OREANDA-NEWS. January 27, 2010. JSC “Polymetal” (LSE, MICEX, RTS: PMTL) (“Polymetal” or the “Company”) announced its production results for the quarter and the full year ended December 31, 2009, reported the press-centre of Polymetal.

Quarterly gold production jumped 35% as the expanded Voro CIP plant reached its design capacity, grades at Khakanja increased, and first two months of production from Varvarinskoye were booked to Polymetal's account. Without Varvarinskoye, annual gold production was 298 Koz. This is in line with both the initial (October 2008, 280-300 Koz) and the updated (October 2009, 290-300 Koz) guidance. With Varvarinskoye, annual gold production was 311 Koz

Full year silver output grew by 1% to 17.3Moz in line with both the initial (October 2008, 17-18 Moz) and the updated (October 2009, 17-17.5 Moz) guidance

Construction at Albazino-Amursk, the Company’s key priority project, continues on schedule with the target to receive first ore in Q2 2010 and commission the flotation concentrator at Albazino in Q4 2010 and the POX plant in Amursk in Q2 2011

Development at Omolon and Maiskoe is continuing with feasibility studies results and detailed development plans for these assets are expected to be released in March and April of 2010 respectively

Taking into account contribution from Varvarinskoye, the Company’s updated target for 2010 is to produce 430-450 Koz of gold, 19-20 Moz of silver and 4.0-5.0 Kt of copper, or 775-800 Koz of gold equivalent (based on 1:60 Ag/Au and 5:1 Cu/Au conversion ratios)

“2009 was a pivotal year in the Company’s history,” said Vitaly Nesis, CEO of Polymetal.

“We successfully grew our production organically via expansions at the existing operations and, more importantly, significantly expanded our asset base through disciplined acquisitions of strategically attractive projects. The successful development of these projects, together with Albazino-Amursk, is expected to double our gold equivalent production and will be the key priority of the management team in 2010”.

Silver production at Dukat in the fourth quarter fell by 12% due to lower head grades and recoveries as mostly lower grade ore with inferior metallurgy from the stockpiles was fed to the processing plant during commissioning of its expansion. Annual silver production decreased by 5% in spite of a 6% increase in grades due to lower throughput and recoveries, which resulted from the above-mentioned commissioning issues. The ramp up of the plant is complete and the design capacity of 125 Kt per month is expected to be achieved in Q1 2010.

Volumes of underground mining at Dukat continue to grow (3% quarter-on-quarter and 21% year-on-year) with the goal to reach the design capacity of the underground mine of 900 Ktpa in the first half of 2010. In 2010, it is planned to mine 850 Kt of ore from the underground and 400 Kt – from the open pit.

Underground development at Goltsovoye is accelerating with the goal to bring first stopes into production in Q3 2010 and to mine and process at the Dukat plant 70 Kt of ore during 2010.

At Lunnoye, gold production declined 44% quarter-on-quarter and 8% year-on-year while silver production increased by 14% and 10% respectively due to processing of mostly higher-grade silver and lower-grade gold ore from Arylakh, a satellite mine. In 2010, both the throughput and recoveries are expected to remain stable whereas grades are expected to pick up according to the underground mine development plan.

KHAKANJA
Khakanja demonstrated a very strong quarter with gold and silver production up 27% and 85%, respectively. Gold production increased mostly as a result of processing of high-grade Yurievskoye ore which commenced earlier than planned due to favorable weather conditions (winter road became operational as a result of winter coming earlier than expected). Silver production grew as ore metallurgy became more favoravle with increased pit depth.

Annual gold production remained flat and silver production grew by 33% on the back of stable processing volumes and recoveries and higher silver head grades.

2010 is expected to be the peak year for Khakanja in terms of gold and silver output due to a record contribution from Yurievskoye: it is planned to mine, transport and process approximately 140 Kt of ore from this satellite mine which should materially improve average grade of the Khakanja plant feed compared to 2009.

VORO
Voro achieved record quarterly and annual gold production as the expanded CIP plant ramped up to its full design capacity of 900 Ktpa. Primary ore throughput increased 30% quarter-on-quarter and 32% year-on-year which led to a 34% increase in the quarterly and a 19% increase in the annual production of gold from the primary ore.

Gold production from the oxidized ore during the year remained effectively stable (33.1 Koz as compared to 32.8 Koz in 2008) despite higher volumes of stacking (+1% to 938 Kt) and higher grades (+11% to 1.7 g/t) due to lower recoveries as some of the excess metal remains in the higher-grade ore heaps stacked in 2009 and is expected to be recovered during 1H 2010. Mining of oxidized ore form the southern pit is expected to commence in Q2 2010.

Mining at Degtyarskoye continued with 152 Kt of ore mined during 2009. Most of this ore was transported to Voro, but only 7 Kt was test-processed at the CIP plant in October and the rest was stockpiled. As the recoveries resulting from this test proved to be encouraging, this ore will be processed at the Voro CIP plant during 2010. On top of that, about 200 Kt of ore is planned to be mined at Degtyarskoye and processed at the Voro CIP plant during the year.
 
