors of a as appointed been of InternationalCouncil of the Royal Institute has Roderic Sir Affairs. of Inquiry. Committee member of the Iraq General the Lord Guthrie of Craigiebank the Lord General GCB Director Non-Executive Craigiebank of Guthrie in Lord Board the the to General appointed was DL OBE LVO ofJanuary 2008. He is also a director House the of member Colt DefenseNM Rothschild & Sons Limited, Defence the independent of an and Chief LLC, two to formerly was Adviser He Lords. Military of State of Principal the and Secretaries Staff three and in Army the Ministers from Prime the retired holds He currently Defence. he for although 2001, February Visiting a is he addition and Goldposition of Colonel of the Life Guards In Queen. The to Stick of member board a as College of King’s Fellow and Honorary Professor well as University London Studies. the Moscow School of Policy D irectors’ Report For the year ended 31 December 2009

Report and financial statements The Directors present their report and the audited financial statements for the year ended 31 December 2009. Company name The Company changed its name from Peter Hambro Mining Plc to Petropavlovsk PLC on 23 September 2009. Principal activities and future development The principal activities of the Group, which are mainly based in Russia, during the year were: • Gold mining at the Pokrovskiy and Pioneer deposits (including exploration and development); • The acquisition, exploration and development of reserves and resources in the Amur north-east belt including Malomir, Albyn and Tokur, YamalZoloto/Yamal Mining Company and portfolio assets; • The acquisition, exploration and development of iron-related reserves and resources including Kuranakh, Garinskoye and Bolshoi Seym in the Amur and Kimkanskoye and Sutarskoye deposits in EAO; • Development of related infrastructural opportunities including the Nizhneleninskoye-Tongjiang bridge project in the EAO and the Sovertskaya Gavan seaport project in the Khabarovsk Krai region; • Evaluation of potential acquisition and joint venture opportunities in gold mining in Russia; and • Evaluation of potential business opportunities. Plans for future developments are included in the statements of the Chairman and the Chief Executive Officer on pages 2 to 3. Post balance sheet events Details of events occurring since 31 December 2009 are set out in Note 38 to the Consolidated Financial Statements. Business review and Group results Under Section 417 of the Companies Act 2006, the Directors are required to prepare a business review. This comprises the following which form part of this Directors’ report: • The statements of the Chairman and Chief Executive Officer on pages 2 to 3 of the Annual Report and Accounts; • The Statements in the section entitled Strategy to Deliver on pages 4 to 19 of the Annual Report and Accounts; • The Financial Review on pages 20 to 23 of the Annual Report and Accounts; • The Operational Reports on pages 24 to 43 of the Annual Report and Accounts; • The Key Performance Indicators on pages 16 to 17 of the Annual Report and Accounts; • The Principal Risks Report on pages 47 to 51 of the Annual Report and Accounts; and • The Sustainability Report on pages 44 to 46 of the Annual Report and Accounts. Research and development Companies within the Group carry out exploration, development and analysis work necessary to support their activities. Further information is given in the Operational Reports on pages 24 to 43 of the Annual Report and Accounts, including the In-House Divisions on pages 41 to 43, which form part of this Directors’ Report. Sustainability Further information is given in the Sustainability Report on pages 44 to 46 of the Annual Report and Accounts.

54 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information – – – – n/a n/a n/a n/a n/a n/a % of issued issued of % share capital share As at 24 March 2010 As at 24 March – – – – & Accounts 2009 – 55 n/a n/a n/a n/a n/a n/a 1,625 0.001% eport 50,312 0.03% 58,281 0.03% of £0.01 each 16,763,657 9.21% 10,615,863 5.83% Ordinary Shares Shares Ordinary – – – % of issued issued of % share capital share Petropavlovsk PLC Annual R PLC Petropavlovsk – – – n/an/a n/a n/a n/a n/an/a n/a n/a n/a n/a n/a n/a n/a As at 31 December 2009 1,625 0.001% 50,312 0.03% 58,281 0.03% of £0.01 each 16,763,657 9.21% 10,615,863 5.83% Ordinary Shares Shares Ordinary – – – – – – n/a n/a n/a n/a n/a % of issued issued of % share capital share As at 1 January 2009 – – – – – – n/a n/a n/a n/a n/a 7,500 0.01% 20,000 0.02% 5,283,179 6.51% of £0.01 each 14,960,787 18.43% Ordinary Shares Shares Ordinary 4 4 4 4 1 1,2

4 4 3 1,3 5 1,5 3 1,3 4 4 2 1 4 1,4 3 3 Resigned on 2 June 2009. 2010. on 12 February Appointed on 22 April 2009. Appointed Resigned on 20 April 2009. on 25 June 2009. Appointed Non-Executive Director. Non-Executive Resigned on 2 June 2009. on 22 April 2009. Appointed Resigned on 20 April 2009. on 25 June 2009. Appointed 2 3 4 5 of the Company. Shares in the Ordinary had an interest No other Directors of Brian Egan, save in respect of this report, between 31 December 2009 and the date of the Directors the interests have been no changes to There Company (Channel Islands) Limited Trust had been sold by SG Hambros Shares 2010 that 53,846 Ordinary who notified the Company on 3 March the benefit of Brian Egan and his family. to a sub-fund for held on trust subject Trust, which were Employee Benefit of the Group’s as trustee 1 Sir Rudolph Agnew Directors’ interests Directors’ as follows: are of this report of the Company at the beginning and end of the year and as at the date capital in the share Directors of the The interests 2 3 4 5 February 2010. 12 with effect from Director, as a Non-Executive was appointed Birch the year end, Graham Subsequent to Alfiya Samokhvalova Subczynska Karolina 1 Andrey Maruta Andrey Maslovskiy Alexei Lord Guthrie Lord Jay Hambro Hill-Wood¹ Peter Sir Roderic Lyne Brian Egan Sir Malcolm Field Further to the acquisition by the Company of Aricom plc in April 2009 the composition of the Board was reviewed and the Directors who held and the Directors was reviewed the composition of the Board the Company of Aricom plc in April 2009 the acquisition by to Further are set out below. review the year under office at any time during (Chairman) Hambro Peter Sir Rudolph Agnew Directors Dr Pavel Maslovskiy Dr Pavel Charles McVeigh Alfiya Samokhvalova Andrey Maruta Andrey Sir Malcolm Field Lord Guthrie Lord Hill-Wood Peter Maslovskiy and Associates Pavel Charles McVeigh Subczynska Karolina Brian Egan Graham Birch Graham Peter Hambro and Associates Hambro Peter Sir Roderic Lyne Maslovskiy Alexei Jay Hambro Directors’ Report CONTINUED

Directors’ interests continued Sir Malcolm Field held warrants in respect of ordinary shares in Aricom plc which, on the acquisition by the Company were exchanged for warrants in respect of Ordinary Shares in the Company. As a result, since 22 April 2009 and as at 31 December 2009 and the date of this report Sir Malcolm Field held warrants in respect of 2,187 Ordinary Shares in the Company, representing 0.03% of the warrants in issue. No other Director holds warrants in the Company. The current share options held by Directors and the movement during the year is set out below:

Number of Number of Aricom plc Petropavlovsk PLC ordinary shares Ordinary Shares Exercised during Total gain Number of under option as at under option the year on on exercise Petropavlovsk PLC 1 January 2009 following the Granted 19 October 2009 of options Ordinary Shares (granted at nil acquisition during at an exercise during the under option as at consideration) of Aricom plc the year price of £6.72 year 31 December 2009 Former Director: Jay Hambro 2,500,000 156,250 – 156,250 £718,727 –

The market price of the Ordinary Shares at 31 December 2009 was £10.26 and the range during the year was £3.71 to £13.16. Options are not subject to performance criteria. There were no variations to the terms and conditions or performance criteria during the financial year. Details of allocations made to Directors in office at the end of the year under the Company’s Long Term Incentive Plan are given below:

Number of Ordinary Shares Number of subject to awards Ordinary Shares as at date subject to of appointment Awards granted Awards vested Vesting awards as at Name as a Director during the year during the year date 31 December 2009 6 February 20102 and 25 June Brian Egan1 53,8462 58,3333 Nil 20123 112,179 Notes: 1 Appointed as a Director on 22 April 2009. 2 Pursuant to the acquisition of Aricom plc, the trustees of the Company’s employee benefit trust granted an award to Brian Egan in the form of a conditional allocation of 53,846 Ordinary Shares (which were not subject to any performance criteria) for the benefit of the awardholder and his family since these awards were made in exchange for an award held over Aricom plc ordinary shares under the Aricom plc Long Term Incentive Plan. The allocation, which was subject to continued employment, vested in February 2010. The market price of an Ordinary Share on the date of grant of the replacement allocation (22 April 2009) was £5.36 and on the date of vesting (6 February 2010) was £8.58. 3 On 25 June 2009, awards were granted by the trustees of the Company’s employee benefit trust under the Petropavlovsk Long Term Incentive Plan, in the form of a conditional allocation of Ordinary Shares for the benefit of the relevant Director and his family. Subject to the attainment of performance conditions and continued employment, the allocation will vest on 25 June 2012. The market price of an Ordinary Share on 25 June 2009 was £6.00. Upon vesting on 25 June 2012, subject to the attainment of performance conditions, the Ordinary Shares may be acquired for nil consideration. Awards were also made to executive management within the Group. Peter Hambro and Pavel Maslovskiy did not participate in the LTIP. Further details of the Company’s Long Term Incentive Plan are set out in the Director’s Remuneration Report on pages 70 to 81. The issued share capital of the Company increased from 81,155,052 Ordinary Shares on 1 January 2009 to 182,079,767 Ordinary Shares on 31 December 2009 as a result of the following events:

Date Event 10 February 2009 Issue of 16,000,000 Ordinary Shares of £0.01 each following a Placing 22 April 2009 Issue of 73,928,433 Ordinary Shares of £0.01 each following the Aricom Scheme of Arrangement 19 October 2009 Issue of 156,250 Ordinary Shares of £0.01 each following the exercise of options 29 October 2009 – 8 December 2009 Issue of 10,840,032 Ordinary Shares of £0.01 each following the conversion of the convertible bonds

Further details are contained in Note 27 to the Financial Statements on page 124.

56 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information capital

% of issued issued of % Ordinary ShareOrdinary & Accounts 2009 – 57 24 March 2010 24 March 17.

eport Number of of Number 8,782,9948,259,5097,722,738 4.82% 7,057,059 4.54% 6,627,647 4.24% 6,047,130 3.88% 5,917,178 3.64% 3.32% 3.25% 23,320,34116,763,65710,615,863 12.81% 9.21% 5.83% Ordinary Shares Ordinary capital % of issued issued of % Ordinary Share Petropavlovsk PLC Annual R PLC Petropavlovsk 31 December 2009 Number of of Number 8,259,5097,722,7387,057,059 4.54% 6,627,647 4.24% 6,047,130 3.88% 5,917,178 3.64% 3.32% 3.25% 21,940,41916,763,65710,615,863 12.05% 10,300,000 9.21% 5.83% 5.66% Ordinary Shares nancial risk management 51, which form part of this Directors’ Report. 51, which form part of this Directors’ As the business of the Company develops, and subject to the availability of distributable reserves, the Directors intend to pursue a dividend to intend Directors the the availability of distributable reserves, As the business of the Company develops, and subject to regard level of dividend cover and having to cash flow and earnings, while maintaining an appropriate the Company’s policy which reflects Share dividend of seven pence per Ordinary 2010, an interim activities. On 30 March further funding the development of the Company’s Dividend policy Financial instruments and fi to the Financial 34 described in Note to risk are exposure financial risk management objectives and policies and Details of the Group’s 51. Risks Report to on pages 47 and in the Principal Statements respect of the financial year ended 31 December 2009. No further dividend in of the Company in respect shareholders will be paid to Key performance indicators Key (“KPIs”) as contained on pages 16 Indicators to Performance against the Key performance is measured The Company’s At the time when the consolidated financial statements are authorised, there is a reasonable expectation that the Group has sufficient liquidity liquidity sufficient has Group the that expectation reasonable a is there authorised, are statements financial consolidated the when time the At adopt the going continue to the Directors Accordingly, the forseeable future. for existence continue operational to resources and adequate financial statements. the consolidated concern basis in preparing Going concern Risks and uncertainties industry, some are to the Group’s relate some to the Group, specific faces many risks, some are Risk is inevitable in business and the Group Risks Report on further discussed in the Principal These are operates. in which the Group the environment to some relate and Russia related pages 47 to BlackRock Inc. & Associates Maslovskiy Pavel & Associates Hambro Peter Metals and Mining Fund Precious Vanguard Asset Management JPMorgan Limited Partners Lansdowne Baring Asset Management Limited Life Investments Limited Standard and Management Company Research Capital Plc Group General & Legal capital. issued share of the Company’s that any other person holds 3% or more notification 2010, the Company has not received As at 24 March to pay bothexpects years the Board but in future of the financial year ended 31 December 2009 is being paid by the Company in 2010 and final dividends.interim As at the year end and the date of this report the Company had been notified of the following interests in excess of 3% of its issued share capital: of 3% of its issued share excess in had been notified of the following interests the Company of this report the date As at the year end and Notifiable share interests Notifiable share Shareholder Shareholder Directors’ Report CONTINUED

Supplier payment policy It is Group policy to agree and clearly communicate the terms of payment as part of the commercial arrangement negotiated with suppliers and then to pay according to those terms based upon receipt of an accurate invoice. Trade creditor days for the year ended 31 December 2009 were 35 days on average for the Group (2008: 20) and 23 days on average for the Company (2008: 23). Donations No political or charitable donations were made during the year (2008: £10,000). Details of the Group’s charitable activities are set out in the Sustainability Report on pages 44 to 46 of the Annual Report and Accounts. Corporate governance and shareholder relations The Corporate Governance Statement on pages 62 to 69 of the Annual Report and Accounts has been prepared in accordance with Rule 7.2 of the FSA’s Disclosure and Transparency Rules and forms part of this Directors’ Report. Details of the Company’s compliance with the Combined Code, including relations with shareholders, are set out in the Corporate Governance Statement. Employees The Group maintains a policy of providing employees with information about the Company and regular meetings are held between management and employees to allow exchanges of information and ideas. The Group is committed to providing equal opportunity for individuals in all aspects of employment. The Group gives every consideration to applications for employment by disabled persons where the requirements of the job may be adequately filled by a disabled person. Where existing employees become disabled, it is the Group’s policy wherever practicable to provide continuing employment under similar terms and conditions and to provide training, career development and promotion wherever appropriate. Appointment of Directors With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the Combined Code, the Companies Act 2006, and related legislation. Directors may be appointed by the Company by ordinary resolution or by the Board, on recommendation of the Nomination Committee. A Director appointed by the Board holds office only until the next following annual general meeting and is then eligible for election by the shareholders but is not taken into account in determining the Directors or the number of Directors who are to retire by rotation at that meeting. The Company may, in accordance with and subject to the provisions of the Companies Act 2006, by ordinary resolution of which special notice has been given remove any Director before the expiration of this term of office. Directors’ indemnities A qualifying third-party indemnity provision as defined in Section 234 of the Companies Act 2006 is in force for the benefit of each of the Directors in respect of liabilities incurred as a result of their office to the extent permitted by law. In respect of those liabilities for which Directors may not be indemnified, the Company maintained a directors’ and officers’ liability insurance policy throughout the financial year. Significant agreements – change of control A change of control of the Company following a takeover bid may cause a number of agreements to which the Company, or any of its subsidiaries, is party, such as commercial trading contracts, joint venture agreements, banking arrangements to take effect, alter or terminate. In the context of the potential impact on the Group, certain of these agreements are considered to be significant. The following significant agreements contain certain termination and other rights for the counterparties of the Group companies upon a change of control of the Company: Under the Sino-Foreign Equity Joint Venture Contract in respect of the establishment of Heilongjiang Vanadium Industries Co., Ltd between Heijlongjiang Jianlong Steel Company Limited, Ariva HK Limited and Kuranakii Investment Co., Limited (“Vanadium JV Contract”) if any party to the Vanadium JV Contract ceases to be controlled by its ultimate controlling person any other party is entitled to give a notice of termination of the Vanadium JV Contract. The ultimate controlling person of Ariva UK Limited, as defined in the Vanadium JV Contract, is Aricom UK Ltd, a wholly owned Group company.

58 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information & Accounts 2009 – 59 eport Petropavlovsk PLC Annual R PLC Petropavlovsk The rights attaching to the Ordinary Shares are governed by the Articles of Association and prevailing legislation. There are no specific specific no are There legislation. prevailing and Association of Articles the by governed are Shares Ordinary the to attaching rights The on a show of hands every Shares, Ordinary any attached to any rights or restrictions of a holding. Subject to on the size restrictions Rights and obligations attaching to Ordinary Shares Ordinary Rights and obligations attaching to • Details of the Company’s authorised and issued share capital, together with details of the movements in the Company’s issued share capital capital share issued Company’s the in movements the of details with together capital, share issued and authorised Company’s the of Details which carries no rights to Share The Company has one class of Ordinary the Financial Statements. 27 to shown in Note during the year are income. fixed The Company’s Articles of Association may be amended by special resolution of shareholders. Articles of Association may be amended by special resolution The Company’s structure Capital Amendment of Articles of Association interest that conflicts, or may possibly conflict, with the interests of the Company. The Companies Act 2006 allows directors of public public of directors allows 2006 Act Companies The Company. the of interests Conflicts of interest the with conflict, possibly may or indirector they have, or can have, a direct where avoid a situation duty to a statutory subject to are Under the Companies Act 2006, Directors conflicts, that interest to that provision the Articles of Association contain a where of directors conflicts of interest authorise conflicts and potential companies to the on in matters of the Company who have an interest such powers. Directors the Directors Articles of Association afford effect. The Company’s voting from abstain to certain exceptions, and, subject to this interest declare to required meetings are under discussion at Board consisting solely of independent of the Board by a committee will be approved party transactions related Any material matters. relevant impose limits or conditions when giving any authorisation, if they think this is appropriate. will be able to In addition, the Directors Directors. Subject to the Company’s Memorandum of Association, the Articles of Association, the prevailing legislation and any directions given by by given directions any and the of legislation powers such all prevailing the exercise may who Association, of Directors Articles the the by managed be Association, of will of Directors Powers Company Memorandum the of Company’s affairs the and to business Subject the resolution, special available on copies of which are for the Board, reserved further described in the Schedule of Matters are The powers of Directors Company. 69 of the Annual Report and Accounts. 62 to on pages Governance Statement and in the Corporate request, Contract, “change of control” means a change of control to a party or a person that controls such party, except that a transfer or allocation by by allocation or transfer a that except party, such a controls constitute that not person shall a or party a enterprise to control of China (“Titaniumstate-owned JV Aricom Plc) and Aluminum Corporation (formerly between Aricom Limited Contract Venture Under the Equity Joint of PRC change a another to means China of the Titanium the purpose JV occurs. For of of control if a change the Titanium JV Contract terminate the parties have a right to Contract”), control” of International Corporation “change Commerzbank Aluminum and of Contract, assets or the (“Pokrovskiy”) business under Rudnik all authority of of the PRC or any other competent Council of the State Commission the Owned Assets Supervision and Administration the State of all outstanding Pokrovskiy between quantities substantially or or 2007 April amounts 24 all dated declare of China. in Aluminum Corporation to of control” “change Agreement agreement, Framework the Loan Gold terminate to the right Under the have will Bank at least 51% of the voting or indirectly holding directly the of Pokrovskiy, majority shareholder be the S.A. (the “Bank”), if the Company ceases to latter, the the of that capital procure to endeavours any other action which it deems at itsto take repayment or to choose the form of effect and due and payable with immediate agreement reasonable its use its to shall necessary. discretion payment Company the the procure of or Offer”), pay respect shall in “Takeover price to Shares to all holders of Ordinary if at any time an offer is made instrument issued by the Company on 21 April 2009, (a a warrant Company to Pursuant the subscription Company, arrangement) of the of applicable implement such such holders to is made to capital of the Company (or a proposal scheme share whole or any part the of the issued ordinary acquire a then capital of the way share and by price ordinary offer acquisition issued the then between the of is in a position Offer the offeror Takeover to If following a holders an equivalent offer. whole warrant to the Company’s available make shall offeror differential the the (i) compulsorily reflecting acquire sum a of holders warrant the have also by a The quantum of the time value payment shall be determined in such warrants. and (ii) the time value inherent warrants would Company’s lenders the time and for this purpose. by the Company at the relevant selected be to not arbitrator) investment bank (acting as expert, reputable circumstances, such in addition, In ZAO N.V., between, among others, ING Bank 2009 (“Club Loan”) 16 December US$150 million club loan facility dated an up to to Pursuant utilisation. a fund to to if the Company ceases as borrower, Pokrovskiy Paribas as lenders and obliged and BNP Genérale Bank, Société Unicredit Raiffeisenbank, ZAO be not shall lenders capital of any of Pokrovskiy, lenders) 90% of the issued share the relevant consent of all (and without the prior written the or indirectly hold, directly Irgiredmet, or Malomir so that they become all amounts outstanding under the Club Loan accelerate commitments and to cancel their respective option to due and payable. immediately Directors’ Report CONTINUED

Capital structure continued shareholder present in person or by proxy (or being a corporation present by a duly authorised representative) shall have one vote, and on a poll every shareholder who is present in person or by proxy shall have one vote for every Ordinary Share held by the shareholder. • Restrictions on voting No shareholder shall be entitled to vote at any general meeting or class meeting in respect of any Ordinary Shares held by him if any call or other sum then payable by him in respect of that share remains unpaid. Currently, all issued Ordinary Shares are fully paid. In addition, no member shall be entitled to vote if he failed to provide the Company with information concerning interests in those Ordinary Shares required to be provided under the Companies Act 2006. • Deadlines for voting rights Votes are exercisable at general meetings of the Company. The notice of a general meeting will specify the deadline for appointing a proxy or proxies to vote in relation to resolutions to be passed at that meeting. • Transfer of Ordinary Shares The transfer of Ordinary Shares, is governed by the general provisions of the Articles of Association and prevailing legislation. There are no restrictions on the transfer of the Ordinary Shares other than (i) as set out in the Articles of Association; (ii) certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws); and (iii) pursuant to the Listing Rules of the Financial Services Authority whereby certain Directors, officers and employees of the Company require the approval to deal in the Ordinary Shares in accordance with the Company’s share dealing rules. The Board may, in its absolute discretion and without giving any reason, refuse to register any transfer of a share (or renunciation of a renounceable letter of allotment) unless: (a) it is in respect of a share which is fully paid up; (b) it is in respect of only one class of shares; (c) it is in favour of a single transferee or not more than four joint transferees; (d) it is duly stamped (if so required); and (e) it is delivered for registration to the Company’s registered office or such other place as the Board may from time to time determine, accompanied (except in the case of a transfer by a recognised person where a certificate has not been issued or in the case of a renunciation) by the certificate for the shares to which it relates and such other evidence as the Board may reasonably require to prove the title of the transferor or person renouncing and the due execution of the transfer or renunciation by him or, if the transfer or renunciation is executed by some other person on his behalf, the authority of that person to do so. Registration of a transfer of an uncertificated share may be refused in the circumstances set out in the uncertificated securities regulations (as defined in the Articles of Association). Subject to certain exceptions, the Board may refuse to register a transfer of shares by a person with a 0.25% interest (as defined in the Articles of Association) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Act 2006. The Board shall not refuse to register any transfer or renunciation of partly-paid Ordinary Shares which are listed on the London Stock Exchange on the grounds that they are partly paid Ordinary Shares in circumstances where such refusal would prevent dealings in such Ordinary Shares from taking place on an open and proper basis. If the Board refuses to register a transfer of a share it shall, within two months after the date on which the transfer was lodged with the Company, send notice of the refusal to the transferee. Any instrument of transfer which the Board refuses to register shall (except in the case of suspected or actual fraud) be returned to the person depositing it. • Shareholder agreements The Directors are not aware of any agreements between holders of the Company’s Ordinary Shares that may result in restrictions on the transfer of securities or on voting rights or any arrangements by which, with the Company’s co-operation, financial rights carried by securities are held by a person other than the holder of the securities. No person has any special rights of control over the Company’s share capital. • Ordinary Shares held by the Employee Benefit Trust Ordinary Shares held by the Company’s Employee Benefit Trust abstain from voting.

60 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information & Accounts 2009 – 61 special resolution eport Petropavlovsk PLC Annual R PLC Petropavlovsk and disapplication of pre-emption rights pre-emption and disapplication of Allotment of Ordinary Shares Allotment of Ordinary 2009.June 25 on held Meeting General Annual the at capital share issued its of 5% to up repurchase to authority granted was Company The at that meeting. The Company has not Meeting unless renewed Annual General at the conclusion of this year’s This authority will expire Meeting for Annual General at this year’s approval shareholder will seek The Board review. made use of this authority during the year under capital. 5% of the issued share up to repurchase the authority to resolution will be proposed at this year’s year’s this at proposed be will resolution under its Articles of Association and a ordinary Shares issue Ordinary to The Company has authority nominal amount of £1,213,864. aggregate a maximum up to Shares allot Ordinary to authorise Directors Meeting to Annual General A of this report. in issue as at the date Shares the Ordinary of 66% of the nominal value of the aggregate This represents for certain purposes. Shares rights for issues of Ordinary pre-emption statutory which will disapply the be proposed is to Shares of Ordinary Repurchase Company’s Auditors are unaware; and unaware; are Auditors Company’s audit information of any relevant aware himself make to as a Director have taken that he ought to all the steps has taken each of the Directors of that information. aware are Auditors to establish that the Company’s (as defined) and so far as each of the Directors is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the the which of 2006) Act Companies the in defined (as information audit relevant no is there aware, is Directors the of each as far so • Meeting. in the Notice of Annual General will be contained and resolutions details of the above proposals Further • • of S418 of the Companies Act 2006. provisions with the in accordance This confirmation is given and should be interpreted proposed at the them will be re-appoint to resolution a and continue in office as auditors their willingness to LLP have expressed Deloitte Meeting. forthcoming General Annual and signed on its behalf by: PLC of Petropavlovsk of Directors by the Board was approved This report Heather Williams FCIS Company Secretary 2010 24 March • In the case of each of the persons who are Directors of the Company at the date when this report was approved: when this report at the date of the Company Directors In the case of each of the persons who are Auditors Corporate Governance Statement

The Combined Code This statement forms part of the Directors’ report on pages 54 to 61 of the Annual Report and information disclosed under Rule 7.2 of the FSA’s Disclosure and Transparency Rules may be found in this statement and the Directors’ report. The Company is committed to high standards of corporate governance. The UK Listing Authority requires companies incorporated in the United Kingdom and listed on the Official List to disclose how they have applied the Main Principles set out in Section 1 of The Combined Code on Corporate Governance published by the Financial Reporting Council in June 2008 (the “Combined Code”). This report, together with the Directors’ Report, indicates how the Company has applied the principles of good governance of the Combined Code throughout the year ended 31 December 2009 or, where the Company has not complied with the Combined Code, explains the reasons why. The Combined Code is publicly available on the website of the Financial Reporting Council, www.frc.org.uk. Statement of compliance The Group has been in compliance with the provisions of Section 1 of the Combined Code throughout the year ended 31 December 2009 save that: • the roles of Chairman and Chief Executive were not separated for the period to 21 April 2009. Since 22 April 2009, these roles have been separated; • the Board did not contain sufficient independent Non-Executive Directors for the period to 21 April 2009 to comprise half the Board, excluding the Chairman. Since 22 April 2009 the constitution of the Board has satisfied this requirement; • the Chairman is not independent for the purposes of the Combined Code; • no member of the Audit Committee was deemed to have recent and relevant financial experience until the appointment of Sir Malcolm Field on 22 April 2009 and Charles McVeigh on 25 June 2009; and • the Committees of the Board were not made up of at least three independent Non-Executive Directors throughout the year. The current committee membership is shown on page 66. The Board is responsible for ensuring an appropriate level of corporate governance and intends, save to the extent otherwise disclosed, to continue to comply with the main provisions of the Combined Code. Directors The Board The Company is led and controlled by the Board of Directors, chaired by Peter Hambro. The Board currently consists of a Chairman, two Executive Directors and six Non-Executive Directors, all of whom are considered to be independent under the Combined Code (see “Board balance and independence” on page 65). The Board believes that it is appropriate to have a Senior Independent Director and Peter Hill-Wood fulfils this role. Details of the individuals’ skills and experience are contained in the Directors’ biographies on pages 52 to 53 of the Annual Report. The Board meets regularly, on at least six scheduled occasions during each year, and more frequently if necessary. There were six scheduled Board meetings, five Audit Committee meetings, seven Remuneration Committee meetings, three Nomination Committee meetings, three Risk Committee meetings and four HSE Committee meetings held in the year under review. In addition, a further 33 Board or Committee meetings were held to issue formal approvals, or deal with other matters of a routine or administrative nature, which did not require attendance of the full Board. The attendance by Directors who held office during the year was as follows:

62 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– – – – – 3 3 1 1 1 2 3 1 2 Risk Committee – – – 1 4 4 1 4 1 1 3 4 1 1 & Accounts 2009 – 63 HSE HSE eport Committee – – – – – – – 2 3 3 1 3 3 1 Committee Nomination Petropavlovsk PLC Annual R PLC Petropavlovsk – – – – – – 5 4 1 6 4 4 5 1 Committee Remuneration – – 1 2 2 5 1 4 4 3 1 4 4 2 Audit Audit Committee – – 9 9 5 5 2 4 9 5 10 20 18 20 Board/ Board/ Committee Unscheduled Unscheduled 2 2 2 2 2 3 6 5 6 4 5 6 6 5 Board Board

8 8

9 8 1,2,3,6 1,3,7 2,4,5,6 1,3,4,5 8 3 2,4,5 8 6 Current member of the Audit Committee. member Current Committee. of the Remuneration member Current of the Nomination Committee. member Current of the HSE Committee. member Current of the Risk Committee. member Current on 22 April 2009. as a Director Appointed on 25 June 2009. as a Director Appointed on 20 April 2009. Resigned as a Director on 2 June 2009. Resigned as a Director approval of Group policies. of Group approval corporate governance matters; and matters; governance corporate delegations of authority to Board Committees; Board delegations of authority to review of remuneration policy, following recommendations by the Remuneration Committee; by the Remuneration recommendations policy, following of remuneration review review of Board and Committee composition, following recommendations by the Nomination Committee; composition, following recommendations Committee and of Board review approval of material press releases and communications with shareholders; releases press of material approval approval of major investments, acquisitions and disposals of investments or assets and contracts; approval responsibility for sound systems of internal control; of internal for sound systems responsibility identification and detection of fraud; identification and detection approval of accounting policies and of financial results; of accounting policies and of financial approval changes to structure and capital; structure changes to objectives and strategy, approval of budgets, review of performance and oversight and review of the Group’s operations; of the Group’s of performance and review and oversight of budgets, review approval objectives and strategy, obligations; and regulatory compliance with statutory responsibility for strategy and management, including responsibility for the overall management of the Company, approval of long-term management of the Company, approval for the overall and management, including responsibility for strategy responsibility • • • • • • • • • • • • • The Board is responsible for the determination and monitoring of the Company’s strategic aims, budgets, major items of capital expenditure expenditure capital of items major meetings during the period in which they hold office as a Director. and committee Board attend only eligible to are Directors budgets, aims, strategic did so at the invitation of the Committee. not members of those Committees Company’s meetings but are Committee who attended Directors the of monitoring and and senior management. Directors by the Executive meetings in 2009 attended Committee 11 Executive were In addition, there determination the for responsible is Board The will seek to The Board of the Company and the management of the capital structure. and control and senior appointments, the direction to meet its objectives.to enable the Company in place to be, and will continue are, resources that the necessary financial and human ensure objectives. the Company’s achieve management to works closely with the operational The Board include: such matters for its decision, reserved a formal schedule of matters has adopted The Board 1 2 3 4 5 6 7 8 9 Peter Hambro Peter Alfiya Samokhvalova Karolina Subczynska Karolina Peter Hill-Wood Peter Pavel Maslovskiy Pavel Sir Malcolm Field Jay Hambro Maruta Andrey Maslovskiy Alexei Sir Rudolph Agnew Charles McVeigh Sir Roderic Lyne Lord Guthrie Lord Brian Egan Corporate Governance Statement CONTINUED

The Board continued The Board has appointed an Executive Committee, consisting of senior management, and has delegated to this committee the authority to make decisions relating to the day-to-day management of the Company and to ensure that the overall objectives and targets set out by the Board are achieved. The Executive Committee has the authority to approve transactions considered to be in the ordinary course of business and to approve expenditure and financial commitments in accordance with limits previously agreed by the Board. The Executive Committee has a duty to further the strategy, business objectives and targets established by the Board and to manage the Company’s operations, financial, administration, health and safety and environmental performance. The Executive Committee is also responsible for maintaining relationships with shareholders and other key stakeholders, for investigating merger and acquisition opportunities and for reviewing internal control and risk management. Further information on the Executive Committee is set out on page 69. Individual Directors may seek independent advice at the expense of the Company, subject to following an agreed procedure. The Company maintains appropriate Directors’ and Officers’ Liability Insurance. Chairman and Chief Executive The roles of Chairman and Chief Executive of the Company were not separated throughout the year under review as Peter Hambro fulfilled both roles until 22 April 2009 and therefore, prior to that date, the Company did not comply with the Combined Code requirement that the roles of Chairman and Chief Executive are separated and have been set out in writing. On 22 April 2009 Pavel Maslovskiy was appointed as Chief Executive of the Company whilst Peter Hambro retained the role of Chairman and therefore the Company currently complies with the relevant Combined Code requirement. The Chairman is responsible for: • running the Board, ensuring its effectiveness and setting its agendas; • ensuring there is appropriate delegation of authority from the Board to Executive Management; • ensuring that the Directors receive accurate, timely and clear information; • managing Board discussions; • facilitating the effective contribution of the Non-Executive Directors and ensuring a constructive relationship between all Directors; • ensuring development needs of Directors are met; • ensuring performance of the Board and Directors is evaluated at least once a year; • ensuring a clear structure and effective operation of the Board committees; • providing coherent leadership of the Company; and • ensuring the views of shareholders are communicated to the Board to ensure that Directors develop an understanding of their views.

