Half Yearly Report

RNS Number : 0698L

Polymetal International PLC

30 August 2012

 



Release time	IMMEDIATE
Date	30 August 2012

Polymetal International plc

Half-yearly report for the six months ended 30 June 2012

Polymetal International plc (LSE: POLY) (together with its subsidiaries, including JSC "Polymetal" - "Polymetal", the "Company", or the "Group") is pleased to announce the Group's financial results for the six months ended 30 June 2012.

FINANCIAL HIGHLIGHTS

·      Revenue in 1H 2012 increased 41% to US$ 767 million compared to 1H 2011 ("year-on-year"), driven mostly by 23% increase in gold equivalent sold and a 14% increase in the average realised gold price;

·      Group total cash cost¹ was US$ 691/AuEq oz, up 8% year-on-year and down 4% compared to 2H 2012 ("half-on-half").  Strong operating performance and rouble depreciation offset the combined impact of domestic inflation and adverse movement in gold/silver price ratio;

·      Adjusted EBITDA grew 53%, significantly faster than revenues, to US$ 380 million; adjusted EBITDA margin was up 3.9 pp to 49.6%;

·      Net earnings were US$ 149 million, down 2% year-on-year primarily as a result of non-cash foreign exchange losses of US$ 60 million incurred on revaluation of US Dollar denominated debt versus foreign exchange gains of US$ 44 million in 1H 2011. As a result, diluted EPS was US$ 0.35 per share, 10% lower year-on-year;

·      Inaugural dividend of US$ 0.20 per share (total of US$ 77 million) paid for 2011 in June 2012 in accordance with the new dividend policy.  No interim dividend to be paid out, also in accordance with the stated policy;

·      Net operating cash flows nearly doubled to US$ 158 million while capital expenditures declined 20% to US$ 171 million.  These cash flow trends are expected to be even more pronounced in the second half of the year, as significant metal inventories at Dukat, Omolon and Albazino are drawn down and capital expenditures decrease further;

·      Group's liquidity profile remains comfortable with Net Debt¹ / Adjusted EBITDA further reduced from 1.4 as at YE 2011 to 1.3 as at 30 June 2012, with 61% of borrowings being long-term.

Financial highlights	1H 2012	1H 2011	Change, %(2)
Revenue, US$m	767	545	+41%
Adjusted EBITDA, US$m	380	249	+53%
Total cash cost, US$/AuEq oz	691	642	+8%
Adjusted EBITDA margin, %	49.6%	45.7%	+3.9 pp
Average realized gold price, US$/ oz	1,639	1,434	+14%
Average LBMA gold price, US$/ oz	1,647	1,450	+14%
Average realized silver price, US$/ oz	29.5	34.8	-15%
Average LBMA silver price, US$/ oz	30.1	34.9	-14%
Net earnings, US$m	149	151	-2%
Diluted EPS, US$/share	0.35	0.39	-10%
Dividend, US$/share	0.20(3)	nil	NA
Net debt, US$m	1,014	879	+15%
Net debt/Adjusted EBITDA	1.34	1.41	-5%
Net operating cash flow, US$m	158	80	+98%
Capital expenditure, US$m	171	215	-20%
Notes:
(1)  The definition and calculation of non-IFRS measures used in this report, including Adjusted EBITDA, Total cash costs, Net debt, and the related ratios, is explained in the “Financial Review” section below (2) % changes can be different from zero even when absolute amounts are unchanged because of rounding. Likewise, % changes can be equal to zero when absolute amounts differ due to the same reason. This note applies to all the tables in this release (3) Final dividend for FY 2011 paid in June 2012

"We have demonstrated strong financial performance on the back of excellent production results in the first half of the year. Our key growth projects, Omolon and Albazino/Amursk, have started to pay off and have made a meaningful contribution to the Company's financial results.  This was supported by stable production and cost performance at our mature operations", said Vitaly Nesis, CEO of Polymetal, commenting on the results.

"I believe that the current US dollar exchange rate dynamics, which had an impact on our bottom-line performance in the first half of the year, will in turn favourably affect our cost base towards the year-end. We expect that our performance in the second half of the year will be driven by continued revenue growth from our new operations, decrease in working capital, and robust cost performance, allowing us to meet shareholder expectations."

Conference call and webcast

Polymetal will hold a conference call and webcast to discuss its financial results on Thursday, August 30, 2012 at 5:30pm Moscow time (2:30pm London time; 9:30am New York time).

To participate in the call, please dial:

495 580 9543 (toll-free from Russia), or

0800 358 5263 (toll-free from the UK), or

1 877 941 2930 (toll-free from the US), or

[phone] (from outside the UK, the US and Russia), or follow the link:

http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=1830

Please be prepared to introduce yourself to the moderator or register.

A recording of the call will be available on Polymetal's website (www.polymetalinternational.com) and at http://polymetal300812-live.audio-webcast.com/ immediately after the call. It will also be available at 0800 358 3474 (toll-free from the UK) or [phone] (from outside the UK), access code 4561864#, from 7:30pm Moscow time Thursday, 30 August, till 11:59pm Moscow time Thursday, 7 September, 2012.

Enquiries

Media		Investor Relations
College Hill Leonid Fink Tony Friend	[phone]	Polymetal Maxim Nazimok Evgenia Onuschenko Elena Revenko	[e-mail] [phone] (Russia) [phone] (UK)
Joint Corporate Brokers
Morgan Stanley Edward Knight Sandip Patodia	[phone]	Canaccord Genuity John Prior Roger Lambert	[phone]

FORWARD-LOOKING STATEMENTS

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.

TABLE OF CONTENTS

Operating review

Financial review

Principal risks and uncertainties

Going concern

Directors' responsibility statement

Independent review report to Polymetal International plc

Condensed consolidated income statement

Condensed consolidated statement of comprehensive income

Condensed consolidated balance sheet

Condensed consolidated statement of cash flows

Condensed consolidated statement of changes in equity

Notes to the condensed interim consolidated financial statements

Operating review

market summary

Precious metals

The first six months of 2012 were generally positive for the precious metals market, with the average gold price increasing from US$ 1,450/oz in 1H 2011 to US$ 1,647/oz in 1H 2012, a 14% growth. By the end of February gold grew to as much as US$ 1,788/oz but then retreated on the lack of evidence for the possibility of further monetary easing by the US Federal Reserve. Silver price dynamics followed gold, however the average price level of US$ 30.1/oz was 14% lower year-on-year after abnormal spikes in 1H 2011. The average gold/silver price ratio decreased from 1/41 in 1H 2011 to 1/56 in 1H 2012, a level close to the long-term average.

Foreign exchange

The Group's revenues and the majority of its borrowings are denominated in US Dollars, while the majority of the Group's costs are denominated in Russian Roubles. Therefore changes in exchange rates are affecting its financial results and performance. In 1H 2012 we have seen the increased volatility in USD/RUB exchange rate stemming from turbulence in global financial markets and fluctuations in the oil price. As a result, from 1 January to 30 June 2012 Russian Rouble depreciated against the US Dollar by 2% from 32.2 RUB/USD to 32.8 RUB/USD, while average rate was down 6.6% year-on-year from 28.6 RUB/USD in 1H 2011 to 30.6 RUB/USD in 1H 2012. Most of the depreciation has occurred during April - May 2012. Both the oil price and the exchange rates have stabilised during the summer months and now remain close to the 1H 2012 period-end. The depreciation of the Rouble had a negative effect on the Group's net earnings in 1H 2012 due to the effect of retranslating its US Dollar debt (see more detail on page 12). However, assuming exchange rates remain stable over the balance of the year, it is expected that the change in the average rate for the year will have a positive effect on the dollar value of the Group's rouble-denominated costs.

operating results

	6 months ended Jun 30,		% change
	2012	2011
Waste mined, Kt	42,516	40,731	+4%
Underground development, m	22,575	15,856	+42%
Ore mined, Kt	5,778	4,439	+30%
Open-pit	4,963	3,765	+32%
Underground	815	674	+21%
Ore processed, Kt	4,871	4,070	+20%
Production
Gold, Koz	256	184	+39%
Silver, Moz	13.8	8.2	+67%
Copper, tonnes	3,179	3,512	-9%
Gold equivalent, Koz1	501	338	+48%
Sales
Gold, Koz	226	188	+20%
Silver, Moz	12.5	7.3	+72%
Copper, tonnes	3,627	2,768	+31%
Gold equivalent, Koz2	467	379	+23%
Headcount3	8,762	7,704	+14%
Safety
LTIFR	0.6	0.7	-14%
FIFR	-	-	-
Notes:     (1) Based on 1:60 Ag/Au and 5:1 Cu/Au conversion ratios.                 (2) Based on actual realised prices. (3) Average for the period

The Company demonstrated excellent operating performance in 1H 2012: for the six month period the Group produced more than 500 Koz of gold equivalent, growth of 48% year-on-year. Omolon, now running at full capacity, and the Dukat Hub were the key growth contributors, supported by a strong performance at other mines. Sales lagged production due to temporary increases in work-in-progress (precipitate and concentrate) at Omolon, Albazino, and Dukat. These increases in work-in-progress, accompanied by corresponding cash outflows, are expected to be reversed before year-end with cash inflows in the second half of 2012.

The Company is firmly on track to deliver on its FY2012 production guidance of more than 1 Moz of gold equivalent thanks to the stronger than planned performance at Dukat and Khakanja.

growth projects

First gold was poured at the Amursk POX plant, a major achievement for the Company and another crucial step towards full ramp-up of the facility in Q4 2012. The recovery ramp-up profile is fully in line with plans with no material metallurgical issues encountered so far.

At Mayskoye, underground development continues at a stable pace with the commencement of stoping scheduled for Q4 2012 to coincide with the planned start-up of the concentrator in December 2012. With the start of the navigation, the remaining equipment is being shipped to the site. Equipment installation at the concentrator is continuing and now focusing on ventilation, piping and instrumentation. The coal-fired boiler house, tailings storage facility and water storage dam have been fully commissioned.

other developments

In 1H 2012, the Company restructured its interest in Amikan Holding Limited ("Amikan"), which owns the Veduga gold deposit in the Krasnoyarsk region of the Russian Federation. The Group initially consolidated its 100% holding in Amikan, previously held in joint venture with AngloGold Ashanti Holdings, and then formed a new entity, Polygon Gold Inc., in which it currently owns 42.6%, attracting new partners into the development of the project.

