POLY.L Regulatory News (POLY)

Polymetal International plc

Joint venture with Polyus Gold at the Nezhdaninskoye gold property

Polymetal International plc (LSE, MOEX: POLY; ADR: AUCOY) ("Polymetal") is pleased to announce that it has entered into a joint venture with OJCS Polyus Gold (MOEX - PLZL) ("Polyus Gold"), under which Polymetal will participate in advancing the development of the Nezhdaninskoye gold deposit in Yakutia, Russia ("the Property"). The arrangement will allow Polymetal to acquire up to 50% in the joint venture entity ("JV") holding 100% of JSC South-Verkhoyansk Mining Company ("SVMC") through an earn-in mechanism. SVMC, which is currently a 100% subsidiary of Polyus Gold, holds the mining and exploration license for the Property as well as certain infrastructure adjacent to the deposit.

HIGHLIGHTS

· During the first stage ("Stage 1") Polymetal will obtain 15.3%1 interest in the JV. The total amount of Polymetal's investment at this stage will be US$ 18 million in cash, of which US$ 10 million will be ultimately paid to Polyus Gold and US$ 8 million1 will be invested in SVMC and used to fund exploration activities and expenses of SVMC during the first 15 months;

· Upon completion of Stage 1, Polymetal will have an option to participate in the second stage ("Stage 2") though an earn-in arrangement which will allow Polymetal to increase its share in the JV to 50%;

· Stage 2 investment will comprise US$ 72 million in cash1 and will be carried out from month 16 to month 52 from the date of forming the joint venture. The investment will be used to finance construction and ramp-up of the underground mine and processing plant. Polymetal will prepare a Definitive Feasibility Study for the development of the Property and will be responsible for engineering and construction management as a party to the EPCM contract with SVMC;

· Upon completion of Stage 2, SVMC will operate as a 50:50 joint venture between Polymetal and Polyus Gold, with Polymetal acting as a managing partner.

· Should Polymetal decide not to proceed with Stage 2, the joint venture arrangement will terminate after Stage 1 with no further amounts to be paid or received by the parties, and the whole of Polymetal's interest in the JV at the termination date will be redeemed by the JV for nominal value;

INFORMATION ON THE PROPERTY

Nezhdaninskoye is the fourth largest gold deposit in Russia. It is located in the north-east of Yakutia, in Tomponsky district, approximately 480 km east from the city of Yakutsk. The Property is remote with access by all-season unpaved road and no grid connection. The climate is characterized by long severe winters and short hot summers. The relief is moderately mountainous with relative altitudes above valley floors not exceeding 600 m.

The deposit is composed of large scale mineralised zones, representing zones of intense brecciation comprised of crushed and sheared, hydrothermally altered, sedimentary rocks that have been variably enriched in quartz. The quartz occurs as randomly oriented stringers, lenses, and veins. Within the lateral limits of these zones, there are lean bands of variably silicified sedimentary protolith. There are also veins composed of quartz with relics of the host rocks.

Nezhdaninskoye mineralization is double refractory due to the encapsulation of fine gold particles within sulphide minerals and significant presence of preg-robbing carbonaceous material.

A 180 Kt per annum underground mine and concentrator were commissioned in 1975. Over 2 Mt of ore was mined and processed at an average gold grade of 7.6 g/t before the operation was placed on care and maintenance in 2005.

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[1] US$ 8 million component at Stage 1 can be increased up to $11 million resulting in increase of Polymetal's interest in the JV up to 17.7%; in which case Stage 2 investment will be decreased respectively.

Polyus Gold acquired Nezhdaninskoye in 2006. Since then, Polyus Gold has undertaken an extensive exploration program and completed several technical studies aimed at defining a workable strategy for the development of the Property. Both Polyus Gold and Polymetal expect to adopt a development approach characterized by low capital intensity.

According to the Russian State Reserves Commission (GKZ), the gold reserves (С1+С2) amount to 20.3 mln ounces (632 tonnes) at the grade of 5.1 g/t2.

TRANSACTION DETAILS

Stage 2 of the joint venture arrangement will be subject to approval by the Russian Federal Government's Commission on Foreign Investments into Companies of Strategic Importance ("Strategic Clearance") and by the Russian Federal Antimonopoly Service.

Upon receipt of the Strategic Clearance, Polymetal will have the right to nominate the General Director of SVMC, and Polyus Gold will have the right to nominate the Chief Financial Officer of SVMC. Prior to receipt of the Strategic Clearance, Mr. Sergey Pekus, who will be appointed as a General Director of SVMC, will supervise the day-to-day activities of SVMC and Mr. Evgeny Bairbiliktuev, who will be appointed as a Chief Financial Officer of SVMC, will supervise the financial operations of SVMC.

For the purposes of the UKLA Listing Rule LR 10.4.1 R (Notification of class 2 transactions), the value of gross assets of the сompany being subject to the transaction (on a 100% share basis) is estimated to be US$ 0.2 million and an estimated reported pre-tax loss of US$ 2 million will be attributable to these assets in 2015.

The closing of Stage 1 is expected in January 2016.

Vitaly Nesis, Group CEO of Polymetal, said: "We believe Nezhdaninskoye fits perfectly with Polymetal's core competencies in remote asset development, selective underground mining, and refractory ore processing. The size of the deposit undercores significant potential for a high-grade mine with a very long mine-life."

Pavel Grachev, Chief Executive Officer of Polyus Gold, commented: "We believe that this arrangement will result in the fast tracking of the Nezhdaninskoye development, which is beneficial for both shareholders and the region. This transaction is in line with Polyus' strategy of streamlining its growth portfolio in a disciplined manner and its structure will enable us to focus management resources on the current pipeline of brownfield and greenfield projects ensuring a substantial uplift in output over the medium term horizon."

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2 The GKZ reserves are not compliant with the JORC Code and represent estimate of in situ mineralisation without adequate proof of economic viability of extraction. 

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