The Chief Executive is responsible for: • developing Group objectives and strategy; • successful achievement of objectives and execution of strategy, following approval by the Board; • recommending the annual budget to the Board and ensuring its achievement; • examining all investments and major capital expenditure proposed by Group companies and, if material, recommending to the Board; • identifying and executing acquisitions and disposals; • identifying and executing new business opportunities; • managing the Group’s risk profile; • ensuring appropriate internal control procedures are in place; • ensuring effective implementation of Board decisions; and • supervising activities of Group subsidiaries.

64 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

& Accounts 2009 – 65 eport Petropavlovsk PLC Annual R PLC Petropavlovsk day running of the Group’s business; day running of the Group’s - to - leading the management team in the day team leading the management setting Group HR policies, including management development and succession planning for the senior executive team; planning for the senior executive management development and succession HR policies, including setting Group ensuring effective communication with shareholders; ensuring effective communication developing and recommending to the Board for approval and implementation the code of ethics of business practice, share dealing code, share and implementation the code of ethics of business practice, for approval the Board to developing and recommending policy, social responsibility policy, corporate relations policy, investor communications health and safety policy, risks and procedures, charitable donations policy; and leadership of the Group. coherent providing Board includes a balance of Executive and Non-Executive Directors such that no individual, or group of individuals, can dominate the Board’s Board’s the dominate can undue individuals, of without group or managed be can individual, no that composition such Board’s the balance and independence Board Directors to Changes Non-Executive and decision. of Executive powers Theof to be unwieldy. as experience and skills, but is not so large to contain a balance of believes that it has sufficient members The Board balance unfettered a has includes individual Board one No making. decision disruption. is satisfied that The Board of skills and experience. refreshing gradual ensure to under review the membership of committees keeps The Board key individuals. reliance on roles and that it is not placing undue to their to devote sufficient time have all Directors he Director the Non-Executive a review would not be viewed held office for the part who of the year under Directors as Under the Combined Code, one of the Non-Executive was guidelines, he Code time the at Combined as independent, was not considered Hambro independent under the Combined Code. Jay under therefore and Maslovskiy were and Pavel Hambro of which Peter of Aricom plc (now Aricom Limited), a Director was a past employee of the Company, was Directors Non-Executive all of that date, on 20 April 2009 and, since as a Director resigned Jay Hambro Hambro. had a family connection with Peter and also Directors, independent the comprise of that at least half the Board,should independent. The Combined Code recommends of the Company can be considered Directors the Non-Executive Chairman, consideration the after made be excluding will appointments new Company complies in this area. any and annually Directors the Directors. of Non-Executive appointment of additional independent the future will hold under review The Board independence the reviews Board The Directors. of independence to 61 of thereport on pages 54 situations is described in the Directors’ conflict of interest policy and management of potential The Board’s • • are Committee Audit the of members all that is recommends He Code Code. Annual Report. Combined Combined The the Code. under Combined the independent independent considered under are members of the Nomination Committee and four of the five Committee members of the Remuneration All three deemed is and Directors Director Non-Executive Independent Senior the as deemed independent. members are independent and all four members of the Audit Committee appointed been has Hill-Wood Peter or for which such contact resolve, the normal channels has failed to through if they have concerns which contact shareholders available to would be inappropriate. • The Chairman and Chief Executive are jointly responsible for: responsible jointly are Executive The Chairman and Chief • • by the Senior Led being present. Directors without the other Executive Directors holds discussions with Non-Executive The Chairman routinely the appraise at least once a year to meet without the Chairman present Directors the independent Non-Executive Director, Non-Executive performance of the Chairman. and in regular and participate is communication with shareholders there Communications ensure Head of External The Chairman and Group major shareholders. ongoing visits to Corporate Governance Statement CONTINUED

Appointments to the Board and the Nomination Committee The Board follows an induction procedure for the appointment of Directors, included in which is the offer to major shareholders to meet the newly-appointed Director. The Company has a separate Nomination Committee which is chaired by Peter Hambro. The other members are Graham Birch, Sir Malcolm Field, Peter Hill-Wood and Charles McVeigh. The Nomination Committee reviews the procedure for the appointment of new Directors, evaluates the balance of skills, knowledge and experience on the Board and makes recommendations to the Board. Appointments are made on merit and against objective criteria. In the case of candidates for Non-Executive Directorships, care is taken to ascertain whether they have sufficient time available to meet their Board and, where relevant, committee responsibilities. As part of this process, candidates disclose all other time commitments and, on appointment, undertake to inform the Board of any changes and undertake that they will have sufficient time to meet what is expected of them. The terms and conditions of appointment of all Directors are available for public inspection. No Director has a notice period of more than one year. As a result of the acquisition by the Company of Aricom plc in April 2009, the composition of the Board was reviewed. Details of the Directors who held office during the year are on page 55. Charles McVeigh and Graham Birch were appointed as Non-Executive Directors on 25 June 2009 and 12 February 2010 respectively. The Board made these appointments following consideration of a number of candidates including those proposed by an independent, external consultant. The Board agreed that Charles McVeigh and Graham Birch were the most suitable candidates, with the most relevant and appropriate experience for the role. The Chairman is a non-executive director of Russian Timber Group Limited, non-executive chairman of Sundeala Limited and a director of various subsidiaries of the Group. Details of his other commitments are disclosed on page 52 of the Annual Report and Accounts and changes to these commitments will be reported to the Board. Board committees The Board has established five committees and provides sufficient resources to enable them to undertake their duties. Membership of these committees as at the date of this report is shown below. Audit Remuneration Nomination HSE Risk Committee Committee Committee Committee Committee Non-Executive Directors Graham Birch1 Member – Member – Member Sir Malcolm Field¹ Chairman Chairman Member – – Lord Guthrie¹ – Member – Member Chairman Peter Hill-Wood¹ Member – Member Member Member Sir Roderic Lyne1 – Member – Chairman Member Charles McVeigh1 Member – Member – – Executive Directors Peter Hambro – – Chairman – – Brian Egan – – – – – Pavel Maslovskiy – – – – – 1 Considered an independent Director under the Combined Code. In addition the Company has appointed an Executive Committee, the members of which are Peter Hambro, Pavel Maslovskiy, Brian Egan, Dmitri Chekashkin, Jay Hambro, Yuri Makarov, Andrey Maruta, Alexei Maslovskiy, Alfiya Samokhvalova, Martin Smith, Karolina Subczynska and Andrei Tarasov. Terms of Reference of these committees are available on the Company’s website.

66 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

& Accounts 2009 – 67 eport Petropavlovsk PLC Annual R PLC Petropavlovsk qualified and experienced Company Secretary, who is responsible for informationresponsible who is experienced Company Secretary, qualified and 52 to 53 of the Annual Report. 53 52 to consisting solely of Non-Executive Directors, is responsible for reviewing the performance and determining the remuneration and conditions conditions and remuneration the determining and performance the reviewing for Committee and the Remuneration Remuneration responsible is Directors, Committee, the Remuneration remuneration, for Directors’ responsible ultimately are Committee and the Remuneration While the Board Non-Executive of solely consisting service is based on the Directors’ of remuneration The scale and structure and senior executives. Directors of employment of Executive elements of Performance-related and the performance of the Group. of shareholders the interests to paying due regard agreements, to policy is designed remuneration The Directors. of Executive package remuneration total of the form a significant proportion remuneration abstain from Directors operations. manage the Group’s to necessary with the skills and experience Directors retain and motivate attract, is discussed. The Remuneration at meetings when their remuneration not present and are their own remuneration decisions determining emoluments. policy and contains full details of Directors’ 81 of the Annual Report outlines the remuneration Report on pages 70 to In addition, Board committees are provided with sufficient resources, plus the power to obtain such additional support and professional professional and support additional such obtain to power the plus resources, sufficient with provided are governance guidance. corporate provides role. In addition, the Company Secretary the fulfil to in order required the ongoing formal training committees Board addition, In undertake their duties. time, to time to from advice as they may require - the services of a professionally access to have All Directors All Directors are required by the Company’s Articles of Association to submit themselves to shareholders for re-election at the first Annual General General Annual first the at re-election for shareholders to themselves submit to Association Re-election of Directors of Articles Company’s the on an ongoing basis. Directorships, including Executive management roles, succession plans for all key formally reviews The Board by required are Directors All years. In addition, the appointment of eachevery at least once three by rotation and thereafter their appointment by the Board Meeting after this Meeting. At at a forthcoming Annual General seeking re-election that Director prior to by other members of the Board is reviewed Director following their appointment to will stand for re-election Birch and Graham that Charles McVeigh Meeting, it is intended Annual General year’s Maslovskiy. Guthrie and Pavel Lord are by rotation retiring The Directors 2010 respectively. on 25 June 2009 and 12 February the Board included on pages are details of all Directors Biographical flows to the Board and its committees and between senior management and Non-Executive Directors, facilitating induction and assisting with facilitating induction and assisting Directors, and between senior management and Non-Executive and its committees to the Board flows and advising the Board and regulation and applicable laws procedure ensuring compliance with Board development as required, professional decision. is a Board of the Company Secretary The appointment or removal governance matters. on corporate their responsibilities discharge necessary to advice if considered professional independent take to for Directors procedure agreed is an There performance the for expense. at the Company’s and as Directors, responsible are Directors Non-Executive independent the and considers Director which Board, Executive the by each of is responsible Committee The Remuneration Directors. and Non-Executive for Executive follows a formal annual evaluation process review The Board to review prior performance Director the for Non-Executive Senior the evaluation of the Chairman. by reviewed and collated are the Directors whereby as a whole and for the committees, for the Board which a formal performance procedure evaluation has adopted The Board questionnaires complete the findings of the process. and reviews in resulting by the Board, and this was duly considered the Board the skill base of the issue of expanding raised The 2009 evaluation process key issues and the Board of the effectiveness of discussion to also made with regard Suggestions were Birch. the appointment of Graham and focus on such discussions. facilitate meeting to subsequently held a strategy Performance evaluation Performance for example, by regular briefings by executive management. The Company provides the necessary resources for developing and updating for developing and resources the necessary The Company provides management. executive briefings by by regular for example, is given each Director the Board, basis. On appointment to both on appointment and on an ongoing knowledge and capabilities, all Directors’ and is offered of the Group of the operations gain a full understanding to personnel of the Company in order meet key the opportunity to The Board is supplied with regular and timely information in a form and of a quality that enables it to discharge its duties. All Directors are are Directors All duties. its all discharge that to it ensures enables Chairman that The quality a of management. and or form a in Directors Executive information the of timely and regular appropriate with feel they as supplied is enquiries Board The further make to encouraged role,fulfil their to needed operations the Company’s knowledge, and develop the familiarity with their skills and continually update Directors Information and professional development professional Information and Corporate Governance Statement CONTINUED

Remuneration and the Remuneration Committee continued Where the Company releases an Executive Director to serve as a non-executive director elsewhere, the Remuneration Report includes a statement as to whether or not the Director will retain such earnings and if so, what the remuneration is. The Board approves the remuneration of the Non-Executive Directors, within the limits set in the Articles of Association. The level of remuneration for Non-Executive Directors reflects the commitment and responsibilities of the role. The Company’s current policy is that no compensation is payable when a Director’s appointment is terminated. The Company currently operates a Long Term Incentive Plan which was introduced following shareholder approval at the Annual General Meeting in 2009. This provides long-term incentives to Executive Directors and key employees. Accountability and Audit and the Audit Committee The Board and the Audit Committee pay careful attention to ensuring that all documents released by the Group and the Company, including the Annual Report and Financial Statements, present an accurate, balanced and understandable assessment of the Group and the Company’s position and prospects. The Board is responsible for the Group and the Company’s system of internal controls and conducts an annual review of their effectiveness. This review covers all material controls, including financial, operational and compliance controls and risk management systems. The Company has established an Audit Committee, which is a formally constituted committee of the Board with defined terms of reference. All of the members of the Audit Committee are considered independent under the Combined Code. The Board considers that two of the four members of the Audit Committee, Sir Malcolm Field and Charles McVeigh, have recent and relevant financial experience by virtue of their careers and membership of other Boards. The membership of the Committee is held under review. The Audit Committee meets at least three times a year and among its specific responsibilities are a review of the Company’s annual and half-yearly results, the review of the internal controls of the Group and ensuring that the financial performance of the Group is properly reported on and monitored. The Audit Committee routinely receives reports relating to the internal and external audit process and discusses matters relating to both the Company and consolidated accounts and internal control. The Company’s Internal Auditor reports directly to the Audit Committee and this supplements all the other management reporting, discussion of risk and reports provided to the Audit Committee and the Board by management and by the External Auditors on an ongoing basis. Action will be taken where necessary to remedy any significant failings and weaknesses identified in the review of effectiveness of the internal control system. The Audit Committee is responsible for making recommendations to the Board relating to the appointment, re-appointment and removal of the External Auditors, and for the review of the policy for the provision of non-audit services, taking into account the objectivity and independence of the External Auditors. The Audit Committee reviews the non-audit services provided by the External Auditors and seeks confirmation from them that objectivity and independence is maintained. The External Auditors attend all Audit Committee meetings and this confirmation is provided by both written reports and verbal explanations at meetings. The Audit Committee has reviewed arrangements by which the Company’s employees may, in confidence, raise concerns about possible improprieties. A whistleblowing policy has been adopted by the Board. The Audit Committee report on pages 82 to 84 of the Annual Report summarises the role of the Audit Committee and work undertaken by it. Health, Safety and Environmental Committee (“HSE Committee”) The HSE Committee consists of three Non-Executive Directors and is responsible for evaluating the effectiveness of the Group’s policies and systems for identifying and managing health, safety and environmental risks within the Group’s operations and for ensuring compliance with health, safety and environmental regulatory requirements. The HSE Committee is also responsible for the assessment of the performance of the Group with regard to the impact of health, safety, environmental and community relations, decisions and actions. Petropavlovsk’s environmental, health, safety and social policies are designed to comply with both Russian regulatory requirements as implemented under the supervision of the Environmental Protection Agency of the Russian Federation (“Rosprirodnadzor”) and with international good practice. The Company uses all reasonable endeavours to comply with Global Reporting Initiative, the International Finance Corporation (“IFC”) performance standards on social and environmental sustainability as well as with the IFC Environmental, Health and Safety (“EHS”) guidelines.

68 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

& Accounts 2009 – 69 eport to the Consolidated Consolidated the to 30 n Note Petropavlovsk PLC Annual R PLC Petropavlovsk day management of the Company and for ensuring that the overall objectives and targets set out by the Board are achieved. are set out by the Board objectives and targets that the overall day management of the Company and for ensuring - to the Group. their encourage and to investors with communicate Meeting to use the Annual General to boards The Combined Code encourages given the are and shareholders Meeting the Annual General attend as possible to as many shareholders welcomes participation. The Board with or concern, including performance, governance or strategy, discuss any issues of interest Meeting to opportunity at the Annual General the balance for and against and lodged on each resolution, the Chairman will announce the level of proxies meetings, general At the Directors. Meeting in respect at the Annual General be proposed will resolution it has been dealt with on a show of hands. A separate after abstentions, Risk Nomination Committee, Committee, Remuneration issue. The Chairman of the Audit Committee, of each substantially separate those committees. to relating will deal with matters and HSE Committee Committee and signed on its behalf by: PLC of Petropavlovsk of Directors by the Board was approved This report Heather Williams FCIS Company Secretary 2010 24 March have regular and ongoing communication with shareholders throughout the year, by participating in investor roadshows, visits to shareholders shareholders to visits roadshows, investor in analysts the with participating contact by shareholders regular year, offers the have also routinely Relations with shareholders throughout discuss Directors to Chairman The the shareholders Director Board. with the addition, is to In Independent communication reported Senior of objectives. The Directors based on the mutual understanding shareholders a dialogue with institutional The Combined Code encourages is Communications the shareholders. or ongoing visits major and External of these of regular views Head from Communications the have of Group Feedback The External of raise. Head updates. understanding to Group wish their and scheduled half-yearly the aids which himself, shareholders either brokers, matters with and other any meetings or of opportunity remuneration strategy, governance, and analysts. its shareholders between the Group, for ensuring the maximum possible level of transparency responsible of information about and contains a wide range updated which is regularly at www.petropavlovsk.net The Company maintains a website The Company has established procedures to ensure that all transactions with related parties are reviewed and approved by members of the the of members by approved and reviewed are parties related with transactions all that ensure to partyRelated transactions procedures established has Company The of membersreviewed by a committee are transactions appropriate, Where in the given transaction. have no conflict of interest who Board given i are party transactions details of the related Full independent of the transaction. who are of the Board The Executive Committee ensures that the Board is kept up to date on all material events and makes recommendations regarding business business regarding recommendations makes and events material all on date to up kept is approves Board also the that Committee The ensures risk. of Committee review and Executive The assessment the for of the Company. and control direction objectives and the strategic responsible is and performance financials, administration, operations, between senior managers, manages the Company’s coordination ensures Committee The Executive environmental and safety and health with commitments in accordance and other financial expenditure course of business, approves in the ordinary be to considered transactions merger investigates stakeholders, and other key with shareholders funding position, maintains relations the budget, manages the Company’s the adequacy of and reviews and risk management control on internal the Board to and acquisition opportunities, recommendations makes and management. control and effectiveness of internal arrangements reporting The Executive Committee consists of the three Executive Directors and nine members of Senior Management and is responsible for the the for responsible is and Management Senior of members nine and Directors Executive three the of consists Committee Executive The day- Executive Committee Executive Financial Statements. The Risk Committee consists of four Non-Executive Directors and is responsible for the review of key risk areas and of the identification, risk areas of key for the review and is responsible Directors of four Non-Executive consists The Risk Committee management strategy the risk regarding the Board to recommendations makes risks. The Risk Committee of key evaluation and management for is also responsible The Risk Committee any weaknesses. address of any actions as may be necessary to including the recommendation controls. of internal of and monitoring and assessment of the effectiveness within the Group of risk management principles the reinforcement each meeting. after the Board to reports The Risk Committee Risk Committee Committee Risk Directors’ Remuneration Report

1 Introduction This report sets out the Company’s remuneration policy for Directors. It provides details of the Remuneration Committee and its duties relating to remuneration, a description of the remuneration policy of the Company and details of the remuneration of all Executive Directors and Non-Executive Directors for the year ended 31 December 2009. The Board has prepared this report in accordance with the requirements of the Listing Rules of the Financial Services Authority and the Companies Act 2006. An Ordinary Resolution to approve this report will be put to the members at this year’s Annual General Meeting, but the Directors’ remuneration is not conditional upon the resolution being passed. Deloitte LLP have audited the following items as required by law: • The tables of Directors’ remuneration and associated footnotes on pages 78 to 80; and • The tables of Directors’ share options on page 73 and the disclosure of awards to Directors under the LTIP on page 76.

2 Remuneration Committee

2.1 Membership The current members of the Remuneration Committee (the “Committee”) are: Sir Malcolm Field (Chairman of the Committee) Sir Roderic Lyne Lord Guthrie The following Non-Executive Directors were members of the Committee during 2009: Sir Malcolm Field (22 April 2009 onwards) Sir Rudolph Agnew (resigned as a Director and member of the Committee on 2 June 2009) Lord Guthrie Peter Hill-Wood (until 22 April 2009) Sir Roderic Lyne (from 25 June 2009) The Committee met seven times during 2009 and members’ attendance is set out on page 63 of these Financial Statements. During 2009, the Chairman of the Company and the Company Secretary participated in six of the meetings of the Committee, at the invitation of the Chairman of the Committee. Neither were present when issues relating to their own remuneration were discussed. Attendance of other Directors is set out on page 63 of these Financial Statements. No Director is involved in deciding his own remuneration.

2.2 Role of the Committee The Committee is responsible for determining and agreeing with the Board the framework and policy for the remuneration of the Company’s Chairman, Chief Executive, Finance Director, any newly appointed Executive Director and Company Secretary and for members of the Executive Committee. The Committee is also responsible (in consultation with the Chairman and Chief Executive as appropriate) for determining the total individual remuneration package of each Executive Director and for reviewing annually the management proposals for the Executive Committee members, including participation in the Long Term Incentive Plan. The Committee is responsible for the review of the performance of the Executive Directors and can also make recommendations to the Board concerning employee incentives. The overriding objective of the Committee is to ensure that the Company’s approach to remuneration is simple, clear and fair. During the year ended 31 December 2009, in addition to the above and to routine matters, the Committee undertook a review of the remuneration policies and arrangements of the Company and Aricom plc (now Aricom Limited) and formulated a consolidated remuneration policy following the acquisition by the Company of Aricom plc, introduced new terms of reference and recommended to the Board the introduction of a Long Term Incentive Plan. As a result of the acquisition by the Company of Aricom plc, the composition of the Board changed with resignations and appointments taking effect in April 2009. Details of the changes may be found in the Directors’ report on pages 54 to 61 and the salaries/fees of Directors’ disclosed in this report reflect these changes. The Committee will hold under review remuneration trends and market practice (for example, deferred bonus provisions with clawback clauses) and will give due consideration as to whether the application of market trends may be relevant and appropriate for the Company. The Committee’s responsibilities are set out in its terms of reference, which are available on the Company’s website.

70 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

& Accounts 2009 – 71 eport Petropavlovsk PLC Annual R PLC Petropavlovsk 40% respectively. based annual bonus payments; and - based pay and fixed pay would be approximately 60%: pay would be approximately based pay and fixed term share option incentives. share term - Remuneration policy Remuneration Executive Directors’ remuneration Directors’ Executive Advisers to the Committee Advisers to Corporate Governance Corporate Review of effectiveness performance benefits-in-kind including pensions; long basic annual salary; the incentive structure for Executive Directors and senior executives will not raise environmental, social or governance (“ESG”) risks by environmental, will not raise and senior executives Directors for Executive the incentive structure on is no restriction there structure, remuneration the overall to with regard generally, More behaviour. motivating irresponsible inadvertently due account takes and the Committee governance on ESG matters account corporate taking into it from which prevents the Committee risk when structuring incentives. operational of issues of general In line with the Association of British Insurers’ Guidelines on Responsible Investment Disclosure, the Committee will seek to ensure that ensure will seek to the Committee Guidelines on Responsible Investment Disclosure, In line with the Association of British Insurers’ • • • • remuneration and bonus payments made or awarded to executive management in 2009, the Committee has taken into account the the account into taken has Committee the 2009, in management requirements. as well as developing Group industry account of changing market, circumstances, and economic take to executive to awarded or made package consists of basic salary, annual bonus and other benefits. In considering the remuneration total payments Director’s Each Executive bonus and remuneration Stock of the London the Main Market Company of Aricom plc and the move to the successful acquisition by the contribution made towards management who and those of the executive of shareholders considers the alignment of the interests carefully The Committee Exchange. value. shareholder have created and senior management Directors of the Executive of the remuneration policy is that a substantial proportion the Company’s As a result, is that the split between expectation the Committee’s remuneration, Directors’ In structuring the Executive should be performance-related. performance- and senior management: Directors package for Executive elements of the remuneration four main are There The Committee recognises that to achieve its business objectives, the Group and its performance depends on the quality of its employees employees its of quality the on depends performance its and Group the objectives, business its policy Board achieve to that recognises Committee The and retain motivate attract, packages to competitive remuneration provide designed to policy is therefore remuneration and the Group’s and its ongoing appropriateness ensure to policy under constant review the remuneration keeps Committee The executives. high-calibre 3 3.1 2.3 of the current an independent review M C Lutyens Consulting Services which conducted advice from took the Board During the year, Lutyens M C bonus and benefits policy and process. a formal remuneration, with the development of and assisted structure remuneration regard Rose LLP with Norton advice from took also The Committee the Group. any other services to Consulting Services does not provide The Committee is of the view that its terms of reference cover the main duties set out in The Combined Code on Corporate Governance Governance Corporate on the Code of Combined The requirements in the out set with duties main accordance in the cover constituted is reference of Committee terms The its 2008. that June view in the of is Council Committee Reporting The Financial the by published deemed independent under the Combined Code. Combined Code since all of its members are 2.5 As part of the review of effectiveness, the Committee’s terms of reference are held under review to ensure that they remain relevant andrelevant remain that they to ensure review held under are reference terms of of effectiveness, the Committee’s As part of the review at www.petropavlovsk.net. website available on the Company’s during the year and are adopted were of reference terms New appropriate. is as a whole. The Committee itself and by the Board review by the Committee to ongoing is subject The effectiveness of the Committee at maximum it is operating ensure to of reference its own performance, constitution and terms review to at least once a year, required, to the Board. recommend any changes it considers necessary effectiveness and of reference. performed the duties set out in its terms has satisfactorily is that the Committee The view of the Board 2.4 to the establishment of the Company’s Long Term Incentive Plan. Term Long the establishment of the Company’s to surveys market and independent salary including reviews, of sources range a from on information also draws The Committee published guidance. Directors’ Remuneration Report CONTINUED

3.1 Executive Directors’ remuneration continued Executive Directors are entitled to accept appointments outside the Company providing that the Chairman’s permission is obtained in advance of any such appointment. Details of fees retained for appointments to other listed companies are on page 76 and biographies of the Directors are on pages 52 to 53. Details of the Executive Directors’ remuneration package are set out below in the table on page 79 of these Financial Statements.

Remuneration components Basic salary The basic salary of the Chairman and the Executive Directors is targeted relative to industry average levels for comparable roles in similar companies in terms of market sector, location, business complexity and size. Market data and remuneration surveys are used to benchmark salary levels. Basic salary levels are set by reference to the individual’s performance, experience and any other relevant factors and are reviewed annually or when an individual changes position or responsibilities. The review takes into account market trends, Company performance, any changes in the responsibilities of the individual, the performance of the individual in their role, any changes required to meet the principles of the remuneration policy and the Company’s market competitiveness. Executive remuneration packages should be designed to attract, motivate and retain Directors and senior management of the calibre needed to develop and run the Group’s businesses and to reward them for enhancing value for our shareholders.

Bonus The amount of the bonus paid to an individual is determined by reference to achievement against annual performance targets which include measures of corporate performance. The approach is designed to ensure that the annual bonus reflects the financial results of the Company and also the performance of individuals. The Committee establishes specific objectives that must be met for each financial year if a performance-related bonus is to be paid. The objectives for 2009, applicable for the period since the Company’s acquisition of Aricom plc in April 2009, are shown below. The Committee believes that any incentive compensation awarded should be tied to the interests of the Company’s shareholders and account is also taken of the overall relative success of the business and the extent to which the strategic objectives set by the Board are being met. The maximum performance-related bonus that can be paid is 150% of basic annual salary for the Chairman and the Chief Executive and 100% of basic salary for all other Executive Directors. In exceptional circumstances, which will be specifically described, the Committee can award bonuses above the agreed percentage.

Bonus Awards 2009 The objectives and achievements for 2009 covered the following: • Successful execution of the acquisition of Aricom plc by the Company, integrating UK and Russian operations; • Delivering above 2009 budget EBITDA for the merged company with particular references to production targets (oz), gross margin and cost ratios; • Achieving the planned dates for opening new mines and developing existing assets; • Establishing for the merged company a strategic plan to deliver shareholder value through effective use of cash resources; and • Ensuring reserves and resources are classified under JORC and advised to the market.

A bonus award of 70% of bonus potential was made to the three Executive Directors following successful delivery of objectives as follows: • EBITDA – the target of US$221 million was met for 2009; • New debt facilities of US$210 million achieved; • Pioneer Phase 2 in September 2009 – on time and on budget; • Successful re-branding programme following the acquisition of Aricom plc; • Execution of the acquisition of Aricom plc, generating an integrated company in both the UK and Russia; and • On course to deliver reserves and resources reporting in compliance with the JORC code and to advise to the market in the first half of 2010.

