Polymetal Announces Q2 2008 Production Results

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Saint-Petersburg, Russia, July 23, 2008 - JSC "Polymetal" (LSE, MICEX, RTS: PMTL) ("Polymetal" or the "Company"), announced its production results for the quarter and six months ended June 30, 2008.

HIGHLIGHTS

• Quarterly gold production increased 32% compared to Q2 2007 due to improved grades at Dukat, Voro, and Khakanja and increased tonnages at Voro and Dukat. Silver output declined quarter-on-quarter due to lower grades at Dukat and Lunnoye, but grew by 11% in the first half of 2008 compared to the same period in 2007
• Successful completion of first stages of expansion projects at both Dukat and Voro enabled record processing volumes to be achieved at both operations
• Higher production coupled with higher realized gold and silver prices (mostly due to full elimination of hedge position earlier this year) led to a 90% increase in revenues
• Polymetal reiterates its 2008 production target of 250-270 Koz of gold and 17-18 Moz of silver as well as mine EBITDA margin target of at least 50%

"We are starting to deliver on our expansion projects while continuing to focus on cost performance by concentrating on grade as the key profitability driver", said Vitaly Nesis, CEO of Polymetal. "In 2008 we expect to demonstrate the strongest operational and financial performance in Polymetal's history".      

OPERATING MINES

  Successful and timely integration of the new SAG mill into production circuit (representing the first stage of the Dukat expansion project) was the key driver of Dukat performance during Q2 2008, when the processing plant operated at the annualized rate above 1 million tonnes. Specifically, throughput increased 16% Q-on-Q and 19% H-on-H to 260Kt and 499Kt, respectively, which made it possible to add previously unutilized lower silver grade ore from the stockpiles to the feed with a benefit to overall economics of the operation. Both a 16% decrease in waste mined and a 22% increase in underground development resulted from continuous effort to increase productivity of the existing underground mine to 900Ktpa and access higher grade ore bodies underground. Since all equipment for the 1.5Mtpa expansion project is either delivered on site or in transit, the Company still plans to commission the project by the end of 2008 and achieve the design capacity during the first half of 2009. Mining at Nachalnoye-2 is expected to commence in early 2009. Drilling at Perevalnoye (another target at the Dukat Flanks) is continuing and Polymetal aims to publish Perevalnoye JORC-compliant resource statement in December 2008.

  Consistent reduction in both waste and ore mined during Q2 2008 results from complete switching of open pit mining operations from Lunnoye to Arylakh, a satellite mine with lower gold and higher silver grade ore. Underground development at Lunnoye continued to grow with the goal to bring first stopes into production in Q3 2008. Decreased processing volumes during Q2 2008 were caused mostly by re-lining of the SAG mill that occurs every 6 months and takes approximately 8 days to complete.

  In line with the mining plan, gold grades at Khakanja continued to improve during the second quarter as a result of processing ore mined from the second pit and adding ore mined from Yurievskoye (Khakanja satellite) to the feed. Second pit at Khakanja is expected to be completely mined out in Q3 2008. Overburden removal from the third pit commenced ahead of schedule, which resulted in a 19% increase of waste mined. As both processing rates and gold recoveries remained stable, higher gold grades resulted in equal gold production growth (by 44% quarter-on-quarter and by 41% compared to 1H 2007). Similarly, silver output fell as a result of lower silver grades (higher gold and lower silver grades are characteristic for Yurievskoye ore).

  Due to a higher percentage of oxidized low-density overburden mined in Q2 2008 compared to Q2 2007, waste tonnage decreased 30% while volumes of waste in cubic meters remained relatively unchanged. Expanded CIP plant, after commissioning of the SAG mill, operated at the annualized rate of more than 0.6 million tonnes.  The resulting 24% increase in processing volumes coupled with a significant improvement in grades (achieved as a result of the comprehensive grade control program) led to a 56% quarter-on-quarter production increase (to 29Koz) at the CIP plant. Declined grades in the oxidized ore were compensated by increased processing volumes (as a result of improved productivity of the oxidized ore crusher), which made production at the heap leach facility effectively stable compared to Q2 2007. Mining of higher grade oxidized ore at the Southern Voro flank is expected to commence in Q3 2009. Expansion of the CIP processing plant is on track to be completed on-time, i.e., in Q4 2008.

DEVELOPMENT PROJECTS

Albazino In June 2008, Polymetal announced the results of a Feasibility Study demonstrating that the project is technically feasible and can be economically developed as an open-pit operation with a 1.5Mtpa conventional flotation plant and a pressure oxidation ("POX") facility. Probable Reserves amounted to 2.1 million ounces (approximately 62 tonnes) of gold contained within 15.1 million tonnes at an average grade of 4.3 grams per tonne. The documents necessary for putting statutory mineral reserves on the state balance are being prepared. Statutory reserve confirmation, which is necessary for the project's approval by the state, is expected to be issued by the State Reserve Commission ('GKZ') in Q4 2008. All permitting procedures should be completed by Q1 2009.

The Company has already ordered or contracted some long lead time equipment items, such as SAG and ball mills, diesel generator sets, tanks for diesel fuel warehouse, and hired infrastructure development contractors to upgrade automotive roads connecting Albazino and river port Oglongi and to design and build a man camp on site. Polymetal also engaged SNC Lavalin, a Canadian engineering company, to perform detailed design of the autoclave that will be the essential part of the Amursk POX plant. 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 Q2 2008, 10,007 meters have been drilled at Albazino (19,264 meters - during 1H 2008). It is planned to drill about 33,000 meters during the year, however, this target is likely to be reviewed and increased. Currently, four drill rigs are working at Anfisa and Olga ore bodies. Drilling at Ekaterina, the third out of six initially identified targets, is expected to commence in Q3 2008. Polymetal is planning to release the next update on Albazino resource in December 2008.

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 During the second quarter, 4,583 meters have been drilled at Birkachan (the closest to the processing plant and the most prospective deposit in the recently acquired from Kinross Gold Corporation Kubaka package). Since the Kubaka exploration program approved earlier this year includes only 7,200 meters of drilling for 2008, this number is likely to be reviewed and increased. Polymetal is planning to publish Birkachan JORC-compliant resource statement in Q1 2009. Additionally, Polymetal Engineering is estimating the possibility of seasonal heap leaching of low-grade Birkachan material (that was never considered economic by Kinross in the then prevailing gold price environment). Technological testing is being conducted both on site and in the labs at Polymetal's headquarters; scoping study results are planned to be released in Q3 2008.

CONFERENCE CALL   Polymetal will hold a conference call on Wednesday, July 23, 2008 at 5:30pm Moscow time (2:30pm London time; 9:30am New York time).   To participate in the call, please dial:    +1 8...   (toll-free from the US), or    +1...   (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 955081, from 07:30pm Moscow time Wednesday, July 23, till 11:59pm Moscow time Wednesday, July 30.      

Pavel Danilin VP,

Corporate Finance and Investor Relations

Tel.: (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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