Polymetal is pleased to announce first quarter production results (for the period ending March 31st)
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According to Q1 2007 results, ore mined increased 8.1% to 644 th. tons compared to the same period in 2006. The volume of ore mined by underground operations increased 16.1%; whereas open-pit mining rose 5.8% compared to the comparable 2006 period.
Underground mining accounted for 21.3% of the total volume mined in the first quarter of this year - up from 19.8% in Q1 2006. The Company expects an increase in the share and volume of underground mining in coming years as the Lunnoye deposit transitions from open-pit to underground mining.
The volume of ore processed in the reported period increased 13.1% to 502 th. tons. The positive dynamics were due to significant increases in ore processed at both the Vorontsovskoye and Khakanja deposits.
Based on first quarter 2007 results, Polymetal's gold production dropped 4.7% (compared to the same period in 2006) to 55.6 th. oz., which was primarily due to a significant 37.1% drop in gold production at Khakanja. The Company believes that this drop, which was forecast, can be attributed to mine sequencing at the deposit. Silver production fell to 3,554 th. oz. (a 16.6% fall off from Q1 2006) - primarily due to head grade issues.
| Operating Highlights | Unit | 3 Months Ended | 3 Months Ended | Change 3M 2007 / 3M 2006 |
| March 31st, 2007 | March 31st, 2006 | |||
| Ore mined | th. tons | 644 | 596 | 8.1% |
| open-pit | th. tons | 507 | 479 | 5.8% |
| underground mining | th. tons | 137 | 118 | 16.1% |
| Ore processed | th. tons | 502 | 444 | 13.1% |
| Gold production | th. oz. | 55.6 | 58.3 | (4.7%) |
| Silver production | th. oz. | 3,554 | 4,261 | (16.6%) |
Note: summary figures for all mines; total figures may not match the sum of individual figures because of rounding.
Production overview
Dukat
During Q1 2007, Dukat - the world's third largest silver deposit by reserves - experienced a slight increase in ore mined and a minor shift towards underground mining and away from open-pit. Gold production increased significantly, while at the same time, silver production dropped by a substantial 21.6% to 2,470.8 th. oz.
This drop of almost 22% closely mirrored the decline in average silver head grade from 627 g/t in the first quarter of 2006 to 489 g/t in Q1 2007.
Based on the deposit's life of mine plan, the Company expects that this downturn in silver grade is temporary and that in the future, the head grade (and resulting production levels) will rebound.
| Dukat Operating Highlights | Unit | 3 Months Ended | 3 Months Ended | Change 3M 2007 / 3M 2006 |
| March 31st, 2007 | March 31st, 2006 | |||
| Ore mined | th. tons | 232 | 226 | 2.7% |
| open-pit | th. tons | 95 | 108 | (12.0%) |
| underground mining | th. tons | 137 | 118 | 16.1% |
| Ore processed | th. tons | 195 | 195 | 0% |
| Gold production | th. oz. | 6.7 | 5.1 | 31% |
| Silver production | th. oz. | 2,470.8 | 3,151.5 | (21.6%) |
| Ave. head grade, Au | g/t | 1.1 | 1.2 | (8.3%) |
| Ave. head grade, Ag | g/t | 489 | 627 | (22.0%) |
Lunnoye
The Company's Lunnoye deposit had a strong Q1 - with parameters across the board showing positive dynamics.
Gold production increased 41.8% to 6.1 th. oz. and silver production surged to 737.9 th. oz. (an almost 59% increase from the same period in 2006). This increase was due in part to significant increases in head grade (for both gold and silver) in Q1 2007 relative to Q1 2006.
The first quarter also marked the start of operations at Lunnoye's satellite Arylakh deposit. Arylakh is an open-pit operation with a designed production capacity of 150,000 tpa and a mine life of nine years.
| Lunnoye Operating Highlights | Unit | 3 Months Ended | 3 Months Ended | Change 3M 2007 / 3M 2006 |
| March 31st, 2007 | March 31st, 2006 | |||
| Ore mined | th. tons | 97 | 50 | 94% |
| Ore processed | th. tons | 66 | 61 | 8.2% |
| Gold production | th. oz. | 6.1 | 4.3 | 41.8% |
| Silver production | th. oz. | 737.9 | 465.1 | 58.7% |
| Ave. head grade, Au | g/t | 2.8 | 2.3 | 21.7% |
| Ave. head grade, Ag | g/t | 340 | 262 | 29.8% |
Vorontsovskoye
Total gold and silver production increased significantly during Q1 2007 at Vorontsovskoye, vis-à-vis the same period in 2006. Gold production was up 30.4% to 23.2 th. oz. and silver production reached 16.8 th. oz.
Gold production rose primarily due to a sharp 45.2% increase in primary gold production, while oxidized gold production demonstrated a more modest 6.7% increase.
However, the increase in silver production was entirely due to an almost 79% increase in oxidized silver production. Primary silver production dipped during the first quarter of 2007 to 4.4 th. oz. - an almost 26% decrease. This decrease was due to an almost 37% fall off in the average silver head grade for primary ore to 3.8 g/t.
