Polymetal Announces Q3 2008 Production Results

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Saint-Petersburg, Russia, October 20, 2008 - JSC "Polymetal" (LSE, MICEX, RTS: PMTL) ("Polymetal" or the "Company"), announced its production results for the quarter and nine months ended September 30, 2008.

HIGHLIGHTS

• Quarterly gold production increased 14% compared to Q3 2007 mostly due to excellent grade control initiative implementation. For the first time since 2002 gold revenue was more than 50% of total revenue
• Silver production declined by 7% due to lowering cut-off grades resulting from higher silver prices in the beginning of the year. Due to rapid silver price decline in August/September 2008, the Company is re-examining the cut-off policy at Dukat which may negatively impact total silver production in 2009-2010 compared with previous guidance by c.2Moz per year
• In spite of financial crisis, both Dukat and Voro expansion projects remain on track for planned completion. However, Polymetal is reviewing exploration and maintenance capital spending for 2009 to ensure adequate capital availability for Albazino/Amursk as the priority project
• The refreshed guidance for 2008 is 260-280 Koz of gold and 16.5-17.5 Moz of silver
• The Company sets 280-300 Koz of gold and 17-18 Moz of silver as a guidance for 2009

"We continue to implement our growth program in the face of financial crisis", said Vitaly Nesis, CEO of Polymetal. "Our investment already led to strong performance in gold and Polymetal remains firmly on track for further disciplined expansion".

OPERATING MINES

The key event at Dukat was commissioning of the centralized underground railway haulage system which led to a slight decline in volumes of underground ore mined quarter-on-quarter but paves the way to increased productivity of the underground mine to 900Ktpa and ore transportation costs savings of approximately US$2m per year. As a result of a significant spike in silver price in the beginning of the year a decision was made to decrease cut-off grades at the mine as well as to add previously stockpiled lower-grade ore to the feed, which explains an 11% decline of silver head grades to 417g/t quarter-on-quarter. At the same time, as lower-grade ore is technologically simpler, a meaningful improvement of recoveries was achieved. Due to a drastic decline of silver prices in the third quarter, however, the Company is now reviewing the option of increasing cut-off grades at the mine. Although the Dukat expansion project is still expected to be commissioned by the end of 2008, the actual volumes of ore processed through the plant will be a function of future silver prices. If the price environment remains unfavorable as it is today, the Company might not be able to ramp up to full 1.5Mtpa in 2009-2010 as there is not enough high-grade open pit ore. Open-pit mining at Nachalnoye-2 (one of the targets at the Dukat Flanks) is still expected to commence in 2009, however, Perevalnoye JORC-compliant resource statement will be delayed since the mining concept of this ore body needs a further definition (due to sharp decline in silver and zinc prices underground mining may be favored to open pit bulk mining).

At Lunnoye, underground mine construction is nearing completion as evidenced by a 267% growth in meters of underground development quarter-on-quarter. In fact, mining at the first stope began in mid-October. Polymetal is planning to mine approximately 30Kt in Q4 2008 and reach the design productivity of the underground mine of 150Ktpa in 2009.

Higher gold and silver grades were driven by successful blending of the Arylakh ore (which constitutes the dominant portion of the feed) with the remaining stockpiles from the Lunnoye open pit (mining there was completed in Q2 2008). Arylakh is a satellite mine with lower gold and higher silver grade ore (than at Lunnoye).

Increased recoveries compared with Q3 2007 are explained by commissioning of the two additional leaching tanks last year as well as full automation of the comminution circuit (ore-water). Reagent preparation section is expected to be fully automated in 2009 which should contribute to further recoveries improvement.

As mining at the second pit at Khakanja is expected to be completed in Q4 2008, stripping at the third pit is in full swing, which explains both a significant (by more than 80%) increase in waste amounts and a reduction in the volumes of ore mined.

From the beginning of the year, more than 20Kt of ore mined at Yurievskoye (Khakanja satellite with higher gold and lower silver grades) was added to the feed of the processing plant. Mining at Yurievskoye will continue at least up to 2011 inclusive. Though mining at Yurievskoye is year-round, transportation of the ore mined there to the plant is seasonal as the winter road functions from January to April. During the season of 2009, it is planned to transport approximately 90Kt of Yurievskoye high-grade ore to the processing plant which, through a higher proportion compared to 2008, should benefit gold grades.

