POG.L Regulatory News (POG)

10 September 2019

Petropavlovsk PLC (the "Company")

Half Year Report for the Period Ended 30 June 2019

Petropavlovsk PLC ("Petropavlovsk", or the "Company" and, together with its subsidiaries, the "Group") today issues its Half Year Report for the period from 1 January 2019 to 30 June 2019 ("H1 2019" or the "Period").

Comments from Sir Roderic Lyne, Non-Executive Chairman

"These are fine results for the half year. The smooth ramp-up of the Pressure Oxidation Hub has been an outstanding success. The Malomir mine now contributes around 40% of the EBITDA derived from our mining operations. Construction has begun on a new flotation line at Pioneer which will double refractory ore processing capacity. Processing of third-party concentrates started in July. The Group is on track to meet the full-year production target set at the start of the year. The target for Total Cash Costs for the year has been revised downward, building on a 6% reduction in TCC and 10% decrease in AISC in H1. Revenues are up. Profits are up.

The Group's large investment in developing its Pressure Oxidation process over the past decade is now bearing fruit. This is one of only two POX Hubs in Russia equipped to process the abundant refractory ores in the country. The successful ramp-up to achieve, by July, recovery rates of 95% is an exceptional achievement for the team at Petropavlovsk under Pavel Maslovskiy's leadership.

A platform has been built for future profitable growth. Petropavlovsk is now positioned to capitalise on higher gold prices and enhance cash generation. The strengthening of the balance sheet through efficient operations and cost control is a key strategic priority for the Board and Management. With a new major shareholder and the successful commissioning of the POX Hub, Petropavlovsk is on the way to becoming one of the leading miners and developers of refractory ores in Russia."

Financial Highlights

§ Gold sales increased 12% to 225.1koz (H1 2018: 201.4koz)

§ Group revenues increased 13% to US$305 million (H1 2018: US$270 million) due to higher volumes of gold sold

§ Average realised gold price♦ of US$1,286/oz (H1 2018: US$1,285/oz)

§ Underlying EBITDA♦[1]rose 37% to US$83 million (H1 2018: US$61 million)

§ Operating Profit♦ of US$3 million increased from a loss of US$24 million H1 2018 due to higher production and lower costs. This is after and notwithstanding a foreign exchange loss of US$14 million due to the strength of the Rouble over the H1 2019 Period

§ Profit of US$14 million in H1 2019 compares to a loss of US$40 million in H1 2018. This includes a net US$38 million of other finance gains and an increase in interest expense of US$14 million

§ 6% reduction in Total Cash Costs ("TCC♦") to US$841/oz (H1 2018: US$899/oz) primarily due to lower TCC at the mines which offset the cost of unused capacity at the Pokrovskiy Pressure Oxidation (POX) Hub and an increase in mining tax rates

§ The Group's share of its associate, IRC, losses increased to US$7.9m (30 June 2018: US$4.8m loss) with the ramp up in operations being more than offset by foreign exchange losses and an exceptional write down of financing costs

§ 10% decrease in All-in Sustaining Costs ("AISC♦") to US$1,029/oz (H1 2018: US$1,138/oz), reflecting the decrease in TCC and lower impairment of non-refractory ore stockpiles

§ Decrease in capex to US$45.0 million (H1 2018: US$67.2 million) reflecting that the major portion of the capex programme on the POX Hub has now been completed

§ 2% decrease in Net Debt♦ to US$557 million (31 December 2018: US$568 million) with cash and cash equivalents of US$39 million

§ Forward contracts to sell an aggregate of c.130koz of gold were outstanding at 30 June 2019 at an average price of US$1,281/oz

Operational Highlights

§ 12% increase in gold sales to 225.1koz (H1 2018: 201.4koz) which includes 61.3koz from the processing of refractory gold concentrate at the new POX Hub

(1) Gold sales at Malomir includes 34.6koz produced via the POX Hub in Q2 2019 and 61.3koz produced in H1 2019

§ Further details on the production performance from each of our mines was provided on 23 July 2019 and can be accessed via this link.

Refractory Gold Processing

POX Hub and Malomir flotation plant

§ All four autoclaves fully functional and working in rotation. Each autoclave can profitably treat third-party and the Company's own concentrates

§ A total of 61.3koz gold was produced in H1 from 76kt of Malomir concentrates grading 29.7g/t during the ramp-up

§ The design rate of 7,000 to 7,500 annual operating hours (per autoclave) has now been achieved for Malomir concentrates

§ H1 average gold recovery rates through the POX plant at 86% for Malomir concentrates as the plant was ramping up

§ In July, gold recovery rates through the POX plant averaged 95% for the first batch of 3rd party material

§ TCC♦[2]for processing Malomir refractory ores (including autoclave processing) were c.US$980/oz in H1 and in line with expectations. This includes maintenance, commissioning and ramp-up costs as well as additional costs relating to concentrates produced at Malomir in 2018. As a result, TCC for processing Malomir refractory ores are expected to decrease in H2

§ Unit processing costs through the autoclaves were c.US$230/t in H1 2019. Due to the high fixed-cost base (currently c.65% of costs are fixed), unit costs are expected to fall in H2 2019 as planned throughput is increased

§ For FY 2019, Malomir is expected to produce a total of c.125kt - 145kt of concentrate at higher grades due higher-grade ore in accordance with the mine plan

§ In total c.200kt - 225kt of refractory ores are expected to be processed through the POX Hub in 2019, including c.40kt - 60kt of third-party material, c.125kt - 130kt of Malomir concentrates produced in 2019 and c.35kt of Malomir concentrates produced in 2018

Third-party refractory concentrates

§ Two batches of third-party materials were secured in H1 2019, including 20kt grading 40-50g/t and 18kt of material grading 65-75g/t

§ The POX Hub began processing a portion of the 40-50g/t material in early July, successfully achieving recoveries up to 95%

§ The Company is in the process of negotiating to secure a further c.20kt - 22kt of third-party concentrate for processing in H2

2019 Guidance

§ The Company remains on track to meet its full-year target of c.450koz - 500koz of gold sales (including the processing of 2018 Malomir stockpiles but excluding upside from third-party concentrate purchases)

§ TCC♦ guidance for FY 2019 has been revised downwards from US$850 - US$950/oz to US$750 - US$850/oz due to strong operational performance, including a smoother-than expected ramp-up of the POX Hub and its planned increase in utilisation in H2

§ Capex of US$45-US$55 million, as per guidance given at the start of the year. This excludes the construction of a new flotation facility at Pioneer, announced on 19 June 2019, which requires additional spending of US$30 million over a 12 - 14 month period, a portion of which falls in 2019

Responsible Business

§ The LTIFR declined by 55% to 1.29 (H1 2018: 2.84). Safety remains a top priority for the Company and, while this demonstrates that our strategy to reduce the number of LTIFRs and accidents is working, our goal is zero harm

