Polymetal announces results of Feasibility Study, reserve estimate, and start of construction of a flotation concentrator at Mayskoye gold deposit

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Saint-Petersburg, Russia, August 11, 2010 – JSC “Polymetal” (LSE, MICEX, RTS: PMTL) (“Polymetal” or the “Company”) is pleased to announce the successful completion of the Feasibility Study (''FS'' or the ''Study'') for the Mayskoye gold project supported by independent audit, and the start of construction of a processing plant at the mine site.

HIGHLIGHTS

• The Feasibility Study prepared by Polymetal Engineering and audited by Snowden Mining Industry Consultants Inc. (“Snowden”)¹ demonstrates that the Mayskoye gold project is technically and economically feasible
• Total Resources are 7.5 Moz of gold contained in 25 Mt of mineralized material at an average grade of 9.3 g/t. The resource base has been delineated to a maximum depth of 850 meters below the surface with most of the modeled mineralized zones remaining open at depth
• Probable Reserves (estimated at a long term gold price of US$900/oz) are 2.4 Moz of gold contained in 7.9 Mt of ore at an average grade of 9.6 g/t, which is sufficient to support a 13 year mine life
• The Company believes that there is a significant potential for increase in Reserves and the mine life based on the fact that 16 Mt of mineralized material falls into the category of Inferred Resources and that, based on 2006-2010 in-fill drilling results, the conversion rate of Inferred Resources into Measured and Indicated categories (which, in turn, form the basis for Proven and Probable Reserves) was approximately 80%
• The FS envisions mostly underground mining of sulfide ore at a rate of 700 Ktpa with conventional flotation on-site followed by transportation of the concentrate to Amursk for further processing at the Company’s POX facility
• Polymetal believes that the key assumptions in the Study (such as gold price, concentrate mass pull, and dilution) are conservative, and therefore has made a decision to build a concentrator with annual throughput of 850 Ktpa, which is approximately 20% more than the level envisioned in the Study
• At a mining and processing rate of 850 Ktpa, average gold production is expected to be in excess of 200 Koz per year during the mine life with total cash costs in the range of US$500-550 per ounce of gold
• The total pre-production capital expenditures for the project are estimated at US$170 million with further US$140 million to be invested over the life of mine (from 2013 on) mostly on underground development and maintenance CAPEX
• The construction at Mayskoye commenced in May 2010 with first ore from stopes expected by the end of 2010 and the commissioning of the processing plant in Q1 2012. Polymetal expects to ship first concentrate to Amursk and pour first gold from the project in Q4 2012. The Company plans to reach full mining and processing capacity in 2013

“We are pleased with the results of the Feasibility Study and its audit. It demonstrates the viability of our strategic growth plans,” said Vitaly Nesis, CEO of Polymetal. “Mayskoye is a high-grade long-life project with outstanding optionality which should further strengthen the economics of Polymetal’s POX hub in Amursk.”

GEORGAPHY

Mayskoye is located in the Chaun district of the Chukotka Autonomous Territory in Northeastern Russia, in a remote unpopulated area covered by Arctic tundra. The deposit is situated 180 kilometers by all-year improved dirt road from the town and major seaport of Pevek.

GEOLOGY AND RESOURCES

Gold mineralization at Mayskoye is of the low-sulphide, gold-pyrite-arsenopyrite type and is mostly associated with the steep quartz-feldspare dykes.  Economic gold mineralization is confined within the high-grade gold-quartz-sulfide veins. Only 41 of a total known 340 veins were subjected to the gold resource assessment and grouped into six mineralized zones to prioritize further mining operation scheduling.

Gold mineralization was first discovered in the area during mapping and prospecting activities in 1971-1973. During 1974-1994 several major campaigns (including 445 kilometers of diamond drilling and 26 kilometers of underground workings) generated a massive dataset for Mayskoye. In 2004-2008 Mayskoye ex-owner undertook a rigorous channel sampling and diamond core in-fill drilling program to successfully confirm Soviet era exploration data.

The Mayskoye Resource estimate reported in accordance with the JORC Code (2004)² and based on all exploration work done up to January 2010 (the estimate covers mineralization to the depth of 850 meters below the surface) is presented below:

MINING AND RESERVES 

Mayskoye Ore Reserves calculated in accordance with the JORC Code (2004)³ are presented in the following table:

Ore will be accessed by 3 separate spiral ramps in the Central, Eastern, and Western parts of the deposit. This will allow greater mining flexibility in terms of tonnage, grade, and metallurgical characteristics (sulfur content, organic carbon content).

The Study envisioned several underground mining methods to be used at Mayskoye with more than 80% of ore mined by sub-level open stoping, with no backfill. Given the average vein thickness of 2.5 meters, average underground mining loss will be 11% and average dilution – 22%.

Underground mining will use trackless equipment produced mostly by Sandvik. Snowden assessed the choice of the mining fleet as appropriate.

METALLURGY AND PROCESSING

Mayskoye ore is refractory with the majority of gold associated with arsenopyrite and pyrite in microscopic and sub-microscopic form. It is not amenable to recovery by direct cyanidation. Polymetal considered available processes for treating refractory ores, such as pressure oxidation (POX), roasting and bio-oxidation to liberate gold grains for further recovery via conventional cyanidation.  Polymetal selected POX on the basis of superior recoveries and better environmental impact mitigation. 

