Polyus Gold International Strategic asset review March 2015 1 Strategic asset review New Strategic Development Programme In 2014 a strategic asset review was launched aimed at identifying growth opportunities across the entire Group operations and monetizing its resource base: A number of mid-scale projects for the strategic development of Krasnoyarsk Business Unit (KBU), Verninskoye and Kuranakh have been identified to date The detailed engineering assessment of these projects is currently ongoing In addition, the Group identified a number of smaller scale high IRR initiatives to raise operational efficiency The Group continues to review development options for the Natalka project The operational team has been strengthened for the successful delivery of the development programme The Group plans to complete strategic asset review by the end of 2015 2 Strategic asset review Table of Contents 1. Reinforcement of Operational Team 2. Polyus growth projects Strategic Programme for KBU Development Strategic Programme for Verninskoye Development Strategic Programme for Kuranakh Development 3. Power Projects 4. Total Operational Efficiency (TOE) 5. The Natalka Project 3 Strategic asset review Enhancement of the operational team New operational experience and optimisation expertise in order to implement both operational efficiency and strategic developments in the Group’s assets Vladimir Polin Anatoliy Barilyuk Managing Director of CJSC Polyus Managing Director, Krasnoyarsk Business Unit Joined Polyus in August 2014 Joined Polyus in June 2014 Has more than 30 years of experience in the mining industry, has held key positions in several of the industry’s largest companies: Has extensive experience in key positions in the mining industry: COO of En+ Group General Director of Vasilkovsky Mine (Kazzinc, GlencoreXstrata), Altaipolymetal Director of East Aluminum Division (RUSAL) First Deputy CEO of Zhezkent Mine (Kazakhmys) Senior Vice President of Mechel Andrey Krylov Andrey Timoshkin Technical Director Vice President of Engineering Joined Polyus in October 2014. Joined Polyus in May 2014. Managed major production divisions at Karelsky Okatysh (Severstal’s major iron ore unit) Extensive experience in the implementation of OPEX optimization and enhancement of labor productivity programs, as well as production and innovation policies Has over 15 years of experience in design and engineering for large industrial corporations: Director for Design at Hatch Engineering CEO of Design Institute Rusal-VAMI Head of Engineering Department of LLC RUSEngineering 4 Strategic asset review Table of Contents 1. Enhancement of the operational team 2. Polyus growth projects Strategic Programme for KBU Development Strategic Programme for Verninskoye Development Strategic Programme for Kuranakh Development 3. Power Projects 4. Total Operational Efficiency (TOE) 5. The Natalka Project 5 Strategic Programme for Krasnoyarsk BU Development 6 Strategic Programme for KBU development Key initiatives Blagodatnoye expansion Heap leaching at Blagodatnoye Increasing throughput capacity at Mill-4 to 8 mtpa by upgrading the mill’s equipment and debottlenecking the existing flowsheet Processing of low grade stockpiled and in situ ore at Blagodatnoye using heap leaching Strategic Programme for KBU Development Reconfiguration of Mill-1 with an increase of the existing plant’s capacity Mill-1 will be modified to treat Olimpiada ore and produce gold concentrate for further processing or sales as end product 7 Strategic Programme for KBU development Production flow at Krasnoyarsk BU Existing production flow Ore mining Blagodatnoye Open-pit Ore mined in 2014: 7.4 mln t Ore processing Gold production Mill-4 Processing capacity: 6.0 mtpa Processed ore in 2014: 7.3 mln t Mill-1 Titimukhta Open-pit Ore mined in 2014: 2.2 mln t Olimpiada Open-pit Average annual ore mining: 8.0-8.5 mtpa Processing capacity: 2.4 mtpa Processed ore in 2014: 2.0 mln t Gold produced in 2014: 1,223 koz Mill-2,3 Processing capacity: 8.0 mtpa Processed ore in 2014: 8.5 mln t 8 Strategic