Polymetal announces results of a Feasibility Study and presents an Ore Reserve estimate for Birkachan

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Saint-Petersburg, Russia, August 18, 2010 – JSC “Polymetal” (LSE, MICEX, RTS: PMTL) (“Polymetal” or the “Company”) is pleased to announce the successful completion of a Feasibility Study (“FS” or the “Study”) for the Birkachan deposit, part of the Omolon project.

HIGHLIGHTS

• The Feasibility Study has been prepared by Polymetal Engineering and independently audited by SRK Consulting (UK) Limited (“SRK”)¹. SRK considers the Study to be of a sufficient level to demonstrate that the Birkachan project is technically and economically feasible to be developed as a combined open pit and underground operation
• Total Mineral Resources are estimated to contain 2.0 Moz of gold at an average grade of 2.4 g/t Au in 26.2 Mt of mineralized material
• Total Ore Reserves (estimated assuming a long term gold price of US$900/oz) are estimated to contain 1.0 Moz of gold at an average grade of 2.7 g/t Au in 12.1 Mt of ore
• The Ore Reserves are sufficient to support a 13 year mine life including 8 years of open pit mining with peak production of 1.8 Mtpa followed by 5 years of underground mining at a rate of 180 Ktpa
• The mined ore will be split into two processing streams: the lower grade ore will be heap leached on the mine site whereas the higher grade ore will be processed at the existing Kubaka Carbon-in-Pulp (“CIP”) plant located 42 kilometers from the mine
• The total pre-production capital expenditures for the project are estimated at US$33 million, of which US$22 million has already been invested
• Mining at Birkachan is already in progress, heap leaching on the mine site started in June of this year, and the Kubaka CIP plant is to be restarted shortly

“We are pleased with the results of the Feasibility Study and its audit,” said Vitaly Nesis, CEO of Polymetal.

“Birkachan is a valuable asset for Polymetal and an important part of the Omolon project – it will be the first of our existing development projects to enter production.”

BACKGROUND

The Birkachan deposit was discovered and explored in 1999-2001 in the course of searching for satellite deposits around Kubaka which was at the time the largest gold mine in Russia. Between 2004 and 2006 Kinross Gold Corporation (“Kinross”), the former owner of the asset, mined a trial pit at Birkachan extracting 471 Kt of ore at an average grade of 6.7 g/t gold. This ore was processed at the Kubaka CIP plant with gold recovery in the range of 96-98%.

Polymetal acquired Birkachan from Kinross in January 2008 as part of the Kubaka package, which also included three other properties and the mothballed CIP plant. At the time of completion of the acquisition, the Company announced its plan to identify priority targets around Kubaka for detailed exploration in 2008, to produce a resource estimate in compliance with the JORC Code (2004) for 1-2 of these targets in 2009, to complete a Feasibility Study and report a reserve estimate in compliance with the JORC Code (2004) in 2010, and to re-launch the mothballed processing plant in 2011.

The Birkachan deposit has been determined by the Company as one of the high-priority exploration targets due to its shallow nature and proximity to the processing plant. Polymetal completed 45 diamond drill holes totaling 11,440 meters in 2008, and published a Mineral Resource estimate of 1.4 Moz of gold at an average grade of 2.4 g/t within 17.5 Mt of mineralized material (also audited by SRK) in February 2009.

Birkachan is as an important part of the Omolon project, which includes also Tsokol, Sopka Kvartsevaya, Oroch, and Dalniy deposits as well as the Kubaka CIP plant (the “Omolon Hub”).

GEORGAPHY

The Birkachan deposit is located in the North-Evensk district of the Magadan region in the Far East of Russia, 42 kilometers from the Kubaka site, 327 kilometers from Evensk, and 984 kilometers from Magadan.

The climate of the Magadan region is sub-arctic with prolonged and cold winters. The regional area is classified as tundra with sparse growth evergreen forests and permafrost covering most of the region. Locally the topography in the vicinity of the deposit appears to be relatively flat with gently undulating hills not exceeding 800-900 meters. A number of river courses are present in the region.

GEOLOGY AND RESOURCES

The Birkachan mineralisation is located in Cretaceous volcanic sequence, in a 150-200 meters wide metasomatic zone. The ore body is hosted in a volcano-sedimentary sequence consisting mainly of dacites, ignimbrites and tuffs.

The mineralisation comprises two distinct types: gold-silver veins and disseminated stockwork type mineralisation. The individual veins generally average thickness of up to 10 meters, extend up to 100 meters along strike and down-dip, and carry gold grades of up to 8-12 g/t. The stockwork comprises mineralized zones of 60-80 meters thick extending 2.5 kilometers along strike and 150-200 meters down-dip from the surface and grading 1-3 g/t of gold.

The mineralisation outcrops at the central portion of the deposit and is covered by quaternary sediments elsewhere. The mineralisation is not weathered or oxidized and can be considered primary.

SRK’s audited Mineral Resource statement reported in accordance with the JORC Code (2004) is presented in the following table²:

This estimate represents a 48% increase in gold contained in resources (with the unchanged gold grade of 2.4 g/t) compared to the estimate published in February 2009.