During February - July 2012 the Company successfully completed the buyout of the minority shareholding in JSC Polymetal through the Mandatory Tender Offer made in accordance with Russian law, followed by the squeeze-out procedure. As a result, the Company is now the beneficial owner of 100% of the shares in JSC Polymetal and, through it, all of its operating assets.

Financial review

Revenue

		1H 2012	1H 2011	Change, %
Sales volumes
Gold	Koz	226	188	+20%
Silver	Moz	12.5	7.3	+72%
Copper	kt	3.627	2.768	+31%
Gold equivalent sold1	Koz	467	379	+23%

¹ Based on actual realised prices

Sales by metal (US$ mln unless otherwise stated)		1H 2012	1H 2011	Change, %	Volume variance, US$ mln	Price variance, US$ mln
Gold		371	270	+38%	55	47
Average realised price	US$/oz	1,639	1,434	+14%
Average LMBA closing price	US$/oz	1,647	1,450	+14%
Share of revenues	%	48%	50%
Silver		369	253	+46%	182	-66
Average realised price	US$/oz	29.5	34.8	-15%
Average LBMA closing price	US$/oz	30.1	34.9	-14%
Share of revenues	%	48%	46%
Copper		26	22	+21%
Share of revenues	%	3%	4%
Total metal sales		766	544	+41%	128	94
Other revenue		1	1	+115%
Total revenue		767	545	+41%

In 1H 2012, revenue grew by 41% year-on-year to US$ 767 million, driven mostly by 23% growth in gold equivalent volume sold. Gold sales volume was up by 20%, and silver sales were up by 72% year-on-year on the back of production growth of 39% and 67%, respectively.  Sales lagged production due to temporary increases in precipitate and concentrate at Omolon, Albazino, and Dukat. These increases are short-term and are expected to be reversed before year-end with sales and cash inflows in the second half of 2012.

The average realised price for gold was US$ 1,639/oz, up 14% year-on-year and in line with market price of US$ 1,647/oz. The average realised silver price comprised US$ 29.5/oz, 15% lower year-on-year, also closely reflecting market price movements.

The share of gold in total revenue declined from 50% in 1H 2011 to 48% in 1H 2012, while the share of silver grew from 46% to 48% due to more significant increase in silver production and sales offsetting change in gold/silver price ratio from 1/41 to 1/56 year-on-year.

Analysis by segment	Revenue, US$ mln			Gold equivalent sold, Koz (silver for Dukat)
	1H 2012	1H 2011	1H 2012 /1H 2011, %	1H 2012	1H 2011	1H 2012/ 1H 2011, %
Dukat	324	231	+40%	10,909	6,623	+65%
Voro	110	106	+3%	67	74	-10%
Khakanja	128	99	+29%	77	69	+11%
Varvara	102	85	+19%	62	60	+4%
Omolon	82	22	+274%	50	15	+235%
Albazino	21	-	NA	13	-	NA
Other	0	0	NA	NA	NA	NA
Total revenue	767	545	+41%	467	379	+23%

Dukat, the largest segment of the Group by revenue, demonstrated very strong 40% growth in revenue on the back of increased head grades processed and further improvements in recoveries at the Omsukchan concentrator, leading to 45% growth in silver production. Other mature mines performed in line with their production growth. Omolon, having successfully reached full capacity with processing of high-grade ore from Sopka, in 1H 2012 contributed 11% of total revenues of the Group, nearly four-fold increase year-on-year. Albazino resumed sales to a Chinese off-taker in June 2012, and further sales are scheduled for Q3 this year to maximise cash flows during the ramp-up of the Amursk POX plant. In the meantime, the first gold produced at the POX plant (6.5 Koz) has been sold in 1H 2012.

Cost of sales

Cost of sales
(US$ mln)	1H 2012	1H 2011	Change, %
On-mine costs	213	151	+42%
Smelting costs	156	116	+34%
Purchase of ore from third parties	15	9	+65%
Mining tax	57	41	+40%
Total cash operating costs	441	317	+39%
Depreciation and depletion of operating assets	86	69	+24%
Rehabilitation expenses	2	2	-2%
Total costs of production	529	388	+36%
Increase in metal inventories	-185	-130	+42%
Write-down to net realisable value	1	2	-75%
Total change in metal inventories	-184	-128	+44%
Cost of other sales	1	1	+23%
Total cost of sales	346	261	+32%

Cash operating cost structure	1H 2012, US$ mln	1H 2012, % of total	1H 2011, US$ mln	1H 2011, % of total
Consumables and spare parts	140	32%	102	32%
Services	148	34%	94	30%
Labour	78	18%	68	21%
Other expenses	3	1%	3	1%
Purchase of ore from third parties	15	3%	9	3%
Mining tax	57	13%	41	13%
Total cash operating costs	441	100%	317	100%

Total cost of sales grew by 32% in 1H 2012 to US$ 346 million, mainly on the back of volume-based growth both in ore mined (by 30%) and ore processed (by 20%). Other cost drivers include the domestic inflation in Russia (3.2% in 1H 2012), however it was offset by the depreciation of the Russian Rouble against the US Dollar (6.6% year-on-year based on average rate). The increased operating asset base, which now fully includes Omolon and Albazino, contributed 18% of the 32% increase, while volume growth at other mines and inflationary factors made up another 14%.       

The total cost of labour within cash operating costs in 1H 2012 was US$ 78 million, a 14% increase, mainly stemming from growth in the average number of employees directly involved in production by 11%. Increase in headcount was mainly related to the completion of the expansion of the Omolon hub. In addition to that, salary levels at the Group's mines are reviewed semi-annually in accordance with the CPI movements.

The cost of consumables and spare parts and the cost of services grew by 38% and 57% respectively, mainly affected by mining and processing volume increases (30% and 20%, respectively). Specific cost increases in the period compared to 1H 2011 were related to increased ore and concentrate haulage costs at Omolon; increased underground development at Dukat, and a 14% power tariff hike in the Magadan region.

Mining tax represented a consistent 13% share of total cost of sales in both 1H 2012 and 1H 2011 and has increased by 40% to US$ 57 million in line with revenue growth.

Depreciation and depletion was US$ 86 million, up 24% year-on-year, as the Group continues to commission new mining and processing assets, most importantly at Albazino and Omolon. A significant portion of depreciation and depletion expenses in 1H 2012 was included in metal inventories as at 30 June 2012 due to the timing lag between production and sales.

In 1H 2012 a net metal inventory increase of US$ 185 million was recorded. The increase was mainly represented by concentrate and precipitate produced but not yet sold: concentrate produced at Albazino (awaiting further sales to off-takers during the summer navigation period or processing at Amursk POX), and Dukat and Omolon hubs (concentrate and precipitate in transit and in third-party refineries). The Company expects the majority of this increase to be reversed by the 2012 year-end. The increase in ore stockpiles is mainly represented by Omolon hub where the Group continues mining lower grade ore at Omolon for further heap leaching scheduled for 2013 at Birkachan and for 2015 at Sopka and by seasonal increase in ore stockpiles at Avlayakan awaiting transportation by sea to Khakanja.

General, administrative and selling expenses

(US$ mln)	1H 2012	1H 2011	Change, %
Labour	48	38	+25%
Share based compensation	27	29	-6%
Services	7	8	-14%
Depreciation	2	2	-3%
Other	6	6	-2%
Total	90	83	+8%

General, administrative and selling expenses grew by 8% year-on-year from US$ 83 million to US$ 90 million, mainly because of the increase in labour costs by 25% to US$ 48 million due to planned increases in administrative personnel at the new mines, including Amursk POX, and as a result of regular salary reviews.

Other expenses

(US$ mln)	1H 2012	1H 2011	Change, %
Additional tax charges resulting from Supreme Arbitration Court decision	14.4	-	NA
Taxes, other than income tax	11.0	6.8	+63%
Exploration expenses	8.5	3.9	+116%
Social payments	5.5	3.7	+48%
Housing and communal services	4.5	2.9	+53%
Loss on disposal and write-down of assets	2.4	1.8	+31%
Bad debt allowance	0.7	(0.4)	-273%
Other expenses	3.3	0.4	+776%
Total	50.2	19.1	+163%

Other expenses grew from US$ 19.1 million in 1H 2011 to US$ 50.2 million in 1H 2012. The largest portion of the increase was attributed to additional mining tax charges (including penalties and accrued interest) in relation to 2007 silver sales following  the Supreme Arbitration Court decision in July 2012. For more information refer to Note 14 of the interim consolidated condensed financial statements. Increase in exploration expenses from US$ 3.9 million to US$ 8.5 million is mainly related to a write-off of the Rogovik stand-alone project. Other components of other expenses demonstrated moderate increases on the back of increased production, asset base and general cost inflation.

TOTAL Cash costs BY MINE

Total cash costs per gold equivalent ounce	Cash cost per AuEq ounce, US$/oz
	1H 2012	1H 2011	Change, %	2H 2011	Change, %
Dukat (AgEq)	12.2	14.7	-17%	13.4	-9%
Voro	549	482	+14%	598	-8%
Khakanja	600	590	+2%	717	-16%
Varvara	796	697	+14%	749	+6%
Total - mature operations	658	593	+11%	658	+0%
Omolon	933	1,817	-49%	1,303	-28%
Albazino	750	-	n/a	993	-24%
Total	691	642	+8%	721	-4%

In 1H 2012 the Company demonstrated strong cost performance on the back of solid production results and successful ramp-up of the new mines, Omolon and Albazino. Total cash costs per gold equivalent ounce sold (TCC) were US$ 691/AuEq oz, up 8% year-on-year and 4% below 2H 2011.

The table below summarises major factors that have affected the Group's TCC dynamics year-on-year:

Reconciliation of TCC movements	US$ / oz	Change, %
Total cash cost per gold equivalent ounce - 1H 2011	642
Domestic inflation	31	+5%
USD rate change	(48)	-7%
Mining tax change - Au&Ag price	10	+2%
Au/Ag ratio change	98	+15%
Change in average grade processed by mine	(80)	-13%
Change in recovery rate	(28)	-4%
Change in share of sales between mines	63	+10%
Other	4	+1%
Total cash cost per gold equivalent ounce - 1H 2012	691	+8%

Total cash cost by mine:

·      Dukat's total cash cost per silver equivalent ounce sold decreased by 17% year-on-year to US$ 12.2/AgEq oz.  Improvement in both grades and recoveries at Dukat and Lunnoye, combined with increased throughput (14% increase in ore processed year-on-year), more than offset significant increases in underground development and increases in electricity tariff rates. Compared to 2H 2011, total cash cost decreased by 9% on the back of reduced mining tax, grade improvement and stable operating performance.

