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.
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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
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