Polymetal’s 2006 Net Income up 3.5 Times Year-on-Year to $61.7 Million

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JSC "Polymetal" (LSE, MICEX, RTS: PMTL) ("Polymetal" or the "Company"), today announced its US GAAP audited consolidated financial results for the year ended December 31, 2006.

HIGHLIGHTS

Adjusted EBITDA represents EBITDA adjusted for minority interest and foreign exchange gain or loss

• Gold production was 256 thousand ounces in 2006, 5.3% higher than in 2005. Silver production was 17.3 million ounces, down 8.5% due to anticipated lower silver grades at Dukat, Lunnoye, and Khakanja.
• Revenues increased by 32.1% to $315.6 million. Silver sales accounted for 51.0% and gold sales- for 48.7% of the total revenues.
• Average realized prices were $603.3 per ounce of gold and $9.33 per ounce of silver. The gap between average silver realized and London fixing prices is due to hedging agreements entered into in December 2004 and expiring in November 2007.
• Total cost of sales increased by 25.8% to $171.3 million, mainly driven by increases in the volume of ore processed, dollar YoY inflation in Russia of 14%, and increased depreciation. Cash cost of sales (COGS less depreciation and depletion) rose by 18.8% to $131.9 million.
• Net income grew by 250.5% from $17.6 to $61.7 million. Adjusted EBITDA increased by 44.4% from $93.0 to $134.3 million. Adjusted EBITDA margin in 2006 was 42.6% compared with 38.9% in 2005.
• Audited gold and silver JORC compliant reserves as at December 31, 2006, based on $450 gold and $7 silver prices were, respectively, 3.7 and 416.3 million ounces.
  Polymetal defined and started to execute its medium-term growth strategy. Dukat expansion, Voro expansion, and Albazino greenfield mine are expected to produce 50% growth in both gold and silver output by 2010.

"2006 was a good year for the Сompany" said Vitaly Nesis, CEO of Polymetal, "as we were able to control cost pressures and identified ambitious yet achievable growth targets for Polymetal".

PRODUCTION AND REVENUES
Revenues from gold sales increased from $100.5 million in 2005 to $153.8 million in 2006, demonstrating a 53% growth resulting from both higher gold prices and increased total production. Average realized gold price in 2006 was $603.3 per ounce - up 40.5% from the previous year's realized price of $429.4 and almost in line with the 2006 average London fixing price of $603.5. Total gold production grew by 5.3% to 256 thousand ounces:

The most significant production growth was achieved at Voro due to ramp up of the CIP processing plant; it was partially offset by decreased production at Lunnoye and Khakanja due to lower grade ore.
Revenues from sales of silver grew 18% from $136.5 million in 2005 to $161.1 million in 2006. The 8.5% decline in production was outweighed by average realized price of $9.3 per ounce that was 29.2% higher than the average realized price of $7.2 in 2005.

Production dropped at Dukat, Lunnoye, and Khakanja due to lower silver grades according to the life-of-mine plan.
In both 2006 and 2005, silver sales represented more than half of the Company's revenues, although in 2006 the relative contribution of silver slightly dropped from 57.1% to 51.0% of the total revenues. Gold sales accounted for 42.0% and 48.7% of the total revenues in 2005 and 2006, respectively.

HEDGING AGREEMENTS
Unlike average realized price of gold, average realized price of silver ($9.3 per ounce in 2006) was lower than average London fixing price ($11.6 per ounce in 2006). It resulted from the Company's prior commitment to deliver part of its 2005-2007 silver production to Standard Bank London ("SBL") at pre-determined prices. This commitment ("Hedging Agreements") was imposed by the Syndicated Term Facility Agreement entered into with SBL in December 2004.
Under the Hedging Agreements, for each of the years 2006 and 2007, the Company would have to sell a minimum of 9 million and 13.9 million ounces of silver, respectively, at average prices of $7.81 and $7.79 per ounce.
On December 28, 2006, the agreement on sales of metal with SBL was novated resulting in changes of one of the parties to the agreement and of the amounts of metal sales commitments. ABN Amro became a new party to the agreement instead of SBL.
Without the Hedging Agreements, Polymetal's revenues, should it have sold its silver output at market prices, would have been approximately $40 million higher in 2006. Based on the current silver prices, the Company estimates that in 2007 unrealized revenues due to Hedging Agreements will be approximately $60 million.
The last shipment of silver under the Hedging Agreements will occur in November 2007. After that, Polymetal does not plan to enter into any agreements limiting upside potential of gold and silver sales prices.

COSTS
In 2006, total cost of sales increased by 25.8% to $171.3 million from $136.2 in 2005. As a percentage of revenues, cost of sales decreased from 57.0% in 2005 to 54.3% in 2006. The increase in cost of sales was mainly driven by domestic inflation, increased processing volumes as well as increased depreciation and depletion resulting mostly from asset write-up following acquisition of the minority stake in Khakanja.
Significant increase in the Company's SG&A resulted from rising salaries, greater headcount at the head office, particularly in new projects development and exploration group, and an increase in professional fees for the auditors and consultants. Growth of other expenses was related to banks' fees for organization of loan facilities for operating subsidiaries. Appreciation of the Russian rouble against the US dollar of 4.2% and the domestic inflation rate of 9.8% during 2006 (both numbers year-on-year) contributed to an overall increase in costs.
Breakdown of cash costs per ounce among the operating subsidiaries is represented in the following table:

The bulk of total cash cost per ounce increases were due to decline in grades of processed ore: сash costs per ton of ore processed increased by only 2.2% from $51.1 in 2005 to $52.2 in 2006.
Despite continued cost pressures resulting from inflation and growing energy prices, the Company demonstrated its ability to deliver on cost containment initiatives, including continued automation of its processing plants, outsourcing, and integration of supply chain management.

