Polymetal Reports 1H 2008 Financial Results

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Saint-Petersburg, Russia, December 23, 2008 - JSC "Polymetal" (LSE, MICEX, RTS: PMTL) ("Polymetal" or the "Company"), released its US GAAP consolidated financial statements, reviewed by independent accountants, for the six months ended June 30, 2008, which are available on the Company's website at www.polymetal.ru

• In 1H 2008 gold sales grew by 32% on the back of 20% hike in production. Silver sales grew 1% to 8.4 million ounces after production increased by 11%. Discrepancy between production growth and sales growth is largely attributable to inventory fluctuations which are expected to even out for the full year
• 1H 2008 was the first period in Polymetal's public history when financial results were not affected by hedging arrangements with all forward sales of silver completed by the beginning of the year
• Revenues almost doubled and the Company swung to substantial net income with high profitability margins and robust cost performance on mine level
• Net debt remains to be at reasonable levels with liquidity position being sufficient to continue with crucial growth projects

"Financial results for the first six months of 2008 amply demonstrate excellent fundamentals of our business," said Vitaly Nesis, CEO of Polymetal, commenting on the results. "Tremendous improvement in profitability and very competitive cost position will definitely allow us to weather the financial crisis and capitalize on the re-emergence of gold as the safe-haven investment of choice".

REVENUES

In the 1H 2008, revenues grew by 86% from US$139.0 million to US$258.8 million with healthy sales volume growth supplementing significant increases in average realized metal prices. Average realized gold price rose 38% to US$914/oz, largely in line with the market. Average realized silver price rose 90% to US$17.1/oz due to the sales at below-market prices under forward sales contracts having been fully discontinued.

COST OF SALES

Costs of sales increased by 15% from US$104.4 million to US$119.8 million or, without taking into account third-party metal purchases in the 1H 2007, by 24%.

Costs of materials, consumables, and services grew 24% from US$42.3 million to US$52.3 million as prices for many consumables and energy tariffs increased, ruble strengthened while physical volumes of mining and processing increased. Personnel costs increased by 9% from US$21.6 million to US$23.6 million as productivity improvements (mostly thanks to outsourcing and plant automation) and reduced headcount counteracted significant increases in average wages. Royalties almost doubled on the back of production growth and increases in metal prices. Changes in depreciation and other costs were not material.

GENERAL, ADMINISTRATIVE AND SELLING EXPENSES

General, administrative, and selling ("GA&S") expenses almost trebled from US$20.7 million to US$58.8 million, mostly as a result of the non-cash employee stock option compensation expense of US$31.9 million.

Following the IPO in February 2007, the controlling shareholder granted 5.5 million shares of Polymetal (representing 1.76% of the Company's share capital) to fund the employee stock option program through which employees received a right to purchase shares for the nominal price of approximately US$0.04 per share in equal installments in February 2008, February 2009, and February 2010. Following the change of control event in June 2008, all of the options became fully vested and the shares under the program were distributed to participants. As a result, full value of these option contracts is included in GA&S for the period as mandated by relevant accounting rules.

Without taking into account the stock option plan, GA&S expenses grew by 62% from US$16.6 million to US$26.9 million driven mostly by above-inflation increases in salaries as well as rising rents and utility bills.

OTHER OPERATING EXPENSES

Other operating expenses increased by 75% from US$10.6 million to US$18.6 million. Exploration costs (including expenses associated with the JV with AngloGold Ashanti) rose from zero to US$5.5 million as investment in greenfield exploration on properties not containing any JORC-compliant resources was expensed immediately. Voluntary social payments increased from US$2.5 million to US$4.7 million as ruble strengthened and new municipalities were added to the program in conjunction with the development of Kubaka and Albazino.

OTHER INCOME STATEMENT ITEMS

Interest expense fell by 18% from US$8.3 million to US$6.9 million as a decrease in effective interest rates more than offset increase in average amount of net debt. Exchange gains grew substantially to US$11.0 million from US$1.3 million as ruble appreciated in 1H 2008 by 4.5% and the carrying balance of dollar-denominated debt increased materially.