72 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information – Number of of Number Ordinary Shares Shares Ordinary under option as at at as option under 31 December 2009 Petropavlovsk PLC Petropavlovsk & Accounts 2009 – 73 eport Total gain gain Total of options options of on exercise exercise on during the year

156,250 £718,727 Exercised onExercised price of £6.72 at an exercise at an exercise 19 October 2009 2009 October 19 Petropavlovsk PLC Annual R PLC Petropavlovsk

– the year Granted duringGranted acquisition acquisition Number of of Number following the the following under option of Aricom plc plc Aricom of Ordinary Shares Shares Ordinary term interests of participantsof our shareholders. with those interests term Petropavlovsk PLC Petropavlovsk Number of Aricom plc 2,500,000 156,250 (granted at nil nil at (granted consideration) ordinary shares shares ordinary 1 January 2009 under option as at at as option under term incentives to Executive Directors and senior management and operates in conjunction with an and senior management and operates Directors Executive to incentives term term benefits. The LTIP aligns the long- The benefits. term Long Term Incentive Plan Term Long Share option schemes Share performance share awards, being awards delivering free shares granted as conditional awards or nil-cost options options nil-cost or awards conditional as granted shares free service delivering (“Options”);continuing grant at the time of value of a share not less than the market price per share options with an exercise awards upon being conditional awards, and share bonus annual performance of lieu in shares of and Awards”); Share (“Performance award an being awards, bonus deferred Bonus Awards”) (“Deferred

Employee Benefit Trust to provide an effective and flexible means of holding assets for the benefit of employees and their families an effective and to provide Trust and Employee Benefit valuable long- providing Former Director: Former Jay Hambro Meeting held at the Annual General by shareholders which was approved Incentive Plan (“LTIP”) Term a Long operates The Company currently long- provides on 25 June 2009. The LTIP 3.3 The market price of the Ordinary Shares at 31 December 2009 was £10.26 and the range during the year was £3.71 to £13.16. during the year was £3.71 to at 31 December 2009 was £10.26 and the range Shares price of the Ordinary The market (the “Awards”): award for the following types of share provides The LTIP a) b) c) 3.2 participants in the Aricom directors’ to 231,250 options in aggregate grant to the acquisition of Aricom plc, the Company agreed to Pursuant them under to awarded for Aricom shares in exchange for part of the Company of the year, scheme, one of whom was a Director option share under the Aricom plc scheme and were granted since they were performance criteria not subject to of that scheme. Options are the terms and conditions the terms no variations to were There the award. at the time of granting the rules of the Aricom plc scheme in place subject to during the financial year. or performance criteria options in the Company as follows: of the Company held and exercised one former Director During the year under review, Chairman remuneration. Directors’ policy on Executive with the Board in accordance annually by the Committee, reviewed fees are The Chairman’s Other benefits include medical insurance, professional fees, death in service benefits, ill health benefits, accommodation allowances and allowances accommodation benefits, health ill benefits, service in death fees, professional Other benefits insurance, medical include benefits Other applicable. where expenses All Executive Directors and all employees (on UK contracts) are invited to participate in the Company’s defined contribution pension scheme scheme pension contribution defined Company’s the in participate to invited are contracts) UK (on Pensions employees all and Directors Executive All of basic salary, 3% of salary subject to between 5% and 12.5% and the individual contributes contributes Company currently the whereby between 5% and 10% of salary and the individual contributed the year ended 31 December 2009, the Company For certain exceptions. 3%. contributed Financial Statements. set out in the table on page 79 of these are Directors Details of amounts paid to Bonus payments to the Executive Directors for the year ended 31 December 2009 varied between 70% and 105% of their basic salary ended 31 December 2009 varied between for the year (being Directors the Executive Bonus payments to 79. shown in the table on page details are 2009. Further between 100% and 150%) as at 31 December of bonus potential 70% of the total these Financial Statements. set out below in the table on page 79 of are Directors of the bonuses paid to Details of the amounts Directors’ Remuneration Report CONTINUED

3.3 Long Term Incentive Plan continued Awards will be made at the discretion of the Board on recommendation by the Committee, or in the case of the Company’s Executive Directors, at the discretion of the Committee. The LTIP may be operated in conjunction with the Company’s employee benefit trust whereby awards of shares may take the form of conditional allocations of shares held by the trustee for the benefit of employees and their family members. The vesting of allocations will be subject to the conditions described below. Awards under the LTIP vest three years from the date of grant and are subject to challenging, pre-set performance conditions (see below) determined by the Committee, having regard to market practice within the Company’s business sector, and in the case of Awards granted to the Company’s Executive Directors, relating to the overall performance of the Company.

Key Features of the LTIP • At any time, the total number of shares which have been issued or remain issuable pursuant to grants made under the LTIP and under any other employees’ share scheme established by the Company, may not exceed 10% of the shares in issue at that time. For the purposes of this limit, treasury shares will be treated as issued and shares which are the subject of lapsed awards shall be excluded. • No payment is required for the grant of an Award. • If the Company makes a distribution (including by way of dividend) to its shareholders between the grant of a Performance Share Award or Deferred Bonus Award and the date on which shares are received pursuant to the award, the Committee may, in its absolute discretion, determine that the number of shares subject to the Award shall be increased to reflect the value of the distribution which would have been paid on the shares subject to the Award had such shares been held by the awardholder. • Options will have an exercise price per share not less than the market value of a share at the time of grant. • The aggregate market value of shares subject to Options and Performance Share Awards granted during any financial year of the Company to an individual shall not exceed 200 per cent. of his basic salary (measured at the time of grant). However, in exceptional circumstances (such as a senior executive’s recruitment), this limit may be exceeded provided that grant levels will remain within a maximum approved by the Committee. • Options and Performance Share Awards may be exercised or shall vest (as the case may be) subject to the following conditions: (i) the awardholder remaining in service with the Company or any of its subsidiaries (together, the “Group”) for such period as the Committee shall determine being not less than three years from the date of grant; and (ii) satisfaction of appropriate and challenging performance conditions determined by the Committee, having regard to market practice within the Company’s business sector and relating to the overall performance of the Company. • Options or Performance Share Awards structured as nil-cost options shall lapse on the tenth anniversary of grant to the extent unexercised.

Performance Conditions During 2009, the Committee granted Performance Share Awards and for those awards the Committee has approved that the following performance conditions shall apply: (i) 50% of the shares subject to the Performance Share Award shall vest based on a condition relating to total shareholder return (the “TSR Condition”); and (ii) 50% of the shares subject to the Performance Share Award shall vest based on specific conditions relating to the Company’s business development and strategic plans (the “Operating Conditions”). The TSR Condition will relate to growth in total shareholder return (“TSR”) over the three year period from the date of grant until 30 June 2012 relative to the TSR growth of companies in a selected peer group of listed international mining companies (the “Comparator Group”).

TSR Condition The TSR Condition provides for vesting as follows: Company rank within the Comparator Group Percentage of shares which may be acquired, depending on TSR Condition within top decile 50% at median 25% below median Nil

The number of shares which may be acquired on performance by the Company above median but below top decile shall be determined on a straight-line interpolation between the relevant percentages.

74 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information & Accounts 2009 – 75 eport Petropavlovsk PLC Annual R PLC Petropavlovsk quality resources; successful construction and development of existing assets; existing successful construction and development of targets; production budgeted meeting and exceeding safe and efficient mining operations; operating the business; and throughout control cost operating strong acquisition of Aricom plc. recent the from benefits synergy generating Group; the underlying financial performance of of the the performance achieved is a genuine reflection and and licence requirements; with regulatory respects has complied in material the Group relations. good management of shareholder the Company has demonstrated acquisition and development of new high- for any other reason which the Board in its absolute discretion permits. In the case of Options or Performance Share Awards, such Awards will will Awards such Awards, Share performance Performance the or that Options of determines case Cessation of Employment/ Change of Control the In Committee the permits. which to discretion extent by reason be employed by the Group ceases to the case may be) if an awardholder vest (as or immediately shall become exercisable the Awards absolute on its based in be) Board may the or winding-up of the Company or change of control case in the event of a takeover, retirement, of his death, injury, ill-health, disability, redundancy, which the (as reason vest other any for immediately or exercisable become the reflect down to shall be pro-rated Awards all relevant subject to be met. The number of shares to likely conditions have been met or are with the acquiring company, be exchanged may, by agreement Awards service of control, period. In the event of a takeover/change reduced Deferred Bonus Awards Deferred annual bonus shallto 100% of an eligible employee’s that up Company determine of any financial year of the may in respect The Committee for suchremaining in service with the Group to the awardholder which shall vest subject Award, Bonus of a Deferred be satisfied by the grant of grant. the date being not less than 12 months from shall determine period as the Committee (ii) (iii) (iv) (v) (vi) is satisfied that: shall not vest unless the Committee Awards Share In addition, the Performance (i) remain (ii) conditions performance the whether (iii) review will Committee the years, of the objectives achieved at publish details to expects the Committee sensitive, however, commercially The full details of these conditions are future in granted Options the time of vesting. or Awards Share Performance For demanding. less no be to may adopt revised The Committee interests. outlook and shareholders’ account the industry’s and challenging taking into appropriate considers it which conditions, consider that any established performancehas become unfair in either direction condition to events occur which cause the Committee Where or new condition is, in the such revised provided it deems appropriate such condition as may amend or replace the Committee or impractical, to satisfy. and no less difficult opinion, no more Committee’s The Committee has approved the Operating Conditions to be measured over the period of three years from grant. The detailed requirements requirements detailed The grant. from years three of period the over measured be to Conditions Conditions Operating Operating the approved has Committee The to: and will relate upon grant awardholders to Conditions will be communicated of the Operating (i) Corporation, Compañía de Minas Buenaventura S.A.A., Coeur d’Alene Mines Corporation, Eldorado Gold Corporation, Ferrexpo plc, Gindalbie Gindalbie plc, Ferrexpo three the of TSR reinvested. during the performance period are assuming that net dividends declared price and in share by taking growth is calculated TSR days Corporation, Gold dealing Eldorado consecutive and last 30 over the first shall be calculated and companies in the comparator values for the Company Corporation, Mines d’Alene year performance period. Coeur S.A.A., Buenaventura whose or Barrick Gold Minas Limited, Iron Atlas Alamos GoldInc., AngloGold Ashanti Limited, Mines Ltd, comprises Agnico-Eagle Group The Comparator de exist to Compañía or quoted be Corporation, to ceased has which Gold Kinross plc, IAMGOLD Corporation, Hochschild Mining Inc., Highland Gold Mining Ltd, Goldcorp Gold Fields Ltd, Metals Ltd, member a Group Gold and OJSC, Polyus Comparator Polymetal, OJSC Newmont Mining Corporation, Metals Limited, Plc, Murchison Mining London Corporation, the from remove plc. Gold Trans-Siberian discretion, sole its at may, Committee The add significantly diminished and may also, at its discretion, has, in the opinion of the Committee, Company as a comparator the to relevance Company. of or otherwise) member addition will enhance the relevance if it believes that such the a removed replace to (whether Group the Comparator to to Group Comparator the Directors’ Remuneration Report CONTINUED

3.3 Long Term Incentive Plan continued for awards over shares in the acquiring company. In the event of an internal re-organisation of the Company, all Awards will be automatically exchanged for equivalent awards subject to the terms of the LTIP over an appropriate number of new securities. If an awardholder ceases employment for any other reason prior to his Award vesting or becoming exercisable, his Award will lapse immediately on cessation of employment.

2009 Awards During the year, the following award was made to a Director of the Company: Number of Number of Petropavlovsk Petropavlovsk Ordinary Shares Ordinary Shares subject to awards subject to as at date of awards as at appointment as a Awards granted Awards vested 31 December Name Director during the year during the year Vesting date 2009 6 February 20102 and Brian Egan1 53,8462 58,3333 Nil 25 June 20123 112,179 Notes: 1 Appointed as a Director 22 April 2009. 2 Pursuant to the acquisition of Aricom plc, the trustees of the Company’s employee benefit trust granted an award to Brian Egan in the form of a conditional allocation of 53,846 Petropavlovsk Ordinary Shares (which were not subject to any performance criteria) for the benefit of the awardholder and his family since these awards were made in exchange for an award held over Aricom plc ordinary shares under the Aricom plc Long Term Incentive Plan. The allocation, which was subject to continued employment, vested in February 2010. The market price of a Petropavlovsk Ordinary Share on the date of grant of the replacement allocation (22 April 2009) was £5.36 and on the date of vesting (6 February 2010) was £8.58. 3 On 25 June 2009, awards were granted by the trustees of the Company’s employee benefit trust under the Petropavlovsk Long-Term Incentive Plan, in the form of a conditional allocation of Petropavlovsk Ordinary Shares for the benefit of the relevant Director and his family. Subject to the attainment of performance conditions (as set out at above) and continued employment, the allocation will vest on 25 June 2012. The market price of a Petropavlovsk Ordinary Share on 25 June 2009 was £6.00. Upon vesting on 25 June 2012, subject to the attainment of performance conditions, the shares may be acquired for nil consideration. Awards were also made to executive management within the Group. Peter Hambro and Pavel Maslovskiy did not participate in the LTIP. 3.4 External appointments Executive Directors are not permitted to hold external directorships or offices of other fully-listed or AIM-listed companies without the prior approval of the Board. If such an approval is granted, they may each retain the fees payable from such appointments (see below). The Board believes that the appointment of any Director as a non-executive director of another company can broaden their experience and knowledge, to the benefit of the Group. In the case of companies where any conflict of interest may occur, the Director concerned is required to declare such interest to the Board and to abstain from participating in any discussions or voting on such matters. During the year ended 31 December 2009, the following external directorships of listed companies were held by the Executive Directors of the Company who held office during the year: Fee paid for the External year ended Appointments to 31 December Executive Directors who held office during 2009 Listed Companies 2009 Peter Hambro1 Aricom plc2 £20,000 Brian Egan1 Aricom plc3 – Andrey Maruta4 None – Alexei Maslovskiy4 None Pavel Maslovskiy1 Aricom plc2 £36,667 Alfiya Samokhvalova4 None – Karolina Subczynska4 None5 – 1 Director of Aricom plc until the acquisition by the Company on 22 April 2009. Brian Egan remains a Director of Aricom Limited (formerly Aricom plc), now a Petropavlovsk Group subsidiary, but does not receive a fee for this directorship. 2 Until the acquisition by the Company of Aricom plc, Aricom plc was considered a connected party to Peter Hambro and Pavel Maslovskiy as a result of their shareholdings and directorships in that company. 3 Brian Egan received a director’s salary from Aricom plc between 1 January 2009 and 21 April 2010 but, since he was not a Director of the Company during that period, no disclosure is required. 4 Resigned as a Director of the Company on 20 April 2009. 5 Karolina Subczynska was a director of Aricom Services Limited, a subsidiary of Aricom plc and received an annual fee of £305 for the period from 1 January 2009 to 20 April 2009, when she resigned as a Director of Petropavlovsk PLC.

76 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information & Accounts 2009 – 77 eport calibre executives, it must also ensure it must also executives, calibre Petropavlovsk PLC Annual R PLC Petropavlovsk performing Board. The fees payable to Non-Executive Directors with effect from 1 January 2010 are set out on page 81 and 1 January 2010 are with effect from Directors Non-Executive The fees payable to performing Board. Terms of appointment Terms Non-Executive Directors’ remuneration Directors’ Non-Executive Non-Executive Directors Non-Executive of appointment setting out their duties and years, have formal letters of three for an initial term appointed who are Directors, Non-Executive Meeting. office and at the Annual General registered available for inspection at the Company’s are These letters responsibilities. for compensation payable on early appointment arrangements Directors’ Non-Executive in any of the current no provisions are There only. fee basic to by paying in lieu of the notice period with such pay in lieu being limited The appointments can be terminated of their directorship. termination Director’s Non-Executive the Each of the Executive Directors has a service contract with the Company. It is the Group’s policy that Executive Directors’ service contracts contracts service Directors’ Executive that policy Group’s the is It Company. the with Executive the contract to service a limited Directors Executive has being the in lieu Directors in pay instalments such Executive the with monthly of in period Each payment notice the the of make lieu and/or in termination giving a maximum of 12 months’ notice. capable of term, but are have no fixed paying payment by this back terminated claw be to can right of their on early termination for compensation payable appointment arrangements Directors’ the in any of the Executive no provisions are There has appointments The Company The only. directorship. salary basic Director’s loss. his employment and mitigates finds alternative event that the Director At each Annual General Meeting, one third of Directors are required to retire and stand for re-election and, in addition, all those Directors who and, in addition, all those Directors and stand for re-election retire to required are of Directors Meeting, one third Annual General each At office and, being eligible, will standfrom retire for re-election shall or last since their election years or more have been in office for three At this year’s Meeting following his appointment by the Board. at the first Annual General re-election is subject to Each Director re-election. on 25 June 2009 and following their appointment will stand for re-election Birch and Graham Meeting, Charles McVeigh Annual General Maslovskiy. Guthrie and Pavel Lord are by rotation retiring The Directors 2010 respectively. 12 February 4 No consideration was paid to or became receivable by third parties for making available the services of any person as a Director of the the of Director a as person any of services the available making for parties third by receivable parties third Sums paid to became or to paid was consideration No nil). 31 December 2009 (2008: Company during the year to Fees set out below in the table on page 79 of these Financial Statements. are Directors Non-Executive Details of the fees paid to Non-Executive Directors’ remuneration is approved by the Board as a whole on the recommendation of the Chairman. Non-Executive an to contribute necessary to of Director the calibre set at a level that will attract are Directors for Non-Executive rates Non-Executive that remuneration Chairman. the of effective and high- recommendation the on whole these fees during 2010. increase to does not intend the Board a as Board the by approved is other benefits. receive or to pension arrangements in the Group’s participate to not eligible are Directors Non-Executive remuneration Directors’ Non-Executive responsibilities and time spent by the Directors the reflect set to are own fees. Fees their to in discussions relating participate do not Directors on the affairs of the Company. market-competitive. they remain ensure fees annually to Directors’ Non-Executive reviews The Board 3.5 policy Board £1,000,000 per annum. in the Articles of Association is currently Directors Non-Executive remunerate to sum available The maximum aggregate The current sum during 2010. this aggregate to increase the Articles of Association to an amendment to propose plans to no current are There an annual fee of £90,000. each receive Hill-Wood is £87,550. Sir Malcolm Field and Peter Director Non-Executive basic annual fee for each high- and retain attract levels to must set remuneration is conscious that, just as the Group The Board Directors’ Remuneration Report CONTINUED

4 Terms of appointment continued

Notice periods Notice periods for Directors are as follows: Date of Contract Notice period Executive Directors Peter Hambro 1 September 2009 12 months Pavel Maslovskiy 1 September 2009 12 months Brian Egan 21 April 2009 12 months Non-Executive Directors Graham Birch 12 February 2010 3 months Sir Malcolm Field 21 April 2009 3 months Lord Guthrie 21 April 2009 3 months Peter Hill-Wood 21 April 2009 3 months Sir Roderic Lyne 21 April 2009 3 months Charles McVeigh 25 June 2009 3 months

Directors’ letters of appointment and service contracts are available for inspection at the Company’s registered office and at the Annual General Meeting.

5 Table of emoluments Aggregate Directors’ remuneration The total amounts for Directors’ remuneration were as follows: 2009 2009¹ 2008 2008¹ £’000 US$’000 £’000 US$’000 Emoluments 1,651 2,580 1,762 3,239 Contributions to personal pensions 41 64 27 50 Other benefits 13 20 852 156 Bonus payments 2,198 3,434 926 1,702 Total 3,903 6,098 2,800 5,147 1 Rates of exchange used: 2009: £0.64: US$1; 2008 £0.54: US$1 (average exchange rate throughout the year). 2 A termination payment of £85,000 was paid to Philip Leatham, a former Director of the Company, following his resignation on 30 September 2008.

78 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information 1 £

Total Total 10 10 –– –– –––– Total 2008 Total £ US$

£ & Accounts 2009 – 79 80,940 148,760 85,000 156,222 61,000 112,112 85,000 156,222 147,419 270,941 352,973 648,728 371,386 682,570 294,474 541,214 153,750 282,577 593,029 1,089,928 465,690 855,893 575,474 1,057,663 390 390 489 489 139 139 270 270 2,334,755 4,291,044 2,800,445 5,146,937 1 eport Medical Insurance 630,164 630,164 136,797 136,797 138,073 £ – – – – Total 2009 Total £ US$ 8,000 4,194 12,194 58,33336,825 91,145 57,539 19,198 29,997 50,85045,159 79,453 70,561 87,550 88,367 157,789 246,545 219,720 343,313 386,282 603,565 1,144,734 1,788,647 1,138,339 1,778,655 9 Accommodation Accommodation £ – – Petropavlovsk PLC Annual R PLC Petropavlovsk Pension 8 £ –– –– 12,194 29,000 403,305 Expenses 7 £ –

bonus Special Special £ bonus 53,472 100,000 390 6,136 221,358 345,872 Year end Year 168,778 6 £ – ––––––––––––––––––––––––– – ––––––––––

fees Other Other –––––––– £ Basic Basic 61,36061,360 4,399 53,472 100,00058,333 36,825 489 19,198 50,850 45,159 62,12546,816 10,043 32,362 53,472 100,000 53,472 25,000 270 139 6,213 232,123 362,692 87,550 88,367 193,333 365,147 39,587 525,000 215,000 376,343 11,996 525,000 225,000 salary/fees 1,552,766 98,387 1,432,666 765,000 13,482 41,349 3,903,650 6,099,453 2 2 4 2 3 5 3 2 11 2 3 session in November 2009 which brought together a number of strategic themes for the future development of the Group’s assets; including budget issues, investment profiles and and profiles investment issues, budget including assets; Group’s the of development 1 and 2 below. is set out in Notes as Directors their resignation to future the for 31 December 2009. themes the period 22 April 2009 to to disclosed in this table relates on 22 April 2009. The remuneration as a Director Appointed strategic of number a the as a consultant to 2 June 2009. Sir Rudolph Agnew was appointed the period 1 January 2009 to to on 2 June 2009. The fees shown in this table relate Resigned as a Director together brought which review planning and held an off-site management plans the Group Company for a two year period commencing 2 June 2009 for an annual fee of £87,550. As part of its long-term 2009 November in session meeting. the strategy to attend required for the session but, as a consultant, was not to, and preparation role in the build up funding. Sir Rudolph Agnew had a significant on 25 June 2009. as a Director Appointed companies. Group to of services provided Salary paid in respect the Official List of the to shares the admission of the Company’s the acquisition of Aricom plc and to to in relation of the services provided Special bonus paid in 2009 in recognition follows: as plc. Exchange Stock of the London on the Main Market trading FSA and to allowances expense Includes Rates of exchange used: 2009 £0.64:US$1; 2008 £0.54:US$1 (average exchange rate throughout the year). throughout rate exchange used: 2009 £0.64:US$1; 2008 £0.54:US$1 (average of exchange Rates Committee. now form part of the Executive the acquisition by the Company of Aricom plc, these former Directors on 20 April 2009. Subsequent to Resigned as a Director subsequent these Directors of additional payments made to 20 April 2009. Disclosure the period 1 January 2009 to to disclosed in this table relates the remuneration Accordingly,

Karolina Subczynska Karolina Brian Egan Alfiya Samokhvalova 3 4 5 6 7 8 Maslovskiy Alexei 9 Defined Contribution Scheme. 2008. on 17 September Subczynska was appointed on 22 January 2008 and Karolina Guthrie was appointed during 2008: Lord 10 Appointed 2008. on 30 September 11 Resigned as a Director Andrey Maruta Andrey 2 1 Executive Directors Executive Hambro Peter The following table sets out an analysis of the Chairman and Directors’ remuneration for the year ended 31 December 2009: for the year ended remuneration out an analysis of the Chairman and Directors’ The following table sets Total Executive Directors Executive Total 1,166,484 98,387 1,432,666 765,000 13,482 41,349 3,517,368 5,495,888 Andrey Maruta Andrey Sir Rudolph Agnew Charles McVeigh Philip Leatham Alexei Maslovskiy Alexei Alfiya Samokhvalova Subczynska Karolina Guthrie Lord Hill-Wood Peter Total Non-Executive Directors Non-Executive Total 386,282 Pavel Maslovskiy Pavel Total Non-Executive Directors Non-Executive Sir Malcolm Field Jay Hambro Sir Roderic Lyne Brian Egan Directors’ Remuneration Report CONTINUED

5 Table of emoluments continued

Additional notes: 1. In May 2009, the Remuneration Committee approved a retention bonus for those former Peter Hambro Mining plc Executive Directors who stepped down from the Board on completion of the acquisition of Aricom plc. The terms of the bonus required that the Executives remained with the Group until 6 February 2010. The bonus amounts allocated are £280,000 to Andrey Maruta and Alfiya Samokhvalova, £140,000 to Karolina Subczynska and £100,000 to Alexei Maslovskiy. The total of £800,000 was paid to these former Executive Directors on 8 February 2010 on fulfilment of the service condition. This amount is not included in the total remuneration of those former Directors in the previous table (page 79), as it was not considered to be remuneration paid in relation to services whilst a Director. 2. In May 2009, the Remuneration Committee approved the payment of a bonus to Mr Brian Egan of £100,000 and Mr Jay Hambro of £115,000. These amounts were paid on 21 May 2009 and 5 June 2009 respectively. The bonus was awarded in recognition of their contribution as Executive Directors of Aricom plc to the successful completion of the acquisition of Aricom plc by the Company. This amount is not included in the total remuneration set out in the table above, as it is not remuneration received with respect to qualifying services provided to the Company.

6 Acquisition of Aricom plc As a result of the Company’s acquisition of Aricom, the Committee undertook a review of the remuneration and benefit payable to Directors of the Company (before the acquisition) and of Aricom plc. The Committee concluded that adjustments to the remuneration and benefits package of Executive Directors and senior management were required in order to align the remuneration of the two companies. The Committee reviewed the combined salaries/Directors’ fees paid to Peter Hambro and Pavel Maslovskiy by the Company and by Aricom plc for the year ended 31 December 2008, being the full year prior to the date of the acquisition, as follows: Non-Executive Directors fee paid Basic salary paid by the Company p.a. by Aricom plc p.a. Total p.a. Group Company Companies Peter Hambro £305,250 £43,779 £60,000 £409,029 Pavel Maslovskiy £305,250 £26,224 £110,000 £441,474

Further to discussion of the above and acknowledgement of the increased responsibilities of the Executive Directors following the acquisition of Aricom plc, the Committee agreed that with effect from 1 September 2009 the salaries of the Executive Directors would be as follows: Peter Hambro £500,000 Pavel Maslovskiy £500,000 Brian Egan £350,000

It was further agreed that with effect from 1 February 2010, the Chairman and Directors’ salaries and fees would be as follows:

Executive Directors Basic salary Peter Hambro £600,000 Pavel Maslovskiy £600,000 Brian Egan £350,000

No further salary review of the Executive Directors will take place until January 2011.

80 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information 31/12/09 & Accounts 2009 – 81 eport 31/12/08 Petropavlovsk PLC Annual R PLC Petropavlovsk (Appointed as a Director on 12 February 2010) on 12 February as a Director (Appointed

31/12/07 £87,550 p.a. £90,000 p.a. £87,550 p.a. p.a. £90,000 p.a. £87,550 p.a. £87,550 FTSE 350 Mining Index £530,200 p.a. 31/12/06 Petropavlovsk PLC 54 to 61 of these Financial Statements. 54 to 31/12/05

Performance comparator graph comparator Performance Directors’ share interests share Directors’ 31/12/04 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Sir Malcolm Field Committee Chairman of the Remuneration 2010 24 March This report was approved by the Board of Directors of Petropavlovsk PLC and signed on its behalf by: PLC of Petropavlovsk of Directors by the Board was approved This report This report includes a graph illustrating the Company’s performance relative to the FTSE 350 Mining Index, as seen below. The Board considers The Board as seen below. Index, 350 Mining the FTSE to performance relative the Company’s illustrating includes a graph This report the mining sector. within operates for comparison because the Company index be the most appropriate to 350 Mining Index the FTSE 8 The interests of Directors who held office during the period 1 January 2009 to 31 December 2009 in the Ordinary Shares of the Company are Company the of Shares Ordinary the in 2009 December 31 to 2009 January 1 period the during office 7 held who Directors of interests The on pages report set out in the Directors’ Graham Birch Graham Non-Executive Directors Non-Executive fees will be as follows: Directors’ January 1 2010 the Non-Executive from that with effect has approved The Board Sir Malcolm Field Guthrie Lord Hill-Wood Peter Sir Roderic Lyne Charles McVeigh Total Audit committee report

Summary of the role of the Audit Committee The Audit Committee is appointed by the Board from the Non-Executive Directors of the Company and has defined Terms of Reference. The Audit Committee’s Terms of Reference include matters indicated by the Combined Code and are available on the Company’s website. The Audit Committee is responsible for: • considering the appointment or removal of the External Auditors of the Group, reviewing their fees and their objectivity and independence in the conduct of the audit, and reviewing the nature and extent of non-auditing services provided by the External Auditors, seeking to balance the maintenance of objectivity and value for money; • discussing with the External Auditors, before the audit commences, the nature and scope of the audit and considering its cost-effectiveness and, where more than one firm of External Auditors is involved, ensuring coordination between them; • reviewing the half-yearly and annual financial statements and any formal announcements relating to the Company’s financial performance before submission to the Board, focusing particularly on: – any changes in accounting policies and practices; – major judgemental areas; – significant adjustments; – the going concern assumption; – compliance with accounting standards; – compliance with the requirements of the UK Listing Authority; and – compliance with other applicable legal requirements. • discussing problems and reservations arising from the preparation and audit of such financial statements, and any matters which the External Auditors may wish to discuss (in the absence of management where necessary); • reviewing the External Auditors’ management letters and the response thereto of the management of the Company or any other company in the Group; • reviewing the Company’s statement on internal control systems prior to endorsement by the Board; • reviewing the internal financial control systems of the Group and reviewing the internal audit programme and procedures, ensuring co‑ordination between the External Auditors and the Internal Auditors, and ensuring that the internal audit function is adequately resourced and has appropriate standing within the Group; • considering the major findings of internal investigations and the response of management thereto; and • considering such other matters as the Board may from time to time refer to it. The Audit Committee is required to report its findings to the Board, identifying any matters in respect of which it considers that action or improvement is needed, and to make recommendations as to the steps to be taken. Composition of the Audit Committee The current members of the Audit Committee are: Name Date of appointment to the Committee Sir Malcolm Field (Chairman of the Audit Committee) 22 April 2009 Graham Birch 12 February 2010 Peter Hill Wood1 25 June 2009 Charles McVeigh 25 June 2009 1 Member of the Committee between 12 June 2003 and 16 April 2009, re-appointed on 25 June 2009. Membership of the Committee is reviewed by the Chairman of the Committee, the Nomination Committee and the Company Chairman, who is not a member of the Audit Committee, at regular intervals and they recommend to the Board any new appointments to the Committee. The Committee is normally comprised of at least three Non-Executive Directors and two members constitute a quorum. The Board considers that both Sir Malcolm Field and Charles McVeigh have recent and relevant financial experience through their careers in business and their appointments to other Boards. The Company has a policy of providing training to Directors where required. Ongoing training can include attendance at formal conferences, internal briefings, briefings by external advisers and visits by Directors to operations in the business.