In Q3 2008, grades in both oxidized and primary ore remained strong whereas throughput of the CIP plant continued to increase. Expansion of the CIP plant (which is currently operating at the above 0.6Mtpa rate) is expected to commence in late December. As at the end of the third quarter, all equipment being part of the project (leaching tanks, filter presses, a thickener) was more than 80% assembled.

Since acquisition of Degtyarskoye in August 2008 the Company has already completed 3,000 meters of drilling, the results of which led to a successful confirmation of reserves calculated in the statutory feasibility study by the previous owner (of c.0.6Mt at 5.3g/t for 0.1Moz of gold). It is planned to undergo all regulatory procedures, receive permitting documentation, and commence mining at Degtyarskoye in 2009. Ore will be transported to Voro where it will be processed at the existing facilities.

As zinc and silver prices fell dramatically, Polymetal made a decision to stop drilling at Galka (a polymetallic deposit with the resource of 1.5Moz of gold equivalent located 26 kilometers to the west of Voro), not to update the resource statement this year, and to review strategic alternatives for this property

DEVELOPMENT PROJECTS

Albazino/Amursk Polymetal continued to progress on the development of Albazino/Amursk, a key priority project. Construction works on upgrading of the automotive road connecting Albazino and river port Oglongi (c.120 kilometers), building fuel depot in Oglongi, and the man camp on site all started in Q3 2008. A contract with a total value above US$10m with Modern Machinery, a Komatsu dealer, was signed for delivery of the mining fleet in 2009.

In Q4 2008 the Company is planning to determine a tender winner and sign a contract for construction of the oxygen plant, being one of the key elements of the Amursk POX facility. The documents necessary for putting statutory mineral reserves on the state balance were filed with the relevant authorities. Statutory reserve confirmation, which is necessary for the project's approval by the state, is still expected to be issued by the State Reserve Commission ('GKZ') in Q4 2008. Polymetal is continuing its exploration effort on site targeting to increase Albazino resource base to at least 3Moz (93 tonnes) of gold by the end of 2008. In Q3 2008, 9,649 meters have been drilled at Albazino (28,914 meters - during nine months of 2008). Drilling at Ekaterina, the third out of six initially identified targets, commenced in Q3 2008. Polymetal is planning to release the next update on Albazino resource in December 2008 (unaudited) and reserves - in June 2009 (audited).

Polymetal views the Amursk POX facility as a potential processing hub for refractory concentrates from across the Far East of Russia hosting a number of refractory gold deposits which are not being developed due to the absence of viable processing technology. Detailed design of both Albazino concentrator and Amursk POX facility is being performed with a view to be able to double processing capacity of each of the plants. Polymetal plans to begin construction of Albazino concentrator and Amursk POX plant in 2009, and generate first gold in Q4 2010.

Kubaka

The initially approved exploration program at Birkachan (the closest to the processing plant and the most prospective deposit in the acquired from Kinross Gold Corporation Kubaka package) has been reviewed and increased from 7,200 to 11,000 meters in 2008. As at the end of the third quarter, 8,200 meters have been drilled at Birkachan. Polymetal is still planning to publish Birkachan JORC-compliant resource statement along with the detailed timeline in Q1 2009. The results of technological testing of Birkachan ore conducted both on site and in the labs at Polymetal's headquarters showed up to 40% recovery in an 8-9 weeks trial, which means that the high potential of the dump leach technology at this property is confirmed.

CONFERENCE CALL   Polymetal will hold a conference call on Monday, October 20, 2008 at 5:30pm Moscow time (2:30pm London time; 9:30am New York time).   To participate in the call, please dial:   +1 800 230-1096   (toll-free from the US), or   +1 612 ...  (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 ... (international), access code 966154, from 07:30pm Moscow time Monday, October 20, till 11:59pm Moscow time Monday, October 27.      

Pavel Danilin VP, Corporate Finance and Investor Relations Tel.  +7812 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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