Mayskoye ore will be processed at an on-site concentrator. The circuit comprises single-stage crushing followed by three-stage grinding (one SAG mill and two ball mills) to achieve optimum liberation of gold-bearing particles with 95% of final material at less than 200 mesh (74 micron).  Three-stage cell flotation was designed to optimize recovery-yield relationship, with mass pull estimated at 14% and gold recovery to concentrate of 88%. Concentrate is expected on average to contain 60-80 g/t gold and 16% sulfide sulfur.

Conventional ring-dyke partially lined impoundment will be used as a tailings storage facility. Most plant equipment has been already contracted including Russian and Ukrainian mills, Sandvik jaw crusher, Outotec flotation cells and thickener, Metso drying furnace and Weir Warman slurry pumps.

Flotation concentrate will be thickened, filtered, dried, packed in 14-tonne reusable big-bags and then transported by road, sea, and railroad to Amursk POX hub. Road transportation to the port of Pevek will be year-round while sea shipment will be restricted to a summer navigation window. Polymetal is currently in the process of discussing long-term concentrate transportation arrangements with potential shippers.

Rigorous and extensive bench scale POX and CIL testwork for Mayskoye ore was carried out by SGS and Polymetal Engineering. Average gold recovery of 92% from the Mayskoye concentrate to dore was demonstrated to be a reasonable estimate (combined gold recovery to dore is therefore approximately 81%). This is somewhat lower than recoveries from the Albazino concentrate due to the presence of partially preg-robbing organic carbon matter in some of the ore bodies at Mayskoye.

SNC Lavalin and Polymetal Engineering designed the Amursk autoclave facility specifically to accommodate the complementary Mayskoye and Albazino concentrate with careful blending planned to achieve optimized gold recoveries and minimize the Amursk plant operation costs.

INFRASTRUCTURE

Access to site for personnel will be through the airport of Pevek able to accommodate a variety of commercial aircraft. Supplies and spare parts will be delivered through the sea port of Pevek.  Appropriate residential, maintenance, and storage facilities were built on the mine site by the previous owner of Mayskoye.

Electricity will be provided by the local grid from the coal-powered station in Pevek. The transmission line to Mayskoye is being built by regional administration, while Polymetal is responsible for constructing a substation.

Process and potable water will be provided by a permanent water reservoir currently under construction 4 kilometers from the mine site.  Emergency water boreholes will also be completed to supply potable water.

PROJECT ECONOMICS

The total pre-production capital cost is estimated at US$170 million (of which US$19 and US$26 million have already been spent in 2009 and 2010 respectively), excluding VAT, but including 20% contingency for construction and 10% contingency for equipment. Further US$140 million are estimated to be spent mostly for underground development and maintenance capital through life-of-mine.

Total cash costs of production are estimated at US$500-550/oz range.

A sensitivity analysis was performed on gold price, recovery, operation costs and capital expenditures and confirmed the expected project viability over a sensitivity range.

SUSTAINABLE DEVELOPMENT

The independent and accredited Russian environmental consultants undertook a comprehensive assessment of the socio-environmental impact of the Mayskoye operation along with the gold concentrate shipping options to comply with the Russian and international environmental regulations and industry standards.

During the project life approximately 900 permanent direct jobs will be created supported by a much higher number of indirect jobs in the construction, energy, transportation and service industries resulting in increased corporate and personal taxes.

In February 2010 Polymetal has entered into a co-operation agreement with the government of Chukotka Autonomous Territory, according to which the Company will contribute to social and economic development of the region, including financing of certain educational and healthcare programs and support of indigenous people of Chukotka.

UPSIDE POTENTIAL 

Several studies are currently under way to further improve the economics of the project.

• Upgrading Inferred Resources to Measured and Indicated by in-fill and down-dip drilling
• Using backfill to reduce ore losses and dilution during underground mining
• Reducing concentrate mass pull at steady recovery by implementing customized flotation reagents
• Optimizing mining and processing for near-surface oxidized and transitional ores

Polymetal will further update on the progress of the development of the Mayskoye gold project.

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1) Snowden audited aspects of geology and Resources; mining and Reserves; environmental, health and safety, community relations, logistics, and metallurgy and processing associated with the Feasibility Study. Snowden’s audit did not involve independent verification of Feasibility-related data. Snowden has based its audit on documents and data supplied by Polymetal, interviews with key project personnel (with translators provided by Polymetal), and on inspections of the Mayskoye project site. Snowden has focused on process and results and has performed some parallel work where necessary to support its findings.

2) Resources are reported at a gold cut-off grade of 2.49 g/t for open-pit oxide resources, 3.17 g/t for open-pit sulphide resources, 4.42 g/t for underground oxide resources and 5.17 g/t for underground sulphide resources and are based on a gold price of US$1,050/oz. The Indicated and Measured Mineral Resources are inclusive of those Mineral Resources modified to produce the Ore Reserves. Numbers are rounded to appropriate significant figures.

3) Reserves are reported at a gold cut-off grade of 3.2 g/t for open-pit oxide reserves, 4.1 g/t for open-pit sulphide reserves, and 7.0 g/t for underground oxide and sulphide reserves and are based on a gold price of US$900/oz. Numbers are rounded to appropriate significant figures.

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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.

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