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External Auditors The Audit Committee is responsible for the development, implementation and monitoring of the Group’s policy on external audit. The Audit Committee has overall responsibility for monitoring the independence and objectivity of the External Auditors and their compliance with ethical and regulatory requirements. Day-to-day responsibility has been assigned to the Chief Financial Officer. To fulfil its responsibility regarding the objectivity and independence of the External Auditors, the Audit Committee reviewed: • the changes in key external audit staff in the External Auditors’ plan for the current year; • the arrangements for day-to-day management of the audit relationship; and • the overall extent of non-audit services provided by the External Auditors, in addition to their case by case approval of the provision of non-audit services by the External Auditors. To assess the effectiveness of the External Auditors, the Audit Committee reviewed: • the External Auditors’ fulfilment of the agreed audit plan and variations from the plan; and • the robustness and perceptiveness of the External Auditors in their handling of the key accounting and audit judgements. As a consequence of its satisfaction with the results of the activities outlined above, the Audit Committee has recommended to the Board that the External Auditors are re-appointed. Internal Audit function The Group employs an Internal Auditor, who reports to the Audit Committee. He prepares reports for each Audit Committee meeting and is invited to attend all meetings. The Audit Committee is required to review the Group’s internal financial controls and, where required, to review the Group’s internal control and risk management systems and the Group’s statement on internal control systems prior to endorsement by the Board. The Internal Auditor reports to the Audit Committee on the review of internal controls, in conjunction with the CFO. The CFO monitors internal controls and reports to the Committee as appropriate. The CFO in conjunction with the Audit Committee, which has ultimate responsibility for such review, is responsible for reviewing the effectiveness of internal controls. In the course of the reporting received from the Internal Auditor and the CFO, the Audit Committee reviews the effectiveness of the internal controls procedure. The Group’s internal control system is designed to manage rather than eliminate the risk of failure to achieve the Group’s business objectives and does not provide absolute assurance against material misstatement or loss. It is the intention of the Audit Committee to consolidate and build on this process throughout 2010. The Board has established a Risk Committee, consisting of independent Non-Executive Directors, which has delegated the management of financial risk to the Audit Committee. The Audit Committee receives reports on financial risk from the CFO and these reports are also reviewed by the Risk Committee. The Board receives reports from the chairman of both the Audit and Risk Committees following each committee meeting and reviews risk areas of concern as appropriate. The Risk Committee, Audit Committee and the Board review risk reporting with the aim of managing and controlling risk. Executive Management within the Group takes responsibility for the line management of risk and the Audit Committee and the Board, in the course of the review of regular reporting, monitor the improvements and status of risk management. Further details of the Company’s risks are in the Principal Risks Report on pages 47 to 51 of the Annual Report. Overview As a result of its work during the year, the Audit Committee has concluded that it has acted in accordance with its terms of reference and has ensured the independence and objectivity of the External Auditors. The Chairman of the Audit Committee will be available at this year’s Annual General Meeting to answer any questions about the work of the Audit Committee. Approval This report was approved by the Audit Committee and signed on its behalf by:

Sir Malcolm Field Chairman of the Audit Committee 24 March 2010

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’ Responsibilities irectors of D tatement development and performance of the business and the position of the Group, together with a description of the principal risks and together development and performance of the business and the position of the Group, uncertaintiesfaces. that it of the assets, liabilities, financial position and loss of the Group; and loss of the Group; of the assets, liabilities, financial position and The impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. other events and conditions on the entity’s impact of particular transactions, The and understandable information; comparable reliable, relevant, including accounting policies, in a manner that provides information, present and provide After making enquiries, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the the for existence operational in continue to resources adequate has Group the that satisfied are Directors the enquiries, making After the Financial Statements. adopt the going concern basis in preparing continue to the Directors this reason, For future. foreseeable • The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position accuracy which disclose with reasonable accounting records proper for keeping responsible are The Directors and and other irregularities of fraud and detection for the prevention steps the assets, for taking reasonable of the Company, for safeguarding of the Companies Act 2006. which complies with the requirements report a Directors’ of for the preparation website. and financial information included on the Company’s of the corporate and integrity maintenance for the responsible are The Directors from legislation in other differs financial statements and dissemination of Kingdom governing the preparation in the United Legislation jurisdictions. on pages listed whose names and functions are Each of the Directors, • Approval and signed on its behalf by: PLC of Petropavlovsk of Directors by the Board was approved This report Hambro Peter Chairman 2010 24 March The Directors are responsible for preparing the Annual Report, Directors’ Report, Directors’ Remuneration Report Statements. and the Financial Remuneration Report, Directors’ the Annual Report, Directors’ for preparing responsible are The Directors the Companies Act 2006 and Article with 4 of the IAS in accordance such financial statements prepare to the Directors Company law requires Union. by the European IFRS as adopted with in accordance prepared have been for the Group Statements Regulation. The Financial financial position, year the company’s fairly for each financial present that financial statements 1 requires Accounting Standard International transactions, other events and conditions of the effects of representation in the faithful requires financial performance and cash flows. This Accountingexpenses set out in the International income and for assets, liabilities, recognition criteria with the definitions and accordance a fair presentation In virtually all circumstances, of Financial Statements’. and Presentation for the Preparation ‘Framework Board’s Standards to: also required are Directors Financial Reporting Standards. International will be achieved by compliance with all applicable • properly apply accounting policies; select and • Directors’ responsibilities Directors’

• S INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PETROPAVLOVSK PLC

We have audited the Group financial statements of Petropavlovsk PLC for the year ended 31 December 2009 which comprise the Consolidated Income Statement, the Consolidated Statement of Recognised Income and Expense, the Consolidated Statement of Changes in Equity, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, and the related notes 1 to 40. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the Group Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the Group Financial Statements: • give a true and fair view of the state of the Group’s affairs as at 31 December 2009 and of its profit for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the Group Financial Statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the Directors’ statement contained within the Financial Review in relation to going concern; and • the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. Other matter We have reported separately on the parent company financial statements of Petropavlovsk PLC for the year ended 31 December 2009 and on the information in the Directors’ Remuneration Report that is described as having been audited.

Douglas King (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors London, United Kingdom 24 March 2010

86 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

743 2008 7,709 (1,261) US$’000 85,549 84,288 40,388 22,745 22,002 (18,307) (33,302) (17,643) 381,688 (296,139) US$0.27 US$0.27

& Accounts 2009 – 87 2009 (819) 2,723 1,590 (7,140) US$’000 eport 31,480 (52,601) 472,331 171,141 173,864 197,385 144,784 143,194 (301,190) US$0.98 US$0.96 5 6 9 17 24 11 10 12 12 Note Petropavlovsk PLC Annual R PLC Petropavlovsk

on-controlling interests on-controlling Net operating expenses Net operating of joint ventures of results Share Group revenue Group

For the year ended 31 December 2009 ended 31 December the year For statement income Consolidated Operating profit Operating Fair value change on derivatives Fair Financial income taxation before Profit Taxation for the period Profit PLC to: Attributable Petropavlovsk of shareholders Equity N Financial expenses Earnings per share Basic Diluted Consolidated statement of recognised income and Expense For the year ended 31 December 2009

2009 2008 US$’000 US$’000 Profit for the period 144,784 22,745

Income and expense recognised directly in equity Revaluation of available-for-sale financial investments (464) – Exchange differences on translating foreign operations 158 – Net expense recognised directly in equity (306) –

Total recognised income for the period 144,478 22,745

Attributable to: Equity shareholders of Petropavlovsk PLC 142,520 22,002 Non-controlling interests 1,958 743

88 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information Total Total 934 equity equity 1,719 6,970 3,334 (5,240) US$’000 (22,994) (14,003) 139,800 571,150 104,796 – – – – – – – – – – Non- (281) (281) 3,500 3,500 y interests interests US$’000 controlling controlling & Accounts 2009 – 89 ––– Total Total 934 eport 1,719 3,334 (5,240) US$’000 22,002 743 22,745 (14,003) 139,800 571,150 104,796 Other Other 6,970 6,970 reserves US$’000 (22,994) (22,994) 153,728 335,914 6,412 342,326 176,722 336,906 5,950 342,856 (153,728) –– –– –– (210) (464) 142,520 1,958 144,478 reserve reserve US$’000 Translation Translation Petropavlovsk PLC Annual R PLC Petropavlovsk –– –– –– 934 (421) Share Share based based 3,847 (210) 6,506 1,287,894 11,870 1,299,764 reserve reserve 3,334 US$’000 payments – – –– –––– –– bonds bonds US$’000 Convertible Convertible ––––– 421 1,583 (1,583) earnings US$’000 22,002 Retained 143,194 144,210 1,583 122,208 1,583 153,728 Total attributable to equity holders of the Company equity holders attributable to Total –––––– Own Own shares shares US$’000 (14,003) –– –– –– ––––––– ––––––– –– Merger Merger reserve reserve US$’000 570,071 – Share Share 1,716 (5,240) US$’000 premium premium –––––––––– ––– –––––– –––––––– –––– – –––––––––– –––––––– –––– –––––– –––– 3 180 139,620 232 104,564 Share Share capital capital 2,805 275,742 570,071 (14,003) 443,136 1,079 1,311 35,082 1,311 35,082 US$’000 27 31 31 31 31 27 Note 23, 28, 27, options

(a) plc plc

share capital of of capital share based payments

December 2009 2009 December million Ordinary Ordinary million

Reserves. The balance of US$153.7 million outstanding at 31 December 2008 is distributable and was transferred to Profit and Loss Account of the Company and shown as as shown and Company the of Account Loss and Profit to transferred was and distributable is 2008 December 31 at outstanding million Other Distributable to on 25 August 2005, the amount of US$176.7 million was transferred Account of the Company registered US$153.7 Premium cancellation of the Share Following of balance The Reserves. Retained Earnings.part of the consolidated January 2008

Balance at at Balance 31 Acquisition of shares shares of Acquisition in subsidiaries Employees’ exercised exercised Conversion of of Conversion convertible bonds Own shares acquired acquired shares Own business through with combination Aricom LTIP award in relation to to relation in award plc LTIP Aricom of acquisition Transfer to retained retained to Transfer earnings Warrants and option option and Warrants plc toissued in relation Aricom of acquisition Recognised income income Recognised and expense Shares issued in in issued Shares forexchange 100% plc Aricom Balance at at Balance 1 January 2009 Costs associated with with associated Costs placing of 16 million Shares Ordinary Acquisition of shares shares of Acquisition in subsidiaries Dividends Share placing of of placing Share 16 Shares Recognised income and expenses - Share

Balance at at Balance 1 uit in eq changes of statement Consolidated (a) Consolidated balance sheet At 31 December 2009

2009 2008 Note US$’000 US$’000 Assets Non-current assets Goodwill 14 21,675 21,675 Intangible assets 15 104,029 225,446 Property, plant and equipment 16 1,065,490 342,261 Interests in joint ventures 17 31,886 7,427 Available-for-sale investments 18 3,543 972 Inventories 19 8,628 19,078 Trade and other receivables 20 8,856 19,790 Derivative financial instruments 24 – 1,875 Deferred tax assets 25 9,318 17,057 1,253,425 655,581 Current assets Inventories 19 101,630 72,332 Trade and other receivables 20 140,505 84,775 Derivative financial instruments 24 96 – Cash and cash equivalents 21 76,467 26,444 318,698 183,551 Total assets 1,572,123 839,132 Liabilities Current liabilities Trade and other payables 22 (64,379) (42,142) Current income tax payable (6,201) (638) Borrowings 23 (11,944) (220,946) Derivative financial instruments – (42,476) (82,524) (306,202) Net current assets/ (current liabilities) 236,174 (122,651) Non-current liabilities Borrowings 23 (83,602) (152,778) Deferred tax liabilities 25 (97,578) (32,580) Provision for close down and restoration costs 26 (8,655) (5,246) (189,835) (190,604) Total liabilities (272,359) (496,806) Net assets 1,299,764 342,326 Equity Share capital 27 2,805 1,311 Share premium 275,742 35,082 Merger Reserve 570,071 – Treasury shares 28 (14,003) – Convertible bonds – 1,583 Share-based payments reserve 3,847 – Translation reserve (210) – Other reserves 6,506 153,728 Retained earnings 443,136 144,210 Equity attributable to the shareholders of Petropavlovsk PLC 1,287,894 335,914 Non-controlling interests 11,870 6,412 Total equity 1,299,764 342,326

These consolidated financial statements for Petropavlovsk PLC, registered number 4343841, on pages 87 to 139 were approved by the Directors on 24 March 2010 and signed on their behalf by

Peter Hambro Brian Egan Director Director

90 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– – – – 2008 2,428 6,670 5,751 (3,560) (6,032) US$000 22,243 26,444 58,582 16,802 (22,994) (34,909) (26,909) (14,871) 178,442 299,047 (148,438) (253,810) (187,483) (161,391)

– & Accounts 2009 – 91 801 2009 (306) 9,517 3,542 (2,021) (3,048) US$000 eport 50,329 26,444 76,467 96,786 (50,817) (70,513) (12,740) (38,463) (24,401) (24,203) 101,275 188,213 139,609 224,996 (259,510) (178,365) 23 17 29 31 18 Note Petropavlovsk PLC Annual R PLC Petropavlovsk

Net increase/(decrease) in cash and cash equivalents in the period Net increase/(decrease) on cash and cash equivalents rates exchange Effect of Cash and cash equivalents at beginning of period and Cash Cash and cash equivalents at end of period period of end at equivalents cash and Cash Proceeds from borrowings from Proceeds shareholders Company’s Dividends paid to financing activities Net cash (used in)/from Repayments of borrowings Proceeds from disposal of property, plant and equipment disposal of property, from Proceeds other parties Repayment of amounts loaned to costs transaction of net Shares, financing activities Ordinary flows from Cash of issuance from Proceeds Purchase of property, plant and equipment and exploration expenditure exploration plant and equipment and of property, Purchase granted Loans received Interest Net cash used in investing activities bonds Buy back of exchangeable Investments in joint ventures Interest paid Interest Income tax paid activities operating Net cash from investing activities flows from Cash Acquisitions of subsidiaries, net of cash acquired Cash flows from operating activities operating flows from Cash operations from generated Cash

For the year ended 31 December 2009 ended 31 December the year For statement flow cash Consolidated Purchase of available-for-sale investments of available-for-sale Purchase notes to the Consolidated financial statements For the year ended 31 December 2009

1. General information Petropavlovsk PLC (the “Company”) is a company incorporated in England and Wales. The address of the registered office is 11 Grosvenor Place, London SW1X 7HH.

2. Significant accounting policies 2.1. Basis of preparation The consolidated financial statements of Petropavlovsk PLC and its subsidiaries (the “Group”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union, IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial investments, financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

Going concern The Directors have reviewed the Group’s cash flow forecasts and operating projections as part of their consideration of going concern. These forecasts are primarily susceptible to gold price fluctuations over the next 12 months. Consideration has also been given to the Group’s contractual capital commitments and planned development of future projects. The Directors are satisfied that the Group has sufficient liquidity and cash resources in order to meet its commitments and existing obligations in light of the Group’s cash flow forecasts as well as the availability of a US$150 million syndicated loan facility which was in place and largely undrawn at 31 December 2009 and the proceeds from the issue of the US$380 million convertible bonds in February 2010. After making appropriate inquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.

2.2. Adoption of new and revised standards and interpretations In the current year the Group has adopted the following revised standards and interpretations: • Starting from 1 January 2009, the Group has adopted IAS 1 “Presentation of Financial Statements” (revised 2007) (“IAS 1”), IFRS 8 “Operating Segments” (“IFRS 8), and IAS 23 “Borrowing Costs” (revised 2007) (“IAS 23”). • IAS 1 (revised 2007) requires the presentation of ‘non-owner changes in equity’ to be presented separately from owner changes in equity. The Group has chosen to present two statements, the income statement and statement of recognised income and expenses which includes items of comprehensive income. As a result, a statement of recognised income and expenses (statement of comprehensive income) has been included in the primary statements. In addition, the adoption of IFRS 8 triggers the need to present a second year of comparatives for the balance sheet. As there were no changes to the balance sheet at 31 December 2007 previously presented, this has not been disclosed. • IFRS 8 requires operating segments to be determined based on the Group’s internal reporting to the Chief Operating Decision Maker which is then used to allocate resources to the segments and to assess their performance. In contrast, the predecessor standard (IAS 14 “Segment Reporting”) required the Group to identify two sets of segments, business and geographical, based upon a risk and rewards approach. A summary of the changes to the operating segments identified is set out in note 4. • IAS 23 (revised 2007) requires capitalisation of borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset as part of the cost of that asset. In contrast, the predecessor standard IAS 23 (revised 1993) allowed the option of immediately expensing those borrowing costs which has been used by the Group as its accounting policy. The change in accounting policy, which was adopted prospectively from 1 January 2009, resulted in capitalisation of borrowings costs attributed to the Group’s development and construction projects; such costs comprised US$ 14.7 million during the year ended 31 December 2009 (note 10). Accounting policy on borrowing costs is set out in note 2.21. Standards and amendments which are effective in future reporting periods are: • IFRS 3 (revised 2008) “Business combinations”, effective for accounting periods beginning on or after 1 July 2009. • IAS 27 (revised 2008) “Consolidated and separate financial statements”, effective for accounting periods beginning on or after 1 July 2009. • IAS 28 (revised 2008) “Investments in associates”, effective for accounting periods beginning on or after 1 July 2009.

92 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

& Accounts 2009 – 93 eport Petropavlovsk PLC Annual R PLC Petropavlovsk “Distributions of non-cash assets to owners”, effective for accounting periods beginning on or after 1 July 2009. on or after for accounting periods beginning effective owners”, assets to “Distributions of non-cash published in April 2009. project annual improvements IASB’s controlled entities. controlled Interests in joint ventures Interests Acquisition of assets Business combinations and goodwill Basis of consolidation Comparatives IFRIC 17 IFRSs to Improvements A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control and other parties undertake an economic activity that is subject to the Group whereby arrangement is a contractual A joint venture the unanimous consent of therequire to the activities of the joint venture relating policy decisions financial and operating (i.e. when the strategic has an interest entity in which each venturer that involve the establishment of a separate arrangements venture Joint parties sharing control). as jointly- to referred are 2.7. Frequently, the acquisition of mining licences is effected through a non-operating corporate structure. As these structures do not represent a represent not do structures these As structure. corporate non-operating a through effected is licences mining of acquisition the Frequently, is accounted the transaction do not meet the definition of a business combination. Accordingly that the transactions business, it is considered at cost. recognised are for as the acquisition of an asset. The net assets acquired at an equivalent amount based is recognised then a minority interest but does not own 100% of the assets, full control has the Group Where in equity. recognised are be carried at cost and changes in those values cost, the assets continue to on the Group’s 2.6. as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly directly costs plus exchange, are of date the combination at business assumed a or in assumed incurred is liabilities liabilities acquisition and of contingent issued cost and the If income instruments the liabilities in goodwill. and equity as given, immediately acquired recorded is assets of an acquisition is measured The cost the acquisition of subsidiaries by the Group. account for method of accounting is used to The purchase assets the recognised of is acquired value Identifiable assets fair net difference the the as acquisition. liabilities the identifiable acquired, to the assets, of the subsidiary of share attributable the value of Group’s fair assets the net of net the the of of the cost ofvalue The excess of any minority interest. of of the extent irrespective initially at their fair values at the acquisition date, measured fair share the proportion over Group’s the minority’s of acquisition the at value fair measured the than initially less is acquiree the in statement. shareholders minority of interest The and contingent liabilities recognised. 2.5. These consolidated financial statements consist of the financial statements of the Company and the entities controlled by the Company (its (its Company the by controlled entities the and Company the a of accompanying statements generally financial the of policies, consist operating and statements financial financial the govern to consolidated power These the has Group the which subsidiaries) as at the balance sheet date. over entities all are Subsidiaries orexercisable currently voting rights that are and effect of potential than one half of the voting rights. The existence of more shareholding on the date from fully consolidated Subsidiaries are another entity. controls whether the Group when assessing considered convertible are ceases. on which control the date from de-consolidated They are the Group. to is transferred which control on consolidation. eliminated companies are between Group gains on transactions balances and unrealised transactions, Inter-company necessary, Where evidence of an impairment of the asset transferred. provides unless the transaction also eliminated losses are Unrealised of accounting policies with the policies adopted consistency to ensure of subsidiaries the financial statements made to adjustments are by the Group. Minority interests equity therein. the Group’s from separately identified subsidiaries are in the net assets of consolidated Minority interests deposits by way of a corporate of the original business combination or acquisition of ore at the date consist of the amount of those interests of the the minority in excess to applicable of the combination. Losses changes in equity since the date of share vehicle and the minority’s that the minority has a binding the extent to except of the Group against interests allocated equity are in the subsidiary’s interest minority’s cover the losses. to an additional investment make obligation and is able to 2.4. Following the adoption of IFRS 8, as well as the acquisition of Aricom plc on 22 April 2009 (note 31), the composition of the Group’s reportable reportable Group’s the of composition the 31), (note 2009 April 22 on plc Aricom of acquisition the as well as 8, IFRS of adoption the Following accordingly. the year ended 31 December 2008 has been restated information for segments has changed. The comparative 2.3. • • beginning applicable, for the period where statements, financial in the Group’s will be adopted that these amendments anticipate The Directors 2010. January 1 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. Significant accounting policies continued 2.7. Interests in joint ventures continued The Group’s interests in jointly-controlled entities are accounted for using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Interests in joint ventures are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the jointly-controlled entity recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. The Group’s share of its joint ventures’ post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment in joint ventures.

2.8. Investments in associates An associate is an entity over which the Group is in a position to exercise significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Investments in associates are accounted for using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. When a Group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made for the impairment.

2.9. Foreign currency translation Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in US Dollars, which is the Group’s presentation currency. The functional currency of the Company is the US Dollar. The rates of exchange used to translate balances from other currencies into US Dollars were as follows (currency per US Dollar): 31 December 31 December 2009 2008 GB Pounds Sterling 0.63 0.69 Russian Rouble 30.24 29.38

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

94 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

& Accounts 2009 – 95 eport Petropavlovsk PLC Annual R PLC Petropavlovsk Intangible assets assets Intangible Goodwill

acquire interests in existing projects in existing interests acquire Costs incurred in acquiring mineral rights, the entry premiums paid to gain access to areas of interest and amounts payable to third partiesto third payable to and amounts of interest areas gain access to paid to rights, the entry premiums in acquiring mineral Costs incurred Compiling pre-feasibility and feasibility studies; and and studies; feasibility and pre-feasibility Compiling Examining and testing extraction and treatment methods; and treatment extraction Examining and testing Conducting geological studies, exploratory drilling and sampling; Conducting geological studies, exploratory Researching and analysing existing exploration data; exploration and analysing existing Researching Mineral rights acquired through a business combination or an asset acquisition are capitalised separately from goodwill if the asset is separable separable is asset the if goodwill from separately capitalised are where acquisition circumstances asset In an or impairment. less combination cost at business a valued through subsequently acquired are rights rights Mineral as mining and project, the capitalised of on initial recognition. reliably or legal rights and the fair value can be measured contractual or arises from development expenditure the with evaluation and proceed to taken Exploration is decision a when off in the period when such decision is made. written are the project to is abandoned, the cumulative capitalised costs related a project equipment and plant intangible These property, sponge. within transferred These assets are not depreciated. capitalised and mining rights within intangible assets are and evaluation expenditure Exploration costs titanium of development processing mine to the to relation in 2.12 below. outlined in note purchased property intellectual licensed Other intangible assets represent assets intangible Other years, but ten useful life, which is a period of up to line basis over their estimated amortised on a straight at cost and are measured assets are dependent upon the start-up of the titanium sponge plant. • • • • 2.11. • or groups of cash-generating units that are expected to benefit from the synergies of the business combination in which the goodwill arose. the synergies benefit from to expected units that are of cash-generating or groups over cost is liabilities acquired in the net fair value of the identifiable assets, liabilities and contingent interest of the acquirer’s The excess in the income statement. immediately recognised acquired rights mineral and expenditure evaluation and Exploration be recoverable to likely is considered such expenditure where those projects to in relation incurred and evaluation expenditure Exploration assessment a stage which permits a reasonable have not reached activities the exploration where activity or sale, or extraction future through at the exploration assets for mining projects on the balance sheet within intangible capitalised and recorded are of reserves, of the existence stage. attributable to: comprise costs directly and evaluation expenditure Exploration Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of a of assets a as identifiable net assets the of non-current share in on Group’s included the losses is of value Impairment subsidiary fair a of the losses. over acquisition impairment on acquisition an of Goodwill accumulated cost less the cost of acquisition. at of excess date carried the the and at represents venture impairment for joint Goodwill or annually associate tested is subsidiary, Goodwill item. line separate the entity sold. to an entity include the carrying Gains and losses on the disposal of of goodwill relating amount not reversed. goodwill are for impairment as part is included in the carrying amount of investment and is tested or a joint venture Goodwill on acquisition of an associate balance. overall the of units those cash-generating The allocation is made to testing. units for the purpose of impairment cash-generating to Goodwill is allocated 2.10. functional currency other than US Dollars are translated at exchange rates prevailing on the balance sheet date. Income and expense items are are items expense and Income date. sheet balance the on the expenses of and all prevailing income rates operation, comprehensive exchange foreign at a other of in translated disposal recognised are the are On Dollars any, US if which have operations foreign than a assets and liabilities of the Group’s the financial statements, consolidated the purpose of presenting For appropriate. arising, other as currency differences interests functional Exchange used. are non-controlling to exchange the in which case that year, significantly during fluctuate rates unless exchange year, for the rates exchange at the average translated transactions attributed of date share the at with rates equity, in accumulated and profit or loss. to reclassified of the Company are to the shareholders attributable respect of that operation in differences exchange accumulated operation. as assets and liabilities of the foreign treated are operation on the acquisition of a foreign Goodwill and fair value adjustments arising NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. Significant accounting policies continued 2.12. Property, plant and equipment

Land and buildings, plant and equipment On initial recognition, land, property, plant and equipment are valued at cost, being the purchase price and the directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary for the asset to be capable of operating in the manner intended by the Group. Assets in the course of construction are capitalised in the capital construction in progress account. On completion, the cost of construction is transferred to the appropriate category of property, plant and equipment.

Development expenditure Development expenditure incurred by or on behalf of the Group is accumulated separately for each area of interest in which economically recoverable resources have been identified. Such expenditure includes costs directly attributable to the construction of a mine and the related infrastructure. Once a development decision has been taken, the carrying amount of the exploration and evaluation expenditure in respect of the area of interest is aggregated with the development expenditure and classified under non-current assets as “mine development costs”. Mine development costs are reclassified as “mining assets” at the end of the commissioning phase, when the mine is capable of operating in the manner intended by management. No depreciation is recognised in respect of mine development costs until they are reclassified as mining assets. Mine development costs are tested for impairment in accordance with the policy in note 2.13. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation Property, plant and equipment are depreciated using a units of production method or on a straight-line basis as set out below. Mining assets, except for those related to alluvial gold operations, where economic benefits from the asset are consumed in a pattern which is linked to the production level, are depreciated using a units of production method based on ore reserves, which results in a depreciation charge proportional to the depletion of reserves. The basis for determining ore reserve estimates is set out in note 3.1. Where the mining plan anticipates future capital expenditure to support the mining activity over the life of the mine, the depreciable amount is adjusted for such estimated future expenditure. Certain property, plant and equipment within mining assets are depreciated based on estimated useful lives, if shorter than the remaining life of the mine or if such property, plant and equipment can be moved to another site subsequent to the mine closure. Mining assets related to alluvial gold operations are depreciated based on estimated useful lives. Non-mining assets are depreciated on a straight-line basis based on estimated useful lives. Mine development costs and capital construction in progress are not depreciated, except for that property plant and equipment used in the development of a mine. Such property, plant and equipment are depreciated on a straight-line basis based on estimated useful lives and depreciation is capitalised as part of mine development costs. Estimated useful lives normally vary as set out below. Average life Number of years Buildings 15–50 Plant and machinery 3–20 Vehicles 5–7 Office equipment 5–10 Computer equipment 3–5

Residual values and useful lives are reviewed and adjusted if appropriate, at each balance sheet date. Changes to the estimated residual values or useful lives are accounted for prospectively.

96 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information & Accounts 2009 – 97 eport Petropavlovsk PLC Annual R PLC Petropavlovsk related capital expenditure. When calculating “value in use”, it also requires that calculations should be based it also requires calculating “value in use”, When capital expenditure. related Deferred stripping costs Deferred Impairment of non-financial assets Impairment of non-financial written off to the income statement in the following year, this being the period over which economic benefits related to the stripping activity activity stripping the to related benefits economic which over the period dividing the by being this obtained ratio year, the on following based the in deferred are statement costs income such the to mine, off the of period’s written life the the that over extent the to realised; are significantly periods fluctuate subsequent costs in stripping amortised Where are and equipment and in the period costs incurred Stripping mined (“stripping ratio”). mined by the quantity of ore applicable) of waste (or volume, where tonnage plant property, within for the particular mine. Such stripping costs are ratio the life-of-mine exceeds period stripping ratio that the current the extent to deferred are assets’ ‘mining in included of the mine. is based on the mineable reserves The life-of-mine ratio falls below the life-of-mine ratio. stripping ratio Where stripping costs do not fluctuate significantly over the life of the mine, such costs are deferred as part of cost of inventory and are and inventory of cost of part as deferred are costs such mine, the of life the over significantly fluctuate not do costs stripping Where over a period of up to five years); and over a period of up to and closure. rehabilitation protection, environment capital expenditure, costs of production, cash future future commodity prices (assuming the current market prices will revert to the Group’s assessment of the long term average price, generally average of the long term assessment the Group’s to revert prices will market prices (assuming the current commodity future future production levels; production future estimates of the quantities of the reserves and mineral resources for which there is a high degree of confidence of economic extraction; of economic of confidence is a high degree for which there resources and mineral of the quantities of the reserves estimates Where, during the production phase, further development of the mine requires a phase of unusually high overburden removal activity that is is that • activity removal incurred costs overburden high stripping with unusually of consistent phase a manner a in requires mine the considered of are costs development stripping further such phase, development, production the mine during Where, pre-production to nature in similar commences. production the commercial during the development of the mine before • In open pit mining operations, removal of overburden and other waste materials, referred to as stripping, is required to obtain access to the the to access obtain to required is stripping, as to referred materials, waste other and overburden of removal operations, mining pit open In body. ore capitalised as part of mine commences are production the commercial development of the mine before during the costs incurred Stripping basis. over the life of a mine on a units of production subsequently depreciated development costs and are basis for matching the costs this is the most appropriate where deferred phase of a mine are production during the costs incurred Stripping economic benefits as follows:against the related 2.14. The discount rate applied is based upon pre-tax discount rate that reflects current market assessments of the time value of money and the the and money of value at the time of the assessment. current rates on exchange time the of assessments market functional currency. is undertaken in the relevant review the impairment the US Dollar, other than with a functional currency operations For current reflects that of IAS 36requirements to meet the budgets, modified as appropriate based on detailed mine plans and operating rate are These estimates is loss discount is pre-tax impairment reversal upon “Impairment of assets”. This based recognised is impairment. applied previously the A rate in amount. discount resulted The recoverable originally its that to sheet cash flows. in the forecast reflected not that such risks are extent to the cash flows, with the relevant risks associated conditions balance the of the in reversal amount a of carrying result the a the income to and an impairment loss is charged amount, the asset is impaired its recoverable If the carrying amount of the asset exceeds as reduce to as increases so amount statement recoverable the if reversed had no net of depreciation, the carrying that would have been determined, amount to and is limited in the income statement recognised in prior years. impairment loss been recognised IAS 36 “Impairment of assets” includes a number of restrictions on the future cash flows that can be recognised in respect of future future of respect in recognised be can that flows cash future the on restrictions of number a • includes assets” of “Impairment 36 IAS - and improvement restructurings • • • Property, plant and equipment and finite life intangible assets are reviewed by management for impairment if there is any indication that the the that indication any is there if impairment for management by reviewed are assets intangible life finite 2.13. and equipment and receive plant could Group Property, the amount the held as well as the assets held by the joint ventures of the assets share the Group’s This applies to reflect carrying not be recoverable. amount may to available itself. by the Group information best the on based is sell to (being the net the higher of “value in use” to amount is assessed by reference the recoverable conducted, for impairment is When a review costs less value is no binding sale there fair Where to sell”. unit) or “fair value less costs relevant cash generating flows of the cash future of expected value present market, active or agreement based on: cash flows are Future length transaction. unit in an arm’s for the cash generating NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. Significant accounting policies continued 2.15. Provisions for close down and restoration costs Close-down and restoration costs include the dismantling and demolition of infrastructure and the removal of residual materials and remediation of disturbed areas. Close down and restoration costs are provided for in the accounting period when the legal or constructive obligation arising from the related disturbance occurs, whether this occurs during the mine development or during the production phase, based on the net present value of estimated future costs. Provisions for close-down and restoration costs do not include any additional obligations which are expected to arise from future disturbance. The costs are estimated on the basis of a closure plan. The cost estimates are calculated annually during the life of the operation to reflect known developments and are subject to formal review at regular intervals. The amortisation or unwinding of the discount applied in establishing the net present value of provisions is charged to the income statement in each accounting period. The amortisation of the discount is shown as a financing cost, rather than as an operating cost. Other movements in the provisions for close-down and restoration costs, including those resulting from new disturbance, updated cost estimates, changes to the lives of operations and revisions to discount rates are capitalised within property, plant and equipment. These costs are then depreciated over the lives of the assets to which they relate. Where rehabilitation is conducted systematically over the life of the operation, rather than at the time of closure, provision is made for the outstanding continuous rehabilitation work at each balance sheet date. All other costs of continuous rehabilitation are charged to the income statement as incurred.