Programme for KBU development Production flow at Krasnoyarsk BU Production flow after Programme implementation in 2018 Ore mining Ore processing Mill-4 Blagodatnoye Open-pit Low-grade ore stockpiles (c. 90 mln t @ ~0.7 g/t) Gold production Mill-1 capacity expansion from 6.0 to 8.0 mtpa Implementation of heap leaching Mill-1 Titimukhta Open-pit Mill-4 capacity expansion from 2.4 to 3.0 mtpa Estimated incremental growth by 2018: 300-350 koz pa Reconfiguration of ore flows to process Olimpiada ore at Mill-1 Olimpiada Open-pit Mill-2,3 Processing capacity 8.0 mtpa Existing process flows New process flows after Programme implementation in 2018 9 Strategic Programme for KBU development KBU at a glance Total ore processed and average grade in ore Recovery rate, % Ore processed, k t Average grade in ore, g/t 78,4% 2,9 2,8 14 297 2,8 16 476 16 699 17 043 2,7 80,1% 2013 2014 75,3% 17 754 2,7 79,6% 70,6% +9.5 ppts CAGR 5.6%1 2010 2011 2012 2013 2014 2010 TCC, $/oz 628 2011 2012 Refined gold, koz 633 1 219 1 223 1 171 582 541 519 1 038 -15% 933 Steady growth of the refined gold production Due to cost optimisation programme and weaker rouble 2010 1 2011 2012 2013 2014 2010 2011 2012 2013 2014 Compound average growth rate, % 10 Strategic Programme for KBU development Reconfiguration of the Titimukhta Mill Project goal Modification of the Titimukhta mill to process high-grade ore of Olimpiada instead of the lower grade Titimukhta ore, coupled with an increase in throughput capacity Anticipated production flow at BIO-3 Cyclone overflow ROUGHER Project description An in-depth analysis of KBU resource potential and options Chemical agents for the optimization of ore processing among existing mills was conducted. The analysis indicated high economic potential for processing higher-grade Olimpiada ore at the Titimukhta Mill Discharge to cycle THICKENING I, II SCAVENGER REGRINDING Gold-bearing flotation concentrate Processing Olimpiada ore at the Titimukhta Mill may lead Thickened product crushing and grinding circuits of the plant from 2.4 to 3.0 mtpa1, due to the ore having different physical properties Concentrate drying and packing area The flotation circuit will not require substantial capital mill will be used Gravity concentrate from ore pretreatment2 Gold-bearing flotation concentrate construction, since existing free areas of the Titimukhta 1 Flotation tailings CLEANER FLOTATION I CLEANER FLOTATION II SELECTIVE FLOTATION to an increase in throughput capacity of the existing FLOTATION Chemical agents Concentrate for sale To the Olimpiada mills Due to lower bond indices and hardness of Olimpiada ore compared to Titimukhta. 11 Strategic Programme for KBU development Heap leaching at Blagodatnoye Project goal Location on the map Additional cash flow by processing material from low-grade stockpiles and in situ material at Blagodatnoye Project description Krasnoyarsk Region Extensive resource base Blagodatnoye Heap leaching will enable processing c. 90 mln t of the offbalance ore with an average grade of 0.7 g/t within the final pit shell of Blagodatnoye. Implementation of this technology may result in an increase in KBU gold production by 40-70 koz per annum Khanty- Titimukhta Mansiysk Olimpiada Autonomous District Favorable chemical properties of the ore Irkutsk Region The results of laboratory research confirmed the applicability of heap leaching for the ores in the deposit1 Low capex and opex The Company plans to extensively use existing KBU machinery and equipment, which will enable to minimize project capex Blagodatnoye at a glance Since the material is already in stockpiles, the opex will be reduced Second largest asset of the Group located 25 km from Olimpiada Further application Reserves: 9.2 mln oz (@2.2 g/t) If successfully applied at Blagodatnoye, heap leaching may be implemented for processing off-balance stockpiles at Titimukhta as well Output of 394 koz in 2014 (395 koz in 2013) TCC of $442/oz in 2014 ($479/oz in 2013) 12 Strategic Programme for KBU development Blagodatnoye expansion Blagodatnoye expansion: