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Nezhda

Russia’s 4th largest gold deposit

Key facts

Location North-east Yakutia, Russia
Ownership 17.7% with call option to increase ownership to 100%
Mining open-pit +underground
Processing Gravity/flotation + off-take/ POX
Ore Reserves (JORC) 4.4 Moz GE, 3.6 g/t average grade
Mineral Resources (JORC) 8.1 Moz GE, 5.1 g/t average grade
Production start date Q4 2021
Life of mine 2045

Overview

Nezhda is Russia’s fourth largest gold property based in the Republic of Sakha (Yakutia) with a resource inventory of 49.4 Mt of mineralized material containing 8.1 Moz of gold equivalent (GE) with an average grade of 5.1 g/t GE based on the latest resource estimate.

Currently, the Company envisions the construction of an open-pit mine and a conventional on-site concentrator followed by concentrate processing at the Amursk POX or 3rd-party off-take. This ensures low capital intensity for the project, making it an excellent fit for Polymetal’s core capabilities. Total capital costs for Nezhda in 2019-2021 are estimated at US$ 234 million, including US$ 30 million of capitalised pre-stripping costs, and will be funded out of free cash flow.

In Q4 2018 Polymetal has completed the Feasibility Study for the Nezhda project based on the updated Ore Reserve estimate reported in accordance with the JORC Code. The Board has approved the start of project construction.

Polymetal first entered into the joint venture for the property in 2015, acquiring a 15.3% stake in the South-Verkhoyansk Mining Company («SVMC») which owns the mining and exploration license for the property. In July 2017, the company has agreed to increase its stake to 24.7% with a call option to buy out the remaining 75.3% in 2018, subject to certain conditions.

Location History Geology and Mineralisation Mineral Reserves and Resource Operations Project development timeline

Nezhda is the fourth largest gold deposit in Russia, located in northeast Yakutia in the Tompon municipal district, approximately 480 km east from the city of Yakutsk (population of 350,000). The property is remote with access by an all-season unpaved road and no grid connection. The nearest federal highway is 110 km away from the deposit by all-year unpaved road. The highway provides direct access to the Khandyga river port (170 km) and the Nizhniy Bestiakh railway spur (540 km). 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 Nezhda gold deposit was discovered in 1951 during the Allakh-Yunskaya geological exploration expedition. From 1959, the deposit was subject to several exploration and evaluation initiatives resulting in newly identified ore zones. In 1975, a 180 Kt per annum underground mine and concentrator was commissioned at Nezhda with over 2 Mt of ore mined and processed before the operation was placed on care and maintenance in 2005. Polyus acquired the asset in 2006, subsequently undertaking an extensive exploration program and completing several technical studies.

Polymetal entered into the project by establishing a joint venture with Polyus for the Nezhda gold deposit in 2015, completing a total 42,479 m of diamond drilling by 2017, which resulted in an initial Mineral Resource estimate reported in accordance with the JORC code on July 17, 2017. Polymetal then agreed to buy out 75.3% interest in Nezhda from Pallavicino Holdings by serving an exercise notice for the call option in April 2018. The consideration will comprise US$ 144 million, payable in Polymetal shares (apart from US$ 10 million that will be paid in cash).

The deposit is composed of large mineralised zones, representing areas of intense brecciation comprised of crushed and sheared, hydrothermally altered, sedimentary rocks that have been variably enriched in quartz. The Nezhda mineralisation is double refractory due to the encapsulation of fine gold particles within sulphide minerals and significant presence of preg-robbing carbonaceous material.

The Nezhda Ore Reserve estimate is reported in accordance with the JORC Code (2012) as at 1 April 2018 using a gold price of US$ 1,200/oz and silver price of US$ 16/oz. A cut-off grade of 1.2 g/t gold equivalent has been applied for open pit and 2.8 g/t for the underground. The Ore Reserve statement was prepared by Polymetal and reviewed by CSA Global Pty Ltd (“CSA”).

Additional Mineral Resources for Nezhda are reported in accordance with the JORC Code (2012) as at 1 April 2018 using a gold price of US$ 1,200/oz and silver price of US$ 16/oz.

The estimate has been updated with 217 additional drill holes (39 km) and is based on data from a total 64,708 m of diamond drilling completed by Polymetal between 2015 and 2018 in addition to the 339,392 m of drilling completed by previous owners. Two hundred and ninety-four mineralised intersections were identified based on fire assay results.

Mineral Resources for the open pit were estimated up to a depth of 250 m from the surface, with the underground portion estimated up to a depth of 440 m from the surface.

The largest mineralised structure is ore zone 1 (“OZ 1”) which has a strike length of 4,900 m and a vertical extent of over 1,800 m and comprises approximately 70% of currently estimated GE resources at Nezhda. For OZ 1, top cutting at 80 g/t gold was applied to reduce outlier grade influence on local estimation. Another first-priority mining area is Ore Zone (OZ) 56.