2.16. Financial instruments Financial instruments recognised in the balance sheet include cash and cash equivalents, other investments, trade and other receivables, borrowings, derivatives, and trade and other payables. Financial instruments are initially measured at fair value when the Group becomes a party to their contractual arrangements. Transaction costs are included in the initial measurement of financial instruments, except financial instruments classified as at fair value through profit or loss. The subsequent measurement of financial instruments is dealt with below.

Financial assets Financial assets are classified into the following specified categories: “financial assets at fair value through profit or loss”, “held-to-maturity investments”, “available-for-sale financial assets” and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised at trade-date, the date on which the Group commits to purchase the asset. The Group does not hold any financial assets which meet the definition of “held-to-maturity investments”.

Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classed in any of the other categories. They are included within non-current assets unless management intends to dispose of them within 12 months of the balance sheet date. Available-for-sale financial assets are initially measured at cost and subsequently carried at fair value. Changes to the fair value of available-for-sale financial assets are recognised in equity. When available-for-sale financial assets are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as “gains and losses from investment securities”.

Loans and receivables Loans and receivables that have fixed or determinable payments are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less accumulated impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

98 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

& Accounts 2009 – 99 eport liquid investments readily convertible toliquid investments readily Petropavlovsk PLC Annual R PLC Petropavlovsk Derivative financial instruments on the balance sheet. Derivatives embedded in other financial recorded separately with IAS 39 the fair value of all derivatives are In accordance to related not closely are derivatives when their risks and characteristics as separate treated are instruments or non-financial host contracts is not carried at fair value. and the host-contract their host-contract in derivatives is recognised the fair value of the embedded at fair value at inception. Any change to recognised Embedded derivatives are disclosed in line with the maturity of their host settled net are which are Embedded derivatives within the income statement. profit operating contracts. using available. In other cases, fair value will be calculated prices where by using market The fair value of embedded derivatives is determined techniques. valuation independent financial institutions, or by using appropriate quotations from The exchangeable bonds, after separation of the embedded options, are recognised at fair value which is determined as the net proceeds proceeds net the as determined is which value fair at recognised are on conversion or maturity of the bonds. The remainder as a liability on an amortisedoptions, cost basis until extinguished This amount is recorded embedded the of equity, net of income tax effects. and included in shareholders’ the conversion option. This is recognised to is allocated of the proceeds separation after bonds, exchangeable The or paid for the embedded options. The bonds are received costs and premiums of the bonds less transaction the issuance from received redemption or maturity of the bonds. valuation method until rate on an amortised cost basis, using the effective interest subsequently measured to defer settlement of the liability for at least has an unconditional right liabilities unless the Group as current classified are Borrowings the balance sheet date. 12 months after of the borrowings using the effective interest method. using the effective interest of the borrowings for an equivalent non-convertible bond. rate interest using a market The fair value of the liability portion of a convertible bond is determined Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any any cost; amortised at stated subsequently are Borrowings incurred. costs transaction of net value, fair at Borrowings initially recognised are Borrowings over the periodrecognised in the income statement is redemption value costs) and the (net of transaction between the proceeds difference Financial liabilities method. rate at amortised cost, using the effective interest subsequently measured Financial liabilities, other than derivatives, are methods reflecting the economic circumstances of the investee. Equity investments for which fair value cannot be measured reliably are are reliably measured be are cannot amounts value These fair arise. which they for Other investments which in investments period Equity the in equity investee. in the classified as are associates, and than investments in subsidiaries, joint ventures equity investments, other investments and unlisted of Listed recognised are circumstances value using estimated equity investments are Fair values for unlisted at fair value. fair financial assets and subsequently measured economic available-for-sale in the Changes reflecting impairment. methods less cost at recognised impaired. is evidence that the asset is or when there in income when the asset is derecognised equity and reported from removed The impairment is recognised in the income statement. The impairment is recognised Cash and cash equivalents Cash highly- defined as cash on hand, demand deposits and short-term, and cash equivalents are Cash receivables Trade at amortised effective interest cost using the subsequently measured at fair value and are on initial recognition measured are receivables Trade will not of a loss event that the Group a result is objective evidence as is established when there receivables method. Impairment of trade rate between The amount of the impairment is the difference of the receivables. the original terms to collect all amounts due according be able to rate. at the original effective interest cash flows, discounted future value of estimated carrying and the present amount the asset’s the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the the of life expected the through receipts cash future estimated discounts exactly that rate the is rate interest effective The period. they as relevant value the fair be to deemed is period. a shorter appropriate, financial asset, or where which cost at measured are and value in changes of risk insignificant to subject and cash of amounts known maturity. have a short-term Effective interest method Effective interest income over the amortised method is a method of calculating of a financial asset and of allocating interest cost rate The effective interest NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. Significant accounting policies continued 2.16. Financial instruments continued Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued are recorded at the proceeds received, net of direct issue cost. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed.

2.17. Provisions Provisions are recognised when the Group has a present obligation, whether legal or constructive, as a result of a past event for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability.

2.18. Inventories Inventories are valued at the lower of cost and net realisable value after appropriate allowances for redundant and slow-moving items. Net realisable value represents estimated selling price in the ordinary course of business less any further costs expected to be incurred to completion. Cost is determined on the following bases: • Gold in process is valued at the average total production cost at the relevant stage of production; • Gold on hand is valued on an average total production cost method; • Ore stockpiles are valued at the average moving cost of mining and stockpiling the ore. Stockpiles are allocated as a non-current asset where the stockpile exceeds current processing capacity; • Consumable stores are valued at average cost; and • Heap leach pad materials are measured on an average total production cost basis. The cost of materials on the leach pad from which gold is expected to be recovered in a period greater than 12 months is classified as a non-current asset. A portion of the related depreciation, depletion and amortisation charge relating to production is included in the cost of inventory. As described in note 2.14, deferred stripping costs are included in inventories where appropriate.

2.19. Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

100 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

& Accounts 2009 – 101 eport controlled entities is provided for except entities is provided controlled - Petropavlovsk PLC Annual R PLC Petropavlovsk Borrowing costs Borrowing Taxation Revenue recognition Deferred tax is not provided on the initial recognition of goodwill or from the initial recognition of an asset or liability in a transaction that does does that transaction a in liability or asset an of recognition initial the from or goodwill of recognition initial future; remittance in the foreseeable will be no that there and it is probable of profits the remittance the control the Company is able to where on provided not is tax Deferred and for close-down provision recognition of a profit and is not a business combination, such as on the or taxable not affect accounting profit the inception of finance lease; and asset or on costs and the related restoration than not that they will be recovered. likely that it is more the extent only to recognised tax assets are Deferred maturity, when it is determined that such income will accrue to the Group. accrue to that such income will maturity, when it is determined Interest is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to the period over rate effective basis, taking account of the principal outstanding and the on a time proportion is recognised Interest and jointly associates of the past earnings of subsidiaries, remittance payable on the future Tax statement; payment is established; and receive when the right to recognised Dividends are Revenue from bulk sample sales made during the exploration or development phases of operations is recognised as a sale in the income income the in sale a as recognised is operations of phases development or exploration the during made sales sample bulk from Revenue Revenue derived from services is recognised in the accounting period in which the services are rendered; in the accounting period in which the services are services is recognised Revenue derived from The sale of mining products is recognised when the significant risks and rewards of ownership of the products are transferred to the buyer; transferred are products of ownership of the rewards when the significant risks and is recognised The sale of mining products when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on on liabilities and assets tax current its settle to intends Group the and authority tax is also dealt within equity. equity, in which case the deferred to directly or credited charged items to taxation same the by levied taxes tax liabilities, tax assets against current to set-off current right is a legally enforceable offset when there tax assets and liabilities are Deferred income to relate they when a net basis. the carrying value of the asset and its nil income tax base. using tax or the asset is realised apply in the period when the liability is settled to expected that are at the tax rates tax is calculated Deferred it relates when except statement, in the income or credited tax is charged Deferred or substantively enacted. enacted, that have been rates that, in general, are not eligible for income tax allowances. In such cases, the provision for deferred tax is based on the difference between tax is based on the difference for deferred not eligible for income tax allowances. In such cases, the provision are that, in general, • • assets such as mining rights to These adjustments may relate of fair value adjustments on acquisitions. in respect tax is provided Deferred of qualifying assets, which are mining projects under development that necessarily take a substantial period of time to get prepared for their get prepared a substantial period of time to that necessarily take under development mining projects of qualifying assets, which are is made when the decision costs of the mining project mine development capitalised and added to costs are use. Such borrowing intended Borrowing costs are generally expensed as incurred except where they relate to the financing of acquisition, construction or development to they relate where except incurred as expensed generally costs are Borrowing 2.21. • • • substantively or enacted been have that rates using calculated year the for income this to taxable the on exceptions main payable The be to base. tax its expected and tax the is liability tax or asset Current an of value periods. of previous in respect carrying be payable or recoverable to for tax expected It includes adjustments by the balance sheet date. enacted the between difference the exceptions. with certain limited at the balance sheet date existing differences are taxation on all temporary is made for deferred provision Full differences Temporary as follows: principle are • 2.22. • costs borrowing actual the represent capitalised the costs develop to borrowing incurred project, mining expenditure use, which is when for its intended is substantially ready when the project and until such time the development of the project with capital proceed specific to a of amount finance to average commence. to is ready the production commercial borrowed to are period funds the that during extent the To outstanding borrowings by applying the interest determined costs capitalised are purpose, borrowing for the general borrowed are that funds the extent To incurred. appropriate to applicable rate during the period. project mining relevant • Revenue is recognised at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits benefits economic the that sale the probable of is it value that fair the extent the to comprises services receivable and or goods received from derived consideration Revenue the of value measured. 2.20. fair the reliably at be can recognised revenue is the and Revenue Group the to flow will present: must also be and discounts. The following criteria parties, tax, rebates net of value added third of goods and services to NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. Significant accounting policies continued 2.23. Share-based payments The Group has a number of equity-settled share-based payment arrangements in place, details of which are set out in note 32. Equity-settled share-based payment awards are measured at fair value at the grant date. The fair values determined at the grant date are recognised as an expense on a straight-line basis over the expected vesting period with a corresponding adjustment to the share-based payments reserve within the equity. The fair values of equity-settled share-based payment awards are determined at the dates of grant using a Black Scholes model for those awards vesting based on operating performance conditions and Monte Carlo model for those awards vesting based on market-related performance conditions. The estimate of the number of the awards likely to vest is reviewed at each balance sheet date up to the vesting date, at which point the estimate is adjusted to reflect the actual awards issued. The impact of the revision of the original estimates, if any, is recognised in income statement so that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share-based payments reserve within the equity.

2.24. Employee Benefit Trust Certain Ordinary Shares underlying the share-based payment awards granted are held by the Employee Benefit Trust. Details of Employee Benefit Trust arrangements are set out in note 32. The carrying value of shares held by the employee benefit trust are recorded as treasury shares, shown as a deduction to shareholders’ equity.

3. Judgements in applying accounting policies and key sources of estimation uncertainty When preparing the consolidated financial statements in accordance with the accounting policies set out in note 2, management necessarily makes judgements and estimates that can have a significant impact on the financial statements. These judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances and previous experience. Actual results may differ from these estimates under different assumptions and conditions. Areas of judgement that have the most significant effect on the amounts recognised in the financial statements are set out below.

3.1 Ore reserve estimates The Group estimates its ore reserves and mineral resources based on the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2004 (the JORC Code). The JORC Code requires the use of reasonable investment assumptions when reporting reserves, including future production estimates, expected future commodity prices and production cash costs. Ore reserve estimates are used in the calculation of depreciation of mining assets using a units of production method, impairment charges and for forecasting the timing of the payment of close-down and restoration costs. Also, for the purpose of impairment review and the assessment of life of mine for forecasting the timing of the payment of close down and restoration costs, the Group may take into account mineral resources in addition to ore reserves where there is a high degree of confidence that such resources will be extracted. Ore reserve estimates may change from period to period as additional geological data becomes available during the course of operations or economic assumptions used to estimate reserves change. Such changes in estimated reserves may affect the Group’s financial results and financial position in a number of ways, including the following: • Asset carrying values due to changes in estimated future cash flows; • Depreciation charged in the income statement where such charges are determined by using a units of production method or where the useful economic lives of assets are determined with reference to the life of the mine; • Provisions for close down and restoration costs where changes in estimated reserves affect expectations about the timing of the payment of such costs; • Carrying value of deferred tax assets and liabilities where changes in estimated reserves affect the carrying value of the relevant assets and liabilities.

102 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

generating & Accounts 2009 – 103 eport Petropavlovsk PLC Annual R PLC Petropavlovsk viable extraction operation can be established. Such estimates can be established. operation viable extraction down and restoration costs together with other movements in the provision, including those resulting from including those resulting with other movements in the provision, costs together down and restoration Impairment costs restoration and down Close Exploration and evaluation costs costs evaluation and Exploration

The Group reviews at least annually the carrying values of its tangible and intangible assets and goodwill to determine whether there is any any is there whether determine to goodwill and assets intangible and tangible its of values carrying the annually least at reviews impaired. are Group The assets those that indication cash- appropriate an to allocated are flows cash independent generate not do that assets impairment, for assessment the making In the with accordance in activity rehabilitation and restoration site of scope the of basis the on at the end of normally incurred industries and are typical for extractive are of mining sites and rehabilitation with restoration Costs associated estimated are costs The value, as soon as the obligation their net present to for such costs discounted for each mining site is recognised the life of the mine. Provision arises. costs the and such to incur to relate they mine the of annually as new reviewed are Estimates that will be incurred. of the expenditure best estimate management’s plan and represent mine closure live available. the over becomes depreciated information are costs Capitalised equipment. for close- The initial provision and plant the of life property, of capitalised within “mine development are the discount rates to lives of the mines, and revisions the estimated changes to cost estimates, updated in assets” changes close to “mining for due or costs” provision estimated the to those from adjustments in the recognised costs are future the estimated Changes to each period via unwinding the discount on the provision. is increased provision different also significant be be may could outflows balance sheet by adjusting both the asset and the provision. there cash of result, a As timing actual levels. The regulations, changes in prices as well as changes and relevant laws processing to changes in due those estimated from The actual costs may be different or techniques. reserves ore restoration in the to changes of result a as mine results. financial costs established which would affect future down and restoration 3.3 3.4 and assumptions may change from period to period as new information becomes available. If, subsequent to the exploration and evaluation the exploration to period as new information becomes available. If, subsequent period to and assumptions may change from be abandoned, the relevant is to or the project is unlikely of the expenditure capitalised, a judgement is made that recovery expenditure to the income statement. capitalised amount will be written-off value and sell to costs less value fair of higher the as measured is CGU, or asset, an of amount recoverable The the benefit from to expected of CGUs that are CGU or groups to is allocated business combinations through unit (CGU). Goodwill acquired combination. business related in use. timing and value of underlying cash CGUs, in estimating the profitability, Management necessarily apply their judgement in allocating assets to to CGU allocation or calculation. Subsequent changes to be applied within the value in use rates discount flows and in selecting appropriate assets. and assumptions in the value in use calculation could impact the carrying value of the respective estimates The Group’s accounting policy for exploration and evaluation expenditure results in exploration and evaluation expenditure being capitalised for and evaluation expenditure in exploration results and evaluation expenditure accounting policy for exploration The Group’s the exploration or where activity or sale extraction future through be recoverable to likely is considered such expenditure where those projects management This policy requires of reserves. assessment of the existence a stage which permits a reasonable activities have not reached with will proceed in particular whether the Group events and circumstances, future as to and assumptions certain make estimates to or whether an economically- of reserves development based on existence 3.2 Prior to 1 January 2009, the Group estimated its ore reserves and mineral resources based on the Russian Reserves and Resources Resources and was Reserves which and Russian the on Federation based Russian the resources in mineral operate and to reserves required ore its legally is it estimated estimates reserve Change in ore which Group under the the system 2009, and January reporting 1 knowledge category to the C2 and Prior being C1 geological B, of A, System, for degree the on Committee Classification justification the primarily Reserves of Ore based part is a Joint form the of ReservesSystem in 1981 and 2008). (GKZ) in 1965 (amended Committee by the State approved as way same considerations Classification the in economic Resources and extraction Although Classification Reserves the Russian and Resources to according estimated of reserves, A, B, C1 and C2 category represented reserves Ore Reserves reserve. viability Russian mineral The a economic been the System. extract have to account would into ability method take not technical does production of system units the a using by reserves, determined are does. Code (“JORC”) charges such where statement income reserves and life of the mine, its ore the to estimate System Classification continued using the Russian Reserves and Resources If the Group in charged depreciation 6). US$3.8 million lower (note NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

3. Judgements in applying accounting policies and key sources of estimation uncertainty continued 3.5 Tax provisions and tax legislation The Group is subject to income tax in the UK, Russian Federation and Cyprus. Assessing the outcome of uncertain tax positions requires judgements to be made. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due, such estimates are based on the status of ongoing discussions with the relevant tax authorities and advice from independent tax advisers. Russian tax and currency control legislation is subject to varying interpretations. Fines and penalties for any errors and omissions could be significant. The Directors believe that there have been no material breaches of Russian tax regulations and that these financial statements contain all necessary provisions in respect of the Group’s tax liabilities in Russia.

3.6 Recognition of deferred tax assets Deferred tax assets, including those arising from tax losses carried forward for the future tax periods, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered. The likelihood of such recoverability is dependent on the generation of sufficient future taxable profits which relevant deferred tax asset can be utilised to offset. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty and there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets recognised on the balance sheet and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, the carrying amount of recognised deferred tax assets may require adjustment, resulting in a corresponding charge or credit to the income statement.

4. Segmental information Business segments The Group has five reportable segments under IFRS 8: • Precious metals segment, comprising gold operations at different stages, from field exploration through to mine development and gold production. The Gold segment includes the Group’s principal mines (Pokrovskiy and Pioneer), the Group’s alluvial operations, the Group’s operations under Omchak and Odolgo joint venture arrangements as well as various gold projects at the exploration and development stages. • Non-precious metals segment, comprising iron ore projects. The Iron segment includes the Kuranakh project, the K&S project, the Garinskoye project and the Bolshoy Seym project as well as the Kostenginskoye and Garinskoye Flanks projects. • Exploration, comprising in-house geological exploration expertise performed by the Group’s exploration companies Regis and Dalgeologiya. • Construction and Engineering segment, comprising in-house construction and engineering expertise. The Construction and Engineering segment includes construction performed by the Group’s specialist construction company Kapstroi and the engineering and scientific operations represented by PHM Engineering, Irgiredmet and Giproruda. • The Other segment primarily includes procurement of materials such as reagents and consumables and equipment for third parties undertaken by Irgiredmet, the Group’s interest in joint venture arrangements for design and development of a titanium sponge production plant in China, the Group’s interest in joint venture arrangements for production of vanadium penoxides and related products in China as well as various other projects. The Group has changed the composition of its reportable segments from 1 January 2009, following the adoption of IFRS 8, as well as following the acquisition of Aricom plc on 22 April 2009. The key changes in the basis of segmentation from the financial statements for the year ended 31 December 2008 are set out below: • Projects at the exploration stage have been moved from the “Exploration and Evaluation” segment reported in the financial statements for the year ended 31 December 2008 into the “Gold” segment. This change primarily affected segmental assets, namely, exploration and evaluation expenditure capitalised and shown within the intangible assets category. • Construction and engineering in-house expertise, which has been identified as a separate segment under IFRS 8, was included in the “Construction and other services” segment reported in the financial statements for the year ended 31 December 2008. • The acquisition of Aricom plc has resulted in a new reportable segment “Non-precious metals”.

104 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

96 (819) 2,856 (5,905) (7,140) (4,243) US$’000 21,675 56,677 30,574 31,480 17,063 (88,260) (95,546) (54,063) (52,601) 173,864 144,784 426,956 1,299,764 Consolidated – – – & Accounts 2009 – 105 253 2,723 107 163 Other Other US$’000 eport

– – – – – 302 465 12,497 US$’000 Engineering Engineering Construction and and Construction – – – – – – Petropavlovsk PLC Annual R PLC Petropavlovsk 2,508 20,245 18,964 42,519 2,508 20,245 18,964 472,331 US$’000 24,941 85,862 31,764 142,841 Exploration Exploration – – – – – – – – 36 metals metals US$’000 Non-precious (a) 56 802 274 metals metals 2,856 3,510 567 880 1,750 1,059 7,766 (4,243) 2,470 US$’000 11,694 11,694 17,063 Precious (31,717) (9,768) (3,238) (11,059) (23,453) (79,235) (32,156) (867) (2,834) (3,193) (1,472) (40,522) 426,956 251,623 (6,456) (3,292) (2,210) (5,833) 233,832 808,100 432,512 15,885 74,129 123,157 1,453,783 180,661 61,239 804 4,885 2,854 250,443 (181,461) (6,456) (5,800) (22,455) (25,050) (241,222)

(a) In making the assessment for impairment, goodwill is allocated to the Group of cash-generating units likely to benefit from acquisition-related synergies, altogether comprising the altogether synergies, acquisition-related benefit from to units likely cash-generating of the Group to In making the assessment for impairment, goodwill is allocated 14). Metals Segment (note Precious including and amortisation Depreciation Impairment Derivative financial instruments – net net – instruments financial Derivative Net assets Other segment information assets: non-current Additions to and evaluation expenditure Exploration capitalised within intangible assets Deferred tax – net Deferred cash Unallocated given Loans Borrowings Revenue Gold sales 2009 Segment result administrationCentral losses exchange Foreign for the period Profit Operating profit profit Operating value change on derivatives Fair Financial income Financial expenses Taxation Segment assets Other additions to intangible assets assets intangible to additions Other Silver sales Segment liabilities Capital expenditure Capital Other external sales Other external Goodwill Other items capitalised Other items Average number of employeesAverage Total Group revenue from external customers external from revenue Group Total 430,614 Inter-segment sales Inter-segment Net operating expensesNet operating Share of results in joint ventures of results Share (a) Segment information to the prior year have been restated for Amounts reported below. segments is presented reportable about the Group’s Segment information of IFRS 8. conform with the requirements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

4. Segmental information continued Segment information continued Precious Construction and metals Exploration Engineering Other Consolidated 2008 US$’000 US$’000 US$’000 US$’000 US$’000 Revenue Gold sales 288,029 – – – 288,029 Silver sales 383 – – – 383 Other external sales 2,368 6,027 50,418 34,463 93,276 Total Group revenue from external customers 290,780 6,027 50,418 34,463 381,688

Inter-segment sales 261 30,184 38,181 22,534 91,160

Net operating expenses (145,065) (8,759) (50,007) (31,241) (235,072) including Depreciation and amortisation (16,782) (2,384) (1,918) (1,202) (22,286) Impairment (3,240) – – – (3,240)

Share of results in joint ventures (1,261) – – – (1,261) Segment result 144,454 (2,732) 411 3,222 145,355 Central administration (36,054) Foreign exchange losses (25,013) Operating profit 84,288 Fair value change on derivatives (18,307) Financial income 7,709 Financial expenses (33,302) Taxation (17,643) Profit for the period 22,745

Segment assets 618,675 20,119 51,692 76,990 767,476 Segment liabilities (21,578) (2,162) (8,153) (16,133) (48,026) Goodwill(a) 21,675 Deferred tax – net (15,523) Derivative financial instruments – net (40,601) Unallocated cash 5,479 Loans given 25,570 Borrowings (373,724) Net assets 342,326

Other segment information Additions to non-current assets: Exploration and evaluation expenditure capitalised within intangible assets 53,522 – 187 2,642 56,351 Other additions to intangible assets 364 – 1,723 – 2,087 Capital expenditure 86,268 5,914 10,228 1,330 103,740 Other items capitalised 3,407 3,407

Average number of employees 3,237 869 1,465 973 6,544

106 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– 2008 2008 2008 2,199 7,709 US$’000 US$’000 US$’000 30,002 78,865 68,965 272,821 381,688 615,887 615,887 310,524 381,688 389,397

– & Accounts 2009 – 107 2009 2009 2009 2,188 7,661 US$’000 US$’000 US$’000 39,205 31,619 24,263 eport 445,880 433,126 472,331 472,331 479,992 1,231,709 1,200,090 Petropavlovsk PLC Annual R PLC Petropavlovsk (b) (a) Revenue Excluding financial instruments and deferred tax assets. financial instruments and deferred Excluding Based on the location to which the product is shipped or in which the services are provided. is shipped or in which the services are which the product Based on the location to 5. goods of Sales revenue for the year ended 31 December 2009 are revenues of US$356 million which arose from sales of gold to three banks that individually individually sales that gold banks in three to Included gold individually of Russia. that of sales banks from outside three gold arose Information about major customers to of which gold sales of for million sales banks from US$356 of foreign to revenues a number of financial institutions,revenues and the sales of gold to from revenues generated and 2008, the Group During the years ended 31 December 2009 are million gold of 2009 US$231 sales December (2008: 31 domestic Russian banks for Russian namely, to revenue ended year the Group’s for the of 10% revenue than liquidity more for high have to due accounted revenues risk the date that concentration year depending year to may vary of each bank from revenue of Group proportion The revenue). from than 10% of the Group’s for more accounted and customer Group major no the is of there that with each bank. Management considers agreed terms on commercial subsidiary a became plc as a commodity. gold to inherent Aricom 2009, April 22 On revenue. 30) which Aricom plc and its subsidiaries (note million to of US$47 revenues generated the Group During the year ended 31 December 2008, Group’s the of 12% comprised consolidation. on eliminated been (b) Russia (a) assets by location of asset Non-current Russia and CIS UK Rest of Europe China Rendering of services Rental income Investment income Entity wide disclosures location Revenue by geographical NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

6. Net operating expenses and profit 2009 2008 US$’000 US$’000 Net operating expenses Cost of sales (a) 195,220 198,495 Impairment charges 4,243 3,240 Administration expenses (b) 96,326 70,174 Foreign exchange losses 5,905 25,013 Other net operating income (504) (783) 301,190 296,139

(a) 2009 2008 US$’000 US$’000 Cost of sales Staff costs 50,430 58,503 Fuel 15,944 19,508 Materials 43,131 52,773 Depreciation 27,587 13,472 Electricity 8,222 5,307 Royalties 24,353 17,410 Smelting and transportation costs 3,216 2,593 Selling and distribution 1,021 2,073 Movement in work in progress and bullion in process attributable to gold production (7,290) (14,014) Other costs 15,004 23,794 Goods for resale 13,602 17,076 195,220 198,495

108 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

(a) – – – 60 25 957 2008 636 475 500 456 449 2008 8,812 6,633 1,562 1,788 2,011 3,902 1,335 3,909 1,601 US$’000 22,136 17,129 66,265 70,174 US$’000

(b) – – – & Accounts 2009 – 109 97 39 10 33 2009 2009 363 331 167 861 179 4,494 6,059 1,084 3,175 3,907 5,332 2,086 1,510 US$’000 US$’000 38,112 12,936 17,631 91,832 96,326 eport

. Petropavlovsk PLC Annual R PLC Petropavlovsk based corporate finance services finance based corporate Auditors’ remuneration Auditors’ The fees disclosed for the year ended 31 December 2008 were paid to the Company’s previous auditors Moore Stephens LLP Stephens Moore auditors previous the Company’s to paid The fees disclosed for the year ended 31 December 2008 were admission to the main board of London Stock Exchange. Exchange. Stock London of as part of the Group’s provided finance services that were corporate for transaction-based Deloitte paid to fees of US$269,000 were their appointment as auditors, to Prior board main the to admission Other services pursuant to legislation – interim review fee review legislation – interim Other services pursuant to Accounting advice - Transaction (a) financial statements legislation to and its associates: auditor the Company’s payable to Fees pursuant accounts financial statements statutory subsidiaries as partconsolidated of the audit of the the audit of the Company’s For subsidiary of audit the For (b) Fees payable to the Company’s auditor for the annual audit of the parent company and consolidated for the annual audit of the parent auditor the Company’s payable to Fees 7. and its associates: auditors the Company’s including its overseas subsidiaries, obtained the following services from The Group, Depreciation Exchange Stock London the of board main the to admission the to relation in incurred Costs audit fees Total Administration expenses expenses Administration costs Staff (b) Professional fees fees Professional Bank charges Insurance rent Office and entertainment Travel cost Office Allowance for bad debts Other services Tax ’ services services accountants’ for reporting Fees Offer assistance in preparation for listing Offer assistance in preparation Other services Total non-audit fees Total NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

8. Staff costs 2009 2008 Note US$’000 US$’000 Wages and salaries 73,630 68,717 Social security costs 11,756 11,895 Pension costs 223 27 Share-based compensation 2,933 – 88,542 80,639

Average number of employees 4 7,766 6,544

9. Financial income 2009 2008 Note US$’000 US$’000 Interest income 7,661 7,709 Gain on redemption of exchangeable bonds 23 23,716 – Other finance income 103 – 31,480 7,709

10. Financial expenses 2009 2008 US$’000 US$’000 Interest on bank and other loans 6,142 5,466 Interest on exchangeable bonds 6,048 16,606 Interest on convertible bonds 9,317 10,994 21,507 33,066 Interest capitalised (14,749) – Unwinding of discount on environmental obligation 382 236 7,140 33,302

110 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– – – 481 740 2008 2008 (917) 3,772 (6,306) (4,517) (1,414) US$’000 US$’000 11,963 17,643 11,510 19,974 19,974 19,057 17,643 40,388

– 77 & Accounts 2009 – 111 2009 2009 (763) (470) 9,106 7,395 3,038 (6,409) (3,731) US$’000 US$’000 52,601 55,268 39,627 39,157 13,444 52,601 (11,380) eport 197,385 25 Note Petropavlovsk PLC Annual R PLC Petropavlovsk (b) (a) Taxation Taxation The corporation tax rate in the United Kingdom changed from 30% to 28% effective 1 April 2008. 30% to Kingdom changed from in the United tax rate The corporation 20% effective 1 January 2009. 24% to changed from in Russia tax rate The corporation Remeasurement of deferred tax – change in Russia corporation tax rate tax – change in Russia corporation of deferred Remeasurement Utilisation of previously unrecognised tax losses unrecognised Utilisation of previously Tax effect of expenses that are not deductible for tax purposes purposes tax for deductible not are that expenses of effect Tax recognised was income tax asset of tax losses for which no deferred effect Tax tax Income not subject to Adjustments in respect of prior years Adjustments in respect Foreign exchange movements in respect of deductible temporary differences of deductible temporary movements in respect exchange Foreign Tax expense for the year expense Tax Tax effect of share of results of joint ventures results of of share effect Tax Effect of different tax rates of subsidiaries operating in other jurisdictions of subsidiaries operating rates tax Effect of different (b) (a) Profit before tax before Profit Deferred tax Deferred Reversal and origination of timing differences as follows: per the income statement the profit to for the year can be reconciled The charge 28% (2008: 28.5%) of tax rate UK corporation at the Tax Current tax Current tax current UK 11. Russian current taxRussian current tax charge Total NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

12. Earnings per ordinary share 2009 2008 US$’000 US$’000 Profit for the period attributable to equity holders of Petropavlovsk PLC 143,194 22,002(a) Interest expense on convertible bonds, net of tax 6,708 –(a) Profit used to determine diluted earnings per share 149,902 22,002(a)

No of shares No of shares(a) Weighted average number of Ordinary Shares 146,701,446 81,155,052(a) Adjustments for dilutive potential Ordinary Shares: Assumed conversion of convertible bonds 9,926,580 –(a) Grant of share options in exchange for share options previously granted to the Directors of Aricom plc 42,049 –(a) Weighted average number of Ordinary Shares for diluted earnings per share 156,670,075 81,155,052(a)

(a) Convertible bonds which could potentially dilute basic earnings per ordinary share were not included in the calculation of diluted earnings per share because they were anti-dilutive for the year ended 31 December 2008.