VARVARINSKOYE
At Varvarinskoye, there are two distinct ore types based upon their copper contents: High Grade Copper Feed containing more than 0.2% copper (“HGCF”) and Low Grade Copper Feed containing less than 0.2% copper (“LGCF”).

HGCF is treated by flotation to maximize both copper and gold recovery; the final product of this process is a gold copper concentrate. LGCF is treated by direct cyanide leaching. The tailings from the HGCF flotation circuit are thickened and combined with the product from the LGCF milling circuit and are processed in a conventional CIL circuit. The final product of this process is gold dore.

As the acquisition of the Varvarinskoye was completed on 30 October 2009, Polymetal reports the Varvarinskoye production results on the attributable basis, i.e. only for the months of November and December 2009.

After assuming control over Varvarinskoye on October 30 2009, Polymetal has undertaken a number of initiatives aimed primarily at improving grade and recovery at the operation. Currently the new management team at the mine, together with Polymetal Engineering, is working to develop the new mine plan and update ore reserves estimate. This work should be completed in Q3 2010. Importantly, Varvarinskoye generated approximately US 3 million of free cash flow (after CapEx) in December, the best monthly result in the mine's history.
 
ALBAZINO-AMURSK
Pre-stripping at Albazino pit 1 continues on schedule with 2 Atlas Copco drill rigs, 2 Komatsu excavators, 3 Komatsu and Caterpillar bulldozers, and 4 90-ton Komatsu trucks working on site. Polymetal is on track to commence ore mining in Q2 2010 with the goal to mine 300 Kt of ore in 2010.

Construction of the flotation concentrator at Albazino is in progress with all foundations and infrastructure completed and the work now being focused on the erection of the structural steel frames. Key processing equipment is continuing to arrive on site with the plan to commence its installation, together with pipelines, in Q2 2010. Polymetal plans to start commissioning of the plant in September 2010.

The construction of the POX facility to treat concentrates from both Albazino and Mayskoye is also in progress. Earth and foundation works have commenced in Q1 2010. Structural steel works are scheduled for Q2 2010, installation of processing equipment – for Q3 and Q4 2010, and commissioning of the plant – for Q2 2011.
 
MAYSKOYE
At Mayskoye, underground ramps have successfully accessed first production level. Ongoing in-fill drilling confirmed continuity, grade, and thickness of main ore bodies. Construction of water reservoir and tailings impoundment has started. Certain large-ticket long-lead equipment items have been contracted, including SAG mill and underground mining fleet.

Polymetal plans to release the key findings of detailed feasibility study along with the JORC-compliant reserve estimate in April of 2010.
 
Mining at Sopka is continuing with the ore being stockpiled on site. In 2010 it is planned to mine and stockpile 170 Kt of ore. Transportation of this ore to Kubaka and its processing at the plant is scheduled for 2H of 2011. All key equipment needed to construct the Merrill Crowe section at the Kubaka plant, necessary to process high-silver ore from Sopka, has been contracted with deliveries starting in Q2 2010 by winter road.

During 2010 Polymetal plans to build a road connecting Sopka with the port of Evensk (103 kilometers) and commence construction of the winter road connecting Sopka with Kubaka (180 kilometers).

In Q2 2010 the Company is planning to start mining at Birkachan with the target to mine 600 Kt of ore during the year. Low-grade portion of this ore will be mixed with the stockpiles and stacked with the goal to add to the heap leach production (the trial heap was stacked and yielded first gold in 2009).

Higher-grade portion of the Birkachan ore will be transported to and processed at the Kubaka plant in the second half of the year. The all-year road connecting Birkachan and Kubaka (37 kilometers) will be upgraded during the first half of the year.
 
EXPLORATION
In response to the decline in gold and silver prices in 2H 2008, Polymetal drastically reduced exploration spending and discontinued several greenfield projects, concentrating on brownfield near-mine exploration. In 2009 the Company completed only 53 kilometers of exploration drilling compared with 117 kilometers in 2008, a decline of 55%. In 2010 the Company plans to resume investment in early-stage projects and drill 88 kilometers. Polymetal targets at least 3 multi-million ounce projects will reach resource-definition stage in 2011.
 
PERSONNEL
Nikolay Goncharov, 44, was appointed MD of Varvarinskoye. Mr. Goncharov graduated from the Irkutsk Polytechnic Institute with a degree in open pit mining in 1987. Before joining Polymetal in 2009, Mr. Goncharov worked in coal mining, rising to the position of the managing director of Borodino open-pit mine, the largest coal mine in Russia with production of 25 Mtpa.
 
LIQUIDITY
In November and December 2009 the Company successfully refinanced all of its short-term debt thus decreasing its cost and significantly extending its maturity profile. Without taking into account Varvarinskoye liabilities, weighted average margin over LIBOR of the resulting portfolio is approximately 5.8% per annum and weighted average duration exceeds 18 months. In addition to that, Polymetal has undrawn credit lines for the total amount of US220 million. Given such a material improvement of its liquidity position, the Company is no longer planning a potential offering of its shares in the near term.