·      At Voro, TCC in 1H 2012 was US$ 549/AuEq oz compared to US$ 482/AuEq oz in 1H 2011. The key drivers of cost inflation were the increase in stripping ratios (due to depletion of Degtyarskoye satellite mine) and the planned reduction of average grade processed at the CIP plant from 5.8 g/t to 5.4 g/t year-on-year. Half-on-half, total cash costs have improved by 8% aided by grade improvement at the CIP plant.

·      Khakanja's TCC was US$ 600/AuEq oz, a 2% increase year-on-year. This cost increase below the levels of cost inflation was driven by improvement in average grade processed (from 6.4 g/to to 8.8 g/t year-on-year) as the plant treated higher gold grade ore from Yurievskoye and started to process high silver grade ore from deep levels of Khakanja's pit 3. A 16% decrease in total cash cost was achieved half-on-half, mainly as a result of average grade improvement and the resulting increase in production, combined with a change in mix of ores processed at the plant: there was no processing of high cost Avlayakan and Sopka ores in 1H 2012, as opposed to 2H 2011.

·      At Varvara, TCC was US$ 796/AuEq oz, growing by 14% year-on-year and 6% half-on-half. The growth was mainly driven by increased purchases of third-party ore combined with reduction of copper production due to scheduled decline in grade.

·      Omolon hub reached its design capacity and started to process high-grade ore from Sopka.  This led to a notable improvement in TCC, from US$ 1,817/AuEq oz in 1H 2011 and 1,303/AuEq oz in 2H 2011 to US$ 933/ AuEq oz in the reporting period.  TCC is expected to decline further in 2H 2012 as precipitate inventory is sold.

·      At Albazino, TCC was US$ 750/ AuEq oz, 24% lower compared to 2H 2011, as the concentrator has operated at design throughput and continues to improve recoveries and grades. Amursk POX has been firmly progressing with the ramp-up reaching a recovery rate of 90% for gold produced in Q2 2012, and the scheduled achievement of design parameters in the second half of the year provides for further cash cost reduction potential for the hub as a whole.

[1]Total cash costs comprise cost of sales of the operating assets (adjusted for depreciation expense, rehabilitation expenses and write-down of inventory to net realisable value and certain other adjustments) and general, administrative and selling expenses of the operating assets. Gold equivalent sales volume is calculated based on average realised metal prices in the relevant period. Total cash cost per gold equivalent ounce sold is calculated as total cash costs divided by total gold equivalent unit ounces sold.

[2] Effect of mix change between mines with different cost levels

Adjusted EBITDA and EBITDA margin

Reconciliation of Adjusted EBITDA (US$ mln)	1H 2012	1H 2011	Change, %
Net earnings	149	151	-2%
Finance cost (net)	11	13	-17%
Income tax expense	72	60	+21%
Depreciation and depletion	55	35	+57%
EBITDA	286	259	+11%
Share based compensation	27	29	-6%
Exchange gains/losses	60	(44)	-236%
Change in fair value of contingent liability	2	4	-41%
Rehabilitation costs	2	2	-2%
Write-down of inventory	1	2	-75%
Change in fair value of derivatives	-	2	-100%
Gain on acquisition of remaining interest in joint venture and (loss)/profit on  disposal of subsidiaries	(12)	(5)	+149%
Additional tax charges resulting from the Supreme Arbitration Court decision	14	-	NA
Adjusted EBITDA	380	249	+53%
Adjusted EBITDA margin	49.6%	45.7%	+3.9 pp

Adjusted EBITDA by segment (US$ mln)	1H 2012	1H 2011	Change, %
Dukat	181	125	+45%
Voro	71	65	+9%
Khakanja	78	54	+45%
Varvara	45	43	+6%
Omolon	31	(8)	NM
Amursk hub (including Albazino and Mayskoye)	2	(14)	NM
Corporate and other and intersegment operations	(28)	(15)	NM
Total	380	249	+53%

In 1H 2012, adjusted EBITDA grew by 53% to US$ 380 million, ahead of revenue growth, with adjusted EBITDA margin reaching 50%. The key growth and profitability drivers were production growth, reduction of cost levels at our growth projects, Omolon and Albazino, and excellent operating and cost performance at Dukat and Khakanja. Adjusted EBITDA at Dukat grew by 45% to US$ 181 million, at Khakanja by 45% to US$ 78 million, and Omolon and Amursk POX hub (including Albazino) both turned into EBITDA-positive operations in 1H 2012.

 

[1] The Company defines Adjusted EBITDA (a non-IFRS measure) as profit for the period adjusted for depreciation expense, rehabilitation expenses, write-down of inventory to net realisable value, share-based compensation, listing expenses, gains and losses on acquisitions and disposals, foreign exchange gain/(loss), change in fair value of derivatives, change in fair value of contingent consideration, finance income, finance costs, and income tax expense. Adjusted EBITDA margin is Adjusted EBITDA divided by revenue. The figures presented above have been rounded and accordingly may not sum to the total shown.

 

 

Other income statement items

Foreign exchange loss in 1H 2012 was US$ 60 million versus a US$ 44 million gain in 1H 2011. These losses and gains, respectively, are unrealised non-cash items and represent the appreciation/depreciation of the Group's mostly US Dollar denominated borrowings against the Russian Rouble, the functional currency of the Group. At the start of the 1H 2012, the Group's US Dollar net debt was $310 million and a small unrealised retranslation gain arose when the exchange rate initially appreciated from 32.2 RUB/USD at 1 January 2012 to 29.9 RUB/USD on 16 February 2012, the date when the Group made the $534 million payment under the MTO. The subsequent devaluation of the Rouble to 32.8 RUB/USD at 30 June 2012, on the now higher US Dollar net debt value (approx. US$ 950 million on average during the period), gave rise to the overall $ 60 million non-cash net foreign exchange loss.

The Company does not use any hedging instruments for managing foreign exchange risk, other than a natural hedge arising from the fact that the majority of the Group's revenue is denominated or calculated in US dollars. Though income statement volatility may arise in the financial reporting, the Company believes that the underlying matching of revenue cash flows against debt repayments and related interest represents an economically effective hedging strategy.

A US$ 12 million net gain has been recorded in 1H 2012 as a result of transactions with the Group's holding in Amikan Holding Limited, which owns the Veduga gold deposit in the Krasnoyarsk region of the Russian Federation. The Group has initially consolidated 100% holding in Amikan, previously held in joint venture with AngloGold Ashanti Holdings, and then formed a new entity, Polygon Gold Inc., in which it currently owns 42.6%.

Net earnings, earnings per share and dividends

Pre-tax earnings in 1H 2012 were US$ 221 million, up 5% from 1H 2011, less than significantly stronger growth in Adjusted EBITDA, due to unrealised foreign exchange losses versus gains in 1H 2012, and additional mining tax charges (including penalties and accrued interest) of US$ 14 million recorded as a result of Supreme Arbitration Court decision. Further, the Group's income tax expense in 1H 2012 includes US$ 14 million of additional profit tax charges in accordance with the above decision. The 1H 2012 effective tax rate in was therefore 33%, up from 28% in 1H 2011. The effective tax rate for the reporting period which excludes one off items, including the additional Magadan Silver tax charge, was 26.4%. The difference between the actual effective tax rate and statutory profit tax rate of 20% is arising mainly from non-deductible expenses, most importantly share-based compensation (a non-cash item, US$ 27 million in 1H 2012).

As a result, net earnings in 1H 2012 were US$ 149 million (1H 2011: US$ 151 million). Basic earnings per share were US$ 0.37, down 12% year-on-year. Diluted earnings per share were US$ 0.35, down 10% year-on-year.

In June 2012, the Annual General Meeting approved the amount of dividends for 2011 of US$ 0.20 per share proposed by the Board, and total dividends of US$ 77 million have now been paid. The Company reiterates its dividend policy, effective from 2012, to pay an annual dividend of 20% of net earnings provided that net debt to adjusted EBITDA ratio is below 1.75.

Capital expenditure

(US$ mln)	1H 2012	1H 2011	Change, %
Amursk/Albazino	35	86	-60%
Mayskoye	30	12	+145%
Omolon	25	24	+5%
Dukat	24	16	+48%
Khakanja	12	5	+135%
Voro	5	4	+23%
Varvara	5	5	+4%
Corporate	27	56	-52%
Capitalised interest	7	6	+27%
Total capital expenditure1	171	215	-20%

¹ Total capital expenditure includes amounts payable at the end of the period. On a cash basis, capital expenditure was US$ 167 million in 1H 2012 (1H 2011: US$ 203 million).

In 1H 2012, total capital expenditure was US$ 171 million, down 20% year-on-year which reflects completion of several major Group's investment projects in 2011, including construction of Albazino and Amursk POX and expansion at Omolon. The only continuing major project in 2H 2012 is the construction of Mayskoye expected to be completed by the year-end.

The major capital expenditure items in 1H 2012 were:

·      US$ 35 million were invested at Albazino/Amursk, most importantly in mining fleet expansion, commissioning activities at POX, and underground exploration drift at Albazino;

·      US$ 30 million was spent on construction of the processing plant and underground mine at Mayskoye, where the Group is targeting completion in Q4 2012. The investments in 1H 2012 were concentrated on installation of equipment at the site (mills, ventilation, piping, power substation);

·      US$ 25 million was invested in the Omolon operations, the expenditure in 1H 2012 mainly represents development of Tsokol mine and expansion of the hub's mining fleet with growing mining and stripping volumes at Birkachan and Sopka;

·      Capital expenditure at Dukat was US$ 24 million, representing mainly expansion of underground operations and maintenance capex at the Omsukchan concentrator;

·      US$ 12 million was invested in Khakanja hub, representing mainly development of new mine at Ozerny (start of ore mining scheduled for Q4 2012) and transportation infrastructure for Avlayakan mine;

·      Other operating mines incurred less significant capital expenditures in 1H 2012, mainly representing routine maintenance investment and upgrades to the mining fleet;

·      The Company continues to actively invest in greenfield and brownfield exploration (included in Corporate segment). Capital expenditure on exploration in 1H 2012 was US$ 26 million, and focused on key advanced targets such as the expansion of Albazino, in-fill drilling at Mayskoye prior to start of stoping, and development of Avlayakan and Ozerny mines;

·      Total capital expenditure in 1H 2012 includes US$ 7 million of capitalised interest (1H 2011: US$ 6 million).