2009 2008 US$ US$ Basic earnings per ordinary share 0.98 0.27 Diluted earnings per ordinary share 0.96 0.27

As at 31 December 2009, the Group had a potentially dilutive option issued to IFC to subscribe for 1,067,273 Ordinary Shares (31 December 2008: nil) and 8,312,463 (31 December 2008: nil) potentially dilutive warrants which were anti-dilutive for the year ended 31 December 2009 and were not included in the calculation of diluted earnings per share.

13. Dividends 2009(a) 2008 US$’000(a) US$’000 Amounts recognised as distributions to equity holders in the year Final dividend for the year ended 31 December 2007 of 7.5 pence per share(b) –(a) 12,166 Interim dividend for the year ended 31 December 2008 of 7.5 pence per share(b) –(a) 10,828 –(a) 22,994

(a) Information on dividends declared subsequent to 31 December 2009 is set out in note 38. (b) US dollar equivalent of dividend payment has been arrived at by translating sterling amounts paid into US dollars at the date of payment.

112 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

–

427 2008 (486) (486) 5,430 US$’000 16,304 22,161 21,675

– – – & Accounts 2009 – 113 2009 (486) (486) US$’000 22,161 22,161 21,675 eport Petropavlovsk PLC Annual R PLC Petropavlovsk generating units likely to benefit from acquisition-related synergies are synergies acquisition-related benefit from to units likely generating Goodwill Goodwill arising on acquisition of PRP Stancii Stancii PRP of acquisition on arising Goodwill impairment losses Accumulated January 1 At and PRP Stancii. investment in Irgiredmet the Group’s to Goodwill primarily relates - that cash management determined On the acquisition of Irgiredmet, Cost 1 JanuaryAt 14. Goodwill arising on acquisition of ZAO PHM Engineering Engineering PHM ZAO of acquisition on arising Goodwill December 31 At Impairment loss December 31 At amount at 31 December Carrying Goodwill recognised on acquisition of PRP Stancii in the amount of US$5 million has been allocated to the group of cash generating units likely likely units generating cash of group the to allocated segment. been on acquisition of Irgiredmet Goodwill recognised segments. metals and exploration in the precious which reside the individual mining projects, has exploration million and US$5 of segment of cash generating purposes in equal parts between the two groups for impairment testing in the amount of US$16 million has been allocated amount metals the in precious the Stancii to being PRP of units, correspond acquisition on calculations These recognised Goodwill calculations. value-in-use on metals segment.residing in the precious synergies, acquisition-related benefit from to based determined is units of cash-generating amount The recoverable by management. Management and business plan approved ten year budget net cash flows based on future of estimated value present of 11.5%, being rate projects using a discount existing mining of the profile production expected cash flows based on budgeted determined of capital. cost average tax nominal weighted after of the Group’s an estimate that goodwill might be impaired. indicators are if there frequently goodwill annually for impairment or more tests The Group and for Irgiredmet carried out at 31 December 2009 and 2008 no goodwill impairment was indicated Based on the impairment tests PRP Stancii. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

15. Intangible assets Yamal Flanks of Malomir Albyn Tokur deposits Pokrovskiy Kostenginskoye Others(a) Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 At 1 January 2009 41,308 10,390 61,549 62,973 21,635 – 27,591 225,446 Additions – 1,040 24 4,545 176 36 6,839 12,660 Assets acquired through business combination with Aricom plc (note 31) – –– – – 27,381 610 27,991 Assets acquired through other business combinations (note 31) – –– – – – 845 845 Impairment – – (2,702)(b) (1,506)(c) – – (35) (4,243) Transfer to mine development costs (40,172) (11,430) (58,871) (40,564) – –– (151,037) Transfer to mining assets – –– – (7,521) –– (7,521) Reallocation (1,136) –– – 1,136 –– – Disposals – –– – – – (112) (112) At 31 December 2009 – –– 25,448 15,426 27,417 35,738 104,029

(a) Represent amounts capitalised in respect of a number of projects in the Amur and Buryatia regions. (b) Following the expiration of the licence to explore the flanks of Tokur deposit and decision to abandon exploration, associated exploration and evaluation costs previously capitalised were written-off. (c) Following the decision to abandon exploration of Yarshor-Laptoyeganskaya zone of the Yamal deposits, associated exploration and evaluation costs previously capitalised were written off.

Yamal Flanks of Malomir Albyn Tokur deposits Pokrovskiy Others(a) Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 At 1 January 2008 25,483 3,385 58,437 48,641 19,931 14,905 170,782 Additions 15,825 7,005 435 14,661 7,621 12,891 58,438 Impairment – – – – (3,240)(d) – (3,240) Transfer to mine development costs – – – –– (205) (205) Reallocation – – 2,677 – (2,677) – – Disposals – – – (329) – – (329) At 31 December 2008 41,308 10,390 61,549 62,973 21,635 27,591 225,446

(d) Following the decision to abandon the licence to explore Voroshilovskoye deposit, associated exploration and evaluation costs previously capitalised were written off.

114 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information – – – – – – – 55 Total Total 205 (176) 2,314 3,407 (2,046) (1,255) US$’000 74,969 42,802 53,786 23,229 14,749 116,571 158,558

– – – – – – – – – – – – – – – – – & Accounts 2009 – 115 Capital Capital progress US$’000 eport construction in in construction

– – – – – – 55 98 (176) assets assets US$’000 29,318 10,346 343,095 Non-mining – – – – Petropavlovsk PLC Annual R PLC Petropavlovsk (98) 205 assets assets Mining Mining 2,927 1,536 154 4,617 3,407 (1,324) (722) (3,213) (2,866) (247) (6,326) US$’000 54,453 20,516 42,401 11,385 13,474 9,755 14,778 9,423 (24,201)

– – – – – – – – – – – – (4) (324) (927) (81) (444) (1,859) (1,768) (4,152) 935 27,324 14,543 585 210 (795) Mine costs costs 1,184 203,683 100,469 36,925 342,261 1,516 81,663 33,392 1,184 258,136 120,985 36,925 417,230 2,142 172 (3,416) 63,518 20,686 (80,788) US$’000 11,333 6,117 (10,653) (6,797) 14,749 66,28120,708 152,039 31,098 80,221 16,357 13,046 35,577 311,587 103,740 (73,209) 73,209 (12,596) (16,314) 16,314 12,596 581,844 298,543 135,766 49,337 1,065,490 583,360 380,206 169,158 49,337 1,182,061 102,981303,431 45,186151,037 10,857 7,521 91,419 250,443 development development ed (note 26) ed (note ed (note 10) ed (note down and restoration costs capitalis costs down and restoration Property, plant and equipment equipment and plant Property,

Property, plant and equipment with a net book value of US$75.6 million (31 December 2008: US$49.8 million) have been pledged to secure secure to pledged been have million) US$49.8 2008: December (31 million US$75.6 of value book net a with equipment and plant Property, another entity. or sell them to pledge these assets as security for other borrowings is not allowed to The Group of the Group. borrowings deposit. ore iron Kurankakh to costs of US$6 million, related stripping Mine development costs include deferred Additions to At 1 January 2009 At At 31 December 2009 31 December At value book Net 2009 31 December At Exchange difference Exchange At 31 December 2008 At Charge for the period Charge Disposals Reallocation Reallocations Accumulated depreciation and impairment and depreciation Accumulated 1 JanuaryAt 2008 At 31 December 2009 At for the period Charge Disposals Transfer from mine development costs from Transfer Disposals December 2008 31 At Additions Reallocation Disposals Acquired through business combination with Aricom plc (note 31) business combination with Aricom plc (note through Acquired Reallocation intangible assets from Transfers capital construction in progress from Transfers Close- capitalis Interest Cost January 1 At 2008 Additions business combinationsthrough Acquired 16. Close down and restoration costs capitalised (note 26) costs capitalised (note Close down and restoration Transfers from intangible assets from Transfers Exchange difference Exchange Transfers from capital construction in progress from Transfers NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

17. Interests in joint ventures The Group has various interests in jointly-controlled entities as set out in note 40. These interests are accounted for in accordance with accounting policies as set out in note 2.7. 2009 2008 US$’000 US$’000 At 1 January 7,427 8,635 Acquired as part of business combination with Aricom plc(a) (note 31) 20,077 – Acquired on incorporation(b) 2,021 – Share of joint ventures’ profit/(loss) 2,723 (1,261) Unrealised (gain)/loss (350) 53 Foreign currency exchange differences (12) At 31 December 31,886 7,427

(a) In accordance with the terms of the joint venture agreement between Aricom and Chinalco to establish a Chinese Titanium Joint Venture project, Heilongjiang Jiatai Titanium Co. Limited, signed and approved by the Chinese Ministry of Commerce on 12 August 2008, the Group holds 65% of the joint venture and 35% is held by Chinalco, with the parties exercising joint control. The first tranche of US$20.8 million was paid by Aricom in September 2008. The remaining tranches to be contributed by the Group comprise a US Dollar equivalent of US$48.7 million as at 31 December 2009 and are expected to be made in 2010. (b) On 19 February 2009, the Group signed the agreement with Heilongjiang Jianlong Steel Company Limited (China) and Kuranakii Investment Co. Limited (HK) to establish a Chinese Vanadium Joint Venture project, Heilongjiang Jianlong Vanadium Industries Co. Limited. The Group holds 46% of the joint venture and the remaining 49% and 5% are held by Heilongjiang Jianlong Steel Company and Kuranakii Investment Co. respectively, with the parties exercising joint control. The first tranche in the US Dollar equivalent of US$2 million has been paid by the Group in November 2009. The remaining tranches to be contributed by the Group comprise a US Dollar equivalent of US$4.7 million outstanding as at 31 December 2009 and are to be made in 2010. The summary of the financial information of the Group’s jointly-controlled entities is set out below.

Omchak Odolgo Titanium Vanadium Joint Joint Joint Joint Venture Venture Venture Venture Total 2009 Total 2008 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Share of joint ventures’ assets and liabilities Non-current assets 10,712 5,871 14,736 – 31,319 13,617 Current assets 12,315 962 7,973 2,021 23,271 15,078 23,027 6,833 22,709 2,021 54,590 28,695

Current liabilities (8,834) (551) (2,393) – (11,778) (12,862) Non-current liabilities and provisions (822) (7,767) – – (8,589) (6,824) (9,656) (8,318) (2,393) – (20,367) (19,686) Non-controlling interest (2,337) – – – (2,337) (1,582) The Group’s share of net assets 11,034 (1,485) 20,316 2,021 31,886 7,427

Share of joint ventures’ revenue and expenses Sales revenue 29,421 1,964 – – 31,385 22,204 Net operating expenses (26,500) (2,581) 206 – (28,875) (23,945) Operating profit/(loss) 2,921 (617) 206 – 2,510 (1,741) Financial income 2,331 551 48 – 2,930 2,610 Financial expenses (1,114) (7) – – (1,121) (1,155)

Taxation (802) (28) – – (830) (481) Non-controlling interest (766) – – – (766) (494) The Group’s share of profit/(loss) for the year 2,570 (101) 254 – 2,723 (1,261)

116 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– 12 20 940 972 2008 2008 7,476 4,196 4,196 US$’000 US$’000 19,078 19,078 19,078 14,313 30,387 15,960 72,332

– 20 & Accounts 2009 – 117 939 2009 2009 2,584 8,628 8,724 3,543 8,628 2,380 US$’000 US$’000 44,619 34,726 11,181 eport 101,630 31 Note Petropavlovsk PLC Annual R PLC Petropavlovsk (a) (b) (a) Inventories Available-for-sale investments Available-for-sale Non-current inventories comprise long-term ore stockpiles that are not planned to be processed within one year. be processed not planned to that are stockpiles ore comprise long-term inventories Non-current stake in the share capital of Rusoro as enlarged by the placing is c.1.1%. The investment in Rusoro is recorded at fair value which is determined with reference to the market price of of price market the to reference with determined is which value fair at recorded is Rusoro in investment The c.1.1%. is placing quoted with the by markets active no enlarged are as there as Rusoro measured of US$ 3 million. The Group’s of for consideration as part of an equity placing by Rusoro (“Rusoro”) Mining Limited in Rusoro 6,166,666 new shares acquired 2009, the Group In March reliably be capital cannot share values fair the in Directors, stake the of opinion the in as, cost at exchange. on the stock quoted the shares recorded are investments these of value The prices. market

Unlisted securities Unlisted Stores and spares Stores in progress Work costs stripping Deferred Non-current in progress Work Bullion in process (a) Current Construction materials 19. (a) (b) Solovyevskiy Priisk Solovyevskiy Other Listed securities Listed Mining Limited Rusoro 18. Verkhnetisskaya GRK Verkhnetisskaya NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

20. Trade and other receivables 2009 2008 US$’000 US$’000 Current VAT recoverable 43,624 24,073 Prepayments for property, plant and equipment 41,635 33,030 Advances to suppliers 14,187 5,881 Trade receivables(a) 3,779 3,857 Loan to Omchak Joint Venture 3,151 3,046 Exchangeable loan to Rusoro(c) 17,863 – Loan to Uralmining 760 – Other loans receivable 709 2,734 Advances paid on resale and commission contracts(b) 785 4,243 Interest accrued 467 408 Other debtors 13,545 7,503 140,505 84,775 Non-current Loan to Odolgo Joint Venture 7,789 6,089 Exchangeable loan to Rusoro(c) – 13,701 Other loans receivable 302 – Other assets 765 – 8,856 19,790

(a) Amounts included in trade receivables at 31 December 2009 and 31 December 2008 relate mostly to services performed by the Group’s subsidiary, Irgiredmet. Trade receivables are due for settlement between one and six months. All outstanding trade receivables at period end are not past due and are considered recoverable. (b) Amounts included in advances paid on resale and commission contracts at 31 December 2009 and 31 December 2008 relate to services performed by the Group’s subsidiary, Irgiredmet, in its activity to procure materials such as reagents, consumables and equipment for third parties (c) On 10 June 2008, the Company participated in an US$80 million senior secured exchangeable loan (the “Exchangeable Loan”) to Venezuela Holdings (BVI) Limited, a wholly-owned subsidiary of Rusoro Mining Limited (“Rusoro”). The Company subscribed for US$20 million of the Exchangeable Loan and the remainder of the funds were provided by other parties (the “Lenders”). The Exchangeable Loan carries an interest rate of 10% per-annum payable semi-annually in arrears and is exchangeable into Rusoro shares at C$1.25 (the “Rusoro Embedded Derivative”). The loan component is measured at amortised cost, whilst the Rusoro Embedded Derivative is separately fair valued (note 24). There is no significant concentration of credit risk with respect to trade and other receivables. The Group has implemented policies that require appropriate credit checks on potential customers before granting credit. The Group has adopted a policy of only dealing with creditworthy counterparties. The Group’s exposure and credit ratings of its counterparties are monitored by the Board of Directors. The maximum credit risk of such financial assets is represented by the carrying value of the asset. The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

118 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– 2008 2008 3,652 7,438 7,438 1,772 US$’000 US$’000 21,413 42,142 22,792 26,444 11,519

& Accounts 2009 – 119 516 2009 2009 5,222 2,487 US$’000 US$’000 38,799 64,379 17,871 18,607 57,344 76,467 eport Petropavlovsk PLC Annual R PLC Petropavlovsk (a) Trade and other payables and other Trade Cash and cash equivalents Cash Amounts included in advances paid on resale and commission contracts at 31 December 2009 and 31 December 2008 relate to services performed by the Group’s subsidiary, services performed by the Group’s to at 31 December 2009 and 31 December 2008 relate and commission contracts Amounts included in advances paid on resale parties. consumables and equipment for third such as reagents, materials procure in its activity to Irgiredmet, Accruals and other payables Advances from customers Advances from Advances received on resale and commission contracts on resale Advances received The Directors consider that the carrying amount of trade and other payables approximates their fair value. their payables approximates and other that the carrying consider amount of trade The Directors (a) Trade payables Trade 22. Short-term bank deposits Short-term Cash at bank and in hand Cash 21. Promissory notes and other liquid investments notes Promissory NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

23. Borrowings 2009 2008 US$’000 US$’000 Borrowings at amortised cost Convertible bonds(a) – 140,663 Exchangeable bonds(b) – 162,863 Bank loans(c) 95,546 60,198 Other loans – 10,000 95,546 373,724

Amount due for settlement within 12 months 11,944 220,946 Amount due for settlement after 12 months 83,602 152,778 95,546 373,724

(a) In August 2005, the Group issued US$140 million of convertible bonds due on 11 August 2010. The convertible bonds were issued at par by the Company’s wholly-owned subsidiary, Peter Hambro Mining Group Finance Limited, and were guaranteed by the Company. The convertible bonds carried a coupon rate of 7.125% payable semi-annually in arrears and could be converted into fully-paid Ordinary Shares of the Company at the price of 724 pence per share. If not converted or previously redeemed the convertible bonds would be redeemed at par on maturity. The net proceeds received from the issue of the convertible bonds were split between the liability component and the equity component of US$1.6 million representing the fair value of the embedded option to convert the liability into equity of the Group. The liability component of the convertible bonds was measured at amortised cost. The interest charged for the year was calculated by applying an effective interest rate of 8.3% to the liability component. The fair value of the liability component of the convertible bonds at 31 December 2008 amounted to US$160.6 million, calculated using cash flows discounted at a rate based on the weighted average external borrowings rate of 12%. Following satisfaction of the conditions precedent, in November 2009 the Group exercised its option to redeem all of the outstanding convertible bonds prior to their final maturity date. Bondholders holding a total of US$139.8 million of the nominal amount of the convertible bonds elected to convert their bonds into Ordinary Shares of the Company (note 27) (b) On 19 October 2007, the Group issued US$180 million of bonds, exchangeable, at the discretion of the bond holder, into the cash equivalent of (in aggregate) 180,000 Troy ounces anytime from 19 October 2009 (the second anniversary of the issue date of the exchangeable bonds) until 30 September 2012 (20 days prior to the maturity of the exchangeable bonds). The exchangeable bonds were issued at par by the Company’s wholly-owned subsidiary, Peter Hambro Mining Group Finance Limited, and were guaranteed by the Company. The bonds carry a coupon rate of 7% per annum payable semi-annually in arrears. The exchangeable bonds were measured at amortised cost and include embedded derivatives which are separately fair valued (note 24). The carrying value of the liability component of the exchangeable bonds approximated its fair value at 31 December 2008. The interest charged for the year was calculated by applying an effective interest rate of 10.56% to the liability component measured at amortised cost. During the year ended 31 December 2009, the Group purchased a total of US$127 million nominal amount of its 7% exchangeable bonds at an average price of US$95.00 plus accrued interest, a total of US$51.9 million nominal amount at an average price of US$109.00 plus accrued interest and a total of US$1.1million nominal amount at an average price of US$104.00 plus accrued interest. The net gain on redemption of the exchangeable bonds of US$23.7 million recognised during the year as part of financial income was comprised of US$16.7 million excess of cash paid over the carrying amount of liability settled and US$40.4 million gain on unwinding of the embedded derivative financial liability upon redemption (notes 7, 24). (c) On 10 July 2009, the Group entered into a US$60 million loan facility with Sberbank. The loan bears an annual interest of 9.5%, which has been reduced to 9% starting from 1 January 2010 and further down to 8% starting from 1 March 2010, and is repayable between August 2010 and November 2013. On 16 December 2009, the Group entered into an up to US$150 million loan facility with US$120 million committed by ING Bank, Unicredit Bank and Raiffeisenbank at that time. The loan bears an interest rate of LIBOR plus 6.3% and is repayable between December 2010 and December 2012. In January 2010, Société Générale and BNP joined the facility as lenders and the aggregated amount committed was increased to US$150 million (note 38). As at 31 December 2009, the amounts undrawn under the loan facilities comprised US$80.2 million (2008: all loan facilities have been fully drawn down). All bank loans outstanding as at 31 December 2009 are secured against certain items of property, plant and equipment of the Group (note 16). Bank loans outstanding as at 31 December 2008 included liabilities of US$46.8 million which were secured against certain items of property, plant and equipment of the Group (note 16). The carrying value of the bank loans and other loans approximated their fair value at each period end. The weighted average interest rate paid during the year ended 31 December 2009 was 8% (2008: 12%).

120 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– – – 443 2008 6,560 1,432 1,780 1,875 day (1,076) (1,076) (5,128) (1,337) th US$’000 (42,476) (30,634) (10,766) (41,400)

– – – 2 94 96 (70) & Accounts 2009 – 121 443 2009 (441) 1,146 1,030 1,432 (1,076) (1,338) US$’000 40,370 (41,400) eport day before the date fixed by fixed the date day before th Petropavlovsk PLC Annual R PLC Petropavlovsk (b) however may be shortened in the event that the Lenders exchange their portion of exchange in the event that the Lenders however may be shortened (c) (a)

(a) Derivative financial instruments Derivative financial the call for redemption. 23). Bonds (note all the outstanding US$180 million Gold Equivalent Exchangeable purchased During the year ended 31 December 2009, the Group between Russian Rouble and US Dollar on 22 April 2009. rate exchange sell US$10 million at the agreed to contract Forward data.techniques based on market valuation using appropriate determined The fair values of the derivative financial instruments are The derivative financial assets recognised at 31 December 2009 and 2008 relate to the Rusoro Embedded Derivative within the Exchangeable Loan and the Call Option.Loan and the Embedded Derivative within the Exchangeable Rusoro to the relate recognised at 31 December 2009 and 2008 The derivative financial assets the 30 at any time from at C$1.25, common shares Rusoro into on 10 June 2008 is exchangeable Rusoro issued to Loan Derivative: The Exchangeable Embedded Rusoro after the Drawdown Date of the loan up to six days prior to the Repayment Date or up to the prepayment date in accordance with the loan agreement. in accordance date the prepayment or up to the Repayment Date six days prior to of the loan up to Date Drawdown the after giving the Company Loan, the Exchangeable from separate Option”, “Call the with the other Lenders, an option agreement into On 10 June 2008, the Company entered Option: Call London the that of their portion of the upon exchange receive may which such other Lenders common shares the Rusoro at a price of C$2.20 per share, the other Lenders, from acquire the right to provided date) issue the 3 June 2010, to Date the Drawdown from of Option may be exercised The Call Loan. Exchangeable anniversary fourth place. takes or if prepayment Loan (the the Exchangeable 2011 October 19 the bond holders and a cap which is held by the Group. option to a written after Bonds represented Embedded derivatives within the US$180 million Gold Equivalent Exchangeable interest accrued 180,000 Troy up to of (in aggregate) cash equivalents at the time of exchange bonds into their exchangeable exchange plus option for the bond holder to Option: A written Written par at bonds maturity of the the 2012 (20 days prior to bonds) until 30 September of the exchangeable 2009 (the second anniversary of the issue date 19 October ounces of gold at any time from exchangeable the bonds). call to option exchangeable the has Group The Cap: to the 15 to convert within the call period up retaining the right ounce, with investors Troy reaches a level of US$1,500 per gold price fixing afternoon Fair value change Fair upon settlement of the host contract Reduction of the derivative financial liability derivative financial liabilities Total (c) (a) Fair value change Fair 23) bonds (note exchangeable redemption of upon Reduction of the derivative financial liability Forward Contract Currency Foreign Derivative financial liabilities – Fair value of the foreign currency forward contract at the beginning of the period and at inception contract forward currency value of the foreign Fair Fair value of Gold Exchangeable Bonds Embedded Derivatives at the beginning of period Bonds value of Gold Exchangeable Fair Fair value of the Rusoro Embedded Derivative at the beginning of the period and at inception Embedded Derivative at the beginning value of the Rusoro Fair Derivative financial assets – Rusoro Embedded Derivative – Rusoro Derivative financial assets 24. Fair value change Fair Call Option Derivative financial assets – Rusoro Fair value of the Call Option at the beginning of the period and at inception value of the Call Fair Fair value change Fair derivative financial assets Total Derivative financial liabilities – Exchangeable Bonds Embedded Derivatives Derivative financial liabilities – Exchangeable (b) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

25. Deferred taxation 2009 2008 US$’000 US$’000 At 1 January 15,523 16,289 Deferred tax credited to income statement 13,444 (1,414) Deferred tax arising on acquisition of subsidiaries (note 31) 59,423 648 Deferred tax charged to equity (110) – Exchange differences (20) – At 31 December 88,260 15,523

Deferred tax assets 9,318 17,057 Deferred tax liabilities (97,578) (32,580) Net deferred tax liability (88,260) (15,523)

Credited/(charged) Credited/(charged) At 1 January to the income directly to Acquisition of Exchange At 31 December 2009 statement equity subsidiary differences 2009 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Property, plant and equipment 19,569 3,286 – 59,362 (35) 82,182 Inventory 6,560 1,820 – (239) (24) 8,117 Capitalised exploration and evaluation expenditure (2,664) (916) – – – (3,580) Derivative financial instruments (11,067) 11,428 – – – 361 Exchangeable bonds 4,251 (4,251) – – – – Exchangeable loan to Venezuela Holdings (BVI) Limited (1,735) 1,735 – – – – Fair value adjustments 10,680 (681) – – – 9,999 Tax losses (6,518) (801) – – – (7,319) Other temporary differences (3,553) 1,824 (110) 300 39 (1,500) 15,523 13,444 (110) 59,423 (20) 88,260

122 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

(a)

– –

2008 236 2008 2,990 4,251 6,560 (6,518) (3,553) (1,735) (2,664) 3,407 1,603 5,246 US$’000 15,523 15,523 19,569 (11,067) Kuranakh US$’000

At 31 DecemberAt

– – – – – – – 1 67 & Accounts 2009 – 123 31 December 2009 646 382 2009 term risk-free pre-tax risk-free term at least 12 years from 5,246 2,314 8,655 US$’000 US$’000 subsidiary eport Acquisition of

Pioneer mine (6,518) (1,735) US$’000 statement to the income income the to 2,648 (2008: 2,530) 31 December 2009 at least 10 years from Credited/(charged)

– – Petropavlovsk PLC Annual R PLC Petropavlovsk 2008 6,3783,660 13,191 5,030 2,900 (779) (1,612) (1,942) (1,654)(8,418) (1,010) (2,649) US$’000 16,289 (1,414) 648 12,905 (2,872) 647 10,680 At 1 JanuaryAt Pokrovskiy mine Pokrovskiy 3,017 (2008: 2,716) 31 December 2009 at least 7 years from from years 7 least at down and restoration costs for the following mining sites: down and restoration la Holdings (BVI) Limited Provision for close down and restoration costs for close down and restoration Provision Including provision for the close down and restoration costs for the Pioneer mine of US$2.4 million recognised following the Pioneer plant being put into operation in 2008. operation following the Pioneer plant being put into costs for the Pioneer mine of US$2.4 million recognised for the close down and restoration Including provision The Group did not recognise deferred income tax assets in respect of tax losses comprising US$102.7 million (2008: US$17.9 million) that of tax losses income tax assets in respect deferred did not recognise The Group Tax losses of indefinitely. of US$34.5 million can be carried forward losses taxable income. Tax against future can be carried forward between 2015 and 2019. US$68.2 million substantially expire arising on certain differences of temporary income tax assets of US$34.5 million (2008: nil) in respect deferred did not recognise The Group costs. development capitalised be payable on the unremitted that would of withholding tax and other taxes tax liability in respect a deferred has not recorded The Group the timing control is able to as the Group in joint ventures and interests and associates with investments in its subsidiaries earnings associated earnings comprised in Unremitted future. reverse them in the foreseeable to and does not intend differences of those temporary of the reversal million (2008: US$217.5 million). US$386.2 aggregate Other temporary differences Other temporary Tax losses Tax Fair value adjustments Fair Expected timing of the closure of a mining operation operation mining a of closure the of timing Expected and the cash outflows Provision recognised represents the present value of estimated expenditure that will be incurred arrived at using the long- that will be incurred expenditure value of estimated the present represents recognised Provision borrowing. of cost e Venezu loan to Exchangeable Provision recognised, US$’000 recognised, Provision (a) close- to in relation provisions recognised The Group Foreign exchange movements exchange Foreign At 1 January January 1 At 26. Acquisition of Aricom (note 31) Acquisition of Aricom (note discount of Unwinding Change in estimates Inventory bonds Exchangeable Property, plant and equipment plant and Property, Capitalised exploration and evaluation expenditure and exploration Capitalised Derivative financial instruments At 31 December December 31 At NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

27. Share capital 2009 2008 No of shares US$’000 No of shares US$’000 Authorised Ordinary Shares of £0.01 each 350,000,000 120,000,000

Allotted, called up and fully paid At 1 January 81,155,052 1,311 81,155,052 1,311 Issued during the period 100,924,715 1,494 – – At 31 December 182,079,767 2,805 81,155,052 1,311

Details of the Ordinary Shares in issue at the commencement of the period, Ordinary Shares issued during the period, and Ordinary Shares in issue at the period-end are given in the table below. Date Description No of shares 1 January 2009 Number of Ordinary Shares in issue at the commencement of the year 81,155,052 10 February 2009 Issue of Ordinary Shares of £0.01 each following a Placing 16,000,000 22 April 2009 Issue of Ordinary Shares of £0.01 each following 73,928,433 the Aricom Scheme of Arrangement 19 October 2009 Issue of Ordinary Shares of £0.01 each following the exercise of options(a) 156,250 29 October 2009 Issue of Ordinary Shares of £0.01 each following the conversion of the convertible bonds(b) 7,753 18 November 2009 – Issue of Ordinary Shares of £0.01 each following 8 December 2009 the conversion of the convertible bonds(c) 10,832,279 31 December 2009 Number of Ordinary Shares in issue at the end of the year 182,079,767

(a) Options granted under the Share Option Scheme of Aricom plc to the Directors on 19 July 2006 which were exchanged for options over Ordinary Shares of the Company on the acquisition of Aricom plc. (b) Converted at the option of the bondholders. (c) Converted following the Group having exercised its option to redeem all of the outstanding convertible bonds (note 23). The Company has one class of Ordinary Shares which carry no right to fixed income.

Warrants in issue On the acquisition of Aricom plc, the Company issued 8,312,463 warrants in consideration for the transfer of the Aricom warrants to the Company (note 31). Each warrant confers the right to subscribe for one Ordinary Share of Petropavlovsk PLC at an exercise price of US$17.72, determined by reference to the exchange rate of US$1.384 : £1 to the exercise price of £12.80 which is an equivalent of the exercise price of £0.80 per Aricom warrant, adjusted by the exchange ratio of one Petropavlovsk warrant for every 16 Aricom warrants. These warrants expire on 9 June 2010.