Income tax expense increased to US$28.6 million from US$4.1 million as pre-tax income went from the loss of US$3.7 million to the profit of US$63.3 million. The effective income tax rate was materially above the statutory rate of 24% as a significant portion of costs in the period was not tax deductible, most importantly the stock option expense. Minority expense in the period remained at zero as Polymetal owns 100% of all of its operating subsidiaries.

As a result of the above, the Company reported net income before extraordinary items of US$34.7 million compared with net loss of $7.7 million for 1H 2007. Extraordinary gain of US$8.4 million was recorded in the period as a result of Kubaka acquisition. The gain is due to the fair value of the assets acquired exceeding the purchase price. Full net income for 1H 2008 was $43.1 million.

ADJUSTED EBITDA

Adjusted EBITDA more than trebled from US$36.4 million to US$121.9 million with increases in metal prices and sales volume growth being partially offset by increased costs of sales and GA&S.  Adjusted EBITDA reconciliation is detailed in the following table:

CASH COSTS

Domestic mining inflation in Russia and grades were the key drivers of cash costs per ounce of metal produced at each of the operations.

Transition to bulk mining at Dukat allowed to expand throughput at the mine and held increases in cash costs per tonne milled at Dukat and Lunnoye in line with inflation. Cash costs per ounce of silver produced grew more significantly as a result of lower grades achieved by bulk mining. As silver price plunged in 2H 2008 Dukat switched back to selective mining with higher costs per tonne of ore milled and higher grades expected in that period.

At Voro, cash costs per tonne of ore milled grew by 20% as stripping ratio increased and key consumables prices (cement, diesel fuel) exploded. Grades at Voro remained stable and cash cost per ounce grew in line with cash cost per tonne milled.

Significant improvement in gold grades at Khakanja enabled the mine to reduce its cash costs per ounce by 4% despite a 14% increase in cash costs per tonne milled. Khakanja's long logistics cycle means that the mine was shielded from increases in diesel fuel price in 1H 2008 as the fuel spent in this period was purchased a year earlier. Expensive diesel purchased in summer of 2008 will be consumed over the next 12 months which may lead to a material cost increase in that period.

Overall, Polymetal achieved its strategic goal of maintaining at least 50% mine-site operating margin with cash costs per ounce materially below 50% of the average realized price for the period. Despite significant weakening of precious metals prices in 2H of 2008, the Company remains confident of continuing to achieve the said benchmark.

Breakdown of cash costs calculated on a co-product method is given in the following table:

CAPEX

Capital expenditures increased from US$40.3 million to US$63.4 million as the Company started to invest in the construction of the new mine at Albazino while continuing to spend on Dukat expansion and Voro expansion. Exploration spending was flat.

NET DEBT

Net debt in the period increased by 18%. Net debt calculation is detailed in the following table:

CONFERENCE CALL

Polymetal will hold a conference call on Tuesday, December 23, 2008 at 5:30pm Moscow time (2:30pm London time; 9:30am New York time).

To participate in the call, please dial:

+1 800 230-1059 (toll-free from the US), or

+1 612 234-9959 (international).

Please be prepared to introduce yourself to the moderator.

Recording of the conference call will be available at +1 800 475-6701 (toll-free from the US), or +1 320 365-3844 (international), access code 978111, from 7:00pm Moscow time Tuesday, December 23, till 11:59pm Moscow time Tuesday, December 30.

Pavel Danilin

VP, Corporate Finance and Investor Relations

Tel. +7 812 334 3666

E-mail: danilin@polymetal.ru

Website: www.polymetal.ru

***

This release includes statements that are, or may be deemed to be, "forward-looking statements".  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.  Many factors that could cause the Company's actual results, performance or achievements to differ materially from those expressed in such forward-looking statements. These forward-looking statements speak only as at the date of this release.  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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