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Report on payments to governments for the year 2017

20 June 2018

Polymetal International plc (LSE, MOEX: POLY, ADR: AUCOY) (together with its subsidiaries – “Polymetal”, the “Company”, or the “Group”) issues its report on payments to government for the year ended 31 December 2017.

INTRODUCTION

This Report provides an overview of the payments to governments made by Polymetal International plc and its subsidiary undertakings (hereinafter referred to as “Polymetal”) for the year 2017 as required under the UK’s Report on Payments to Governments Regulations 2014 (as amended in December 2015). These UK Regulations enact domestic rules in line with Directive 2013/34/EU (the EU Accounting Directive (2013)) and apply to large extractive companies, whose securities are publicly listed on a UK-regulated stock market, that are involved in the exploration, prospection, discovery, development and extraction of minerals, oil, natural gas deposits or other materials. This Report is also intended to satisfy the requirements of the Disclosure and Transparency Rules of the Financial Conduct Authority in the United Kingdom.

BASIS OF PREPARATION

Legislation

This report is prepared in accordance with The Reports on Payments to Governments Regulations 2014 as enacted in the UK in December 2014 and as amended in December 2015.

Reporting entities

This Report includes payments to governments made by Polymetal plc and its subsidiary undertakings (Polymetal). Payments made by entities over which Polymetal has joint control or significant influence are excluded from this Report.

Activities

Payments made by Polymetal to governments arising from activities involving the exploration, prospection, discovery, development and extraction of minerals are disclosed in this Report. It excludes payments related to refining activities made to the refineries owned by the government agencies and any payments which are not directly attributable to the production and exploration activities.

Government

Government includes any national, regional or local authority of a country, and includes a department, agency or entity that is a subsidiary of a government.

Project

Payments are reported at project level except that payments that are not attributable to a specific project are reported at legal entity level. Project is defined as operational activities which are governed by a single contract, or licence agreement, and form the basis for payment liabilities with a government. If such agreements are substantially interconnected, those agreements are to be treated as a single project.

“Substantially interconnected” means forming a set of operationally and geographically integrated contracts, or licence agreements that are signed with a government giving rise to payment liabilities. Indicators of integration include, but are not limited to, geographic proximity, the use of shared infrastructure and common operational management.

License agreements are aggregated for the purposes of reporting as a single project only when those legal agreements have substantially similar terms and are both geographically and operationally integrated.

Payments

The information is reported under the following payment types:

Income taxes

These are taxes paid by Polymetal on its income and profits in accordance with legislation enacted in the applicable jurisdiction. Payments are reported net of refunds. Value added tax, personal income taxes, social taxes, property taxes are excluded.

The maximum income tax in Russia is set at 20% and is allocated between federal budget and he budgets of the relevant constituent regions. In 2017 the following proportion was applied: 3% to the federal budget, whereas 17% allocated to the regional budgets (2016: 2% to the federal budget, whereas 18% allocated to the regional budgets). From 1 January 2017 Omolon Gold Mining Company LLC and Magadan Silver JSC are entitled to the decreased statutory income tax rate of 17% (2018:18%) for the operations held in the Special Economic Zone of the Russian Far East, as well as decreased mining tax rate (paying at 60% of the standard mining tax rates). In return for obtaining this tax relief the members of the regional free economic zone are obliged to invest 50% of their tax savings each year in the Special Economic Zone Development Program. From 1 January 2017 Svetloye LLC has received tax relief as Regional Investment Project and is entitled to the statutory income tax rate of 0% up to 2021, as well as decreased Mining tax rates.

In Kazakhstan and Armenia income taxes are set at 20% and there are no regional or local income taxes in these countries.

Mining tax

Mining tax is a royalty payable in Russian Federation, Kazakhstan and Armenia, which is calculated based on the value of the precious metals extracted in the period. This value is usually determined based on the realised selling price of precious metals or, in case if there were no sales during the period, cost of production of metals extracted (Russian Federation) or the average market price (Kazakhstan) during the period. Royalty payable in Armenia is calculated as a percentage of actual sales during the reporting period.