Issue of options On the acquisition of Aricom plc, the Company issued an option to IFC to subscribe for 1,067,273 Ordinary Shares at an exercise price of £11.84 per share, subject to adjustments, in exchange of an option previously issued by Aricom plc (note 31). The option expires on 25 May 2015, subject to adjustments.

124 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– – – – 2008 2008 (874) 2,838 3,560 1,433 1,261 3,240 1,605 (7,709) US$’000 US$’000 58,582 22,284 18,307 33,302 40,388 (24,516) (36,537) 118,202

– & Accounts 2009 – 125 306 520 819 230 2009 2009 (844) 6,796 4,243 7,140 2,933 (2,723) US$’000 US$’000 40,523 (24,322) (13,313) (14,003) (31,480) (14,003) eport 219,052 188,213 197,385 Petropavlovsk PLC Annual R PLC Petropavlovsk Major non-cash transactions Notes to the cash flow statement to Notes Own shares Reconciliation of profit before tax to operating cash flowto operating tax before Reconciliation of profit Term Incentive Plan (note 32). Long under the to employees 32). benefits to provide Trust (“EBT”) held by the Employee Benefit Shares Ordinary 1,812,500 represent Own shares (note Plan Incentive Term equivalents cash and cash of respect in losses Exchange Other non-cash items working capital changes before profit Operating Increase in trade and other receivables receivables other and trade in Increase inventories in Increase and other payables in trade Increase Net cash inflow from operating activities operating Net cash inflow from The principal non-cash transaction were the issue of shares, share options and warrants as consideration for the acquisition of Aricom plc plc Aricom of acquisition the for consideration as warrants and options share shares, of issue the were transaction non-cash principal The 23). (note PLC of Petropavlovsk Shares the Ordinary 31) and conversion of convertible bonds into (note (b) Impairment charges Balance at 31 December value change on derivatives Fair Financial expenses Depreciation equipment plant and of property, on disposals Loss of investment activity (gains)/losses in respect Exchange Financial income payments Share-based Acquired during the year through business combination with Aricom plc business during the year through Acquired Profit before tax before Profit (a) 29. Adjusted for: Adjusted in joint ventures of results Share Balance at 1 January 28. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

30. Related parties Related parties the Group entered into transactions with during the reporting period Aricom plc (“Aricom”) and its subsidiaries were considered to be related parties due to Mr Peter Hambro, Mr Jay Hambro and Dr Pavel Maslovskiy’s shareholdings and directorships in those companies and in Petropavlovsk PLC. On 22 April 2009, Aricom plc became a subsidiary of the Group and hence ceased to be a related party requiring disclosure. The details of acquisition of Aricom plc are set out in note 31. OJSC Asian-Pacific Bank (“Asian-Pacific Bank”), V.H.M.Y. Holdings Limited, OJSC M2M Private Bank (“M2M Private Bank”) and OJSC Kamchatprombank (“Kamchatprombank”) are considered related parties as Mr Peter Hambro and Dr Pavel Maslovskiy have an interest in these companies. Expobank LLC was previously considered a related party as Mr Peter Hambro and Dr Pavel Maslovskiy had an interest in this company. From July 2008, Expobank LLC ceased to be a related party as at that time it was acquired by Barclays Bank PLC. OJSC Apatit (“Apatit”), a subsidiary of OJSC PhosAgro (“PhosAgro”), is considered to be a related party due to PhosAgro’s minority interest and significant influence in the Group’s subsidiary Giproruda. Omchak Joint Venture, Odolgo Joint Venture, Titanium Joint Venture and Vanadium Joint Venture are joint ventures of the Group and hence are related parties. Uralmining is an associate of the Group and hence is a related party. Transactions with related parties the Group entered into during the year ended 31 December 2009 and 2008 are set out below.

Trading transactions Related party transactions the Group entered into that relate to the day to day operation of the business are set out below. Sales to related parties Purchases from related parties 2009 2008 2009 2008 US$’000 US$’000 US$’000 US$’000 Aricom and its subsidiaries(a) Construction and engineering services 7,327 39,753 1,062 – Exploration services 97 1,306 25 – Other 1,325 6,136 1,464 4,620 8,749 47,195 2,551 4,620 Expobank Sales of gold and silver – 19,056 – – Sales and purchases of gold through metallic account – 15,322 – 15,267 Other – – – 128 – 34,378 – 15,395 Asian-Pacific Bank Sales of gold and silver 33,946 1,642 – – Other 1,160 1,914 1,008 233 35,106 3,556 1,008 233 Trading transactions with other related parties Engineering services to Apatit 2,051 – – – Rent, insurance and other transactions with other entities in which Mr Peter Hambro and/or Dr Pavel Maslovskiy have a controlling interest or exercise a significant influence 1,425 – 2,721 579 Other transactions with Odolgo Joint Venture 18 – – – 3,494 – 2,721 579 47,349 85,129 6,280 20,827

(a) Until 22 April 2009 when Aricom became a subsidiary of the Group.

126 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– – – – 27 700 793 2008 2008 2008 2008 9,250 4,423 6,520 6,493 3,619 3,619 US$’000 US$’000 US$’000 US$’000 20,743 10,000

– – – – – – – – owed to related parties related owed to & Accounts 2009 – 127 249 2009 2009 2009 2009 Loan and interest amounts amounts interest and Loan 2,000 1,017 1,017 US$’000 US$’000 US$’000 US$’000 27,577 14,334 12,085 eport

– – 2 23 26 555 317 213 2008 2008 2,548 2,574 US$’000 US$’000 . from related parties parties related from

Petropavlovsk PLC Annual R PLC Petropavlovsk . – 9 2 37 884 463 375 928 398 2009 2009 Interest on loans received received loans on Interest 1,328 US$’000 US$’000 Amounts owed by related partiesAmounts owed by related parties related Amounts owed to

700 793 2008 9,250 . US$’000 20,743 10,000 related parties related

Loans received from received Loans – – – – – 2009 US$’000 . ociate and associate the joint ventures on the loans to 20). Interest (note and associate ventures . Holding Limited Kamchatprombank Key management compensation compensation management Key key The compensation to Committee. the Executive and members of and Non-Executive) (Executive includes Directors management Key management for employee services is set out below The Group provided a number of loans to the joint a number of loans to provided The Group comprised US$0.3 million (2008: US$0.2 million). Asian-Pacific Bank Asian-Pacific M2M Private Bank M2M Private Y V.H.M. Financing transactions set out below parties of which are details related a number of loans from received The Group Asian-Pacific Bank Asian-Pacific Share-based compensation Share-based Wages and salaries Wages Pension costsPension Aricom and its subsidiaries The outstanding balances with related parties at 31 December 2009 and 2008 are set out below parties 2009 and 2008 are at 31 December with related The outstanding balances Other entities in which Mr Peter Hambro and/or Dr Pavel Maslovskiy Maslovskiy Pavel Dr and/or Hambro influence Peter Mr significant a which in exercise entities or Other interest controlling a have Apatit accounts bank Odolgo Joint Venture deposit and current held previously Group The Bank. Asian-Pacific with accounts bank Banking arrangements deposit and current has Group The Expobank. with set out below 2008 are The bank balances at 31 December 2009 and NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

31. Acquisitions Acquisition of Aricom On 6 February 2009, the Independent Board Committees of the Company and Aricom announced that they had reached agreement on the terms of a recommended all share offer to be made by the Company for the entire issued and to be issued share capital of Aricom (the “Merger”). The Merger provided for the acquisition of Aricom shares to be effected by way of a court-sanctioned scheme of arrangement under Part 26 of the Companies Act 1985 involving a capital reduction of Aricom under section 135 of the Companies Act 1985 (the “Scheme”). The purpose of the Scheme was to enable the Company to acquire the entire issued and to-be-issued ordinary share capital of Aricom. Under the terms of the Merger, Aricom Shareholders received one fully paid New Petropavlovsk Share in exchange for 16 fully paid Aricom Shares. The Merger was completed on 22 April 2009. The total purchase consideration for the acquisition of Aricom was US$585 million. A summary of the total consideration is set out in the table below. US$’000 Issue of 73,928,985 Ordinary Shares in Petropavlovsk PLC at the market value of £5.30(a) 571,150 Issue of 8,312,463 warrants in Petropavlovsk PLC at the market value of £0.33(a) (note 27) 3,999 Issue of an option to IFC to subscribe for 1,067,273 shares of Petropavlovsk PLC(b) (note 27) 2,970 LTIP award to replace LTIP awards of Aricom(b) 934 Directly attributable transaction costs 5,896 Total consideration 584,949

(a) At market value opening position and exchange rate at 22 April 2009. (b) Measured at fair value using valuation techniques. The assets and liabilities as of 22 April 2009 arising from the acquisition of Aricom are set out below. Carrying Fair value amount adjustments Fair value US$’000 US$’000 US$’000 Property, plant and equipment 423,286 (80,191) 343,095 Intangible assets 27,991 – 27,991 Investments in associates 4,282 (4,282) – Interests in joint ventures (note 17) 20,077 – 20,077 Available-for-sale investments(c) – 14,003 14,003 Cash and cash equivalents 231,477 – 231,477 Inventories 11,990 (8,753) 3,237 Trade and other receivables 29,020 – 29,020 Trade and other payables (17,854) – (17,854) Deferred tax liability (5,727) (53,696) (59,423) Other assets and liabilities, net 4,435 (7,321) (2,886) Net assets acquired 588,737 Non-controlling interests (3,788)

Group share of net assets acquired 584,949

Transaction costs settled in cash (5,896) Cash and cash equivalents acquired 231,477 Cash inflow on acquisition 225,581

(c) Shares held by Employee Benefit Trust operating in conjunction with LTIP established by Aricom for the benefit of employees of Aricom, converted into shares of Petropavlovsk PLC at the date of acquisition.

128 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

£ – – – – – – – 4 (8) (4) 845 841 589 589 585 price (252)

Exercise US$’000 and fair value Carrying amount amount Carrying

– – – – – . & Accounts 2009 – 129 granted on 25 June 2009granted Shares Ordinary 482,961 482,961 eport Number of of Number .

£ – – – – – – – price LTIP awards LTIP Exercise

– – – – – Petropavlovsk PLC Annual R PLC Petropavlovsk granted on 22 April 2009 granted Shares Ordinary Number of of Number

£ – – – – price price Exercise

– – – – Shares 75,000 6.72 430,768 Ordinary 231,250 6.72 430,768 Share option scheme Share Number of of Number (156,250) 6.72 Share-based payments Share-based Outstanding at 31 December 2009 2009 December 31 at Outstanding Exercised during the year year the during Exercised during the year Expired Forfeited during the year Forfeited Granted during the year during the Granted Aricom share awards exchanged for the share exchanged awards Aricom share Company the of awards Total consideration Total Cash and cash equivalents Cash and other payables Trade value of net assets acquired Fair interests Non-controlling cash settled in consideration Purchase these in reported those from and cash equivalents acquired Cash different significantly outflow on acquisition Cash been have not would year the for Company profit and operating revenue Mining Company to Ore the contribution of Verkhnetisskaya 31 December 2009, of acquisition to the date the From of holders equity to revenues and on 1 January 2009, Group had been completed Mining Company Verkhnetisskaya Ore was not significant. If the acquisition of attributable profit Group financial statements. Intangible assets Acquisition of Verkhnetisskaya Ore Mining Company Ore Acquisition of Verkhnetisskaya Mining Ore capital of Closed JSC Verkhnetisskaya of the share 69% acquire to an agreement into entered the Group 2009, On 26 February of US$0.6 million. cash consideration Company for the total set out below Mining Company are Ore the acquisition of Verkhnetisskaya The assets and liabilities arising from If the acquisition of Aricom had been completed on 1 January 2009, Group profit attributable to equity holders of the Company would have have would Company the of holders equity to attributable profit Group 2009, January 1 on completed been had Aricom of acquisition the If in these consolidated reported those from different for the year would not have been significantly revenues Group been US$116 million while statements. financial From the date of acquisition to 31 December 2009, Aricom contributed US$6.6 million to revenue and US$15 million to operating losses. operating and US$15 million to revenue million to US$6.6 31 December 2009, Aricom contributed to of acquisition the date From 32. set out below are outstanding awards schemes. The details of share awards various equity-settled share operates The Group Outstanding at 1 January 2009 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

32. Share-based payments continued Employee share option scheme As part of business combination with Aricom plc, the outstanding options granted under the Share Option Scheme of Aricom plc to its Directors in prior years have been exchanged for options over Ordinary Shares of Petropavlovsk PLC, exercisable during the period since 19 July 2009 until 19 July 2012. No further options will be granted under the Share Option Scheme by the Group. The fair value of share awards under Employee share option scheme are determined using the Black Scholes model at the date of grant using the assumptions set out below. Employee share option scheme Date of grant 22 April 2009 Share price at the date of grant, £ 5.20 Exercise price, £ 6.72 Expected volatility, % 102.14 Expected life in years 0.24 Risk-free rate, % 0.86 Expected dividends, £ – Fair value per award, £ 0.57

The Replacement Long Term Incentive Plan (the “Replacement LTIP”) On acquisition of Aricom plc, the LTIP established by Aricom plc to operate in conjunction with an Employee Benefit Trust (“EBT”), which held shares in Aricom plc for the benefit of its employees (the participants), has been replaced with awards over the Company’s shares. As a result, 29,000,000 ordinary shares of Aricom plc held by the EBT have been exchanged into 1,812,500 Ordinary Shares of the Company, out of which 430,768 shares have been allocated to the existing participants of the LTIP. The Replacement LTIP award has a sole performance condition being continued employment with the Group throughout the period until 6 February 2010 or a good leaver status. The fair value of share awards under the Replacement LTIP are determined using the Black Scholes model at the date of grant using the assumptions set out below. The Replacement LTIP award Date of grant 22 April 2009 Share price at the date of grant, £ 5.20 Exercise price, £ – Expected volatility, % 119.86 Expected life in years 0.81 Risk-free rate, % 0.87 Expected dividends, £ – Fair value per award, £ 5.20

130 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– – – 3

50% 25%

vesting on TSR Condition Condition vesting based % of the award

– – 3 & Accounts 2009 – 131 2.131.25 2.13 1.25 6.00 6.00 72.98 72.98 4.083 5.778 eport 241,480 241,481 conditions Petropavlovsk PLC LTIP PLC Petropavlovsk on operating performance performance performance share awards performance share vesting based 25 June 2009 25 June 2009 Petropavlovsk PLC Annual R PLC Petropavlovsk year period from the date of grant. grant. of date the from period year strategic plans (the “Operating Conditions”). plans (the “Operating strategic 50% of the shares subject to the award may be acquired based on specific conditions relating to the Group’s business development and to the Group’s relating based on specific conditions may be acquired the award subject to 50% of the shares 50% of the shares subject to the award may be acquired based on a condition relating to total shareholder return (the “TSR Condition”); and “TSR (the return shareholder total to based on a condition relating may be acquired the award subject to 50% of the shares Deferred Bonus Award. Award. Bonus Deferred Performance Share Award, being a right to acquire a specified amount of Ordinary Shares in the Company at nil cost; and in the Company Shares a specified amount of Ordinary acquire a right to being Award, Share Performance Share Option Award, being a right to acquire a specified number of Ordinary Shares in the Company at a specified exercise price; exercise the Company at a specified in Shares a specified number of Ordinary acquire being a right to Option Award, Share Expected volatility, % Expected life in years Expected % rate, Risk-free dividends yield, % Expected annual forfeitures Expected £ value per award, Fair Number of performance share awards granted granted awards share performance £ of grant, Number of date the at price Share £ price, Exercise Date of grant of Date Within top decile Within top At median At Below median the of proportion the to relation in model Carlo Monte the using and conditions performance operating the on based vesting awards the of set out below. are assumptions condition. The relevant vesting based on the TSR awards The detailed requirements to the Operating Conditions are determined by the Remuneration Committee and will be measured over a over measured be will and Committee Remuneration the by determined are Conditions Company the and Operating EBT the the to by held are requirements shares detailed 296,297 The which of out Group, three the of management senior of certain to allocated with 482,961 shares on 25 June 2009 granted were LTIP PLC members under the Petropavlovsk awards Initial performance share and Directors Executive of the LTIP. upon vesting shares issue the remaining assumed the obligation to the proportion to in relation of grant using the Black Scholes model at the date was determined awards The fair value of performance share The TSR Condition relates to growth in TSR over a three year period relative to the TSR growth of companies in a peer group of listed of companies in a peer group growth the TSR to year period relative over a three in TSR growth to Condition relates The TSR over the same period. Group”) (the “Comparator LTIP PLC of the Petropavlovsk upon establishment mining companies selected international as follows: vest or become exercisable to for the award Condition provides The TSR • • • the following provisions: subject to vest or become exercisable Options Awards and Share Awards Share Performance • • The Group established a new Petropavlovsk PLC LTIP which was approved by the shareholders of the Company on 25 June 2009 and and 2009 June 25 on Company the of shareholders the by approved was which LTIP PLC LTIP”) PLC Plan (the “Petropavlovsk Incentive Term Long PLC Petropavlovsk Petropavlovsk new a established Group The awards: following the includes NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

33. Analysis of net debt At At 1 January Acquisition of Net cash Exchange Non-cash 31 December 2009 Aricom plc movement movement changes 2009 Note US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Cash and cash equivalents 21 26,444 225,581 (175,252) (306) – 76,467 Debt due within one year 23 (220,946) – 231,314 135 (22,447) (11,944) Debt due after one year 23 (152,778) – (62,542) (5) 131,723 (83,602) Embedded derivatives within exchangeable bonds 24 (41,400) – – – 41,400 – Net debt (388,680) 225,581 (6,480) (176) 150,676 (19,079)

34. Financial instruments and financial risk management Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to optimise the weighted average cost of capital and tax efficiency subject to maintaining sufficient financial flexibility to undertake its investment plans. The capital structure of the Group consists of net debt (as detailed in note 33) and equity (comprising issued capital, reserves and retained earnings). As at 31 December 2009, the capital comprised US$1.3 million (2008: US$0.7 million). The Group is not subject to any externally-imposed capital requirements.

Significant accounting policies Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3 to the consolidated financial statements.

Categories of financial instruments 2009 2008 US$’000 US$’000 Financial assets Cash and cash equivalents 76,467 26,444 Fair value through profit or loss – derivative financial instruments 96 1,875 Loans and receivables 48,278 37,338 Available-for-sale investments 3,543 972 Financial liabilities At amortised cost – trade and other payables 56,653 32,932 At amortised cost – borrowings 95,546 373,724 Fair value through profit or loss – derivative financial instruments – 42,476

Financial risk management The Group’s activities expose it to interest rate risk, foreign currency risk, risk of change in the gold price, credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out by a central finance department and all key risk management decisions are approved by the Board of Directors. The Group identifies and evaluates financial risks in close co-operation with the Group’s operating units. The board provides written principles for overall risk management, as well as guidance covering specific areas, such as foreign exchange risk, interest rate risk, gold price risk, credit risk and investment of excess liquidity.

132 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

– – – . 529 2008 2008 6,972 3,792

US$’000 US$’000 16,086

– – Liabilities & Accounts 2009 – 133 837 2009 2009 3,002 US$’000 US$’000 15,357 34,335 14,708 eport

– – 2008 1,676 US$’000 71,316 71,316

Petropavlovsk PLC Annual R PLC Petropavlovsk Assets 475 2009 3,346 2,703 US$’000 95,765 US Dollar denominated monetary assets and liabilities in Group companies with Rouble functional currency. companies monetary assets and liabilities in Group US Dollar denominated GB Pounds Sterling currency impact currency Sterling GB Pounds Russian Roubles currency impact Russian Roubles currency The following table illustrates the Group’s profit sensitivity to the fluctuation of the major currencies in which it transacts. A 25% movement has movement 25% A transacts. it which in currencies major the of fluctuation the to sensitivity profit Group’s (a) the illustrates table following The assessment of a management’s ended 31 December 2009, representing in the table below for the year each currency been applied to in the table). each currency (2008: a 25% movement was applied to rates currency exchange possible change in foreign reasonably US Dollar currency impact US Dollar currency Russian Roubles Exchange rate risk rate Exchange is and Russian Roubles and Sterling Pounds namely GB currencies, in foreign denominated undertakes certain transactions The Group and RussianSterling Pounds relative values of US Dollars, GB with fluctuations in the risk associated rate exchange to exposed therefore Roubles. currencies. holding the relevant through of Directors, necessaryby the Board considered the extent to mitigated risks are rate Exchange Interest rate risk management rate Interest 2009 and 2008, During the years ended 31 December rates. at floating interest borrowing risk through rate interest to is exposed The Group also held cash on The Group attached. rates interest had fixed borrowings as the substantial portion of the Group’s was limited this exposure hedging activities.rate does not undertake any interest the Group At present, attached. of interest rates deposits with fixed year. the during held equivalents bearing balance of floating interest for the average rates interest cash to based on exposure below have been determined The sensitivity analysis and cash and borrowings would2009 December 31 ended year the for profit Group’s the constant, held variables other all and higher/lower 1% been had rates interest If borrowings. rate to exposure the Group’s This is mainly attributable to by US$0.12 million). by US$0.05 million (2008: decrease/increase decrease/increase variable its on rates interest At present, the Group does not undertake any foreign currency transaction hedging. transaction currency does not undertake any foreign the Group present, At set out below monetary assets and monetary liabilities at period end are denominated currency foreign The carrying amounts of the Group’s US Dollars (a) Sterling Pounds GB Other currencies NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

34. Financial instruments and financial risk management continued

Credit risk The Group’s principal financial assets are cash and cash equivalents, comprising current accounts, amounts held on deposit with financial institutions and investments in money market and liquidity funds. In the case of deposits and investments in money market and liquidity funds, the Group is exposed to a credit risk, which results from the non-performance of contractual agreements on the part of the contract party. The credit risk on liquid funds held in current accounts and available on demand is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies, with the exception to Asian-Pacific Bank, which does not have an officially assigned credit rating. Having performed a high-level due diligence, management does not consider the credit risk associated with Asian- Pacific Bank is high. Asian-Pacific Bank has a wide network of branches in the Amur region and, therefore, is extensively used by the entities of the precious metals segment (note 30). The Group’s maximum exposure to credit risk is limited to the carrying amounts of the financial assets recorded in the consolidated financial statements. The major counterparties at the balance sheet date are set out below. Carrying Carrying amount at amount at 31 December 31 December 2009 2008 Type of financial asset Counterparty Credit rating US$’000 US$’000 Cash and cash equivalents Expobank Ba1 – 12,724 Cash and cash equivalents Asian-Pacific Bank – 27,578 4,423 Cash and cash equivalents Unicredit Bank BBB– 31,196 – Cash and cash equivalents UBS Aa3 6,283 – Cash and cash equivalents VTB Baa1 4,369 –

Commodity price risk The Group generates most of its revenue from the sale of gold. The Group’s policy is to sell gold at the prevailing market price. The Group does not hedge its exposure to the risk of fluctuations in the gold price. During the years ended 31 December 2009 and 2008, the Group was exposed to gold price risk through the embedded derivative within the gold equivalent exchangeable bonds, which were measured at fair value and, therefore, exposed to changes in the gold price. Following the Group having repurchased all its outstanding gold equivalent exchangeable bonds, the exposure is no longer relevant to the Group.

Equity price risk The Group is exposed to equity price risk through the Embedded Derivative within the Exchangeable Loan issued to Rusoro and the Call Option as well as investment in Rusoro shares, which are measured at fair value and therefore exposed to changes in the Rusoro share price. An increase/decrease of 50% in the Rusoro share price, with all other variables held constant, would have resulted in the following impact on the income statement and income and expenses recognised directly in equity: 2009 2008 US$’000 US$’000 Income and Income and expense expense recognised recognised Income directly in Income directly in statement equity statement equity 50% increase in the share price 579 1,291 4,780 – 50% decrease in the share price (96) (1,291) (1,415) –

134 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information – – – – – – – – –

US$’000 million million

3 – 5 years years 5 – 3

– – – – – – & Accounts 2009 – 135 US$’000 16,000 eport 2 – 3 years years 3 – 2 – – – – – – US$’000 140,000 1 – 2 years years 2 – 1

– – – – Petropavlovsk PLC Annual R PLC Petropavlovsk US$’000 11,944 35,778 31,331 16,493 180,000 3 months – 1 year

– – – – – 7,196 22,248 11,178 301 1,475 5,691 7,738 6,989 3,895 4,948 49,250 US$’000 32,932 55,316 1,337 45,076 251,498 151,178 16,301 56,791 18,972 43,516 38,320 20,388 0 – 3 months term obligations.term and long- , medium-

(a) (a) as well as the objective of ensuring a sufficient level of flexibility in order to fund the development plans of to fund the development order flexibility in of ensuring a sufficient level of as well as the objective the (2008: US$16 million) are subject to variable interest rates and, therefore, subject to change in line with the market rates. change in line with the market subject to and, therefore, rates variable interest subject to (2008: US$16 million) are Expected future interest payments have been estimated using interest rates applicable at 31 December. Loans outstanding at 31 December 2009 in the amount of US$40 of amount the in 2009 December 31 at outstanding Loans December. 31 at applicable rates interest using estimated been have payments interest future Expected Convertible bonds (note 23) Convertible(note bonds Exchangeable bonds (note 23) bonds (note Exchangeable Convertible bonds (note 23) Convertible(note bonds Loans Exchangeable bonds (note 23) bonds (note Exchangeable Loans

(a) 2009 Borrowings Effective management of liquidity risk has the objective of ensuring the availability of adequate funding to meet short-term requirements requirements short-term meet to funding adequate of availability the ensuring of objective the has risk liquidity of management Effective and due obligations, The amounts disclosed are the contractual undiscounted cash flows, these balances will not necessarily agree with the amounts disclosed cash flows, these balances will not necessarily agree undiscounted the contractual The amounts disclosed are pay. to may be required on which the Group the earliest date maturity is based on in the balance sheet. The contractual Liquidity risk management management risk Liquidity constantly monitors The Group business activities may not be available. of funding for the Group’s that suitable sources Liquidity risk is the risk meet its short- to the level of funding required company’s businesses. company’s periods.repayment with agreed maturity for its non-derivative financial liabilities contractual remaining The table below details the Group’s Trade and other payables Trade Trade and other payables Trade 2008 Borrowings Expected future interest payments interest future Expected Expected future interest payments interest future Expected NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

35. Operating lease arrangements

The Group as a Lessee 2009 2008 US$’000 US$’000 Minimum lease payments under operating leases recognised as an expense in the year 3,907 2,011

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under a non-cancellable operating lease for office premises, which fall due as set out below. 2009 2008 US$’000 US$’000 Expiring Within one year 1,724 188 In two to five years 3,274 703 4,998 891

The Group as a Lessor The Group earned property rental income during the year of US$2.2 million (2008: US$2.2 million) on buildings owned by its subsidiaries Irgiredment and Giproruda.

36. Capital commitments At 31 December 2009, the Group had entered into contractual commitments for the acquisition of property, plant and equipment and mine development costs amounting to US$45.5 million (2008: US$52.8 million).

37. Contingent liabilities The Group is involved in legal proceedings with Gatnom Capital & Finance Limited and O.M. Investments & Finance Limited, who are the minority shareholders in Lapwing Limited, the Group’s 99.58% owned subsidiary incorporated in Cyprus and holding a 100% interest in Garinsky Mining and Matallurgical Complex. The claim was filed in September 2008 in Cyprus and the respondents are Lapwing Limited and Aricom UK Limited. The claimants allege their holdings in Lapwing Limited were improperly diluted as the result of the issuance of additional shares following a shareholders’ meeting held in September 2007. The claimants have asked the court to dissolve Lapwing or, alternatively, to order that their shares be purchased at a price allegedly previously agreed upon or to be determined by an expert appointed by the court. On 20 January 2010, the claimants withdrew their composite claim and re-filed individual claims in substantially similar form. The maximum potential liability arising from the claim cannot currently be accurately assessed although the Directors believe that the claim is of a limited merit.