MINING AND RESERVES 

SRK’s audited Ore Reserve statement reported in accordance with the JORC Code (2004) is presented in the following table³:

Mining of the Birkachan deposit will begin with two separate open pits. Both high-grade and low-grade ore will be mined simultaneously with projected average stripping ratio of 7:1 t/t. The Company plans to mine 0.5 Mtpa of higher-grade ore (dilution and mining losses are estimated at 5% and 6% respectively) and 1.3 Mtpa of lower-grade ore (dilution and mining losses are estimated at 13% and 5% respectively). The choice of mining equipment (6.5 m3 excavators, a 7 m3 loader and 55-tonne trucks all produced by Komatsu) is characterized by SRK as suitable.

After depletion of the open pits, underground mining will be used to produce 180 Ktpa of ore to be achieved via a combination of open stoping and shrinkage methods with planned dilution of 38% and mining losses of 8%.

METALLURGY AND PROCESSING

High-grade ore will be trucked for processing to the existing Kubaka plant which is a conventional 850 Ktpa CIP facility with the circuit incorporating one-stage crushing, two-stage milling (SAG and ball), thickening, leaching, desorption, electrowinning, and dore smelting. Tailings will be neutralized and pumped for storage in the old Kubaka pit. 96% gold recovery is planned for Birkachan ore, an estimate supported by the results of trial mining and processing by Kinross in 2004-2006.

Low-grade ore will be crushed in two stages to -30mm size and stacked on heaps with trucks. Gold will be recovered from clear pregnant solutions using the Carbon-in-Column (“CIC”) technology on the mine site. Loaded carbon will be trucked to the Kubaka site for further processing into dore. 

An extensive, bench-scale and on-site pilot heap leach testing program was completed by Polymetal Engineering in 2008-2009 followed by successful trial dump leaching of 639 Kt of ore from historical low-grade (1.9 g/t of gold) stockpiles. As the result of this work, the need to crush the ore to achieve suitable recoveries was confirmed. 55% gold recovery from heap leaching with full leaching time of 24 months is currently estimated for the low-grade ore.

INFRASTRUCTURE AND LOGISTICS

Birkachan is connected to the Kubaka site by a 42-kilometer winter road which is currently being upgraded to the all-season ore haulage road. The upgrade, including construction of a bridge over river Omolon, is targeted to be completed in the end of 2010.

The Kubaka site is accessed by a 362-kilometer winter road (functioning from December to April) from the town of Omsukchan (the location of the Dukat processing plant) which, in turn, is linked to Magadan by a 580-kilometer all-season paved and gravel road.

The Kubaka site can also be reached by a 285-kilometer all-year road from Evensk, a local district centre on the sea of Okhotsk.

Kubaka and Birkachan have all necessary remote-site infrastructure, including accommodation camp, warehouses, maintenance facilities, etc. Personnel will access the site by bus in winter and by helicopter or light plane otherwise. Electricity is provided by Company-owned diesel generators at Kubaka (12 MW) and Birkachan (2 MW). Heat at Birkachan, used mostly to warm up heap solution, is provided by coal-fired boiler (8 MW).

PROJECT ECONOMICS

The total pre-production capital cost is estimated at US$33 million, of which US$22 million has already been spent. This includes US$11 million for mining equipment, US$4 million for the refurbishment of the Kubaka plant (including the new tailings storage facility), US$9 million for the new heap leach facility, and US$9 million for road and bridge construction.

Total cash costs of production at Birkachan have been estimated to be US$550-600/oz range, inclusive of a 2% revenue-based royalty payable to Kinross.

Polymetal will further update on the progress of the development of the Birkachan gold project and the Omolon Hub as the project is developed.

COMPETENT PERSONS

The information in this press release that relates to Ore Reserves is based on information compiled under the direction of Dr. Iestyn Humphreys, who is a Chartered Engineer and a Fellow of the Institute of Materials, Minerals and Mining. Dr. Humphreys is a full time employee of SRK Consulting (UK) Ltd and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Dr. Humphreys has reviewed this press release and consents to the inclusion in the press release of the matters based on his information in the form and context in which this appears.

The information in this press release that relates to Mineral Resources is based on information compiled under the direction of Mr. Ben Parsons, who is a Member of the Australasian Institute of Mining and Metallurgy (AusIMM). Mr. Parsons is a full time employee of SRK Consulting (UK) Ltd and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr. Parsons has reviewed this press release and consents to the inclusion in the press release of the matters based on his information in the form and context in which this appears.

1) Specifically, SRK has audited the feasibility study and supporting information provided by Polymetal and has concluded that there is sufficient information of sufficient quality to support the reporting of the Mineral Resources and Ore Reserve statements as given here in accordance with the JORC Code (2004) and has made recommendations for further work where it considers such is required

2) The cut-off grades for reporting of the Mineral Resources are 0.6 g/t Au for open-pittable and 3.8 g/t Au for underground Mineral Resources. The commodity prices incorporated into the cut-off grade calculations are US$1,150/oz of gold and US$18.5/oz of silver. Numbers are rounded to appropriate significant figures – the possible discrepancies in calculations result from such rounding. The estimate includes those Mineral Resources upgraded to and reported as Ore Reserves

3) The cut-off grades for reporting of the Ore Reserves are 0.9 g/t Au (HL) and 2.2 g/t Au (CIP) for open-pittable and 5.2 g/t Au (CIP) for underground Ore Reserves. The commodity prices incorporated into the cut-off grade calculations are US$900/oz of gold and US$14.5/oz of silver. Numbers are rounded to appropriate significant figures – the possible discrepancies in calculations result from such rounding

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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