Mining tax in Russia is levied at federal level, and then is reallocated between federal and respective regional budgets based on the following proportion: 40% of total tax collected to the federal budget, 60% to regional budgets. Mining tax and royalties in Kazakhstan and Armenia are levied at republican level.

Licence fees

These are fees and other sums paid as consideration for acquiring a licence for gaining access to an area where extractive activities are performed. Administrative government fees that are not specifically related to the extractive sector, or to access to extractive resources, are excluded. No significant licence fees individually more than 86,000 GBP were paid during the year ended 31 December 2017.

Rental fees

The land in the Russian Federation and Kazakhstan on which the Group’s production facilities are located is owned by the state. The Group leases this land through operating lease agreements.

Other payments

Other payments include payments made and social commitments in accordance with subsoil contracts attributable to the Kyzyl project and investment in the Special Economic Zone Development Program of Omolon Gold Mining Company LLC and Magadan Silver JSC.

Cash and in-kind payments

Payments are reported on cash basis. No in-kind payments were made during years ended 31 December 2017 and 31 December 2016.

Materiality Level

Any payment, whether made as a single payment or as a series of related payments, below GBP 86,000 within a financial year is excluded from this Report.

Payments made to a governments by a joint ventures or associates of the Group in proportion to the company’s interest in the respective venture or associate are insignificant to this Report based on materiality level set.

Exchange Rate

Relevant payments are made by Polymetal in Russian Rubles, Kazakh Tenge and Armenian Dram and for the purpose of this Report are translated to the US Dollar based on the foreign exchange rate at the relevant monthly average rate.

PAYMENTS PER GOVERNMENT

FOR THE YEAR 2017

Government 000’$

Income tax

Mining

tax

Rental

fees

Licence fees

Other1

Total

Russia

79,692

61,728

2,096

31

18,267

161,814

Kazakhstan

12,960

8,911

61

-

4,370

26,302

Armenia

-

3,961

222

-

1,302

5,485

Total

92,652

74,600

2,379

31

23,939

193,601

PAYMENTS PER

PROJECT1

Entity 000’$

Project

Country/ Government

Region

Income tax

Mining

tax

Rental

fees

Licence fees

Other1

Total

Gold of Northern Urals CJSC

Voro

Russia

Svedlovsk Region

23,305

8,102

98

5

65

31,575

Okhotskaya Mining and Exploration Company LLC

Okhotsk

Russia

Khabarovsk Region

9,211

7,382

287

2

34

16,916

Svetloye LLC

Svetloye

Russia

Khabarovsk Region

-

-

217

-

14

231

Magadan Silver JSC

Dukat

Russia

Magadan Region

21,548

8,814

655

13

14,172

45,202

Mayskoye Gold Mining Company LLC

Mayskoye

Russia

Chukotka Autonomous Region

-

9,644

-

-

28

9,672

Omolon Gold Mining Company LLC

Omolon

Russia

Magadan Region

14,587

9,715

403

9

3,890

28,604

Albazino Resources Ltd

Albazino

Russia

Khabarovsk Region

11,041

18,071

436

2

64

29,614

Varvarinskoye JSC

Varvara

Kazakhstan

n/a

9,803

3,370

11

-

511

13,695

Komarovskoye Mining Company LLC

Komar

Kazakhstan

n/a

2,637

5,527

11

-

307

8,482

Bakyrchik Mining Venture LLC

Kyzyl

Kazakhstan

n/a

484

14

36

-

3,522

4,056

Inter Gold Capital LLC

Kazakhstan

n/a

36

-

3

-

30

69

Kapan MPC CJSC

Kapan

Armenia

n/a

-

3,961

222

-

1,302

5,485

Total

92,652

74,600

2,379

31

23,939

193,601

______________________

1 Includes payments under Special Economic Zone Development Program of kUS$ 3,822 for Omolon Gold Mining Company LLC and kUS$ 13,952 for Magadan Silver JSC.

