Polymetal announces second quarter 2010 production results

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Saint-Petersburg, Russia, July 19, 2010 - JSC "Polymetal" (LSE, MICEX, RTS: PMTL) ("Polymetal" or the "Company") announced its production results for the quarter and six months ended June 30, 2010.

HIGHLIGHTS

• Gold production in the second quarter jumped 61% year-on-year due to increased throughputs at Dukat and Voro, higher grades at Voro and Khakanja, and contribution from Varvarinskoye. Without accounting for Varvarinskoye, quarterly production of gold increased by 32% y-on-y
• Quarterly silver production grew by 13% y-on-y due to increased throughput at Dukat and higher grade at Khakanja
• First gold in the year was poured at Birkachan, part of Omolon operations, as cyanide solution was applied to ore stacked in 2009. Stacking at Birkachan is continuing and the Company is on track to restart the CIP plant at Kubaka in August to treat high-grade ore
• The key results of both Birkachan and Mayskoye feasibility studies along with reserve statements prepared in accordance with the JORC Code (2004) and audited by SRK and Snowden correspondingly will be released within a month
• All development projects remain to be on schedule with start-up of Albazino and Amursk planned for Q4 2010 and Q2 2011 respectively
• The Company reiterates its guidance to produce 430-450Koz of gold, 19-20Moz of silver and 4.0-5.0Kt of copper, or 775-800 Koz of gold equivalent (based on 1:60 Ag/Au and 5:1 Cu/Au conversion ratios) in 2010

"In the second quarter of 2010 we saw sustained and stable production growth across our operations," said Vitaly Nesis, CEO of Polymetal.

"The start-up of mills at Kubaka and Albazino will be the key priority in the second half of this year".

DUKAT OPERATIONS 

Both silver and gold quarterly production at the Dukat Operations increased by 6% and 19% respectively year-on-year, as throughput at the expanded Dukat processing plant reached the design capacity of 1.5 Mtpa in May. However, recoveries continued to be significantly below design as oxidized ore with low silver and relatively high gold grades from old stockpiles constituted significant (up to 40%) portion of the feed.

A number of initiatives is being undertaken to address the issue of low recoveries such as introduction of gravity circuit (to be commissioned in Q4 2010) that will also be used for processing of lead- and zinc-rich ore from Goltsovoye as well as ongoing testing of alternative reagents and potential usage of slime flotation on weathered stockpile material.

Underground development at Goltsovoye is accelerating, with stoping on track to commence in Q3 2010. Introduction of fresh ore from Goltsovoye to the feed is expected to lead to improved recoveries.

KHAKANJA

Given stable volumes of ore milled, dynamics of both gold and silver production at Khakanja remains to be a function of head grades in the processed material. Although open-pit mining at Yurievskoye has been completed in the first quarter, high-grade ore from this satellite deposit is still being processed at the Khakanja plant. Silver recoveries continued to improve due to more favorable metallurgy of ore at depth in Pits 1 and 3.

A go-ahead decision was made to start underground mining at Yurievskoye. The expected life of mine is 18 months, during which it is planned to mine 100 Kt of ore grading 8 g/t gold. Capital expenditure for this project is estimated at US$ 2.5 million with equipment to be moved to Khakanja after the depletion of the Yurievskoye underground reserve.

VORO

Voro demonstrated yet another quarter of superior performance as the expanded CIP plant is running at full design capacity whereas both grades and recoveries are improving. This is partly due to the fact that higher-grade ore from Degtyarskoye (acquired by Polymetal in 2008) started to be processed during the second quarter. Mining at Degtyarskoye and transportation of this ore to Voro is ongoing.

Heap Leach operation at Voro is benefitting from the fact that not all metal was recovered from higher-grade ore heaps stacked in 2009 – this metal is coming into solution presently which explains higher gold production despite lower grades in the heap stacked during the first half of 2010. Grades in the heaps to be stacked until year-end are expected to improve as mining of the oxide ore at the South Voro pit has commenced in the second quarter.

VARVARINSKOYE

Varvarinskoye turn-around program on the mining side is largely completed. Strengthened grade control resulted in dilution reduction to 15-20% compared with 35-45% in Q4 2009. Gold grade is steadily improving as a result. Improvements in blasting and mining fleet management allowed increasing stripping and accessing new areas in the mine.

On the processing side, the flotation circuit performance is improved with recoveries of both gold and copper to concentrate reaching historical maximums. Work on optimizing recoveries in CIL is ongoing with several alternatives being considered, including discontinuation of float tails leaching.

Further improvements in throughput and recoveries are expected in the second half of the year as the turn-around program shifts its focus to processing operations.

ALBAZINO-AMURSK

First significant amounts of ore were mined at Albazino in the second quarter with grades and tonnages showing very good convergence with the computer block model. The first two mills and apron feeders were installed at the processing plant. The installation of thickeners and crusher started in July. The plant is expected to enter commissioning in November 2010.

The earth works at the Amursk POX facility have been completed in the second quarter. Foundation works for the autoclave and related high-pressure equipment are 80% completed. The structural steel framework for the maintenance facility and substation has been installed. The power line, the gas main and the water pipeline are expected to be completed in Q3 2010. The Company is on track to commission the facility in Q2 2011.