§ Water and energy consumption increased by 19% and 75%, respectively as a result of the commissioning and ramp up of POX Hub at the end of 2018

§ Greenhouse Gas Emission (GHG) declined to 1.06tCO2e/oz due to an increase in gold production in H1 2019 compared to H1 2018

§ Zero serious or major environmental incidents occurred during the Period

Development Update

Construction of a new flotation facility at Pioneer

§ Construction of a new flotation facility at Pioneer will double the Group's refractory ore processing capacity from 3.6Mtpa to 7.2Mtpa

§ Initial construction activities commenced in June 2019 with commissioning expected to commence in Q4 2020

§ Capex is now expected to be US$30 million which benefits from previous spending in 2010 and 2011 that included buildings, thickeners and tanks, prior to the project being put on hold

§ Following its restart, key contracts to supply major equipment items have been renewed and processing equipment has begun arriving on site

§ Construction work to date has focused on the heating plant, an extension to the flotation building and on laying foundations for the flotation circuit

Elginskoye deposit at Albyn

§ Extensive in-fill drilling took place to increase the accuracy of near and medium-term mining plans at Elginskoye ahead of the commencement of mining in 2020. The construction of a c.30km all season road between Albyn and Elginskoye was also completed during H1 2019

Exploration Highlights

Pioneer

§ Two drill holes intersected mineralisation 30 to 70m below the pit floor at NE Bakhmut 1, confirming that mineralisation extends well below the current open pit

§ Our technical team is currently evaluating the possibility of deepening the pit shell

Albyn

§ Drilling also confirmed existing reserve estimates and should increase Proven reserves at the mine

§ Resource expansion drilling on the periphery of Elginskoye has extended the known gold mineralisation to the south-west, south-east and north. Outside of the current JORC Resource model, the best intersections were:

− 4.4m @ 5.89g/t

− 4.7m @ 3.92g/t

− 3.4m @ 2.77g/t

− 1.8m @ 4.94g/t

− 4.8m @ 4.86g/t

Malomir

§ Drilling at Osipkan, a satellite of Tokur located 130km away from Malomir, has identified two zones equivalent to Inferred under JORC gold resources, including 97koz (2.5Mt @ 1.23g/t) and 22koz (458kt @ 1.50g/t)

Corporate Matters

Fitch Rating Upgrade to B- with Positive Outlook

§ On 21 August 2019, Fitch Ratings upgraded its Long-Term Issuer Default Rating and senior unsecured rating to 'B-' from 'CCC' with a Positive Outlook, citing:

− a significant strengthening in Petropavlovsk's liquidity position due to the refinancing of the convertible bond;

− repayment of US$57 million in bridge loans by IRC Limited; and

− increased visibility for production due to the launch of the POX plant

§ Fitch stated that the Positive Outlook reflects the "potential for significant deleveraging to take place by end-2020 based on higher production, lower costs, and third-party concentrate increasing the utilisation of the POX hub".

§ Fitch also recognised the important steps the Company has taken towards improved Corporate Governance, stating that the Board now consists of "five non-executive members out of seven, including a non-executive chair".

Refinancing of IRC's project finance facility with Gazprombank

§ On 12 March 2019, Petropavlovsk shareholders approved the Company's proposal to guarantee the obligations of Kimkano-Sutarsky Mining and Beneficiation Plant LLC ("K&S"), a wholly owned subsidiary of IRC Ltd ("IRC"), under two facility agreements with JSC Gazprombank ("Gazprombank") totalling US$240million

§ The new Gazprombank facility allowed IRC to repay in full an outstanding project finance facility K&S had with Industrial and Commercial Bank of China Ltd ("ICBC") and has enabled repayment to Petropavlovsk of c.US$56million, as received, in respect of bridge loan financings advanced in 2018 and payment of US$6million in guarantee fees owing to it

§ The guarantee structure of the new Gazprombank facility is on more favourable terms than the ICBC facility and provides IRC with an extended period to repay its debt finance, while resulting in lower risk for Petropavlovsk

§ The arrangement is expected to alleviate the cashflow position of IRC and provides it with a more manageable repayment schedule that is in line with the ramp up of the K&S mine

§ Detailed information regarding the refinancing may be found in an announcement published by Petropavlovsk dated 15 February 2019 (The Recommended Proposal to Guarantee the Obligations of K&S, a Wholly Owned Subsidiary of IRC Limited, under Two Facility Agreements with JSC Gazprombank) and the related circular (https://www.petropavlovsk.net/wp-content/uploads/2019/02/c114994CCL-pfp.pdf)

Entry into Share Retention Agreement and agreement on guarantee fees in respect of New Recourse Agreement

§ In connection with the Gazprombank Facilities, on 28 June 2019, Petropavlovsk and IRC entered into a share retention agreement with Gazprombank (the "Share Retention Agreement") and, on 09 September 2019, Petropavlovsk, IRC and K&S entered into an agreement on the terms of guarantee fees in respect of the New Recourse Agreement (the "New Recourse Agreement")

§ Under the Share Retention Agreement, unless otherwise agreed with Gazprombank, for so long as the Gazprombank Facilities or any sum thereunder is outstanding:

− Petropavlovsk must retain at least a 20% direct or indirect interest in IRC (and the grant of any option, preemptive right or similar right in respect of Petropavlovsk's interest in IRC would constitute a disposal for the purpose of this covenant); and

− Petropavlovsk must not create, grant or permit to subsist any encumbrance over any direct or indirect interest in IRC (other than any encumbrance arising by operation of law or where following such encumbrance, Petropavlovsk has at least a 20% interest in IRC which remains unencumbered)

§ Under the New Recourse Agreement, IRC has an obligation to pay the Company a monthly fee to compensate Petropavlovsk for entering into the guarantee of the two facility agreements

§ It has been agreed with IRC and K&S that the fee will be calculated as 3.07% per annum, commencing 12 March 2019, on the maximum amount that may be payable by the Company under the facility agreements of US$240 million

§ This level of fees has been confirmed by an independent expert as being on normal commercial terms and terms that are reasonable in all circumstances

§ In addition, IRC is expected to contribute towards professional fees and expenses of approximately US$1.5 million incurred by Petropavlovsk in connection with the refinancing

New US$125 million convertible bond offering and redemption of US$100 million convertible bonds due 2020

§ On 20 June 2019, the Company announced the redemption of its US$100 million convertible bonds maturing 2020 and successful placement of new 5-year US$125 million convertible bonds maturing 2024

§ The new convertible bonds are an important step for the Company in rescheduling its debt maturities while it continues to advance the 'POX project'

§ The new convertible issue carries a lower coupon of 8.25% and was significantly oversubscribed