136 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

(a) 2008 1,562 (7,709) US$’000 22,745 33,302 25,013 18,307 17,643 25,524 136,387

– & Accounts 2009 – 137 819 2009 7,140 5,905 US$’000 52,601 44,766 (31,480) eport 144,784 224,535 9 6 6 6 10 24 11 Note Petropavlovsk PLC Annual R PLC Petropavlovsk owned subsidiary Petropavlovsk 2010 Limited and are guaranteed by the Company. The Bonds carry a coupon of by the Company. guaranteed and are 2010 Limited owned subsidiary Petropavlovsk Reconciliation of non-GAAP measures Subsequent events events Subsequent

Bank charges reported within Financial expense items for year ended 31 December 2008. items within Financial expense reported Bank charges Add/(less): Financial expense Financial income Underlying EBITDA Profit for the period Profit Foreign exchange losses/(gains) exchange Foreign value change on derivatives Fair Taxation amortisation and impairment Depreciation, Other items (a) 39. 4.00% payable semi-annually in arrears and are convertible into redeemable preference shares of Petropavlovsk 2010 Limited which are are which Limited 2010 Petropavlovsk of shares preference the on redeemable into trading to convertible admitted are and and Authority arrears in Listing UK the of semi-annually List payable Official 4.00% the on listing to The conversion price has been set in the Company. Shares upon issuance for Ordinary immediately by and will be exchangeable guaranteed admitted were Bonds The has been rate the conversion exchange adjustment, for each US$100,000 principal amount of a Bond and subject to £1. at £12.9345 per share, per US$1.6244 at fixed 2010. on 18 February Exchange Stock of the London Market Securities Professional On 20 January 2010, the Board of Directors approved an interim dividend of £0.07 per share which is expected to result in the aggregate aggregate the in result to business of close expected is the at which share register per the on £0.07 of shareholders dividend and 23) as lenders under the same terms (note US$150 million loan facility BNP joined the up to and Générale In January 2010, Société interim Company’s an the to approved 2010 US$150 million. March to was increased under this facility amount committed lenders and the aggregated conditions as the original Directors 30 of on paid Board be the will 2010, dividends January 20 The On million. £12.6 of payment 2010. February 26 on issued at par were 2015 (“the Bonds”). The Bonds issued US$380 million convertible bonds due on 18 February Group 2010, the In February wholly- by the Group’s 38. 38. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

40. Group companies The Group has the following material subsidiaries and other significant investments, which were consolidated in this financial information. Effective proportion of shares Effective proportion of shares held by the Parent held by the Group Principal subsidiary, joint venture and Country of 31 December 31 December 31 December 31 December associate undertakings incorporation Principal activity 2009 2008 2009 2008 Subsidiary Peter Hambro Mining Group Finance Limited Guernsey Finance company 100% 100% – – CJSC Management Company Petropavlovsk Russia Management company 100% 100% – – LLC Aricom(a) Russia Management company – – 100% – OJSC Pokrovskiy Rudnik Russia Gold exploration and production 43.5% 43.5% 55.1% 55.1% CJSC Amur Doré Russia Gold exploration and production – – 100% 100% OJSC ZDP Koboldo Russia Gold exploration and production – – 95.7% 95.7% LLC Elga Russia Gold exploration and production – – 100% 100% CJSC Malomirskiy Rudnik Russia Gold exploration and production – – 98.6% 98.6% LLC Spanch Russia Gold exploration and production – – 100% 100% LLC Olga Russia Gold exploration and production – – 100% 100% LLC Osipkan Russia Gold exploration and production – – 100% 100% LLC Tokurskiy Rudnik Russia Gold exploration and production – – 100% 100% LLC Rudoperspektiva Russia Gold exploration and production – – 100% 100% CJSC Region Russia Gold exploration and production – – 98.6% 98.6% CJSC Verkhnetisskaya Ore Mining Company Russia Gold exploration and production – – 70% – CJSC YamalZoloto Russia Gold exploration and production – – 98.6% 98.6% OJSC Yamalskaya Gornaya Kompania Russia Gold exploration and production – – 74.87% 74.87% Chrome exploration and CJSC SeverChrome Russia production – – 92.26% 92.26% LLC Olekminsky Rudnik(a) Russia Iron ore exploration and production – – 100% – LLC Kimkano-Sutarskiy Gorno-Obogatitelniy Kombinat(a) Russia Iron ore exploration and production – – 100% – LLC Garinsky Mining & Metallurgical Complex(a) Russia Iron ore exploration and production – – 99.58% – LLC Kostenginskiy Gorno-Obogatitelniy Kombinat(a) Russia Iron ore exploration and production – – 100% – LLC Orlovo-Sokhatinsky Gorno-Obogatitelniy Kombinat(a) Russia Iron ore exploration and production – – 100% – LLC Karier Ushumunskiy(a) Russia Iron ore exploration and production – – 100% – LLC Kapstroi Russia Construction – – 100% 98.6% LLC NPGF Regis Russia Exploration – – 100% 100% CJSCZRK Dalgeologiya Russia Exploration work – – 98.6% 98.6% CJSC PHM Engineering Russia Project and engineering services – – 79% 79% OJSC Irgiredmet Russia Research services – – 99.85% 99.84% LLC NIC Hydrometallurgia Russia Research services – – 100% 100% OJSC Giproruda(a) Russia Engineering services – – 70.28% – OJSC PRP Stancii Russia Repair and maintenance – – 100% 98.6% LLC Obereg Russia Security services – – – 100% LLC Rubicon(a) Russia Infrastructure project – – 100% – CJSC SGMTP(a) Russia Infrastructure project – – 100% – LLC AmurSnab Russia Procurement services 100%

138 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information – – –

2008 50% 49% 31 December December 31 2009 50% 46% 49% 65% 49% held by the Group & Accounts 2009 – 139 31 December December 31 Effective proportion of shares shares of proportion Effective eport – – – – – 2008 31 December December 31 – – – – – 2009 held by the Parent 31 December December 31 Effective proportion of shares shares of proportion Effective Petropavlovsk PLC Annual R PLC Petropavlovsk roject Russia and production Gold exploration China p Venture Joint Vanadium Russia and production exploration ore Iron RussiaChina and production Gold exploration project Titanium Joint Venture Country of of Country incorporation activity Principal (a) es. (b) (a) Subsidiary, joint venture and associate undertakings acquired as part of acquisition of Aricom plc (note 31). as part of acquisition of Aricom plc (note undertakings acquired and associate Subsidiary, joint venture GDK Odolgo, over by LLC taken were venture the Rudnoye joint through conducted and the operations CJSC Rudnoye has been liquidated the Rudnoye joint venture. Formerly, the owner of the relevant licenc the owner of the relevant (a) (b) LLC GDK Odolgo LLC Principal subsidiary, joint venture and and venture joint subsidiary, Principal undertakings associate Joint Venture Omchak ZRK CJSC Heilongjiang Jianlong Vanadium Vanadium Jianlong Heilongjiang Limited Co., Industries Associate Uralmining LLC Heilongjiang Jiatal Titanium Co., Limited Statement of the Directors’ Responsibilities – Company

For the year ended 31 December 2009 United Kingdom Company law requires the Directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing those financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and • prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for the system of internal control, for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. This report was approved by the Board of Directors of Petropavlovsk PLC and signed on its behalf by:

Peter Hambro Chairman 24 March 2010

140 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information 141

– & Accounts 2009 – eport Petropavlovsk PLC Annual R PLC Petropavlovsk vsk PLC vlo eport ’ R ’ irectors and auditors irectors uditors

A t

n de n

depe the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the the with agreement in not are audited be to Report Remuneration Directors’ the of from for our audit have not been received part adequate company, or returns by the parent have not been kept accounting records adequate the and statements by us; or not visited branches financial company parent the or and returns; accounting records not made; or specified by law are remuneration of directors’ certain disclosures for our audit. we require all the information and explanations we have not received the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the with consistent is prepared are statements financial the which for year financial the for Report Directors’ Act 2006; and with the Companies the in accordance prepared has been properly be audited Report to Remuneration the part of the Directors’ in given information the company financial statements. parent give a true and fair view of the state of the parent company’s affairs as at 31 December 2009; company’s of the parent give a true and fair view of the state and Accounting Practice; Accepted Kingdom Generally with United in accordance prepared have been properly of the Companies Act 2006. with the requirements in accordance have been prepared We have reported separately on the group financial statements of Petropavlovsk PLC for the year ended 31 December 2009. PLC Petropavlovsk of financial statements on the group separately have reported We Other matter Auditors Statutory and Accountants Chartered Kingdom United London, 2010 24 March Matters on which we are required to report to by exception required on which we are Matters you if, in our opinion: to report us to the Companies Act 2006 requires where of the following matters in respect report have nothing to We • • • • Auditor) Douglas King (Senior Statutory LLP for and on behalf of Deloitte Opinion on other matters prescribed by the Companies Act 2006 prescribed Opinion on other matters In our opinion: • • Opinion on financial statements company financial statements: In our opinion the parent • • • An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance assurance reasonable give to sufficient statements financial the in disclosures and amounts the about evidence obtaining involves audit An whether This includes an assessment of: or error. whether caused by fraud misstatement, material from free are that the financial statements disclosed; adequately applied and and have been consistently circumstances company’s the parent to appropriate the accounting policies are of the financial statements. presentation and the overall made by the directors; of significant accounting estimates the reasonableness Scope of the audit of the financial statements Scope of the audit of the financial As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the parent company company parent the of financial preparation the company for parent the responsible are audit to is directors the responsibility Our Statement, view. fair and Responsibilities true a d of Respective responsibilities give Directors’ they the in that fully more satisfied being for explained As and statements financial comply us to require standards Those on Auditing (UK and Ireland). Standards with applicable law and International in accordance statements for Auditors. Standards Ethical (APB’s) Board’s with the Auditing Practices We have audited the parent company financial statements of Petropavlovsk PLC for the year ended 31 December 2009 which comprise the the comprise which 2009 applicable is December 31 preparation ended year their in the for applied PLC been has that Petropavlovsk of framework statements reporting financial financial company The 11. parent to 1 the notes audited related have We and Sheet Balance Company Accounting Practice). Accepted Generally Kingdom (United Standards Kingdom Accounting law and United 495, 496 and 497 of the Companies Act 2006. with sections members, as a body, in accordance the company’s is made solely to This report in an them to state to required we are those matters members the company’s to undertakenOur audit work has been we might state so that anyone other to or assume responsibility we do not accept by law, permitted the fullest extent and for no other purpose. To report auditors’ for the opinions we have formed. or audit work, for this report, members as a body, for our than the company and the company’s

In of Petropa the Members to Company Balance Sheet

At 31 December 2009

Restated(a) 2009 2008 Note US$’000 US$’000 Fixed assets Tangible assets 58 72 Investments 4 882,497 206,112 882,555 206,184

Derivative financial assets 96 1,875

Current Assets Debtors: due within one year 5 293,873 114,605 Debtors: due after one year 5 179,340 165,372 Cash at bank and in hand 813 4,947 474,026 284,924 Creditors: amounts falling due within one year 6 (269,390) (15,928) Net current assets 204,636 268,996

Total assets less current liabilities 1,087,287 477,055

Creditors: amounts falling due after more than one year 6 (127,611) (316,103) Provisions for liabilities (361) (401) Net assets 959,315 160,551

Capital and reserves 8 Share capital 2,805 1,311 Share premium 275,742 35,082 Merger reserve 570,071 – Option over own equity – 39,924 Other reserves 10,242 153,728 Profit and loss account 100,455 (69,494) Shareholders’ funds 959,315 160,551

(a) Details of restatement are set out in note 2. The accompanying notes are an integral part of this balance sheet. These financial statements for Petropavlovsk PLC, registered number 4343841, on pages 142 to 149 were approved by the Directors on 24 March 2010 and signed on their behalf by

Peter Hambro Brian Egan Director Director

142 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information 143 – & Accounts 2009 – ” Statements Flow Cash eport “ . nts tateme Petropavlovsk PLC Annual R PLC Petropavlovsk ”. ”. Financial Instruments: Disclosures . and FRS 26 “Financial instruments: Measurement”

Changes in accounting policies Basis of preparation

Following the Company’s shares admission to trading on the Main board of the London Stock Exchange on 22 April 2009, the Company Company the 2009, April 22 on requirements Exchange the to Stock GAAP UK London under the of board instruments Main the on financial for trading to accounting admission aligns 26 shares and 25 FRS Company’s 26. the FRS and 25 Following FRS adopt to required was under IFRS. Rates” Exchange Foreign FRS 23 “The effects of changes in applied. which FRS 25 and 26 have been be applied in periods to to FRS 23 is required FRS 25 “Financial instruments: Presentation” which states states which Disclosures” Party of FRS 8 “Related the terms under party transactions disclosing related from The Company is also exempt presented are when those statements company financial statements in parent is not required party transactions of related that disclosure financial statements. with its consolidated together  by increased 2008 December 31 ended year the for Company the of • loss net the standards, aforementioned the of adoption of result a As million. US$4.9 • 2. the following standards: year the Company has adopted In the current and presenting financial instruments disclosures under the terms of FRS 29 “ terms of under the financial instruments disclosures and presenting The Petropavlovsk PLC (“the Company”) balance sheet and related notes have been prepared on a historical cost basis, except for the the for except basis, cost historical a on prepared been have notes related and sheet balance Company”) (“the PLC Petropavlovsk The (‘UK accounting principles accepted Kingdom generally with United of certain in accordance financial instruments at fair value revaluation UK Company law. with GAAP’) and in accordance previous changes have been made to of where explanation with an together A summary accounting policies is set out below, of the principal in the year. standards policies on the adoption of new accounting as part of these company is not presented and loss account of the parent 2006, the profit by section 408 of the Companies Act As permitted tax of US$35.5 million). Company was US$23.8 million (2008: loss after tax for the year of the The loss after financial statements. 1 FRS of terms the under statement flow cash a preparing from exemption the of advantage taken has Company The 1. cial S ny Finan ompa the C to Notes NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

2. Changes in accounting policies continued The comparative information for the year ended 31 December 2008 has been restated for the effects of adopting FRS 25, FRS 26 and FRS 23 as well as to conform with the presentation in the current year as set out below. Adjustments Reclassifications to conform with As previously current year FRS 25 reported presentation and FRS 26 As restated US$’ 000 US$’ 000 US$’ 000 US$’ 000 Balance sheet as at 1 January 2008 Capital and reserves Option over own equity – – 39,924 39,924 Profit and loss account 5,977 – (39,924) (33,947)

Balance sheet as at 31 December 2008 Fixed assets Loans 171,671 (171,671) – – Derivative financial assets – – 1,875 1,875 Current assets Debtors: due within one year 114,720 – (115) 114,605 Debtors: due after one year – 171,671 (6,299) 165,372 Creditors, amounts falling due after one year Provisions for liabilities – – (401) (401) Capital and reserves Option over own equity – – 39,924 39,924 Profit and loss account (24,630) – (44,864) (69,494)

3. Significant accounting policies

Foreign currencies The functional and presentation currency of the Company is the US Dollar. Transactions denominated in other currencies, including the issue of shares, are translated at the rate of exchange ruling on the date of the transaction. Monetary assets and liabilities that are denominated in other currencies are retranslated at the rates prevailing on the balance sheet date. Exchange rates used are consistent with the rates used by the Group as disclosed in note 2.9 to the consolidated financial statements. Exchange differences are charged or credited to the profit and loss account in the year in which they arise.

Tangible fixed assets and depreciation Tangible fixed assets are recorded at cost, net of accumulated depreciation. Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost or valuation of each asset on a straight-line basis over its expected useful life as set out below. Average life Office equipment 4-7 Computer equipment 3

144 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information 145 – & Accounts 2009 – eport Petropavlovsk PLC Annual R PLC Petropavlovsk ayment”, where a parent company grants rights to its equity instruments to rights to company grants a parent where ayment”, employees of a subsidiary, and such share-based compensation is accounted for as equity-settled in the consolidated financial statements of financial statements in the consolidated for as equity-settled compensation is accounted employees of a subsidiary, and such share-based in equity as a recognised increase for such compensation with a corresponding an expense record to the subsidiary is required the parent, the parent. contribution from Share-based payments Share-based the details of which schemes award a number of equity-settled share During the year ended 31 December 2009 the Company has adopted financial statements. the consolidated 32 to in note provided are at fair value of the and is measured financial statements in the Company’s for as equity-settled compensation is accounted The share-based model or a binomial model as deemed most Carlo using Black Scholes model, Monte value is determined Fair of grant. at the date awards appropriate. line basis over the vesting on a straight payments is expensed of the equity-settled share-based of grant at the date The fair value determined vesting conditions for the effect of non market-based that will eventually vest and adjusted of shares estimate period, based on the Group’s appropriate. where P with UITF 44 and FRS 20 “Share-based In accordance subsequently measured at fair value. The gain or loss on re-measurement is taken to the income statement except where the derivative is is derivative the where except statement income the to taken is Derivative financial instruments re-measurement on loss or gain The value. and into fair is entered a derivative contract at fair value on the date for and measured initially accounted Derivative financial instruments are at measured subsequently cash flow hedging instrument. designated derivatives when their as separate treated are in other financial instruments or other host contracts Derivative financial instruments embedded statement. not carried at fair value, with gains or are and the host contracts those of host contracts to not closely related are income risks and characteristics the in reported losses Financial assets and liabilities are measured on initial recognition at fair value, and are subsequently measured at amortised cost using the the using cost is amortised at there when measured loss and subsequently profit the are in and value, recognised fair are at amounts recognition initial irrecoverable on estimated measured Financial assets and liabilities for are allowances liabilities and assets Appropriate method. Financial rate interest effective carrying between the asset’s as the difference recognised is measured The allowance impaired. objective evidence that the financial asset is recognition. at initial computed rate at the effective interest cash flows discounted future value of estimated amount and the present non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws laws and rates tax on based taxation reverse, deferred differences including timing which in Taxation periods the in apply to thatexcept balance sheet date, reversed at the that have arisen but not taxation on all timing differences expected is made for deferred provision Full are that rates date. tax on a tax is measured Deferred than not that they will be recovered. likely that it is more sheet the extent to the only recognised assets are tax deferred at balance basis the at enacted non-discounted substantially or enacted Investments carried costs, and subsequently at cost, including transaction initially measured are Investments in subsidiary undertakings and joint ventures that the indicate or changes in circumstances for impairment when events reviewed Investments are for impairment. at cost less provisions if the carrying exceeds amount of the investment An impairment loss is recognised carrying the investment may not be recoverable. amount of the investment. earnings from future and the discounted value the higher of net realisable at cost and subsequently initially measured investments are Available-for-sale those classified as available-for sale. Other investments are in equity. recognised sale investments are the fair value of available-for carried at fair value. Changes to NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

3. Significant accounting policies continued

Revenue Interest is accounted for on the accruals basis. Dividend income is recognised when the right to receive payment is established.

Dividends Dividends payable are recognised when they have been approved and, therefore, meet the criteria for a present obligation.

Operating leases Rentals paid under operating leases are charged to the profit and loss account as incurred.

4. Investments Investments Other in Group Investments investments companies in joint ventures other than loans(b) Total US$’000 US$’000 US$’000 US$’000 At 1 January 2009 198,705 7,407 – 206,112 Additions 674,353(a) – 3,048 677,401 Disposals (2) – – (2) Fair value change – – (464) (464) At 31 December 2009 873,056 7,407 2,584 883,047

Provision for impairment At 1 January 2009 – – – – Written off (550) – – (550) At 31 December 2009 (550) – – (550)

Net book value At 1 January 2009 198,705 7,407 – 206,112 At 31 December 2009 872,506 7,407 2,584 882,497

(a) Significant changes to the Company’s investment in Group companies are set out below. (i) The Company acquired 100% of Aricom plc for total consideration of US$585 million. Refer to note 31 of the consolidated financial statements. (ii) The Company invested an additional US$83 million in Peter Hambro Mining Group Finance Limited, US$4.5 million in Peter Hambro Mining (Cyprus) Limited and an additional US$0.5 million in Yamal Holdings Limited as well as a total of US$0.1 million in other Group companies. (iii) The cost of investment in Aricom Limited and ZAO Management Company Petropavlovsk was increased by US$1.06 million and US$0.19 million, respectively, to reflect the cost of the LTIP awards granted to the employees of Aricom Limited and ZAO Management Company Petropavlovsk. Full information on the LTIP awards is given in the note 32 to the consolidated financial statements. (b) Note 18 to the consolidated financial statements.

146 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

147 813 511 454 2008 2008 6,518 1,151 1,048 3,452 US$’000 US$’000 13,701 15,928 279,977 114,605 165,372 279,977 256,829 327,531 332,031 316,103 332,031

– – & Accounts 2009 – 649 239 481 2009 2009 7,454 3,500 8,666 US$’000 US$’000 17,863 eport 473,213 293,873 179,340 473,213 446,527 384,835 397,001 269,390 127,611 397,001 Petropavlovsk PLC Annual R PLC Petropavlovsk (a) Debtors Creditors Taxation AT recoverable AT Deferred tax asset (note 7) asset (note tax Deferred due within one year one year due after Corporate tax receivable Corporate V Other debtors Owed by joint ventures Owed by Group companies Owed by Group 5. Exchangeable loan to Rusoro loan to Exchangeable Trade creditors Trade due within one year than one year more due after Due to Group companies Group Due to 6. ote 20 to the consolidated financial statements. the consolidated 20 to (a) Note Accruals and other creditors As at 31 December 2009, the Company has tax losses available for carry forward in the amount of US$38.6 million. It is probable that future future that probable is It million. US$38.6 of amount the in forward carry for available losses tax has 7. Company the 2009, December 31 at As a deferred total amount of tax losses available. Accordingly, million out of the to utilise the benefits of US$26.6 will be available taxable profit of 28%.rate tax at the corporation differences of these temporary as at 31 December 2009 in respect tax asset has been recognised NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

8. Statement of reserves and reconciliation of movement in shareholders’ funds Conversion Share Share Merger option Other Profit and loss capital(a) premium reserve reserve(b) reserves account Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Balance as at 1 January 2008 (Restated) 1,311 35,082 – 39,924 176,722 (33,947) 219,092 Dividends (Note 13 to the consolidated financial statements) – – – – (22,994) – (22,994) Loss for the year – – – – – (35,547) (35,547) Balance as at 1 January 2009 1,311 35,082 – 39,924 153,728 (69,494) 160,551 Loss for the year – – – – – (23,832) (23,832) Revaluation of available-for- sale investments – – – – (464) – (464) Transfer to profit and loss account(c) – – – – (153,728) 153,728 – Share-based payments – – – – 2,931 – 2,931 Share placing – 16 million Ordinary Shares 232 104,564 – – – – 104,796 Costs associated with placing of 16 million Ordinary Shares – (5,240) – – – – (5,240) Shares issued in exchange for 100% share capital of Aricom plc(d) 1,079 – 570,071 – – – 571,150 Warrants and option issued in relation to acquisition of Aricom plc(d) – – – – 6,970 – 6,970 LTIP award in relation to acquisition of Aricom plc(d) – – – – 934 – 934 Conversion of convertible bonds 180 139,620 – (39,924) – 39,924 139,800 Employees’ options exercised 3 1,716 – – (129) 129 1,719 Balance as at 31 December 2009 2,805 275,742 570,071 – 10,242 100,455 959,315

(a) Note 27 to the consolidated financial statements. (b) In August 2005, the Company’s subsidiary Peter Hambro Mining Group Finance Limited issued US$140 million of convertible bonds which were guaranteed by and convertible into the Ordinary Shares of the Company. The conversion option reserve represented the initial fair value of the option over the Company’s own equity written to Peter Hambro Mining Group Finance Limited by the Company which met the definition of equity under FRS 25. Following the conversion of the convertible bonds in the current year the reserve has been written back to retained earnings. Details on the convertible bonds are provided in note 23 to the consolidated financial statements. (c) Following cancellation of the Share Premium Account of the Company Registered on 25 August 2005, the amount of US$176.7 million was transferred to Other reserves. US$153.7 million of balance outstanding at 31 December 2008 is distributable and was transferred to the Profit and Loss Account of the Company. (d) Note 31 to the consolidated financial statements.

148 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information

149 188 282 470 2008 US$’000

– & Accounts 2009 – 271 145 416 2009 US$’000 eport Petropavlovsk PLC Annual R PLC Petropavlovsk Subsequent events Employees Commitments under operating leases under operating Commitments 11. financial statements. consolidated the to 38 note Subsequent events have been disclosed in 10. who held office Directors Executive at 20 (2008: 18). This number includes the three number of employees during the year was The average provided are in remuneration at the end of the year). Details of Directors’ who held office Directors the end of the year (2008: the six Executive 81 of this Annual Report. Report on pages 70 to Remuneration the Directors’ Expiring: Within one year 9. Within two to five years years five to two Within Appendix

Forward-looking statements Certain statements contained in this Annual Report are forward-looking statements. Generally, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “anticipates”, “intends”, “may”, “will” or “should” or in each case their negative, or other variations or comparable terminology. Such forward-looking statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, among other things, general economic and business conditions, industry trends, competition, commodity prices, changes in law or regulation, currency fluctuations (including fluctuations in the US Dollar or Rouble), the Group’s ability to recover its reserves or develop new reserves and to implement its expansion plans and achieve cost reductions and efficiency measures, changes in business strategy or development, political and economic uncertainty and other risks described in the section entitled “Managing Risk.” There can be no assurance that the results and events contemplated by the forward-looking statements contained in this Annual Report will, in fact, occur. Any forward-looking statements in this Annual Report reflect the Group’s current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group’s operations and growth strategy. Shareholders should specifically consider the factors identified in this Annual Report which could cause results to differ before making an investment decision. These forward-looking statements speak only as at the date of this Annual Report. The Group will not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date of this Annual Report, except as required by law or by any appropriate regulatory authority. Nothing in this publication should be considered as a profit forecast. Past performance cannot be relied on as a guide to future performance. Basis of reporting reserves and resources Mineral Resource and Ore Reserve estimates included within this Annual Report and Accounts are reported in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves as prepared by the Joint Ore Reserves Committee of the Australian Institute of Mining and Metallurgy, Australian Institute of Geosciences and Minerals Council of Australia (“JORC Code (2004)”). The contents of this announcement have been approved for release by Dr P. Newall, BSc, PhD, CEng, FIMMM, of Wardell Armstrong International. Dr P. Newall has consented to the inclusion of the material in the form and context in which it appears.

150 – Petropavlovsk PLC Annual Report & Accounts 2009 Overview Performance Governance Financial statements Other information 151 – & Accounts 2009 – eport Petropavlovsk PLC Annual R PLC Petropavlovsk NS D DEFI NITIO Y AN

Total attributable gold production, as stated throughout this document is comprised of 100% of production from the Group’s subsidiaries subsidiaries Group’s the from production of 100% of comprised is document this throughout stated as attributable gold production Total gold production, gold Accordingly circuit. in attributable gold Total and recovered accordingly. restated are period for the comparative and other investments. Figures joint ventures from physically of production share and the relevant gold of consists The figures. included in the Group are 2009; no attributable ounces since March Mining Ltd in Rusoro has held a 1.1% interest The Group document, this is 98.61%. Pioneer & Malomir interests) Pokrovskiy, throughout Rudnik (the holder of the Group’s in Pokrovskiy interest and indirect direct Company’s stated as production, gold Cumulative for the movement in gold still in the circuit. during the period and adjusted in the year consists of gold recovered produced taxation, depreciation, amortisation and impairment. Reconciliation of profit for the year and underlying EBITDA is set out in note 39 to the the to 39 note in out set is EBITDA underlying and year the for profit of Reconciliation impairment. and changes, exchange gains and losses, fair value foreign expenses, income, financial financial amortisation before for the period is profit Underlying EBITDA depreciation, taxation, financial statement. consolidated Underlying EBITDA GLOSSAR SHAREHOLDER INFORMATION

Shareholder calendar Annual General Meeting 20 May 2010 Interim Results 26 August 2010 Registrars Enquiries relating to shareholdings should be made to the Group’s UK Registrars, Capita Registrars at the relevant address below: Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA Telephone: +44(0)871 664 0300* *Lines are open 8.30am to 5.30pm, Monday to Friday. Calls charged at 10p per minute plus network extras. Registered and Head Office Petropavlovsk PLC 11 Grosvenor Place Belgravia London SW1X 7HH [email protected] www.petropavlovsk.net Telephone: +44(0)20 7201 8900 Registered in England and Wales Company Number: 4343841

152 – Petropavlovsk PLC Annual Report & Accounts 2009 Our business regions Amur region and EAO Petropavlovsk’s main operations As well as being the third-largest are based in the Amur region and gold-producing region in Russia, the EAO (Evreyskaya Avtonomnaya the Amur region also has other Oblast or Jewish Autonomous significant industries involved in Region) in the far east of Russia, power generation, coal, timber close to the border with China. and agriculture. Petropavlovsk’s London The Amur region has a total area presence in the neighbouring EAO of 361,600km² and a population includes a major iron ore project, of approximately 1 million. K&S. The EAO itself is located to The region boasts excellent the south-east of the Amur region infrastructure and an accessible and covers an area of 36,300km² energy supply. with a population of approximately 200,000.

For further details about 08 Amur region potential

Krasnoyarsk region

Yamal region RUSSIA

Magadan region

St. Petersburg

Krasnoyarsk Moscow Buryatia region Amur region Irkutsk Chita region Blagoveschensk

EAO On China’s doorstep Petropavlovsk’s operations are located on China’s doorstep (some as close as 60km to the border). Proximity to this large market for natural resources and Design and production: Radley Yeldar www.ry.com low cost consumables gives the Group Print: Granite Colour are ISO 14001 and FSC accredited. one of its competitive advantages. Paper: The cover and text material used for this report is printed on Cocoon Silk 50 a recycled paper containing 50% recycled waste and 50% virgin fibre and manufactured CHINA at a mill certified with ISO 14001 environmental management standard. The pulp used in this product is bleached using a Elemental Chlorine Free process (ECF) PETROPAVLOVSK PLC Annual R Overview Corporate highlights 01 Petropavlovsk at a Glance 02 Chairman and • Earnings per share up 263% Chief Executive’s Review Earnings per share of US$0.98 up 263% versus 2008 BUILDING 04 Strategy to Deliver 06 Gold Mining in Russia • Dividend restored 08 The Amur Region Interim dividend of £0.07 per share declared in January 2010 10 Gold and Iron Ore Markets Overview • Net debt reduced by 95% to US$19 million 12 Investing in Expertise Low-cost US$380m convertible bonds issued in February 2010 14 Our Skills and Resources A RUSSIAN • Proven and Probable Reserves 16 Key Performance Indicators 103% increase to 6.75Moz gold compared to November 2008 estimate 18 Operational Structure • Aricom acquisition completed Aricom acquisition completed on 22 April 2009 Performance eport & Accounts 2009 eport FAR EAST MINING • Move to Main Market of London Stock Exchange completed 20 Financial Review The Group completed its move from AIM to the Main Market 24 Operations and Development: of the London Stock Exchange and gained inclusion in the Precious Metals Division FTSE 250 index 36 Operations and Development: CHAMPION Non-precious Metals Division 41 Operations and Development: Operational highlights In-House Divisions Annual Report & Accounts 2009 44 Sustainability Report • Attributable gold production* up 21% 47 Principal Risks Report Total attributable gold production* increased by 21% to 486,800oz • Group total cash costs of US$309/oz Group total cash costs of US$309/oz confirm the Group as one of the lowest-cost gold producers in the world

Governance • Pioneer’s second milling line helps to deliver 234,100oz 52 Board of Directors Second line commissioned in September 2009 with third milling line 54 Directors’ Report brought forward to H1 2010 Underlying EBITDA is a profit for the period before financial income, financial expenses, foreign exchange gains and losses, fair losses, and gains is exchange EBITDA foreign underlying expenses, and year financial the for income, profit of financial before Reconciliation period the for impairment. and profit a is amortisation EBITDA Underlying depreciation, taxation, changes, value . financial statements 39 of the consolidated set out in note

62 Corporate Governance Statement **  70 Directors’ Remuneration Report

Financial highlights 82 Audit Committee Report 85 Statement of Directors’ Year to Year to 31 December 31 December Responsibilities 2009 2008 86 Independent Auditors’ Report to the US$million US$million Variable % Members of Petropavlovsk PLC Group Revenue 472 382 +24% Underlying EBITDA** 225 136 +65% Earnings per share (US$) 0.98 0.27 +263%

Financial statements Net debt (19) (389) (95%) 87 Consolidated Income Statement Group average gold price 88 Consolidated Statement of realised (US$/oz) 975 845 +15% Recognised Income and Expense 89 Consolidated Statement of Group total cash costs per oz Changes in Equity (US$/oz) 309 319 (3%) 90 Consolidated Balance Sheet 91 Consolidated Cash Flow Statement 92  Notes to the Consolidated Precious Metals Division – Summary of Mineral Resources and Ore Reserves Financial Statements 140 Statement of the Directors’ Ore Grade Gold Responsibilities – Company Category (Mt) (g/t) (Moz) PETROPAVLOVSK PLC 141 Independent Auditors’ Report to the Resources Measured 68.76 1.31 2.90 Members of Petropavlovsk PLC 11 Grosvenor Place Other information Indicated 130.70 1.27 5.33 London 142 Company Balance Sheet SW1X 7HH 143 Notes to the Company Measured+Indicated 199.46 1.28 8.23 United Kingdom Financial Statements Inferred 101.70 1.12 3.65 T +44 (0)20 7201 8900 Reserves Proven 54.08 1.33 2.32 F +44 (0)20 7201 8901 150 Appendix Probable 110.06 1.23 4.44 E [email protected] 151 Glossary and Definitions . Cumulative gold production, as stated throughout this Annual Report and Accounts, consists of gold physically recovered and this Annual Report and Accounts, consists of gold physically recovered throughout as stated . Cumulative gold production, 152 Shareholder Information Proven+Probable 164.15 1.26 6.75 www.petropavlovsk.net Notes • This summary comprises Mineral Resources and Ore Reserves from the Group’s Pokrovskiy, Pioneer, Malomir, Albyn, Tokur and Yamal operations. It excludes other licence areas held by the Group, including joint ventures; • Mineral Resources are reported inclusive of Ore Reserves; • Contained Gold represents estimated contained metal in the ground and in surface stockpiles and has not been adjusted for metallurgical recovery. gold in circuit. Accordingly gold produced in the year consists of gold recovered during the period and adjusted for the movement in gold circuit. during the period and adjusted in the year consists of gold recovered gold produced Accordingly gold in circuit. Total attributable gold production, as stated throughout this document, is comprised of 100% of production from the Group’s subsidiaries and the relevant relevant the and subsidiaries Group’s the from production of 100% of comprised is document, this throughout stated as in production, gold interest indirect attributable and direct Total Company’s The has held c.1.1% The Group accordingly. restated period are figures. for the comparative and other investments. Figures joint ventures from of production share Group the in included are 2009; no attributable ounces since March Mining Ltd in Rusoro interest Rudnik is 98.61 % Pokrovskiy *