Nezhda Ore Reserves estimate as at 1 April 2018
Ore Reserves Tonnage Grade Content
Mt Au, g/t Ag, g/t GE, g/t Au, Moz Ag, Moz GE, Moz
Open-pit 10.4 3.5 22.0 3.8 1.2 7.2 1.3
Underground 1.4 4.5 9.0 4.6 0.2 0.4 0.2
Total Proved 11.7 3.6 20.0 3.9 1.4 7.6 1.5
Open-pit 17.8 3.2 13.0 3.3 1.8 7.5 1.9
Underground 8.5 3.8 13.0 3.9 1.0 3.5 1.1
Total Probable 26.3 3.4 13.0 3.5 2.9 11.0 3.0
Open-pit 28.1 3.3 16.0 3.5 3.0 14.7 3.1
Underground 9.9 3.9 12.0 4.0 1.2 3.9 1.3
Total Proved + Probable 38.0 3.4 15.0 3.6 4.2 18.6 4.4

Notes: Ore Reserves were estimated as at 01.04.2018 with the following assumptions: Au=US$ 1,200/oz, Ag = US$ 16/oz, COG for the open-pit GE =1.2 g/t, for the underground GE = 2.8 g/t. Ore Reserves are reported in accordance with JORC Code (2012). Discrepancies in calculations are due to rounding. GE – Gold equivalent was calculated using conversion factor 95 for silver (kAg). Conversion factor for silver to gold equivalent was calculated using the following formula: kAg= ((Au Price/31.1035 - (Au Price/31.1035-Au Refinery cost) *(Taxes Au) /100 - (Au Refinery cost Au)) *(Au Recovery) / ((Ag Price/31.1035 - (Ag Price/31.1035-Ag Refinery cost) *(Taxes Ag) /100 - (Ag Refinery cost)) *(Ag Recovery)) where, Taxes – mining taxes; Recovery – complete recovery from ore to refined metal. Gold equivalent (g/t) was calculated using the following formula: GE = CAu + CAg / kAg where, CAu – in-situ gold grade, g/t, CAg – in-situ silver grade, g/t.

Nezhda Additional Mineral Resources as at 1 April 2018
Additional Mineral Resources Tonnage Grade Content

Mt Au, g/t Ag, g/t GE, g/t Au, Moz Ag, Moz GE, Moz
Measured






Underground 0.2 4.0 9.0 4.1 0.0 0.1 0.0
Total Measured 0.2 4.0 9.0 4.1 0.0 0.1 0.0








Indicated






Underground 2.8 3.7 16.0 3.9 0.3 1.4 0.3
Total Indicated 2.8 3.7 16.0 3.9 0.3 1.4 0.3








Measured + Indicated






Underground 3.0 3.7 15.0 3.9 0.4 1.5 0.4
Total Measured+Indicated 3.0 3.7 15.0 3.9 0.4 1.5 0.4








Inferred






Open-pit 2.3 2.2 8.0 2.3 0.2 0.6 0.2
Underground 44.1 5.2 9.0 5.3 7.4 13.1 7.5
Total Inferred 46.4 5.1 9.0 5.2 7.6 13.7 7.7








Measured + Indicated + Inferred






Open-pit 2.3 2.2 8.0 2.3 0.2 0.6 0.2
Underground 47.1 5.1 10.0 5.2 7.7 14.6 7.9
Total Measured + Indicated + Inferred 49.4 5.0 10.0 5.1 7.9 15.1 8.1

Notes: Measured and Indicated Mineral Resources are additional to Ore Reserves. Inferred Mineral Resources are by definition always additional to Ore Reserves. Cut-off grades of 1.2 g/t and 2.8 g/t gold equivalent (GE) for the open pit and underground mining methods, respectively. Due to the effects of rounding, the sum of individual values will not necessarily equal the total. All Mineral Resources that were converted to Ore Reserves were excluded from the statement. GE – Gold equivalent was calculated using conversion factor 95 for silver (kAg).

Mining

The updated mine plan envisages five open pits (four at OZ 1 and a separate pit at OZ 56) that will be mined over 19 years via conventional drill-and-blast and truck-shovel methods, with a subsequent gradual switch to underground mining that will last for 17 years. The total expected mine life currently stands at 27 years, and can potentially be increased by another 10 years, following additional exploration to improve the confidence of the remaining Mineral Resources.

The projected open-pit mining volumes are currently set at up to 2.2 Mtpa of ore with an average stripping ratio of 9 (excluding pre-strip).

The underground mine will utilise long-hole stoping with partially consolidated backfill, a method currently used to good effect by Polymetal at the Albazino underground mine.

Metallurgy and processing

The concentrator with a capacity of 1.8 Mtpa incorporates crushing, two-stage grinding, gravity and flotation, concentration. Concentrates are thickened, filtered, dried and bagged for off-site processing. Tails are thickened, filtered, and dry stacked in a fully lined tailings storage facility. Gold recovery to concentrate is anticipated at 85% with a mass pull ratio of 4.8%. An average concentrate grade of 61 g/t is expected.

Flotation concentrates will be sold to third party off-takers while gravity concentrate will be processed at the existing Amursk POX facility. The current feasibility study does not include any consideration of the potential second line at the Amursk POX that would be capable of processing flotation concentrate in-house.

Polymetal envisages the following conceptual development timeline for the Nezhda gold Project:

  • Final approval from the Federal Anti-Monopoly Service in Q4 2018
  • Mining activities to start in Q4 2018 subject to positive decision by Federal Anti-Monopoly Service
  • Start of construction in Q1 2019
  • Commissioning and first production: Q4 2021
  • Full ramp-up: Q2 2022