MAYSKOYE 

At Mayskoye, underground development is continuing. First stopes are expected to be ready for production in the first half of 2011. Continued in-fill drilling confirms initial estimates of grades and mining widths.

Construction of water reservoir and tailings impoundment is continuing and is scheduled to be completed in Q3 2010. Foundation works for the flotation concentrator have commenced in June. All of the steel required for the construction of the structural steel frame is currently on a ship due in Pevek in early August. All major processing plant equipment including mills (Ukrainian producer NKMZ), floatation cells and thickeners (Outotek), slurry pumps (Warman), etc. has been contracted.

OMOLON OPERATIONS

Heap leach at Birkachan poured first gold with an insignificant delay due to relatively cold spring.  Grades and volumes of pregnant solution are increasing steadily as heap is warming up during summer.

The construction of new tailings storage facility in the old Kubaka pit along with the requisite infrastructure is complete. The CIP plant at Kubaka is on schedule to start up in August. Merrill Crowe section expansion is well under way with foundations 75% complete and first deliveries of equipment on site expected in September.

Mining operations at Sopka is continuing with focus on pre-stripping to allow ore production starting in Q4 2010 ahead of winter road trucking season. Road construction by contractors on routes Kubaka-Birkachan and Evensk-Sopka is in full swing.

PERSONNEL

Gennady Kuzmenko, 39 assumed the position of managing director at the Dukat Operations, replacing Viktor Demeschik, 50, who moved to Polymetal's headquarters in St. Petersburg.  Gennady is a graduate of the St. Petersburg Mining Institute with a degree in Metallurgy. He started working at Polymetal in 2004 as VP-Human Resources at Dukat and most recently was the MD of Khakanja.

Alexandr Akamov, 39, was promoted to be the MD at Khakanja. Alexandr graduated from the Irkutsk Polytechnic University with a degree in Exploration. He joined Polymetal in 2002 and most recently was VP-Supply Chain Management at Albazino.

Vladimir Shamin, 56 became the MD at Amursk, a position previously combined with the job of MD at Albazino. After graduating from the Tomsk Polytechnic Institute with a degree in Physics in 1977 and until joining Polymetal in January 2010, Mr. Shamin has been working at the Navoi Mining and Metallurgy Combinat, the largest gold and uranium producer in Uzbekistan.

CONFERENCE CALL AND WEBCAST

Polymetal will hold a conference call and webcast on Monday, July 19, 2010 at 5:30pm Moscow time (2:30pm London time; 9:30am New York time).

To participate in the call, please dial:

+7 495 580 9543 (toll-free from Russia), or

0800 358 0886 (toll-free from the UK), or

+1 877 941 2333 (toll-free from the USA), or

+44 207 153 2027 (from outside the UK, USA, and Russia), or follow the link:

http://www.cyber-presentation.de/cgi-bin/visitors.ssp?fn=visitor&id=1248

Please be prepared to introduce yourself to the moderator or register.

Recording of the call will be available on Polymetal's website and at the above link immediately after the call. It will also be available at 0800 358 9369 (toll-free from the UK) or +44 207 959 6720 (from outside the UK), access code 143130#, from 7:30pm Moscow time Monday, July 19, till 11:59pm Moscow time Monday, July 26, 2010.

ABOUT POLYMETAL

Polymetal is a Russian gold and silver miner with operations and development projects in Russia and Kazakhstan. The Company produced 0.6 million of gold equivalent ounces in 2009 and is targeting to double its total production by 2012 mostly as a result of commissioning of the new projects, all of which are now under construction. A key element of Polymetal's strategy is creation of processing hubs with the goal to ensure the most efficient and responsible utilization of financial and human capital by treating ores and concentrates from various sources at centralized locations.

THIS RELEASE MAY INCLUDE STATEMENTS THAT ARE, OR MAY BE DEEMED TO BE, "FORWARD-LOOKING STATEMENTS". THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS AT THE DATE OF THIS RELEASE. THESE FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, INCLUDING THE WORDS "TARGETS", "BELIEVES", "EXPECTS", "AIMS", "INTENDS", "WILL", "MAY", "ANTICIPATES", "WOULD", "COULD" OR "SHOULD" OR SIMILAR EXPRESSIONS OR, IN EACH CASE THEIR NEGATIVE OR OTHER VARIATIONS OR BY DISCUSSION OF STRATEGIES, PLANS, OBJECTIVES, GOALS, FUTURE EVENTS OR INTENTIONS. THESE FORWARD-LOOKING STATEMENTS ALL INCLUDE MATTERS THAT ARE NOT HISTORICAL FACTS. BY THEIR NATURE, SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS BEYOND THE COMPANY'S CONTROL THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON NUMEROUS ASSUMPTIONS REGARDING THE COMPANY'S PRESENT AND FUTURE BUSINESS STRATEGIES AND THE ENVIRONMENT IN WHICH THE COMPANY WILL OPERATE IN THE FUTURE. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE. THERE ARE MANY FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENTS ARE BASED.

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