New major shareholder

§ On 11 July 2019, JSC Fincraft Resources entered into a sale and purchase deed relating to the transfer of the issued share capital of Fincraft Holdings Ltd, a major Petropavlovsk shareholder, to LLC Research & Production Association Altair ("Altair"), a limited liability company incorporated in Russia

§ The ultimate beneficiary of Altair is Mr Roman Trotsenko

Resignation of Non-Executive Director

§ On 30 July 2019, the Board accepted the resignation of Mr Bektas Mukazhanov, a Non-Executive Director

§ Mr Mukazhanov was an Investment Advisor at Fincraft Holdings Ltd the Company's major shareholder at the time of his appointment on 27 July 2018

IRC Update

Petropavlovsk is a major shareholder in IRC (31.1%), a Hong-Kong-listed producer and developer of industrial commodities. On 30 August 2019, IRC released its interim results for the six months ended 30 June 2019. The results are available to view on the IRC website at http://www.ircgroup.com.hk

Key highlights from the report are as follows:

Financials

§ Revenue increased by 27% to US$89.2 million (30 June 2018: US$70.2 million)

§ EBITDA of the mine in production segment increased 63% to US$23.7 million (30 June 2018: US$14.6 million)

§ Write-off of unamortised loan costs, a non-recurring item, of US$11.5 million due to refinancing of the ICBC loan

§ Loss for the period of US$25.2 million (30 June 2018: US$15.6 million)

Operations

§ K&S - Production and sales volumes increased:

§ Production volume up 16% to 1,262,938 tonnes (30 June 2018: 1,084,602 tonnes)

§ Sales volume up 18% to 1,239,398 tonnes (30 June 2018: 1,046,649 tonnes)

§ K&S - operated at record-breaking 93% capacity in June; average production capacity of about 80% in 1H 2019

§ Kuranakh - Care and maintenance process satisfactory

CEO Comments

Commenting on the announcement, Pavel Maslovskiy, Chief Executive Officer said: "This is a strong set of results which underscores the financial outcome of the operational turnaround underway and steady ramp up of our key asset, the POX Hub. One of the major benefits of the robust performance at our operations is that total cash costs for H1 2019 were lower than the guidance originally given at the start of the year. The excellent work of our technical teams now gives us the confidence to decrease total cash cost guidance for the full year to US$750 - US$850/oz. I am particularly pleased to report on our efforts to control costs against the background of ramping up production at the recently-commissioned POX Hub - which accounted for 27% of total gold produced in H1 2019. I expect that in H2 2019 the TCC for refractory processing will decrease as ramp-up costs will be lower, while capacity utilisation will steadily increase.

The commissioning of the POX plant has enabled Petropavlovsk to unlock the potential of our refractory ore reserves at Malomir, which has led to a near-doubling of gold production from a year ago. This highlights the Group's ability to generate meaningful cash from refractory gold since Malomir now contributes around 40% of Group EBITDA compared to less than 20% a year ago. Looking forward, the portion of cash flow derived from refractory gold processing will increase, demonstrating Petropavlovsk's ability to monetise its significant refractory ore reserves.

Having successfully commissioned all four autoclaves, maximising capacity utilsation and providing POX with the most profitable feeds has become an important focus. The Malomir flotation plant is providing a stable supply of our own refractory concentrates to the Hub and any increase in production or supply of third-party concentrates will have a positive impact on unit costs given the high level of fixed costs. In total, we expect around 200kt - 225kt of refractory concentrates to be processed through POX in the current year, including third-party material.

Looking beyond 2019, with the ongoing construction of flotation facilities at our other refractory asset, Pioneer, our goal is to replicate the success of Malomir and thereby double the Group's production of own concentrates which will meaningfully increase capacity utilisation at the POX Hub organically. However, better-than-expected yields during the concentration stage at the Malomir flotation plant means an additional 50kt of spare concentrate capacity is potentially available at the POX Hub. This figure can be even higher if we manage to improve the original designed parameters of Pioneer flotation plant as well. In these circumstances, it is important for us to investigate existing inorganic opportunities with respect to the many higher-grade refractory assets in the region which may be stranded and would require our POX technology to unlock their value. Petropavlovsk's comprehensive scientific and engineering expertise is essential in this regard and we will only consider assets that are accretive to shareholder value.

Over the Period, our other non-refractory assets also performed well, with Albyn significantly decreasing TCC due to higher grades and cost control. Some operational challenges were experienced at Pioneer earlier in the year due to water ingress which affected production, and which has since been resolved. For 2019, production from Pioneer is expected to fall slightly below guidance given at the start of the year, with any shortfall compensated by higher production from Albyn and Malomir.

Overall our 2019 full year production is on track to meet guidance with potential upside from gold produced from third-party concentrates. Perhaps most importantly, these results also highlight the relationship between operating performance and our safety record, as the Group LTIFR more than halved to 1.29 in H1 2019 from a year ago.

Finally, with IRC in a stronger position given the ongoing ramp up at the K&S plant and restructured debt repayment schedule, we are actively seeking to reduce of our ownership of IRC and are considering a range of potential options, in discussion with Gazprombank with respect to the share retention agreement.

I look forward to discussing this in more detail, along with our guidance for beyond 2020, at our Capital Markets Day which is being held today following our H1 2019 financial results presentation which starts at 9.00am BST. Both these events will be webcast live and may be accessed through this link. Presentation materials can also be found on our website."

Webcast of H1 2019 Financial Results and Capital Markets Day

A live webcast of the Company's financial results presentation will take place today at 9:00am BST and will be immediately followed by our Capital Markets Day presentations. The webcast can be accessed via this link.

About Petropavlovsk

With a Premium Listing on the London Stock Exchange, Petropavlovsk (LSE: POG) is a major integrated Russian gold producer with JORC Resources of 20.5Moz Au which include Reserves of 8.2Moz Au.

The Company's key operating mines (Pioneer, Malomir and Albyn) are in the Amur Region in the Russian Far East and the Company has produced a total of c.7.3Moz of gold since operations began in 1994. Petropavlovsk has a strong track record of mine development, expansion and asset optimisation.

The Group recently entered a new era of growth following the successful commissioning and start-up of its flagship asset, the Pressure Oxidation (POX) Hub at Pokrovskiy, which enables the processing of the Company's abundant refractory reserves and resources.

Petropavlovsk is one of the region's largest employers and one of the largest contributors to the sustainable development of the local economy.