Cash flows

(US$ mln)	1H 2012	1H 2011	Change, %
Operating cash flows before changes in working capital	295	185	+59%
Changes in working capital	(137)	(106)	+30%
Total operating cash flows	158	80	+98%
Capital expenditure	(167)	(203)	-18%
Other	(18)	(7)	+144%
Investing cash flows	(185)	(210)	-12%
Financing cash flows
Net increase in borrowings	40	157	-74%
MTO and squeeze-out obligation repayment	(561)	-	NA
Dividends paid	(77)	-	NA
Other	-	(5)	-100%
Total financing cash flows	(597)	151	-494%
Net decrease/increase in cash and cash equivalents	(624)	21	NA
Cash and cash equivalents at the beginning of the year	659	11	NA
Effect of foreign exchange rate changes on cash and cash equivalents	(9)	1	NA
Cash and cash equivalents at the end of the year	26	33	NA

Operating cash flows in 1H 2012 were strong, supported by excellent operating results and consequent EBITDA growth. Operating cash flows before changes in working capital grew 59% year-on-year to US$ 295 million. Net operating cash flows were US$ 158 million, up 98% year-on-year, and were affected by increase in working capital in 1H 2012. As these increases are mainly represented by concentrate and precipitate work-in-progress, the Company expects the in 2H 2012 the difference between production and sales will reverse and result in a net cash inflow from reduction of metal inventories.

Total cash and cash equivalents decreased from US$ 659 million as at 31 December 2011 to US$ 26 million as at 30 June 2012 as a result of the following:

·      Strong operating cash flows of US$ 158 million;

·      Scheduled settlement of the MTO obligation and further buyouts of the remaining shares in JSC Polymetal, totalling US$ 561 million;

·      Inaugural dividend payment of US$ 77 million in June 2012; and

·      Investment cash outflows totalled US$ 185 million, down 12% year-on-year and are mainly represented by capital expenditure (down 18% year-on-year).

BALANCE SHEET

In 1H 2012 the Company has recorded the following significant movements of key balance sheet items:

·      Net increase in current inventories of US$ 160 million incurred mainly due to growth of precipitate and concentrate inventories at Dukat and Omolon (metal sent to or being processed at refineries) and Albazino (awaiting further processing at the POX facility or sale to off-taker). These increases are expected to be largely reversed by the 2012 year-end; and

·      Full settlement of the MTO obligation (US$ 534 million as at 31 December 2011) and additional repurchases of shares in JSC Polymetal of US$ 27 million during 1H 2012, resulting in reduction of non-controlling interest and share purchase obligation balances within equity, and a corresponding net decrease in retained earnings balance attributable to the equity holders of the Company.

Liquidity and funding

Net debt	30-Jun-12	31-Dec-11	Change, %
Short-term debt and current portion of long-term debt	390	348	+12%
MTO/squeeze-out obligation	10	535	-98%
Long-term debt	639	655	-2%
Gross debt	1,040	1,538	-32%
Less: cash and cash equivalents	26	659	-96%
Net debt	1,014	879	+15%
Net debt / adjusted EBITDA	1.34	1.41	-4.7%

The Group is keen to maintain a safe liquidity and funding profile, underpinned by strong operating cash flows and robust short-term and long-term liquidity management policies.

The Group's net debt stood at US$ 1,014 million as of 30 June 2012, representing a Net debt / adjusted EBITDA ratio of 1.34 (annualised) as a result of strong growth in adjusted EBITDA, and settlement of the MTO obligation and a correspondent decrease in cash balances. The increase in net debt by 15% in US Dollar terms during 1H 2012 is related mainly to the seasonal increase in the working capital requirements of the Group.

The Group continues to focus on building a healthy debt profile, which is comfortable both from the liquidity and cost standpoints. The majority of our borrowings (61%) were long-term as of 30 June 2012, while the average cost of debt remained at a low 2.8% in 1H 2012 (2011: 3.2%), supported by low base interest rates and our ability to negotiate competitive premiums on the back of the improved financial position of the Company and our excellent credit history.

2012 Year-end outlook

The Company reiterates its positive outlook for the second half of the year, both in terms of earnings and free cash flow, with the following factors driving the operating and financial performance towards the year-end:

·      The Company is fully on track to deliver more than 1 Moz of gold equivalent production for the year; and

·      A decrease in working capital balances and related positive cash flows are expected in 2H 2012 as the lag between metal produced and metal sold is set to decline considerably by the year-end.

Principal risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results.

The directors do not consider that the principal risks and uncertainties have changed materially since the publication of the annual report for the year ended 31 December 2011. As such these risks continue to apply to the Group for the remaining six months of the financial year.

The principal risks and uncertainties disclosed in the 2011 annual report were categorised as:

·     Market risk;

·     Production risks, including:

a)    low grade/ potential dilution;

b)    ore and concentrate shipping;

c)    supply chain risks; and

d)    low recovery rate;

·     Production risk - construction and renovation;

·     Legal risk;

·     Mergers and acquisitions;

·     Environmental risks;

·     Political risk;

·     Currency risk;

·     Human resources;

·     Liquidity risk;

·     Failure to meet exploration objectives;

·     Interest rate risk; and

·     Inflation risk.

A detailed explanation of these risks and uncertainties can be found on pages 60 to 63 of the 2011 annual report which is available at www.polymetalinternational.com .

Going concern

In assessing its going concern status, the Group has taken account of its financial position, anticipated future trading performance, its borrowings and other available credit facilities and its capital expenditure commitments and plans.

The board is satisfied that the Group's forecasts and projections, having taken account of reasonably possible changes in trading performance, show that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of this report and that it is appropriate to adopt the going concern basis in preparing the condensed consolidated financial statements for the six months ended 30 June 2012.

Directors' responsibility statement

We confirm that to the best of our knowledge:

•    the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";

•    the interim report includes a fair review of the information required by DTR 4.2.7 (being an indication of important events that have occurred during the first six months of the financial year, and their impact on the interim report and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

•    the interim report includes a fair review of the information required by DTR 4.2.8 (being disclosure of related party transactions and changes therein).

By order of the Board,

Vitaly Nesis

Chief Executive Officer

Bobby Godsell

Chairman of the Board of Directors

29 August 2012

Independent review report to POlymetal International plc

We have been engaged by Polymetal International plc ("the Company") to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of cash flows, condensed consolidated statement of changes in equity, and related notes 1 to 26. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in Note 1, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Recognized Auditor

London, United Kingdom

29 August 2012

Polymetal International plc

Condensed consolidated Income Statement

		Six months ended		Six months ended		Year ended
	Note	30 June 2012 (unaudited)		30 June 2011 (unaudited)		31 December 2011 (audited)
		US$'000		US$'000		US$'000
Revenue	5	767,479		544,511		1,326,430
Cost of sales	3, 6	(345,827)		(261,355)		(635,337)
Gross profit		421,652		283,156		691,093
General, administrative and selling expenses	10	(89,607)		(82,899)		(160,026)
Other expenses	11	(50,204)		(19,105)		(78,344)
Share of loss of associates and joint ventures		(478)		(410)		(1,952)
Operating profit		281,363		180,742		450,771
Foreign exchange (loss)/gain, net		(59,652)		43,897		(13,634)
Gain on acquisition of remaining interest in joint venture	18	21,051		-		-
(Loss)/Profit on  disposal of subsidiaries	18	(8,784)		4,931		4,931
Change in fair value of derivative financial instruments		-		(1,855)		(1,855)
Change in fair value of contingent consideration liability		(2,332)		(3,957)		(6,828)
Finance income		3,378		638		4,208
Finance costs	13	(14,242)		(13,668)		(28,746)
Profit before income tax		220,782		210,728		408,847
Income tax expense	14	(72,091)		(59,613)		(118,985)
Profit for the financial period		148,691		151,115		289,862
Profit for the financial period attributable to:
Equity shareholders of the Parent		142,019		151,115		289,323
Non-controlling interest		6,672		-		539
		148,691		151,115		289,862
Earnings per share (US$)
Basic	15	0.37		0.42		0.79
Diluted	15	0.35		0.39		0.74

Polymetal International plc

Condensed consolidated Statement of Comprehensive Income

		Six months ended		Six months ended		Year ended
		June 2012 (unaudited)		June 2011 (unaudited)		31 December 2011 (audited)
		US$'000		US$'000		US$'000
Profit for the financial period
Other comprehensive loss:		148,691		151,115		289,862
Effect of translation to presentation currency		(44,636)		117,263		(115,474)
Total comprehensive income for the financial period		104,055		268,378		174,388
Equity Shareholders of the Parent		87,462		268,378		185,033
Non-controlling interest		16,593		-		(10,645)
		104,055		268,378		174,388

Polymetal International plc

Condensed consolidated Balance Sheet

	Note	30 June 2012 (unaudited)		31 December 2011 (audited)		30 June 2011 (unaudited)
Assets		US$'000		US$'000		US$'000
Property, plant and equipment	17	1,937,691		1,901,974		1,981,129
Goodwill		106,533		108,587		124,523
Investments in associates and JV	18	29,057		23,558		28,582
Non-current loans		9,362		8,962		8,695
Deferred tax assets		66,250		62,118		66,401
Non-current inventories	20	56,555		44,318		42,141
Total non-current assets		2,205,448		2,149,517		2,251,471
Current inventories	20	773,562		613,216		558,292
Current VAT receivable		99,588		111,887		107,503
Trade and other receivables		102,202		67,991		48,787
Prepayments to suppliers		35,590		38,912		45,418
Income tax prepaid		12,885		11,787		4,385
Short-term deposit	19	18,075		-		-
Cash and cash equivalents		25,844		658,795		33,243
Total current assets		1,067,746		1,502,588		797,628
Total assets		3,273,194		3,652,105		3,049,099
Liabilities and shareholders' equity
Trade and other payables		(108,231)		(79,548)		(113,041)
Current borrowings	21	(390,431)		(348,429)		(216,759)
Accrued liabilities		(41,866)		(27,856)		(32,301)
Share purchase obligation	1	(9,935)		(534,597)		-
Income tax payable		(28,250)		(13,366)		(20,569)
Other taxes payable		(30,935)		(21,327)		(21,227)
Total current liabilities		(609,648)		(1,025,123)		(403,897)
Non-current borrowings	21	(639,406)		(654,666)		(736,896)
Contingent consideration liability		(23,744)		(22,290)		(28,886)
Deferred tax liabilities		(70,215)		(79,342)		(92,509)
Environmental obligations		(58,585)		(54,463)		(58,428)
Other non-current liabilities		(830)		(1,623)		(2,677)
Total non-current liabilities		(792,780)		(812,384)		(919,396)
Total liabilities		(1,402,428)		(1,837,507)		(1,323,293)
NET ASSETS		1,870,766		1,814,598		1,725,806
Stated capital account		1,566,386		1,566,386		932,938
Treasury shares in JSC Polymetal		-		(395)		(433)
Share-based compensation reserve		91,922		59,239		36,893
Translation reserve		(208,526)		(151,029)		67,820
Share purchase obligation		(36,317)		(561,659)		-
Retained earnings		447,877		753,572		688,588
Total equity attributable to the parent		1,861,342		1,666,114		1,725,806
Non-controlling interest		9,424		148,484		-
Total equity		1,870,766		1,814,598		1,725,806