PAYMENTS PER GOVERNMENT FOR THE YEAR 20161

Government 000’$

Income tax

Mining

tax

Rental

fees

Licence fees

Other

Total

Russia

133,114

76,503

1,231

18

443

211,309

Kazakhstan

5,324

4,501

49

-

1,522

11,395

Armenia

-

3,046

1

-

9

3,056

Total

138,438

84,050

1,281

18

1,973

225,760

PAYMENTS PER

PROJECT1

Entity 000’$

Project

Country/ Government

Region

Income tax

Mining

tax

Rental

fees

Licence fees

Other

Total

JSC Gold of Northern Urals

Voro

Russia

Sverdlovsk Region

21,983

11,023

7

0

53

33,066

LLC Okhotskaya Mining and Exploration Company

Okhotsk

Russia

Khabarovsk Region

13,056

8,206

143

8

20

21,433

JSC Magadan Silver2

Dukat

Russia

Magadan Region

66,728

22,690

435

206

90,058

Mayskoye Gold Mining Company LLC

Mayskoye

Russia

Chukotka Autonomous Region

-

7,459

1

-

16

7,476

Omolon Gold Mining Company LLC

Omolon

Russia

Magadan Region

12,838

9,100

338

10

32

22,318

Albazino Resources Ltd

Albazino

Russia

Khabarovsk Region

18,509

18,025

307

-

117

36,958

JSC Varvarinskoye

Varvara

Kazakhstan

n/a

4,271

4,501

11

-

612

9,396

JSC Komarovskoye Mining Company

Komar

Kazakhstan

n/a

905

-

-

-

87

992

Bakyrchik Mining Venture LLP

Kyzyl

Kazakhstan

n/a

147

-

34

-

799

979

JSC Inter Gold Capital

Kyzyl

Kazakhstan

n/a

-

-

4

-

25

28

Kapan MPC CJSC

Kapan

Armenia

n/a

-

3,046

1

9

3,056

Total

138,438

84,050

1,281

18

1,973

225,760

______________________

1 For the entities, acquired during the year ended 31 December 2016, payments to governments are reported from the acquisition date, namely for Kapan MPC CJSC and JSC Komarovskoye Mining Company from 28 April 2016 and 1 August 2016, respectively.

2 Individually less than GBP 86,000

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THIS RELEASE MAY INCLUDE STATEMENTS THAT ARE, OR MAY BE DEEMED TO BE, “FORWARD-LOOKING STATEMENTS”. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS AT THE DATE OF THIS RELEASE. THESE FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, INCLUDING THE WORDS “TARGETS”, “BELIEVES”, “EXPECTS”, “AIMS”, “INTENDS”, “WILL”, “MAY”, “ANTICIPATES”, “WOULD”, “COULD” OR “SHOULD” OR SIMILAR EXPRESSIONS OR, IN EACH CASE THEIR NEGATIVE OR OTHER VARIATIONS OR BY DISCUSSION OF STRATEGIES, PLANS, OBJECTIVES, GOALS, FUTURE EVENTS OR INTENTIONS. THESE FORWARD-LOOKING STATEMENTS ALL INCLUDE MATTERS THAT ARE NOT HISTORICAL FACTS. BY THEIR NATURE, SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS BEYOND THE COMPANY’S CONTROL THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON NUMEROUS ASSUMPTIONS REGARDING THE COMPANY’S PRESENT AND FUTURE BUSINESS STRATEGIES AND THE ENVIRONMENT IN WHICH THE COMPANY WILL OPERATE IN THE FUTURE. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE. THERE ARE MANY FACTORS THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE COMPANY’S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENTS ARE BASED.
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