EXPLORATION
Polymetal spent a record $15.8 million on exploration in 2006. The Company's exploration portfolio as of December 31, 2006 includes sixteen licenses covering an area of approximately 3,100 sq. km. Polymetal remains firmly committed to increasing the size of its reserve and resource base.
In 2007 Polymetal expects significant positive results at Galka (JORC resource audit results released in June), Albazino (resource update expected in December), and Dukat flanks (independent reserve audit for one of the targets, Nachalnoe-2, expected in October). The Company plans to expand its regional exploration campaigns around Khakanja and Voro and will carefully consider new opportunities for stand-alone exploration projects although the focus will mostly be on advancing the existing assets towards feasibility and production.
The goal is to double the gold-equivalent JORC-compliant resource base to 25Moz by 2009.

CAPITAL EXPENDITURES
In 2006, Polymetal launched several projects that will expand its total ore processing capacity and precious metals output.
Total investment into the Omsukchan processing plant capacity expansion project and the related extensive exploration of the Dukat flanks is estimated at approximately $50 million. The planned capacity of 1.5 Mtpa of ore along with improved recovery is expected to be achieved in 2008, which will result in production of an additional 6 million ounces of silver annually. In 2006, $10.8 million was spent, mostly for equipment purchases and construction of a new tailings storage facility.
In 2006, Polymetal started the Voro expansion project. By investing $10-$12 million into the new equipment and re-design of existing facility areas, the Company plans to expand the plant's ore processing capacity from the current level of 500 Ktpa to up to 940 Ktpa by the end of 2009, which will lead to additional annual production of 30-40 Koz of gold.
In July 2006, Polymetal acquired Albazino Recourses LLC, the Albazino gold deposit license holder, for $7 million. According to preliminary estimates, total investment in the mining and concentration complex construction will amount to $150-200 million. In 2007 the Company plans to invest $6 million in pre-construction activities and expects to start producing gold at the new plant in 2010 at an estimated annual rate of 200-250 Koz.
Other significant capital projects undertaken in 2006 included launch of Arylakh, a satellite deposit of Lunnoye; start of construction of underground mine at Lunnoye; construction of railway haulage at Dukat underground; commissioning of dragline for spent pad rehandle at Voro.

JOINT VENTURES
In 2006, Polymetal announced a strategic alliance with AngloGold Ashanti for project development in the fields of exploration, acquisition and development of gold deposits in Russia. The 50/50 joint venture will be incorporated in July 2007 in St. Petersburg. AngloGold Ashanti will contribute the advanced Veduga project with approximately 2.8 million ounces of gold mineral resources as well as the Bogunay exploration project, both located in the Krasnoyarsk Region. Polymetal will contribute Anenskoye in the Krasnoyarsk Region and APU in the Chita Region and pay $12 million to match the value of the assets provided by AngloGold Ashanti. Polymetal expects to benefit from the alliance by exchanging technical knowledge (grass roots exploration techniques and refractory ore processing) with a more experienced in these areas company, offering in exchange unparalleled practical expertise of developing projects in Russia's unique environment.

Polymetal continues to work closely with various branches of the Mongolian Government on trying to resolve the situation around its JV with MongolRosTsvetmet at the Asgat deposit. Unfortunately no positive forecasts can presently be made although the Company continues to try to get involved in the development of this project, potentially through a changed JV structure.

LIQUIDITY

Cash flow from operations decreased by $53.6 million to $29.1 million due to increase in working capital which totaled $59.4 million in 2006 and resulted from higher work-in-progress inventory. Higher inventory mostly resulted from stockpiling ore ahead of expanding processing plants at Dukat and Voro a well as from stocking up exploration projects located in remote locations with spares and consumables for the exploration season of 2007.

The company spent $60 million on capital expenditures in 2006 and paid $85 million in cash for minority interest, mostly to Khakanja shareholders. The company now owns 100% in each of its operating subsidiaries.

Total debt and capital lease liabilities as on December 31, 2006, was $411 million, more than 70% of which was repaid following the Company's IPO.

2007 OUTLOOK AND GUIDANCE

Production in 2007 is expected to remain stable, within the ranges of 230-250 thousand ounces of gold and 16-18 million ounces of silver.
The Company expects total cash cost per ounce of silver to increase by 10-15% to $5.50-$5.75 on a co-product basis, of gold - by 15-20% to $300-330.

Capital expenditures will be $60-65 million, of which $25 million will be spent on exploration.

CONFERENCE CALL

On Tuesday, June 26, 2007 Polymetal will hold a conference call hosted by Vitaly Nesis, CEO of Polymetal.

The conference call will take place at 6pm Moscow time (3pm London time; 10am New York time).

Dial in number: +44 (0) 20 7153 9902
Meeting number: 213528

A recording of the conference call will be available by dialing +44 20 7154 2617 immediately after the end of the call for one week.

Polymetal's consolidated financial statements for the year ended December 31, 2006 and 2005 are available on the Company's website at www.polymetal.ru

IR Department
Polymetal 

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