These financial statements are approved and authorised for issue by the Board of Directors on 29 August 2012 and signed on its behalf by

Vitaly Nesis Chief Executive Officer

Bobby Godsell Chairman of the Board of Directors

Polymetal International plc

Condensed consolidated Statement of Cash Flows

			Six months ended		Six months ended		Year ended
			30 June 2012 (unaudited)		30 June 2011 (unaudited)		31 December 2011 (audited)
	Notes		US$'000		US$'000		US$'000
Net cash generated by operating activities	25		157,925		79,710		212,099
Cash flows from investing activities
Purchases of property, plant and equipment			(166,728)		(202,502)		(461,632)
Consideration for acquisitions	18		(20,000)		(4,761)		(4,761)
Proceeds from disposal of subsidiary	18		25,000		-		5,300
Loans provided to third parties			-		(177)		(1,286)
Receipt of repayment of loans provided to third parties			-		70		156
Short-term deposit placed as part of collateral	18,19		(18,958)		-		-
Loans provided to related parties	24		(4,146)		(3,000)		(5,029)
Receipt of repayment of loans provided to related parties	24		930		896		1,910
Contingent consideration payment			(928)		(434)		(6,943)
Net cash used in investing activities			(184,830)		(209,908)		(472,285)
Cash flows from financing activities
Borrowings obtained	21		976,172		967,344		1,695,078
Repayments of borrowings	21		(935,707)		(810,687)		(1,498,518)
Proceeds from issuance of shares of the Company			-		-		762,641
Purchase of treasury shares in the Company			-		-		(46,649)
Payment in respect of finance lease obligations			-		(5,217)		(5,217)
MTO and squeeze-out obligation repayment	1		(560,644)		-		-
Dividends paid			(76,537)		-		-
Net cash (used in) / generated by financing activities			(596,716)		151,440		907,335
Net (decrease) / increase in cash and cash equivalents			(623,621)		21,242		647,149
Cash and cash equivalents at the beginning of the period			658,795		11,056		11,056
Effect of foreign exchange rate changes on cash and cash equivalents			(9,330)		945		590
Cash and cash equivalents at the end of the period
			25,844		33,243		658,795

Polymetal International plc

Condensed consolidated Statement of Changes in Equity

	Notes	Number of Polymetal International shares outstanding	Stated capital account	Treasury shares in JSC Polymetal	Share based compensation reserve	Translation reserve	Share purchase obligation	Retained earnings	Total equity attributable to the parent	Non-controlling interest	TOTAL equity
Balance at 31 December 2010 (audited)		n/a	865,483	(457)	7,896	(49,443)	-	537,473	1,360,952	-	1,360,952
Total comprehensive income		-	-	-	-	117,263	-	151,115	268,378	-	268,378
Amortisation of bonus received from depositary		-	489	-	-	-	-	-	489	-	489
Share based compensation		-	-	-	28,997	-	-	-	28,997	-	28,997
Issue of treasury shares in exchange for assets		-	66,966	24	-	-	-	-	66,990	-	66,990
Balance at 30 June 2011 (unaudited)		-	932,938	(433)	36,893	67,820	-	688,588	1,725,806	-	1,725,806
Total comprehensive income		-	-	-	-	(221,553)	-	138,208	(83,345)	(10,645)	(93,990)
Amortisation of bonus received from depositary		-	330	-	-	-	-	-	330	-	330
Share based compensation		-	-	-	27,269	-	-	-	27,269	850	28,119
Issuance of ordinary shares under ISSF		332,641,773	-	-	-	-	-	-	-	-	-
Issuance of share on IPO		53,350,000	762,641	-	-	-	-	-	762,641	-	762,641
Purchase of treasury shares in the Company		(3,305,988)	(46,649)	-	-	-	-	-	(46,649)	-	(46,649)
Share purchase obligation under MTO		-	-	-	-	-	(561,659)	-	(561,659)	-	(561,659)
Reclassification to non-controlling interest		-	(82,874)	38	(4,923)	2,704	-	(73,224)	(158,279)	158,279	-
Balance at 31 December 2011 (audited)		382,685,785	1,566,386	(395)	59,239	(151,029)	(561,659)	753,572	1,666,114	148,484	1,814,598
Total comprehensive income		-	-	-	-	(54,557)	-	142,019	87,462	16,593	104,055
Amortisation of bonus received from depositary		-	-	-	-	-	-	1,259	1,259	-	1,259
Share based compensation			-	-	26,651	-	-	-	26,651	740	27,391
Dividends	16	-	-	-	-	-	-	(76,537)	(76,537)	-	(76,537)
Acquisition of non-controlling interest under the MTO		-	-	395	6,032	(2,940)	525,342	(372,436)	156,393	(156,393)	-
Balance at 30 June 2012 (unaudited)		382,685,785	1,566,386	-	91,922	(208,526)	(36,317)	447,877	1,861,342	9,424	1,870,766

Notes to the condensed interim consolidated financial statements

1.     General

Formation of the Polymetal International plc Group

Polymetal International plc (the Company) was incorporated on 29 July 2010 as a public limited company under Companies (Jersey) Law 1991.

On 2 November 2011, the Company was admitted to the Official List of the UK Listing Authority and commenced trading on the London Stock Exchange's premium listed market. The Company is the new ultimate parent company of Joint Stock Company Polymetal (JSC Polymetal) and its subsidiaries, joint ventures and associates (the Group) and owned  83.26% of the issued share capital of JSC Polymetal as at 31 December 2011, with 8.11% held by third parties and 8.63% effectively held as treasury shares.

In the year ended 31 December 2011, the Group had entered into a general master repurchase agreement with Otkritie Securities Ltd under which 34,350,457 shares in JSC Polymetal were legally transferred for consideration of US$250 million. For accounting purposes, this was recorded as a securitised loan with the shares continuing to be shown as treasury shares by the Group at 31 December 2011.

On 17 February 2012, the Company executed the Mandatory Tender Offer ("the MTO") made on 23 November 2011 at a cost of US$534 million acquiring 30,317,610 shares in JSC Polymetal via its wholly owned subsidiary PMTL Ltd.

On execution of the MTO, Otkritie Securities Ltd tendered the shares it had legally acquired in JSC Polymetal, which for accounting purposes were then effectively transferred from being shown as treasury shares in JSC Polymetal to being held by PMTL Ltd with a corresponding reduction in the level of the non-controlling interest. The Group settled the loan balance with Otkritie Securities Ltd through a payment of US$250 million.

Through these two transactions, the Company's holding in JSC Polymetal increased to 397,287,592 Ordinary Shares, representing approximately 99.48% of the total share capital of JSC Polymetal. On 20 April 2012, the Company delivered notice of its intention to proceed with a statutory squeeze out (i.e. purchase) of the remaining JSC Polymetal shares on terms and within the period as provided under applicable Russian law. In the period to 30 June 2012 456,497 additional shares in JSC Polymetal were acquired such that at that date the Company's holding in JSC Polymetal had further increased to 397,744,089 shares, representing approximately 99.6% of the total share capital of JSC Polymetal.

Total cash outflows in respect of the MTO and squeeze out for the period amounted to US$561 million, offsetting the share purchase liability recognised when the offer was initially made. This comprised MTO payments of US$534 million and other payments of US$27 million, including US$18 million in respect of shares not received until July 2012. The purchase of the remaining shares was made in July 2012 at a cost of US$10 million.

On execution of the MTO and the squeeze out, the non-controlling interest balance in reserves was derecognised in proportion to the percentage acquired in the period, with the minority's share of the other reserves previously transferred to "non-controlling interests" on the original formation of the Group transferred back. The treasury shares balance and the share purchase obligation reserve were also eliminated. The difference of US$ 372.4 million was recognised within retained earnings.

Basis of presentation

These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union ('EU'), and the Disclosure and Transparency Rules of the Financial Services Authority effective for the Company's reporting for the period ended 30 June 2012. These unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the audited 2011 Annual Report of Polymetal International plc and its subsidiaries ("2011 Annual Report") available at www.polymetalinternational.com.

These condensed financial statements for the six months ended 30 June 2012 and 2011, and financial information for the year ended 31 December 2011 do not constitute statutory accounts. Certain financial information that is included in the audited annual financial statements but is not required for interim reporting purposes has been condensed or omitted.

Accounting policies

The unaudited condensed interim consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial instruments.

The accounting policies applied are consistent with those adopted and disclosed in the Group's financial statements

for the year ended 31 December 2011, with the exception of certain amendments to accounting standards or new

interpretations issued by the International Accounting Standards Board, which were applicable from 1 January 2012.

These have not had a material impact on the Group.

Going concern

In assessing its going concern status, the Group has taken account of its financial position, anticipated future trading performance, its borrowings and other available credit facilities and its capital expenditure commitments and plans.

The board is satisfied that the Group's forecasts and projections, having taken account of reasonably possible changes in trading performance, show that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of this report and that it is appropriate to adopt the going concern basis in preparing these condensed consolidated financial statements.

2.     Acquisitions and disposals

On 7 February 2012 the Company completed the acquisition from AngloGold Ashanti Holdings PLC (AngloGold) of

AngloGold's 50% interest in various companies (the Companies) held in joint venture with Polymetal comprising the

AngloGold Ashanti - Polymetal Strategic Alliance (the Alliance). It subsequently entered into a series of transactions with new investors, retaining a 43% economic interest in the principal asset - the Veduga licence. See Note 18 for further information.