For more information

Please visit www.petropavlovsk.net and www.ircgroup.com.hk or contact:

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014

Cautionary note on forward-looking statements

This release may include 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 terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward looking statements include all matters that are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the future price of gold, the Group's results of operations, financial position, liquidity, prospects, growth, estimation of mineral reserves and resources and strategies, and exchange rates and the expectations of the industry. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances [outside the control of the Group. Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, any forward- looking statements contained in this release. In addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward looking statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors could cause results and/or developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, demand, supply and prices for gold and other long-term commodity price assumptions (and their effect on the timing and feasibility of future projects and developments), trends in the gold mining industry and conditions of the international gold markets, competition, actions and activities of governmental authorities (including changes in laws, regulations or taxation), currency fluctuations (including as between the US Dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, any litigation, and political and economic uncertainty. Except as required by applicable law, rule or regulation (including the Listing and Disclosure Guidance and Transparency Rules), the Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Past performance cannot be relied on as a guide to future performance. The content of websites referred to in this announcement does not form part of this announcement.

Financial Review

Note: Figures may not add up due to rounding

Financial Highlights

(a) Calculation of Total Cash Costsu ("TCC") is set out in the section Hard rock mines below.

(b) All-in Sustaining Costsu ("AISC") and All-in Costsu ("AIC") are calculated in accordance with guidelines for reporting All-in Sustaining Costsu and All-in Costsu published by the World Gold Council. Calculation is set out in the section All-in Sustaining Costsu and All-in Costsu below.

(c) See note 2 of the Consolidated Financial Statements for details regarding the restatement.

(a) US$500 million Guaranteed Notes due on 14 November 2022 at amortised cost.

(b) US$100 million convertible bonds due on 18 March 2020 at amortised cost.

Revenue

Group revenue during the period was US$305.3 million, 13% higher than the US$270.5 million achieved in H1 2018.

Revenue from hard rock mines was US$290.0 million, 12% higher than the US$259.3 million achieved in H1 2018. Gold remains the key commodity produced and sold by the Group, comprising 95% of total revenue generated in H1 2019. The physical volume of gold sold from hard rock mines increased by 12% from c.201,400 oz in H1 2018 to c.225,031 oz in H1 2019. The average realised gold priceu slightly increased from US$1,285/oz in H1 2018 to US$1,286/oz in H1 2019. The average realised gold priceu includes a US$(26)/oz effect from hedge arrangements (H1 2018: US$(32)/oz).

Hard rock sold 42,976oz of silver in H1 2019 at an average price of US$15/oz, compared to 37,385 oz in H1 2018 at an average price of US$16/oz.

Revenue generated as a result of third-party work by the Group's in-house service companies was US$15.3 million in H1 2019, a US$4.1 million increase compared to US$11.2 million in H1 2018. This revenue is substantially attributable to sales generated by the Group's engineering and research institute, Irgiredmet, primarily through engineering services and the procurement of materials, consumables and equipment for third parties, which comprised US$13.0 million in H1 2019 compared to US$9.1 million in H1 2018.

Cash flow hedge arrangements

In order to increase certainty in respect of a significant proportion of its cash flows, the Group has entered into a number of gold forward contracts.

Forward contracts to sell an aggregate of 99,984 oz of gold matured during the H1 2019 and resulted in US$(6.0) million net cash settlement paid by the Group (H1 2018: US$(6.5) million cash net cash settlement paid by the Group on forward contracts to sell 99,984 oz of gold).

The Group constantly monitors the gold price and hedges some portion of production as considered appropriate. Forward contracts to sell an aggregate of c.130,000 oz of gold at an average price of US$1,281/oz were outstanding as at 30 June 2019. Forward contracts to sell an aggregate of c.96,700 oz of gold at an average price of US$1,291.8/oz are outstanding as at 9 September 2019.

Underlying EBITDA¨ and analysis of operating costs

(a) Group's share of interest expense, investment income, other finance gains and losses, foreign exchange gains or losses, taxation, depreciation and impairment/reversal of impairment recognised by an associate (IRC).

(b) See note 2 of the Consolidated Financial Statements for details regarding the restatement.

Underlying EBITDAu as contributed by business segments is set out below.

Hard rock mines 

During this period, hard rock mines generated Underlying EBITDAu of US$100.1 million compared to US$77.6 million Underlying EBITDA in H1 2018.

Total Cash Costs¨ for hard rock mines decreased from US$899/oz in H1 2018 to US$841/oz in H1 2019. The decrease in TCCu primarily reflects the effect of higher grades of ore processed and higher recoveries achieved at Albyn and Malomir as well as by the effect of Rouble depreciation, achieved despite the sub-optimal performance of Pioneer which TCCu increased from US$843/oz in H1 2018 up to US$1,138/oz in H1 2019 due to lower processed grades as a result of lower than expected contribution from the underground mining. The positive effect of overall TCCu decrease was partially offset by the inflation of certain Rouble denominated costs. The increase in physical ounces sold from c. 201,400oz in H1 2018 to c. 225,031oz in H1 2019 and increase in the average realised gold priceu from US$1,285/oz in H1 2018 to US$1,286/oz in H1 2019 resulted in US$9.4 million increase in the Underlying EBITDA¨. The decrease in TCC¨ contributed to a further US$13.0 million positive contribution to the Underlying EBITDA¨.

The key components of the operating cash expenses are wages, electricity, diesel, chemical reagents and consumables, as set out in the table below. The key cost drivers affecting the operating cash expenses are stripping ratios, production volumes of ore mined and processed, grades of ore processed, recovery rates, cost inflation and fluctuations in the Rouble to US Dollar exchange rate.

Compared with H1 2018 there was ongoing inflation of certain Rouble denominated costs, in particular, electricity costs increased by c.5% in Rouble terms (decreased by c.4% in US Dollar terms) and the cost of diesel increased by c.17% in Rouble terms (increased by c.7% in US Dollar terms). The Rouble depreciated against the US Dollar by 10% in H1 2019 compared to H1 2018, with the average exchange rate for the period of 65.20 Roubles per US Dollar in H1 2019 compared to 59.33 Roubles per US Dollar in H1 2018, somewhat mitigating the effect of Rouble denominated costs inflation.

Refinery and transportation costs are variable costs dependent on production volume. Mining tax is also a variable cost dependent on production volume and the gold price realised. The Russian statutory mining tax rate is 6%. Under the Russian Federal Law 144-FZ dated 23 May 2016 that introduced certain amendments to the Russian Tax Code, taxpayers who are participants in Regional Investment Projects ("RIP") have the right to apply the reduced mining tax rate provided certain conditions are met. LLC Malomirskiy Rudnik and LLC Albynskiy Rudnik met eligibility criteria and applied 1.2% mining tax rate in H1 2019 while JSC Pokrovskiy Rudnik applied full mining tax rate in H1 2019, resulting in US$6.7 million mining tax expense compared to nil in H1 2018 when 0% mining tax rate was applied by the Group.

(a) Excluding deferred stripping

All-in Sustaining Costsu  and All-in Costsu

AISC¨  decreased from US$1,138/oz in H1 2018 to US$1,029/oz in H1 2019. The decrease in AISCu  reflects the decrease in TCC as well as decrease in impairment of non-refractory ore stockpiles at Albyn. This effect was partially mitigated by the increase in sustaining capital expenditures related to the existing mining operations.