project background Project goal Increase ore processing capacity at the Blagodatnoye mill to 8 mtpa by upgrading and debottlenecking the existing flowsheet Project description During the last 3 years, Mill-4 has been operating above its design capacity of 6.0 mtpa. In 2014, ore processing volumes totaled 7.3 mtpa as a result of finalization of the automation process. Daily performance analysis revealed that the plant is able to reach a higher capacity - up to 1,000 tonnes of ore per hour (equivalent to 8 mtpa). To stabilize throughput at the level of 8 mtpa, certain circuits require upgrading and mining and processing operations need to be debottlenecked. An independent technical audit performed in JulyAugust 2014 confirmed the possibility of ramping up the plant by up to 8 mtpa. Prior to 2014, expanding the Blagodatnoye mine to 9 mtpa by constructing an additional production line (Mill-5) was being considered The developed mine plan confirmed the possibility of expanding the mine’s capacity to 9 mtpa An in-depth analysis of the flowsheet carried out in 2014 showed the possibility of increasing the throughput of the mill from 6 to 8 mtpa by upgrading existing processing circuits and debottlenecking the existing operation. Ore processing, mln t Plant nameplate capacity – 6 mtpa 6.5 6.5 2011 2012 6.8 7.3 5.4 0.5 2009 2010 2013 2014 13 Strategic Programme for Verninskoye Development 14 Strategic Programme for Verninskoye Development Production flow at Verninskoye Existing production flow Ore mining Ore processing Ore processing Gold production Melting Gold produced in 2014: 146 koz Production flow after Programme implementation Gold production Ore mining Ore processing Ore processing Melting Estimated incremental growth: 100-160 koz pa 15 Strategic Programme for Verninskoye Development Verninskoye at a glance Total ore processed and average grade in ore Recovery rate, % The mill operated at its nameplate throughput capacity during the 2014 79,4% 70,8% 2 203 1 570 2,7 +8.6 ppts 62,3% 1 130 2,5 2,2 2012 Following the improvements implemented during 2014 Ore processed, k t Average grade in ore, g/t 2013 2014 2012 TCC, $/oz 2013 Refined gold, koz As a result of higher ore volumes processed and better recoveries 789 2014 146 869 89 594 -32% 36 Due to reaching the nameplate throughput capacity and weaker rouble 2012 2013 2014 2012 2013 2014 16 Strategic Programme for Verninskoye development Mill expansion Plant capacity expansion Resource base The deposit has sufficient resource base for expansion of Verninskoye Field exploration activities at Verninskoye, Smezhny and Pervenets were completed in 2013 Metallurgical sample drilling at the Medvezhiy Zapadniy site was completed in May 2014 In December 2014, the reserve estimate and feasibility study was submitted for review by the State Reserve Committee (GKZ). A presentation and state registration of reserves is expected in 1H 2015 Recovery rate increase Project description Possibility of expanding the mill’s capacity from the current 2.2 mtpa to 3.6-5.0 mtpa is driven by the field’s extensive resource base Timeline: 2017-19 Engineering for the project is currently in progress with a number of mill layout options under review (from 3.6 to 5.0 mtpa). Following the results of the study, the mill capacity and capex amount will be determined. Expected gain in output: 100-160 koz pa Verninskoye The mine was commissioned at the end of 2011. In 2014, it reached its design throughput capacity JORC reserves: 4.4 mln oz (@2.5 g/t) Output of 146 koz in 2014 (89 koz in 2013); TCC of $594/oz in 2014 ($869/oz in 2013) Project description A programme aimed to ramp up the recovery rate to 86% (currently 83-84%, 2014 average of 79%) Timeline: by the end of 2015 The programme includes 7 projects to boost the efficiency of the mill with total cost of $11 mln An increase in recovery will boost annual output up to 15 koz pa Sakha Republic (Yakutia) Verninskoye Irkutsk Region 17 Strategic Programme for Kuranakh Development 18 Strategic Programme for Kuranakh Development Production flow