3.     Reclassifications

In the current period shipping expenses have been presented within cost of sales rather than within General, Administrative and Selling expenses. The comparative information has been revised to be on a consistent basis with costs of US$2.5 million for the period ended 30 June 2011 and US$9.6 million for the year ended 31 December 2011 being reclassified.

4.     Segment Information

The Group has seven reportable segments:

·         Voro (CJSC Zoloto Severnogo Urala);

·         Khakanja (JSC Okhotskaya GGC, Rudnik Avlayakan LLC);

·         Dukat (CJSC Serebro Magadana);

·         Omolon (Omolon Gold Mining Company LLC);

·         Varvara (JSC Varvarinskoye);

·         Amursk-Albazino (Albazino Resources LLC, Amursky Hydrometallurgy Plant LLC); and

·         Mayskoye (ZK Mayskoye LLC).

Reportable segments are determined based on the Group's internal management reports and are separated based on the Group's geographical profile. Minor companies and activities (management, exploration, purchasing and other companies) which do not meet the reportable segment criteria are disclosed within corporate and other. Each segment is engaged in gold, silver and copper mining and related activities, including exploration, extraction, processing and reclamation. The Group's segments are all based in the Russian Federation, except Varvara which is based in Kazakhstan.

The measure which management and the Chief Operating Decision Maker (the CODM) use to evaluate the performance of the Group is segment adjusted EBITDA, which is defined as profit for the period adjusted for depreciation and amortization, write-downs of inventory to net realisable value, share-based compensation expenses, listing expenses, rehabilitation expenses, gains or losses arising on disposal of subsidiaries, foreign exchange gains or losses, changes in the fair value of derivatives, changes in the fair value of contingent consideration, finance income, finance costs and income tax expenses. The accounting policies of the reportable segments are consistent with those of the Group's accounting policies under IFRS as described in Note 1.

4.    Segment information (continued)

Revenue shown as corporate and other comprises, principally, intersegment revenue relating to the supply of inventories, spare parts and fixed assets to the Group's production entities. Intersegment revenue is recognised based on costs incurred plus a fixed margin basis. External revenue shown within corporate and other represents revenue from services provided to third parties by the Group's non-mining subsidiaries.

Business segment current assets and liabilities, other than current inventory, are not reviewed by the CODM and therefore are not disclosed in these unaudited condensed interim consolidated financial statements.

The segment adjusted EBITDA reconciles to the profit before income tax as follows:

4.    Segment information (continued)

For the six months ended 30 June 2012 ($'000)	Voro		Khakanja		Dukat		Omolon		Varvara		Amursk - Albazino		Mayskoye		Total reportable segments		Corporate and other		Intersegment operations and balances		Total
Revenue from external customers	109,875		128,352		324,313		82,232		101,868		20,593		-		767,233		246		-		767,479
Intersegment revenue											8,574				8,574		238,016		(246,590)		-
Cost of sales, excluding depreciation, depletion and write-down of inventory to net realisable value	32,823		41,621		127,384		43,959		47,579		14,481		-		307,847		174,013		(191,463)		290,397
Cost of sales	41,525		53,330		142,909		51,475		53,799		23,678		(3,439)		363,277		174,013		(191,463)		345,827
Depreciation included in Cost of sales	(8,246)		(12,256)		(14,087)		(7,264)		(6,123)		(4,832)		-		(52,808)		-		-		(52,808)
Write-down of inventory to net realisable value	-		583		(1,144)		19		(97)		(3,356)		3,439		(556)		-		-		(556)
Rehabilitation expenses	(456)		(36)		(294)		(271)		-		(1,009)		-		(2,066)		-		-		(2,066)
General, administrative and selling expenses, excluding depreciation, amortization and share based compensation	3,890		4,481		6,624		4,712		2,048		4,314		4,452		30,521		47,909		(18,159)		60,271
General, administrative and selling expenses	9,532		7,787		11,680		7,716		2,528		5,097		4,589		48,929		76,572		(35,894)		89,607
Intercompany SGA expenses	(4,890)		(3,086)		(4,815)		(2,961)		(412)		(663)		(58)		(16,885)		(850)		17,735		-
Depreciation included in SGA	(752)		(220)		(241)		(43)		(68)		(120)		(79)		(1,523)		(422)		-		(1,945)
Share based compensation	-		-		-		-		-		-		-		-		(27,391)		-		(27,391)
Other operating expenses excl additional tax charges	2,140		4,287		8,812		2,495		7,097		3,185		987		29,003		7,280		(430)		35,853
Other operating expenses	2,140		4,287		23,163		2,495		7,097		3,185		987		43,354		7,280		(430)		50,204
Additional tax charges according to the Supreme Arbitration Court decision					(14,351)										(14,351)						(14,351)
Share of loss of associates and joint ventures															-		478				478
Adjusted EBITDA	71,022		77,963		181,493		31,066		45,144		7,187		(5,439)		408,436		8,582		(36,538)		380,480
Depreciation expense	8,998		12,476		14,328		7,307		6,191		4,952		79		54,331		422		-		54,753
Rehabilitation expenses	456		36		294		271		-		1,009		-		2,066		-		-		2,066
Write-down of inventory to net realisable value	-		(583)		1,144		(19)		97		3,356		(3,439)		556		-		-		556
Additional tax charges according to the Supreme Arbitration Court decision					14,351										14,351						14,351
Share-based compensation	-		-		-		-		-		-		-		-		27,391		-		27,391
Operating profit / (loss)	61,568		66,034		151,376		23,507		38,856		(2,130)		(2,079)		337,132		(19,231)		(36,538)		281,363
Income from disposal of subsidiaries																					12,267
Foreign exchange (loss)																					(59,652)
Change in fair value of derivatives																					-
Change in fair value of contingent consideration																					(2,332)
Finance income																					3,378
Finance costs																					(14,242)
Profit before tax																					220,782
Income tax expense																					(72,091)
Profit for the year attributable to the equity holders of the parent																					148,691
Current metal inventories	55,576		61,672		100,202		159,645		48,720		93,755		10,303		529,873		616		4,618		535,107
Current non-metal inventories	7,890		19,702		46,110		78,441		19,280		27,699		11,726		210,848		45,800		(18,193)		238,455
Non-current segment assets:
Property, plant and equipment, net	93,376		141,901		418,711		249,303		150,624		513,442		217,456		1,784,813		175,539		(22,661)		1,937,691
Goodwill			13,177		8,086				63,316				21,954		106,533						106,533
Non-current inventory	2,962		7,105		8,860		9,669		3,775		14,009		6,925		53,305		3,250		-		56,555
Investments in associates and joint ventures																	29,057				29,057
Total segment assets	159,804		243,557		581,969		497,058		285,715		648,905		268,364		2,685,372		254,262		(36,236)		2,903,398
Additions to non-current assets:
Property, plant and equipment	5,141		15,446		27,319		28,408		4,970		41,639		45,336		168,259		3,448		(829)		170,878

4.    Segment information (continued)

For the year ended 31 December 2011  ($'000)	Voro		Khakanja		Dukat		Omolon		Varvara		Amursk - Albazino		Mayskoye		Total reportable segments		Corporate and other		Intersegment operations and balances		Total
Revenue from external customers	280,206		214,114		531,964		73,417		182,004		44,689		-		1,326,394		36		-		1,326,430
Intersegment revenue	458		202		1,141		9,157		8,964		-		-		19,922		459,043		(478,965)		-
Cost of sales, excluding depreciation, depletion and write-down of inventory to net realisable value	93,635		88,582		207,526		66,008		91,613		27,810		-		575,174		368,128		(410,311)		532,991
Cost of sales	118,463		102,473		233,771		80,482		104,737		35,701		1,893		677,520		368,128		(410,311)		635,337
Depreciation included in Cost of sales	(23,091)		(15,563)		(22,650)		(11,035)		(12,701)		(7,493)		-		(92,533)		-		-		(92,533)
Write-down of inventory to net realisable value	16		2,476		(2,657)		(3,352)		(423)		(398)		(1,893)		(6,231)		-		-		(6,231)
Rehabilitation expenses	(1,753)		(804)		(938)		(87)		-		-		-		(3,582)		-		-		(3,582)
General, administrative and selling expenses, excluding depreciation, amortization and share based compensation	6,778		6,713		9,679		8,355		3,972		9,185		6,093		50,775		81,919		(33,906)		98,788
General, administrative and selling expenses	16,726		11,391		18,208		8,990		5,153		10,009		6,458		76,935		140,609		(57,518)		160,026
Intercompany expenses in SGA	(8,082)		(4,389)		(8,007)		(533)		(827)		(686)		(119)		(22,643)		(970)		23,612		(1)
Depreciation included in SGA	(1,866)		(289)		(522)		(102)		(354)		(138)		(246)		(3,517)		(604)		-		(4,121)
Share based compensation	-		-		-		-		-		-		-		-		(57,116)		-		(57,116)
Other operating expenses excl listing expenses	5,071		6,136		34,031		3,396		4,194		3,171		4,165		60,164		7,066		1,603		68,833
Other operating expenses	5,071		6,136		34,031		3,396		4,194		3,171		4,165		60,164		16,577		1,603		78,344
Listing expenses																	(9,511)				(9,511)
Share of loss of associates and joint ventures	-		-		-		-		-		-		-		-		1,952		-		1,952
Adjusted EBITDA	175,180		112,885		281,869		4,815		91,189		4,523		(10,258)		660,203		14		(36,351)		623,866
Depreciation expense	24,957		15,852		23,172		11,137		13,055		7,631		246		96,050		604		-		96,654
Rehabilitation expenses	1,753		804		938		88		-		-		-		3,583		-		-		3,583
Write-down of inventory to net realisable value	(16)		(2,476)		2,657		3,352		423		398		1,893		6,231		-		-		6,231
Listing expenses	-		-		-		-		-		-		-		-		9,511		-		9,511
Share-based compensation	-		-		-		-		-		-		-		-		57,116		-		57,116
Operating profit / (loss)	148,486		98,705		255,102		(9,762)		77,711		(3,506)		(12,397)		554,339		(67,217)		(36,351)		450,771
Income from disposal of subsidiaries																					4,931
Foreign exchange (loss)																					(13,634)
Change in fair value of derivatives																					(1,855)
Change in fair value of contingent consideration																					(6,828)
Finance income																					4,208
Finance costs																					(28,746)
Profit before tax																					408,847
Income tax expense																					(118,985)
Profit for the year attributable to the equity holders of the parent																					289,862
Current metal inventories	48,911		49,005		92,378		89,414		39,279		47,795		16,768		383,550		214		(5,057)		378,707
Current non-metal inventories	7,379		35,099		41,897		45,621		22,175		35,327		10,679		198,177		52,526		(16,194)		234,509
Non-current segment assets:
Property, plant and equipment, net	98,872		151,311		415,421		229,851		153,505		483,370		171,645		1,703,975		197,999		-		1,901,974
Goodwill	-		13,431		8,242		-		64,537		-		22,377		108,587				-		108,587
Non-current inventory	2,947		6,401		7,356		9,711		2,842		8,278		3,912		41,447		2,871		-		44,318
Investments in associates and joint ventures	-		-		-		-		-		-		-		-		23,558		-		23,558
Total segment assets	158,109		255,247		565,294		374,597		282,338		574,770		225,381		2,435,736		277,168		(21,251)		2,691,653
Additions to non-current assets:
Property, plant and equipment	12,693		39,148		71,878		74,858		15,897		155,188		94,476		464,138		19,232		(3,821)		479,549
Acquired in acquisition of group of assets	-		-		-		-		-		-		-		-		79,912		-		79,912