AICu  decreased from US$1,353/oz in H1 2018 to US$1,091/oz in H1 2019, primarily reflecting the decrease in AISCu  explained above and Capital Expenditureu in relation to the POX project.

Corporate and other

Corporate and other operations contributed US$(16.7) million to Underlying EBITDA¨ in H1 2019 compared to US$(16.9) million in H1 2018. Corporate and other operations primarily include central administration function, result of in-house service companies and the Group's share of results of its associate IRC.

The Group has corporate offices in London, Moscow and Blagoveschensk, which together represent the central administration function. Central administration expenses increased by US$2.2 million from US$19.8 million in H1 2018 to US$22.0 million in H1 2019.

The Group's share of loss generated by IRC is US$(7.9) million (H1 2018: US$(4.9) million share of losses generated by IRC), with the ramp up of operations being more than offset by the refinancing and foreign exchange losses. IRC contributed US$ 5.8 million to the Group's Underlying EBITDAu in H1 2019 (H1 2018: US$3.3 million).

Impairment review

Impairment of mining assets

As at 30 June 2019 and 30 June 2018, the Group identified no impairment indicators or indicators of impairment reversal for the cash generating units related to its gold mining projects and supporting in-house service companies.

As at 31 December 2018, the Group recognised impairment reversals at the Malomir and Albyn CGUs of US$83.0 million (US$66.4 million post-tax) and US$18.7 million (US$15.2 million post-tax), respectively.

Impairment of exploration and evaluation assets

As at 30 June 2019, the Group performed a review of its exploration and evaluation assets and concluded no impairment was required (30 June 2018 and 31 December 2018: the Group performed a review of its exploration and evaluation assets and concluded to suspend exploration at the Flanks of Malomir and surrender the relevant licences. An aggregate impairment charge of US$12.2 million was recorded against associated exploration and evaluation assets). All exploration and evaluation assets in the statement of financial position related to the areas adjacent to the existing mines.

Interest income and expense

The Group recognised US$1.8 million interest income on loans granted and US$0.7 million interest income on cash deposits with banks.

Interest expense for the period comprised of US$20.8 million effective interest on the Notes, US$6.4 million effective interest on the Convertible Bonds, US$7.7 million interest on prepayments for gold supply agreements and US$0.3 million interest on finance lease (H1 2018: US$20.8 million effective interest on the Notes, US$6.1 million effective interest on the Convertible Bonds, US$0.5 million interest on Sberbank facility and US$1.8 million interest on prepayments for gold supply agreements).

As the Group continued with completion of the POX Hub, this project met eligibility criteria for borrowing costs capitalization under IAS 23 "Borrowing Costs". US$9.4 million of interest expense was capitalised within property, plant and equipment (H1 2018: US$17.5 million interest capitalized in relation to property, plant and equipment). With all four autoclaves of the POX Hub now fully functional, interest capitalisation in relation to POX Hub will cease in H2 2019, resulting in further increase in net interest expense from H2 2019 onwards. Construction of the new flotation line at Pioneer is expected to meet eligibility criteria for borrowing costs capitalization with relevant interest to be capitalized going forward.

Other finance gains and losses

Net other finance gains for the period totalled US$37.7 million compared to US$1.9 million of net other finance gains in H1 2018. Key elements of other finance gains and losses this period include:

- An aggregate of US$39.1 million gains recognised following refinancing of IRC's project finance facility as set out in section "Corporate activities" below;

- US$9.2 million fair value gain on the call option to acquire 25% interest in the Group's subsidiary LLC TEMI from its current shareholder as set out in section "Corporate activities" below;

- US$(9.2) million fair value loss from re-measurement of the conversion option of the Convertible Bonds and US$(1.1) million fair value loss from re-measurement of the issued the Call Option over the Company's shares which was exercised in H1 2019.

Taxation

The Group is subject to corporation tax under the UK, Russia and Cyprus tax legislation. The statutory tax rate for 2019 was 19.0% in the UK and 20% in Russia. Under the Russian Federal Law 144-FZ dated 23 May 2016 taxpayers who are participants in Regional Investment Projects ("RIP") have the right to apply the reduced corporation tax rate over the period until 2027, subject to eligibility criteria. In 2019 and 2018, LLC Albynskiy Rudnik has received tax relief as a RIP participant and was entitled to the reduced statutory corporation tax rate of 17%.

The tax charge for the period arises primarily related to the Group's gold mining operations and is represented by a current tax charge of US$12.3 million (H1 2018: US$9.9 million) and a deferred tax credit, which is a non-cash item, of US$9.1 million (H1 2018: deferred tax credit of US$3.1 million). Included in the deferred tax charge in 2019 is a US$16.3 million credit (H1 2018: US$11.9 million charge) foreign exchange effect which primarily arises because the tax base for a significant portion of the future taxable deductions in relation to the Group's property, plant and equipment are denominated in Russian Roubles, whilst the future depreciation charges associated with these assets will be based on their US Dollar carrying value.

During the period, the Group made corporation tax payments in aggregate of US$16.6 million in Russia (H1 2018: corporation tax payments in aggregate of US$0.1 million in Russia).

Earnings per share

Basic profit per share for H1 2019 was US$0.00 compared to US$(0.01) basic loss per share for H1 2018. The key factor affecting the basic profit per share was the increase of net profit for the period attributable to equity holders of Petropavlovsk PLC from the net loss of US$(40.3) million for H1 2018 to US$14.3 million net profit for H1 2019.

The total number of Ordinary Shares in issue as at 30 June 2019 was 3,310,210,281 (30 June 2018: 3,303,768,532).

Financial position and cash flows

(c) Including US$45.0 million cash CAPEX (H1 2018: US$67.2 million)¨.

Key movements in cash and Net Debtu

(d) Including US$7.7 million interest paid in relation to advance payments from Gazprombank and Sberbank.

Capital Expenditure ¨

The Group invested an aggregate of US$45.0 million in H1 2019 compared to US$67.2 million in H1 2018. The key areas of focus this period were on the POX project completion, exploration and development to support the underground mining at Pioneer and Malomir, expansion of tailing dams at Pioneer and Albyn and ongoing exploration related to the areas adjacent to the ore bodies of the Group's main mining operations.

The Group capitalised US$9.4 million of interest expense incurred in relation to the Group's debt into the cost of the POX hub and Malomir flotation (H1 2018: US$17.5 million into the cost of the POX Hub and Malomir flotation).

(a) Including US$ 9.1 million of development expenditure in relation to the POX Hub which is considered to be non-sustaining Capital Expenditureu for the purposes of calculating AISCu and AICu.