at Kuranakh Existing production flow Gold production Ore processing Ore mining Ore processing Open-pit Melting Mill capacity: 3.6 mtpa Ore mined in 2014: 4.0 mln t Ore processed in 2014: 3.8 mln t Gold produced in 2014: 137 koz Production flow after Programme implementation in 2018 Open-pit c. 4.0 mtpa of ore mining Gold production Ore processing Ore mining Ore processing Melting Mill capacity: 3.6 mtpa Estimated incremental growth by 2018: 45-50 koz pa Low-grade ore stockpiles Ore stockpiles: 11 mln t Heap leach capacity: up to 3 mtpa 19 Strategic Programme for Kuranakh Development Kuranakh at a glance Total ore processed and av. grade in ore processed Recovery rate, % Ore processed, k t Average grade in ore, g/t 3 811 3 735 1,3 1,3 1,3 3 298 2010 86,6% 85,2% 85,1% 2012 2013 86,8% 1,3 84,0% 2014 +2.8 ppts Achieved through continued effective ore blending Due to the use of stockpiles of a lower grade 3 376 2011 1,4 3 785 2010 TCC, $/oz 2011 2012 2013 2014 Refined gold, koz 1085 922 993 138 -20% 117 117 Stable production performance Due to cost optimisation programme and weaker rouble 2011 2012 2013 137 868 710 2010 138 2014 2010 2011 2012 2013 2014 20 Strategic Programme for Kuranakh development Implementation of heap leaching (1/2) Project background Location on the map Extensive resource base It is planned to process over 100 mln t of low-grade ore with an average grade of 0.7-0.8 g/t located within the design pit shell of the Kuranakh deposits Republic of Sakha Krasnoyarsk Region Such ore can be effectively processed by heap leaching facilities located in the immediate proximity Irkutsk Region Favorable chemical characteristics of the ore Kuranakh ore has all the necessary properties for heap leaching: the ore is easily leachable with finely disseminated mineralization not requiring fine crushing and long leaching cycles Low capex The main crushing, hauling and hydrometallurgical and process equipment is already on site To launch heap leaching, two major facilities (leaching pad and road infrastructure) must be built and further testing of the ore processing technology must be carried out 1 Kuranakh Kuranakh at a glance Kuranakh operates 11 gold ore deposits located in the area of Kuranakh ore field. JORC Reserves: 2.7 mln oz (@1.4 g/t) Output of 137 koz in 2014 (138 koz in 2013); TCC in FY 2014: $861/oz ($1,085/oz in FY 2013) Data as of 01.01.2015 21 Strategic Programme for Kuranakh development Implementation of heap leaching (2/2) Action plan of the project Lab testwork Timeline: 1H 2015 Perform a series of column leach tests to optimize technology (selection of fragmentation size, cement and cyanide consumption optimization, etc.) Heap leaching production flow at Kuranakh 1. Low-grade ore stockpiles Spraying heap with cyanide solutions Laying ore on leaching field Ore crushing 2. Pilot works Timeline: mid-2015 Perform large-capacity field trials (50 kt of ore) in order to verify and demonstrate effectiveness of the technology Engineering surveys, detailed design Leaching field Pregnant solution 3. Decision on project launch Timeline: 2H 2015 Following the results of the trials, the project parameters will be updated. If the economic potential of the project is confirmed, the decision on launching the project during 2016-19 will be made Ore sintering on conveyors Barren solution Carbon-in-column Carbon stripping and reactivation 22 Strategic assets review Content 1. Enhancement of the operational team 2. Polyus growth projects Strategic Programme for KBU development Strategic Programme for Verninskoye development Strategic Programme for Kuranakh development 3. Power projects 4. Total Operational Efficiency (TOE) 5. The Natalka project 23 Power projects Construction of the Razdolinskaya-Taiga 220 kV grid Project goal Construction of the Razdolinskaya-Taiga grid is a prerequisite for increasing gold production at KBU, as well as reducing power costs and improving the power supply reliability Project description Razdolinskaya-Taiga 220 kV grid Existing 110 kV grid New Combined Heat and Power station (CHP) 1 Existing Combined Heat and Power station (CHP-2) Existing Combined Heat and Power station (CHP-1) Timeline: 2015-16 Grid length: 228 km Capex: $110 mln Upon commissioning in 2016, the line will be bought out by the Federal Grid Company (FGC). Payments will be made in tranches over a 10-year period Krasnoyarsk Region Project implementation will: Severo-Yeniseiskiy 1 Comparison of power prices at KBU from different sources, RUB/kW*h connect the KBU assets with Unified Energy System of Russia, providing them with lower-cost power reduce the need for in-house heavy fuel oil and coal generation, which currently covers 45% of KBU’s requirements, thus reducing operating costs by $12 mln per annum provide additional power capacity for the strategic KBU development programme (incl. expansion of Mill-4 and upgrade of Mill-1). Additionally, back-up power capacity will be created to cover possible addditonal power demand at KBU in the future. Existing diesel power plant 0 Olimpiada/ Blagodatnoye Novaya Yeruda Bryanka 2 4 6 8 The planned Razdolinskaya-Taiga 220 kV grid Partizansk Razdolinsk The existing 110 kV grid New Combined Heat and Power station (CHP) as an alternative to the new grid 24 Power projects Construction of the Peleduy-Mamakan grid Project goal The project being implemented as a part of Power Strategy of Russia for the period until the year 20301 Grid length: over 280 km Capex: $90 mln The following will be constructed within phase 1 (2013–mid-2015): Cooperation with FGC Polyus Gold and FGC have entered into a cooperation agreement on the following: construction of phase 1 of the project will be funded by Polyus construction of phase 2 of the project will be funded by FGC FGC shall purchase the Peleduy–Mamakan line after completion of phase 2 of construction with payment in one installment Peleduy–Chertovo Koryto–Sukhoy Log power grid Substation Polyus The following will be constructed within phase 2: second line from Peleduy to Sukhoy Log and substations at Sukhoy Log and Chertovo Koryto Sukhoy Log–Mamakan grid, upgrade of the Mamakan substation Project potential Republic of Sakha Possibility of transmitting the excess power from the Yakutia grid (isolated Western power grid district) to the Bodaybo District, thus solving the regional power shortage issues Positive effect on production costs at Verninskoye due to the more expensive diesel generation being replaced Impetus for expanding both existing capacities (Verninskoye) and development of new assets (Chertovo Koryto) The planned Peleduy Mamakan 220 kV grid Peleduy substation Chertovo Koryto substation Sukhoy Log Polyus distribution Verninskoye substation Irkutsk Region 1 Mamakan substation Approved by the Executive Order by the Government of the Russian Federation dated 13 August 2009 25 Strategic assets review Content 1. Enhancement of the operational team 2. Polyus growth projects Strategic Programme for KBU development Strategic Programme for Verninskoye development Strategic Programme for Kuranakh development 3. Power projects 4. Total Operational Efficiency (TOE) 5. The Natalka project 26 Operational efficiency system TOE status update TOE (Total Operational Efficiency) has been launched at the Krasnoyarsk assets Significant potential of the programme is confirmed The initiatives currently being implemented are expected to provide savings of over RUB 1.1 bln per annum. Aimed to introduce quick-win measures that don't require significant investments: Measures with proven economic effect Examples of measures to be implemented under TOE: Investments not exceeding RUB 35 mln per initiative Increasing operating hours for critical equipment Payback period of no more than 2 years Application of new reagents IRR > 20% Increasing recovery rate Cost optimization (optimum selection of balls, explosives, tires, etc.) Headcount optimization Programme implementation areas at KBU Status of the TOE implementation in the Group 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Total 2014-2015 13 8 8 9 8 46 KBU (Krasnoyarsk) Processing plant The