4.    Segment information (continued)

For the six months ended 30 June 2011 ($'000)	Voro		Khakanja		Dukat		Omolon		Varvara		Amursk - Albazino		Mayskoe		Total reportable segments		Corporate and other		Intersegment operations and balances		Total
Revenue from external customers	106,316		99,497		231,381		22,006		85,259		-		-		544,459		52		-		544,511
Intersegment revenue	290		131		1,115		-		-		-		-		1,536		204,499		(206,035)		-
Cost of sales, excluding depreciation, depletion and write-down of inventory to net realisable value	32,342		37,392		92,045		22,902		41,595		(281)		(336)		225,659		170,113		(171,647)		224,125
Cost of sales	(42,338)		(40,856)		(104,752)		(24,874)		(49,517)		-		-		(262,337)		(170,665)		171,647		(261,355)
Depreciation included in Cost of sales	9,278		5,600		10,569		2,018		5,442		-		-		32,907		-		-		32,907
Write-down of inventory to net realisable value	(53)		(2,663)		1,868		(85)		1,979		281		336		1,663		552		-		2,215
Rehabilitation expenses	771		527		270		39		501		-		-		2,108		-		-		2,108
General, administrative and selling expenses,  excluding depreciation, amortization and share   based compensation	6,784		5,387		8,751		4,659		2,184		5,307		5,448		38,520		38,976		(25,592)		51,904
General, administrative and selling expenses	(7,528)		(5,511)		(9,009)		(4,711)		(2,487)		(5,396)		(5,581)		(40,223)		(68,268)		25,592		(82,899)
Depreciation included in SGA	744		124		258		52		303		89		133		1,703		295		-		1,998
Share based compensation	-		-		-		-		-		-		-		-		28,997		-		28,997
Other operating expenses, excluding loss on disposal of property, plant and equipment and income from subsidiary disposal	2,603		3,001		6,670		2,859		(1,248)		1,843		1,980		17,708		752		645		19,105
Other operating expenses	(2,603)		(3,001)		(6,670)		(2,859)		1,248		(1,843)		(1,980)		(17,708)		(752)		(645)		(19,105)
Loss on disposal of property, plant and equipment	673		276		1,120		(10)		5		(8)		(98)		1,958		(154)		-		1,804
Share of loss of associates and joint ventures	-		-		-		-		-		-		-		-		(410)		-		(410)
Adjusted EBITDA	64,877		53,848		125,030		(8,414)		42,728		(6,869)		(7,092)		264,108		(5,700)		(9,441)		248,967
Depreciation and amortization	10,022		5,724		10,827		2,070		5,745		89		133		34,610		295		-		34,905
Rehabilitation expenses	771		527		270		39		501		-		-		2,108		-		-		2,108
Write-down of inventory to net realisable value	(53)		(2,663)		1,868		(85)		1,979		281		336		1,663		552		-		2,215
Share based compensation	-		-		-		-		-		-		-		-		28,997		-		28,997
Operating profit	54,137		50,260		112,065		(10,438)		34,503		(7,239)		(7,561)		225,727		(35,544)		(9,441)		180,742
Income from subsidiary disposal																					4,931
Bargain purchase gain																					-
Foreign exchange (loss)/gain																					43,897
Change in fair value of derivatives																					(1,855)
Change in fair value of contingent consideration																					(3,957)
Finance income																					638
Finance costs																					(13,668)
Profit before tax																					210,728
Current metal inventories	56,567		36,549		91,331		82,411		28,982		36,247		9,251		341,338		-		(3,872)		337,466
Current non-metal inventories	6,489		21,247		40,926		55,748		19,283		24,680		6,559		174,932		62,608		(16,715)		220,825
Non-current segment assets:
Property, plant and equipment, net	122,490		163,453		467,872		232,673		151,736		485,002		143,613		1,766,839		214,290		-		1,981,129
Goodwill	-		15,402		9,452		-		74,008		-		25,661		124,523		-		-		124,523
Non-current inventory	2,965		6,200		7,669		9,703		1,129		7,132		5,439		40,237		1,904		-		42,141
Investments in associates and joint ventures	-		-		-		-		-		-		-		-		28,582		-		28,582
Total segment assets	188,511		242,851		617,250		380,535		275,138		553,061		190,523		2,447,869		307,384		(20,587)		2,734,666
Additions to non-current assets:
Property, plant and equipment	4,178		12,236		28,613		24,962		4,781		97,097		17,787		189,654		24,871		-		214,525
Acquired in acquisition of group of assets	-		-		-		-		-		-		-		-		79,912		-		79,912

5.     Revenue

Revenue analysed by geographical regions of customers is presented below:

		Six months ended		Year ended
		30 June 2012	30 June 2011	31 December 2011
		US$'000	US$'000	US$'000
Sales within the Russian Federation		411,419	361,817	859,720
Sales to China		20,593	32,441	119,823
Sales to Europe		120,371	120,156	207,184
Sales to Kazakhstan		213,748	29,471	136,660
Total metal sales		766,131	543,885	1,323,387
Other sales		1,348	626	3,043
Total		767,479	544,511	1,326,430

Metal sales to related parties (sales to Nomos-Bank) are disclosed in Note 24. For the six months ended 30 June 2012 the Group has presented separately other sales, previously these were included within sales within the Russian Federation.

Presented below is an analysis of revenue from gold, silver and copper sales:

	Six months ended 30 June 2012			Six months ended 30 June 2011
	Thousand ounces/ tonnes1	Average price (U.S. Dollar per troy ounce/tonne)1	US$'000	Thousand ounces/ tonnes1	Average price (U.S. Dollar per troy ounce/tonne)1	US$'000
Gold (thousand ounces)	226	1,639.28	371,208	188	1,433.68	269,532
Silver (thousand ounces)	12,496	29.50	368,655	7,268	34.76	252,633
Copper (tonnes)	3,627	7,240.30	26,268	2,768	7,961.88	21,720
Total			766,131			543,885

		Year ended 31 December 2011
		Thousand ounces/ tonnes1	Average price (U.S. Dollar per troy ounce/tonne) 1	US$'000
Gold (thousand ounces)		448	1,556.10	697,135
Silver (thousand ounces)		17,045	34.04	580,182
Copper (tonnes)		6,363	7,240.30	46,070
Total				1,323,387

¹ Neither audited nor reviewed

6.     Cost of Sales

	Six months ended			Year ended
	30 June 2012	30 June 2011		31 December 2011
	US$'000	US$'000		US$'000
Cash operating costs
On-mine costs (Note 7)	213,490	150,557		319,740
Smelting costs (Note 8)	155,503	116,364		264,414
Purchase of ore from third parties	15,267	9,266		16,817
Mining tax	56,607	40,507		96,955
Total cash operating costs	440,867	316,694		697,926
Depreciation and depletion of operating assets (Note 9)	86,063	69,434		140,253
Rehabilitation expenses	2,066	2,108		3,583
Total costs of production	528,996	388,236		841,762
Increase in metal inventories	(184,511)	(129,737)		(215,492)
Write-down to net realisable value (Note 20)	556	2,215		6,232
Total change in metal inventories	(183,955)	(127,522)		(209,260)
Cost of other sales	786	641		2,835
Total	345,827	261,355		635,337

7.     On-mine costs

	Six months ended			Year ended
	30 June 2012	30 June 2011		31 December 2011
	US$'000	US$'000		US$'000
Consumables and spare parts	69,054	49,576		110,695
Services	92,898	54,956		120,398
Labour	49,722	44,126		83,299
Taxes, other than income tax	525	1,306		1,839
Other expenses	1,291	593		3,509
Total (Note 6)	213,490	150,557		319,740

8.     Smelting costs

	Six months ended			Year ended
	30 June 2012	30 June 2011		31 December 2011
	US$'000	US$'000		US$'000
Consumables and spare parts	70,866	51,976		117,407
Services	55,183	39,262		97,666
Labour	28,066	23,963		47,088
Taxes, other than income tax	448	671		178
Other expenses	940	492		2,075
Total (Note 6)	155,503	116,364		264,414

9.     Depletion and depreciation of operating assets

	Six months ended			Year ended
	30 June 2012	30 June 2011		31 December 2011
	US$'000	US$'000		US$'000
Mining	58,599	55,139		106,402
Smelting	27,464	14,295		33,851
Total (Note 6)	86,063	69,434		140,253

Depreciation of operating assets excludes depreciation relating to non-operating assets (included in general, administrative and selling expenses) and depreciation related to assets employed in development projects where the charge is capitalised. Depreciation expense, which is excluded in the Group's calculation of Adjusted EBITDA (see Note 4), also excludes amounts absorbed into unsold metal inventory balances.