(b) Including US$ 5.1 million of expenditure in relation to the underground mining project at Pioneer to be sustaining Capital Expenditureu for the purposes of calculating the AISCu and AICu.

(c) Including US$ 1.2 million of expenditure in relation to the underground mining project at Malomir to be sustaining Capital Expenditureu for the purposes of calculating the AISCu and AICu.

(d) Including US$ 4.2million of expenditure in relation to Malomir flotation (including tailing dams), which is considered to be sustaining Capital Expenditureu for the purposes of calculating AISCuand AICu.

Foreign currency exchange differences

The Group's principal subsidiaries have a US Dollar functional currency. Foreign exchange differences arise on the translation of monetary assets and liabilities denominated in foreign currencies, which for the principal subsidiaries of the Group are the Russian Rouble and GB Pounds Sterling.

The following exchange rates to the US Dollar have been applied to translate monetary assets and liabilities denominated in foreign currencies.

The Rouble recovered by 9% against the US Dollar during H1 2019, from RUB69.47: US$1 as at 31 December 2018 to RUB63.08 : US$1 as at 30 June 2019. The average period-on-period depreciation of the Rouble against the US Dollar was approximately 10%, with the average exchange rate for H1 2019 being RUB65.20: US$1 compared to RUB59.33 : US$1 for H1 2018. The Group recognised foreign exchange losses of US$14.0 million in H1 2019 (H1 2018: US$0.1 million gains) arising primarily on Rouble denominated net monetary liabilities (including advance payments received from Gazprombank and Sberbank under gold sales agreements).

Corporate activities

Guarantee over IRC's external borrowings and refinancing of IRC's project finance facility

The Group historically entered into an arrangement to provide a guarantee over its associate's, IRC, external borrowings, the ICBC Facility ('ICBC Guarantee'). At 31 December 2018 the principal amounts outstanding subject to the ICBC guarantee were US$169.6 million. Under the terms of the arrangement the Group was entitled to receive an annual fee equal to 1.75% of the outstanding amount, which amounted to US$0.7 million during the period (H1 2018: US$2.1 million).

In March 2019, IRC has refinanced the ICBC Facility through entering into a US$240 million new facility with Gazprombank ('Gazprombank Facility'). The facility was fully drawn down during the period and was used, inter alia, to repay the amounts outstanding under the ICBC Facility in full, the two loans provided to IRC by the Group in 2018 in the equivalent of approximately US$57 million and part of the guarantee fee of US$6 million owed by IRC to the Group in respect of the guarantee of the ICBC Facility. The remaining outstanding contractual guarantee fee of approximately US$5.7 million (which corresponding fair value after provision for credit losses equals US$4.8 million) is payable by IRC no later than 31 March 2020 (31 December 2018: outstanding contractual guarantee fee of US$10.3 million with corresponding fair value after provision for credit losses of US$6.8 million).

A new guarantee was issued by the Group over part of the Gazprombank Facility ('Gazprombank Guarantee'), the guarantee mechanism is implemented through a series of five guarantees that fluctuate in value through the eight-year life of the loan, with the possibility of the initial US$160 million principal amounts guaranteed reducing to US$40 million within two to three years, subject to certain conditions being met. For the final two years of the Gazprombank Facility, the guaranteed amounts will increase to US$120 million to cover the final principal and interest repayments. If certain springing recourse events transpire, including default on a scheduled payment, then full outstanding loan balance is accelerated and subject to the guarantee. Under the Gazprombank Guarantee arrangements, the guarantee fee receivable is determined at each reporting date on an independently determined fair value basis, which for the H1 2019 was estimated at the annual rate of 3.07% for 2019 by reference to the average outstanding principal balance under Gazprombank Facility. The accrued guarantee fee was $2.0 million, with corresponding value of $1.8 million after provision for expected credit losses.

The following assets and liabilities have been recognised in relation to the ICBC Guarantee and Gazprombank Guarantee as at 30 June 2019 and 31 December 2018:

The following gains and losses resulting from the aforementioned transactions were recognised within Other finance gains and losses during the period:

Option to acquire non-controlling 25% interest in LLC TEMI

In May 2019, the Group entered into the option contract to acquire non-controlling 25% interest in LLC TEMI, holder of Elginskoye license, from its shareholder Agestina Limited for an aggregate consideration of US$60 million (adjusted to US$53 million if certain conditions are met). The option premium payable is US$13 million, out of which US$7.0 million was paid during the six months ended 30 June 2019. The outstanding option premium can be settled in either cash or the Company's shares. The exercise period of the option is 730 days from 22 May 2019.

The fair value of the call option, net of unpaid premium, was US$9.6 million on initial recognition, resulting in a corresponding gain recognised within Other finance gains in the statement of profit or loss. This gain on initial recognition is primarily due to improvement in the gold price outlook between the pricing and completion of the transaction together with the judgements taken with regards to certain inputs into the relevant valuation models, in particular, historic volatility used as a proxy of the expected volatility of the underlying assets and being historic volatility of the comparable listed companies used for the valuations under IFRS 13 as opposed to historic gold market volatility used for the valuation of the contractual option premium. As at 30 June 2019, the fair value of the derivative financial asset has increased to US$16.2 million reflecting a loss on re-measurement to fair value of US$0.4 million and the initial US$7.0 million cash payment.

Placement of US$125 million new convertible bonds and concurrent repurchase of outstanding US$100 million Convertible Bonds

In July 2019, the Group has issued US$125 million convertible bonds due 2024. The bonds were issued by the Group's wholly owned subsidiary Petropavlovsk 2010 Limited (the "Issuer") and are guaranteed by the Company. The bonds carry a coupon of 8.25% per annum, payable quarterly in arrears. The bonds are, subject to certain conditions, convertible into fully paid ordinary shares of the Company with an initial exchange price of US$0.1350, subject to customary adjustment provisions.

Concurrently with the issue of the US$125 million convertible bonds, the Group also concluded the invitation to repurchase (the "Repurchase") any and all of the outstanding US$100 million 9.00% convertible bonds due 2020 (the "Existing Bonds"). Holders whose Existing Bonds have been accepted for purchase by the Issuer pursuant to the Repurchase were eligible to receive US$1,080 per US$1,000 in principal amount of the Existing Bonds (the "Repurchase Price"). The Issuer also paid, in respect of Existing Bonds accepted for purchase pursuant to the Repurchase, a cash amount representing the accrued but unpaid interest ("Accrued Interest") on each US$1,000 in aggregate principal amount of Existing Bonds accepted for repurchase from and including 18 June 2019, being the immediately preceding interest payment date applicable to the Existing Bonds, to but excluding the settlement date for the Repurchase (the "Repurchase Settlement Date"). The remaining Existing Bonds were redeemed at the Repurchase Price on 9 July 2019. The Issuer also paid a cash amount representing the Accrued Interest on each US$1,000 in aggregate principal amount of Existing Bonds from and including 18 June 2019 to redemption. The Existing Bonds were subsequently cancelled by the Issuer.