programme was launched in 2014, implementation of measures is ongoing 9 7 5 3 2 28 Verninskoye Start of programme in Q1 2015 Repairs 4 2 2 2 1 11 Kuranakh Diagnostics completed in 2014. Start of programme in Q1 2015 Power 3 5 4 4 2 18 Placer deposits Start of programme in Q1 2015 Other 3 - - - - 3 Polyus Logistics Start of programme in 2015 Total 32 22 19 18 13 104 Other services Start of programme in 2015 Areas Open pit Asset Timeline for introduction 27 Operational efficiency system Examples of measures – mining Introduction of dump truck crew motivation system for overachievement of production targets1 0,69 0,70 0,70 0,77 109 Implementation 94 96 0,76 107 0,76 0,76 104 105 0,77 Result 102 Mining and transportation equipment productivity increase by 10% on average 99 85 0,0 0 April May June Haulage, million tkm July August September October November Productivity, million tkm/dump truck Organization of double-sided loading in excavation1 Result Idlilng two shovels due to increased productivity per excavation unit 1 In 2014, the initiative was implemented at Olimpiada; implementation at other assets starting from 2015 is currently under consideration 28 Strategic assets review Content 1. Enhancement of the operational team 2. Polyus growth projects Strategic Programme for KBU development Strategic Programme for Verninskoye development Strategic Programme for Kuranakh development 3. Power projects 4. Total Operational Efficiency (TOE) 5. The Natalka project 29 The Natalka project The revision of the Natalka deposit resource block model In February 2015 the Group announced the results of its review of the Mineral Resource and Ore Reserve estimates for the Natalka deposit. Reserves The revision of the resource block model Natalka Proved and Probable Ore Reserves estimated at 319 mln tonnes at 1.6 g/t Au containing 16.2 mln oz of gold Ore Reserve estimates decreased by 49% Resources Natalka Measured, Indicated and Inferred Mineral Resources estimated at 777 mln tonnes at 1.5 g/t Au containing 36.8 mln oz of gold Reasons for the resource block model changes Ore Resource estimates reduced by 38% Input data refinement: exclusion of the historical Soviet-era underground sampling dating as far back as 1945 exclusion of low quality of underground channel sampling data collected in the period from 1945 to 2004 inclusion of channel samples collected from underground workings after 2004 and from trenches completed in 2014 Applying revised grade estimation parameters reflecting an interpretation of the gold distribution as more discrete and steeply dipping veins versus the previous interpretation as more widely disseminated mineralisation Reporting only mineralisation with reasonable prospects for economic extraction 30 Natalka project The new block model Comparison of models, 2014 vs. 2011 Red – high grade ore ˃1.5 g/t Brown – medium grade ore - 0.8-1.5 g/t Blue – low grade ore 0.4-0.8 g/t Gray – waste rock 2014 resource model 2011 resource model New approach to resources and reserves evaluation The new block resource model was built using techniques and methodology previously tested at the Hollinger project (Goldcorp, Canada), which has a similar geological structure and mining history The new resource model did not use the distorted results of the underground work testing The new model better reflects directions of mineralization zones and prevents dilution of high-grade material with lowgrade wallrock The stricter set of standrds from JORC 2012 was used instead of JORC 2004, which had previously been used for the resource base assesssment. Also, updated economic assumptions were applied. 31 Natalka project Update on the development of the project The Group continues to review the project, with a number of options for the project development being considered The detailed operational review of the Natalka project is currently expected to be completed in mid-2015 The current engineering studies are aimed at minimising outstanding capital expenditure and optimising the use of infrastructure which has been built to date 32