The Company expects that in the future any declines in head grade at the Vorontsovskoye deposit will be more than offset by economies of scale through increased production capacity.
| Vorontsovskoye Operating Highlights | Unit | 3 Months Ended | 3 Months Ended | Change 3M 2007 / 3M 2006 |
| March 31st, 2007 | March 31st, 2006 | |||
| Ore mined | th. tons | 194 | 136 | 42.6% |
| Ore processed | th. tons | 95 | 76 | 25% |
| Incl. oxidized ore | th. tons | 0 | 0 | 0% |
| Incl. primary ore | th. tons | 95 | 76 | 25% |
| Gold production, oxidized | th. oz. | 6.8 | 6.4 | 6.7% |
| Gold production, primary | th.oz. | 16.4 | 11.3 | 45.2% |
| Silver production, oxidized | th. oz. | 12.3 | 6.9 | 78.8% |
| Silver production, primary | th. oz. | 4.4 | 5.9 | (26%) |
| Total gold production | th. oz. | 23.2 | 17.8 | 30.4% |
| Total silver production | th.oz. | 16.8 | 12.8 | 30.8% |
| Ave. head grade, Au, primary | g/t | 6.7 | 5.9 | 13.6% |
| Ave. head grade, Ag, primary | g/t | 3.8 | 6.0 | (36.7%) |
Khakanja
With the exception of ore processed, all key indicators at Polymetal's Khakanja deposit declined in Q1 2007 compared with the same period from the previous year. These declines, however, were forecast in the Company's life of mine plan.
Gold production fell 37.1% to 19.6 th. oz. and silver production dropped dramatically to 328.8 th. oz. (an almost 48% decline). Both of these production declines resulted from steep declines in head grade. The average gold grade dropped 52.3% to 4.2 g/t and the silver head grade fell 59.3% to 144 g/t.
The drop off in head grade is due to the fact that 2007 is the last year that the Company will process ore at this pit. As a result, the ore quality is significantly lower than the average grade at the deposit. The Company expects that in 2008 when it moves to a new pit that the average grade will significantly increase and that production figures (for both gold and silver) will also move back up.
| Khakanja Operating Highlights | Unit | 3 Months Ended | 3 Months Ended | Change 3M 2007 / 3M 2006 |
| March 31st, 2007 | March 31st, 2006 | |||
| Ore mined | th. tons | 121 | 185 | (34.6%) |
| Ore processed | th. tons | 146 | 112 | 30.4% |
| Gold production | th. oz. | 19.6 | 31.1 | (37.1%) |
| Silver production | th. oz. | 328.8 | 631.6 | (47.9%) |
| Ave. head grade, Au | g/t | 4.2 | 8.8 | (52.3%) |
| Ave. head grade, Ag | g/t | 144 | 354 | (59.3%) |
Expansion overview
During Q1 2007, the Company's scientific and technical review board approved pre-feasibility studies for the expansion of Dukat's production plant to 1.5 mln. tpa. During Q2 2007, Polymetal plans to start work on the project's feasibility study and working drawings.
Polymetal believes that the Dukat expansion will come on line during the second half of 2008.
The Company is also actively moving forward with its expansion plans at Vorontsovskoye, which will increase production capacity at the plant by 50 percent (to 940 th. tpa). The Vorontsovskoye expansion is also scheduled to come on line during the second half of 2008.
Exploration overview
Polymetal continued its three-pronged strategy of actively exploring existing deposits, potential new stand-alone projects and regional campaigns. Exploration is targeted at replacing and expanding reserves at existing mines and finding potentially promising sites to develop.
During the first quarter of 2007, the Company spent approximately $9.5 mln on exploration expenses - which represented a significant increase over figures from the comparable period in 2006 (less than $1 mln).
The Company focused significant exploration activity on the Dukat flanks and the Albazino development project.
The Dukat flanks (license area: Dukat Ore Field) is a potentially promising area surrounding the existing Dukat deposit that the Company believes will be able to increase the deposit's mineral resource base and feed the planned production expansion at the processing plant. Polymetal plans to complete a JORC-compliant resource and reserve audit for a portion of the licensed area in the second half of 2007.
In the reported period, Polymetal continued geological survey at Albazino's flanks - looking to increase the mineral resource base at the deposit and upgrade the current resource categories.
During the reported period, public hearings were held to discuss potential flowsheets for the project and the construction of two processing plants - one [an ore processing plant] located directly on site and the other [a gold processing plant] located in Amursk.
Internal scoping studies suggest that the project may produce from 200-250 th. oz. of gold per year; and the Company believes that the project will come on line during the second half of 2010. Preliminary studies indicate that the project CapEx will be from $150-200 mln.
Hedge overview
A substantial portion of Polymetal's silver production is promised to ABN Amro in 2007 under fixed price, forward sales contracts. This year marks the last year of a "hedge" book that was established in 2004, as a condition for a long-term international syndicated loan.
In 2007, Polymetal is obligated to deliver approximately 13.9 mln. oz. of silver to ABN Amro at a price range of $6 - $8.6/oz.[under min/max price contracts] - which is significantly below the average market price for silver.
During Q1 2007, the Company closed 2.7 mln. oz. of its hedging obligations. Currently, Polymetal is still required to deliver slightly more than 11.2 mln. oz. of silver prior to the end of 2007.
Production guidance
Based on life-of-mine plans [developed in conjunction with SRK Consulting] and production results from Q1, the Company anticipates that its 2007 year-end production will be approximately 230-250 th. oz. of gold and between 16-18 mln. oz. of silver.
International Investor Relations Department
Tel. +7 812 334 3666
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