Going concern

The Group monitors and manages its liquidity risk on an ongoing basis to ensure that it has access to sufficient funds to meet its obligations. Cash forecasts are prepared regularly based on a number of inputs including, but not limited to, forecast commodity prices and the impact of hedging arrangements, the Group's mining plan, forecast expenditure and debt repayment schedules. Sensitivities are run for different scenarios including, but not limited to, changes in commodity prices, cost inflation, different production rates from the Group's producing assets and the timing of expenditure on development projects. This is done to identify risks to liquidity and enable management to develop appropriate and timely mitigation strategies. The Group meets its capital requirements through a combination of sources including cash generated from operations, advances received from customers under prepayment arrangements and external debt.

The Group performed an assessment of the forecast cash flows for the period of 12 months from the date of approval of the Half Year Report for the period ended 30 June 2019. As at 30 June 2019, the Group had sufficient liquidity headroom. The Group is also satisfied that it has sufficient headroom under a base case scenario for the period to December 2020. The Group has also performed projections under a layered stressed case that is based on a gold price, which is reduced to a level approximately 18% below the current spot price, gold production approximately 3% lower than projected, and Russian Rouble : US Dollar exchange rate that is approximately 7% stronger than the average of the market consensus forecasts. This layered stressed case indicates sufficient liquidity for a period of at least 12 months including under downside IRC performance scenarios.

As at 30 June 2019, the Group has guaranteed the outstanding amounts IRC owed to Gazprombank. The outstanding loan principal was US$234 million as at 30 June 2019 and the facility is subject to an initial $160 million guarantee by the Group (see note 21). The assessment of whether there is any material uncertainty that IRC will be able to repay this facility as it falls due is another key element of the Group's overall going concern assessment. IRC projections demonstrate that IRC expects to have sufficient liquidity over the next 12 months and expects to meet its obligations under the Gazprombank Facility. If a missed repayment under debt or guarantee obligations occurs which, if not remedied by the Group, would result in events of default which, through cross-defaults and cross-accelerations, could cause all other Group's debt arrangements to become repayable on demand.

Having taken into account the aforementioned factors and after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future, being at least the next 12 months from the date of approval of the Half Year Report for the period ended 30 June 2019. Accordingly, they continue to adopt the going concern basis of accounting in preparing these condensed consolidated financial statements

Development Update

Processing Development

Pioneer Flotation

Construction of a flotation plant at Pioneer, which was put on hold in 2014 due to gold price weakness, resumed in June 2019 with an estimated construction period lasting 12 to 14 months. Prior to being put on hold, the major works completed included the main building shell. Following its restart, key contracts to supply major equipment items were renewed and processing equipment has already started arriving on site.

Construction work to date has focused on the heating plant, an extension to the flotation building where reagents are prepared and on foundations for the flotation circuit. Construction remains on schedule for completion in Q4 2020.

Mine Development

Elginskoye (Albyn)

Preparation works ahead of the commencement of mining in 2020 included extensive grade control and reserve definition drilling, and an extensive program of metallurgical sampling was completed during the Period. This has resulted in an increased confidence in the orebody and Elginskoye reserves are being updated. An access and haulage road connecting Elginskoye site with Albyn was completed. Waste stripping followed by initial ore mining is expected to commence in Q4 2019.

Quartzitovyoe underground mine (Malomir producing mine)

During H1 2019, stope mining progressed between 285 and 390m elevations whilst access and development work was carried out to access reserves situated between 210m and 285m elevations. Stope mining at the upper parts of the mine (above the 285m level) is in its final stages and production is switching to the lower parts of the mine (above the 210m level). Flooding due to heavy rainfall in July and August is not expected to affect 2019 production targets. Exploration and stope definition drilling to define further resources and reserves in deeper parts of the mine below 210m level is scheduled for H2 2019.

NE Bakhmut (Pioneer producing mine)

During H1 2019, underground ore production from NE Bakhmut 3 continued to be slightly below budget due to more challenging-than-expected ground and hydrogeological conditions. Heavy rainfall in July and early August slowed production early in H2 2019, however, equipment and resources were diverted to assist with the development of NE Bakhmut 2 area and accelerate the commencement of production. The access decline at the NE Bakhmut 2 has now reached the level of first production at 25m and the first sublevels and cross cuts into the orebody were completed. Stope mining is expected to commence ahead of schedule which should offset any production shortages from the Bakhmut No 3 area for the full year.

Andreevskaya and Nikolaevskaya (Pioneer proposed mines)

Mine design and permitting is progressing ahead underground development work due to start at the Andreevskaya and Nikolaevskaya zones. In order to provide more refractory ores for the Pioneer flotation plant, where construction has been brought forward, development works at non-refractory Andreevskaya deposit have been rescheduled from H2 2019 to H2 2020.

Exploration

Pioneer

During H1 2019, exploration took place at several zones with the most significant results being at Nikolaevskaya and NE Bakhmut.

Nikolaevskaya

Four drill holes were completed which targeted deeper extensions of high-grade mineralisation. Highlights at a 1.5g/t cutoff grade, included:

− 7.5m @ 5.17g/t (C-2362)

− 1.0m @ 4.0g/t (C-2346)

NE Bakhmut

Two drill holes with a total length of 520m were completed under NE Bakhmut sub pit 1, with mineralisation intersected between 30m to 70m below the existing open pit floor. The best intersections at a cut-off grade 0.4g/t were:

− 14.5m @ 1.17g/t (drill hole 6334)

− 7.2m @ 3.77g/t (drill hole 1083)

− 5.3m @ 1.36g/t (drill hole 1083)

The results confirm that NE Bakhmut 1 mineralisation extends below the existing open pit and the Company is currently evaluating the possibility of deepening the pit.

Katrin

During H1 2019, drilling comprising of 21 drill holes which were completed at the west and north-east extensions of existing mineralisation at Katrin. Most holes did not discover significant gold grades which suggests that the along-strike extensions of the Katrin ore body have now largely been defined.

Only two drill holes (C-506-1 and C-506-24) were completed at the south-west side of Katrin which intersected mineralisation, including 4.6m @ 0.57g/t and 7.0m @ 1.91g/t. Although the Katrin ore body has now largely been defined, the surrounding areas remain prospective for discovery of similar-style mineralisation.

Zvezdochka-2

This zone is located 2-2.5km north-west of the Yuzhnaya zone, hosted by granodiorites and diorite-porphyries. In H1 2019, a 164m long trench K-1384 was completed and sampled. The best intersections included:

− 7.0m @ 14.3g/t

− 26.0m @ 0.63g/t

Zvezdochka offers potential for a small increase in both refractory and non-refractory resources.

Ulunginskaya

In H1 2019, seven drill holes were completed at the northern side of the zone which discovered further refractory mineralisation. The best intersections included:

− 14.4m @ 1.62g/t (C-2657, completed in 2018, assays received in 2019)

− 11.0m @ 0.91g/t (C-2658, completed in 2018, assays received in 2019)

− 20m @ 0.78g/t (C-2699)

− 27.9m @ 0.92g/t (C-2694A)

− 8.2m @ 0.62 g/t (C-2692)

− 5.1m @ 0.88g/t (C-2698)

This drilling is expected to increase Ulunginskaya refractory Resources and Reserves.

Other Pioneer Exploration Results

Smaller exploration programmes were also completed at Nadvigoviy, Vodorazdelniy, Daktuy and Krestyanskiy-Olgakan. In addition, the Group has commenced a comprehensive metallurgical test programme on its refractory resources. This programme aims to study the variability of metallurgical properties across the deposit to increase confidence in the mid-term production plan with the results expected soon.

Malomir

Osipkan

A total of 300m of drilling was completed during H1 2019, with Osipkan located c.130km (by road) east of Malomir and c.30km south-west (by road) from Tokur. With c.1Moz of JORC resources, Tokur has potential to be fully developed into an open pit and/or underground mine.

Recent exploration has complemented work undertaken prior to 2011, which included 197,798m3 of trenching and 1,981m of diamond drilling. Based on that work, a resource estimate at Osipkan was prepared and approved by the local authority.

Total category C2 material, which is equivalent to Indicated or Inferred under JORC, amounted to 97koz within 2.5Mt of material at an average grade of 1.23g/t. In addition, 22koz of P1 category, which is equivalent to Inferred under JORC, gold resources were also estimated within 458kt of material at an average grade of 1.50g/t.

These resources are yet to be re-evaluated in accordance with JORC and added to the JORC statement. Osipkan is a Tokur satellite, which will benefit from this discovery.

Albyn

Elginskoye

Extensive in-fill and resource expansion drilling has been undertaken. A total of 207 in-fill holes with a total length of 11,674m were drilled within the Elginskoye Phase 1 pit to create a 20m x 20m drill grid and increase confidence in the reserve estimates and to increase the accuracy of short-term planning ahead of commencement of mining in 2020. Exploration is still ongoing with results received to date confirming existing reserves estimates. Once completed, the results are expected to lead to an increase in the Proven reserves at Elginskoye, setting the foundation for more accurate short and mid-term mining plans.

128 drill holes were completed at the central part of Elginskoye, with total length of 15,440m to in-fill an existing drill grid to 80m x 40m.

An extensive metallurgical sampling program to study variability of metallurgical properties across the Phase 1 pit was also undertaken on samples recovered from drill holes completed this year. The results of this work are expected to be incorporated into the updated reserves estimate.

Resource expansion drilling has also been completed at the periphery of Elginskoye comprising 22 drill holes with a total length of 2,755m. The extension of known gold mineralisation has been proven at the south-west, south-east and northern sides of the deposit, as well as at the right bank of the Poputniy stream. The completed drill holes have proven extensions of gold mineralisation, which is expected to increase Elginskoye Resources and Reserves.

The best intersections, outside the current JORC Resource model, include:

− 4.4m @ 5.89g/t (C-Э-264-114)

− 4.7m @ 3.92g/t (C-Э-256-112)

− 3.4m @ 2.77g/t (C-Э-256-108)

− 1.8m @ 4.94g/t (C-Э-220-56)

− 4.8m @ 4.86g/t (C-Э-228-56)

Results of this exploration are yet to be reflected in the Elginskoye resource estimate. It is expected that they will lead to a slight increase the Elginskoye resource base, with a greater contribution from refractory gold ores.

Principal Risk and Uncertainties

The Group is exposed to a variety of risks and uncertainties which could significantly affect its business and financial results. A detailed review of the key risks facing the Group is set out in the Principal Risks and Mitigation section on pages16 to 33 of the 2018 Annual Report, which is available on the Group's website, www.petropavlovsk.net. This also includes a description of the potential impact of such risks on the Group together with measures in place to manage or mitigate against each specific risk where this is within the Group's control.

The Board's view of the principal risks that could impact the Group for the remainder of the current financial year remain largely unchanged from those set out in the 2018 Annual Report with the exception that the liquidity and funding risk has reduced as detailed below.

 The principal risks relate to the following:

Operational risks

§ Production

§ Exploration

Processing

§ Mechanical failure of POX Hub

§ Failure of POX to reach expected recovery

§ High levels of preg-robbing

Financial risks

§ Lack of funding and liquidity: During the Period the Group redeemed its US$100m 9% Convertible Bonds due 2020 and issued US$125 million 8.25% Convertible Bonds due 2024. This extension of the Group's debt maturities has improved its funding position whilst the net proceeds have been used towards the construction of a new flotation plant at Pioneer which is a significant step towards unlocking the value of refractory gold at Pioneer.

§ Gold price

§ Exchange rate

§ Guarantee of IRC's debt

Health, safety and environmental risks

§ Safety of our employees and third parties

§ Environmental risks: major pollution arising from operations include: air and water pollution, land contamination and deforestation

Loss of personnel

§ The Company is dependent on Dr Maslovskiy and other long-serving members of the senior executive team

Country/Compliance

§ The Group requires various licences and permits in order to operate within Russia

§ The Group is subject to risks associated with operating in Russia

Director's Responsibilities Statement

We confirm that to the best of our knowledge:

§ The condensed set of financial statements, which has been prepared in accordance with IAS34 "Interim Financial Reporting" as endorsed and adopted by the European Union, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company, or the undertakings included in the consolidation as a whole as required by DTR4.2.4R

§ The interim management report includes a fair review of the information required by DTR4.2.7R (indication of important events and their impact, and description of principal risks and uncertainties for the remaining six months of the financial year); and

§ The interim management report includes a fair review of the information required on related party transactions as required by DTR4.2.8R

By order of the Board,

Sir Roderic Lyne Dr Pavel Maslovskiy

Chairman Chief Executive Officer

9 September 2019

Independent Review Report (Auditors)

INDEPENDENT REVIEW REPORT TO PETROPAVLOVSK PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 25. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

London, United Kingdom

9 September 2019

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Profit or Loss

Six months ended 30 June 2019

(a) See note 2 for details regarding the restatement.

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2019

(a) See note 2 for details regarding the restatement.

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Financial Position

At 30 June 2019

(a) See note 2 for details regarding the restatement.

These condensed consolidated financial statements for Petropavlovsk PLC, registered number 4343841, were approved by the Directors on 9 September 2019 and signed on their behalf by

Sir Roderic Lyne Pavel Maslovskiy

Director Director

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2019