10.    General, administrative and selling expenses

	Six months ended			Year ended
	30 June 2012	30 June 2011		31 December 2011
	US$'000	US$'000		US$'000
Labour	47,775	38,135		72,291
Services	7,032	8,178		14,580
Share based compensation	27,391	28,997		57,116
Depreciation	1,945	1,998		4,122
Other	5,464	5,591		11,917
Total	89,607	82,899		160,026

11.    Other expenses

	Six months ended				Year ended
	30 June 2012		30 June 2011		31 December 2011
	US$'000		US$'000		US$'000
Additional mining taxes resulting from Supreme Arbitration Court decision (Note 14)	14,351		-		-
Taxes, other than income tax	11,033		6,779		11,278
Exploration expenses	8,515		3,946		30,212
Listing expenses	-		-		9,511
Social payments	5,478		3,693		8,692
Housing and communal services	4,473		2,933		6,357
Loss on disposal and write-down of assets	2,362		1,804		6,203
Bad debt allowance	732		(422)		(1,171)
Other expenses	3,260		372		7,262
Total	50,204		19,105		78,344

12.    Employee costs

	Six months ended				Year ended
	30 June 2012		30 June 2011		31 December 2011
	US$'000		US$'000		US$'000
Wages and salaries	125,603		106,168		204,379
Social security costs	28,711		25,002		40,040
Share-based payment expense	27,391		28,997		57,116
Total payroll costs	181,705		160,167		301,535
Less: employee costs capitalised	(26,190)		(19,122)		(30,250)
Less: employee costs absorbed into unsold metal inventory balances	(21,882)		(18,551)		(30,935)
Employee costs included in operating costs	133,633		122,494		240,350

The weighted average number of employees during the period ended 30 June 2012 was:

	Six months ended				Year ended
	30 June 2012		30 June 2011		31 December 2011
Voro	892		836		848
Khakanja	1,106		993		1,021
Dukat	1,911		1,804		1,824
Omolon	1,024		845		913
Varvara	684		641		657
Amursk-Albazino	1,086		801		897
Mayskoye	740		573		617
Corporate and other	1,320		1,213		1,274
Total	8,763		7,706		8,051

 

13.    Finance Costs

	Six months ended						Year ended
	30 June 2012			30 June 2011				31 December 2011
	US$'000			US$'000				US$'000
Interest expense on borrowings	10,265			9,576				20,074
Unwinding discount on borrowings	2,293			2,576				5,344
Unwinding of discount on decommissioning obligations	1,684			1,516				3,328
Total	14,242			13,668				28,746

Interest expense on borrowings excludes borrowing costs capitalised in the cost of qualifying assets of US$7.3 million, US$5.71 million and US$12.5 million during the six months ended 30 June 2012, the six months ended 30 June 2011, and the year ended 31 December 2011, respectively. These amounts were calculated based on the Group's general borrowing pool and by applying an effective interests rate of 3.51% (annualised), 3.27% (annualised) and 2.81%, respectively, to cumulative expenditure on such assets.

14.    Income Tax

Tax for the six months ended 30 June 2012 is charged at 26.4% (six months ended 30 June 2011: 28.2%; year ended 31 December 2011: 29.1%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six month period. The effective tax rate excludes the one-off additional tax charge in respect of the Supreme Arbitration Court decision described below.

	Six months ended				Year ended
	30 June 2012		30 June 2011		31 December 2011
	US$'000		US$'000		US$'000
Current income taxes	72,588		60,929		127,671
Additional tax charges according to the Supreme Arbitration Court decision in respect of the prior periods	13,712		-		-
Deferred income taxes	(14,209)		(1,316)		(8,686)
Total	72,091		59,613		118,985

The actual tax expense differs from the amount which would have been determined by applying the statutory rate of 20% for the Russian Federation and Kazakhstan to profit before income tax as a result of the application of relevant jurisdictional tax regulations, which disallow certain deductions which are included in the determination of accounting profit. These deductions include share-based compensation, social related expenditures and other non-production costs, certain general and administrative expenses, financing expenses, foreign exchange related and other costs.

In the normal course of business, the Group is subject to examination by tax authorities throughout the Russian Federation and Kazakhstan. Out of the large operating companies of the Group, tax authorities have audited OJSC Okhotskaya Mining and Exploration Company and CJSC Magadan Silver for the period up to 2007, CJSC Gold of Northern Urals for the period up to 2009 and JSC Varvarinskoye for the period up to 2010. According to Russian and Kazakhstan tax legislation, previously completed audits do not fully preclude subsequent claims for those periods.

14.        Income Tax (continued)

Magadan Silver litigation

On 10 July 2012, the Supreme Arbitration Court of the Russian Federation made a final ruling on the tax dispute between CJSC Magadan Silver, a subsidiary of the Group, and the tax authorities in relation to the sale of silver by the Group in 2007 pursuant to certain sale contracts with ABN AMRO Bank.

As a consequence of the Supreme Arbitration Court decision, at 30 June 2012 the Company has provided for liabilities, interest and penalties of US$28.1 million indicated in the judgment. This amount comprised US$13.7 million in income tax and US$14.4 million in mining taxes, penalties and accrued interest (see Note 11). Whilst there is no judicial basis to appeal the decision of the Supreme Court, the Company is considering other legal bases to challenge the judgment.

The difference between the amount payable and the US$22.8 million exposure disclosed in the 2011 Annual Report  solely relates to additional interest accruing in the period.

15.    Earnings per share

The calculation of basic and diluted earnings per share is based on the following data:

Weighted average number of shares: Diluted earnings per share

The Group had potentially dilutive securities, namely the Group's equity-settled share appreciation plan, which was established during 2010.

Basic/dilutive earnings per share were calculated by dividing profit for the year attributable to equity holders of the parent by the weighted average number of outstanding common shares before/after dilution respectively. The calculation of the weighted average number of outstanding common shares after dilution is as follows:

	Six months ended				Year ended
	30 June 2012		30 June 2011		31 December 2011
Weighted average number of outstanding common shares	382,685,785		362,630,199		366,969,369
Dilutive effect of share appreciation plan	26,572,341		21,959,334		25,875,610
Weighted average number of outstanding common shares after dilution	409,258,126		384,589,533		392,844,979

There were no adjustments required to earnings for the purposes of calculating dilutive earnings per share in the current interim period (2011: none). The dilutive effect of equity-settled share appreciation rights has been calculated using the treasury stock method.

16.    Dividends

On June 14, 2012 a dividend of 20 cents per share was paid to shareholders by the Company resulting in cash outflows of US$76.5 million. No dividends were paid in 2011. No dividend proposed for the period ended 30 June 2012.

17.    Property, Plant and Equipment

	Exploration and development assets	Mining assets	Non-mining assets	Capital construction in-progress	Total
	US$'000	US$'000	US$'000	US$'000	US$'000
Cost
Balance at 31 December 2011	94,873	1,559,526	87,464	511,427	2,253,290
Additions	27,496	75,980	3,625	63,777	170,878
Transfers	6,696	121,530	3,442	(122,689)	8,979
Change in decommissioning liabilities	-	1,555	-	-	1,555
Disposals	(569)	(5,457)	(507)	(7)	(6,540)
Translation to presentation currency	(4,008)	(40,576)	(1,275)	(5,166)	(51,025)
Balance at 30 June 2012	124,488	1,712,558	92,749	447,342	2,377,137
Accumulated depreciation, amortisation	Exploration and development assets	Mining assets	Non-mining assets	Capital construction in-progress	Total
	US$'000	US$'000	US$'000	US$'000	US$'000
Balance at 31 December 2011	-	(335,167)	(16,149)	-	(351,316)
Charge for the period	-	(100,272)	(3,888)	-	(104,160)
Disposals	-	2,923	179	-	3,102
Translation to presentation currency	-	12,526	402	-	12,928
Balance at 30 June 2012	-	(419,990)	(19,456)	-	(439,446)
Net book value
Balance at 31 December 2011	94,873	1,224,359	71,315	511,427	1,901,974
Balance at 30 June 2012	124,488	1,292,568	73,293	447,342	1,937,691

Mining assets at 30 June 2012 included mineral rights with net book values amounting to US$360 million (31 December 2011: US$363.5 million). Mineral rights of the Group comprise assets acquired upon acquisition of subsidiaries and asset acquisitions.

The additions and the disposals of property, plant and equipment in the six months ended 30 June 2012 are shown net of US$67.8 million of exploration and development assets recognised on acquisition of a controlling interest in Amikan Holdings Ltd in February 2012 and subsequently derecognised on loss of control in that entity following its disposal in May 2012 (see Note 18).

In the period US$9 million of pre-production stripping costs at Mayskoye were transferred from inventory to Exploration and development assets (2011: US$ nil).

No property, plant and equipment was pledged as collateral at 30 June 2012 and 31 December 2011.

18.    Investments in Associates and Joint Ventures

The Group's investments in joint ventures and associates as at 30 June 2012 and 31 December 2011 consisted of the following:

		30 June 2012			31 December 2011			30 June 2011
		Voting power %	Carrying Value		Voting power %	Carrying Value		Voting power %	Carrying Value
			US$'000			US$'000			US$'000
ASSOCIATES
JSC Ural-Polymetal		33.3	10,502		33.3	11,152		33.3	11,512
Polygon Gold		42.6	18,555		-	-		-	-
JOINT VENTURES
JV with AngloGold Ashanti Limited		-	-		50	12,4061		50	17,070
			29,057			23,558			28,582
Total

¹An additional effective equity investment of US$1.8 million was included in other receivables as at 31 December 2011, giving a total investment of US$14.2 million.

Joint venture with AngloGold Ashanti Limited

In February 2008, the Company signed an agreement to set up a strategic alliance and entered into a series of joint ventures with AngloGold Ashanti Limited with each party owning 50% of each joint venture. The joint ventures were created in order to execute development projects in several territories of the Russian Federation.

On 7 February 2012, the Company acquired AngloGold's 50% equity interest and debt investments in the various joint venture companies held with Polymetal. The principal company acquired was Amikan Holding Limited, which owns the Veduga gold deposit in the Krasnoyarsk region of the Russian Federation, with other entities acquired not holding any material assets or liabilities. The consideration for the acquisition was US$20 million in cash comprising US$18.4 million for the equity and US$1.6 million for debt investment in Amikan. At the acquisition date, the Group's existing 50% investment had a carrying value of US$14.2 million together with a loan asset of US$6.9 million. The transaction costs were nil.

Amikan Holding Limited meets the definition of a business under IFRS 3 (2008) Business combinations and the transaction was accounted for using the acquisition method. The allocation of the purchase price based on the consideration paid and on the fair value of Amikan net assets acquired is as follows:

	Previous book value US$'000		Fair value adjustment US$'000		Fair value US$'000
Exploration and development	20,188		47,654		67,842
Deferred tax asset	3,577		-		3,577
Other	230		-		230
Borrowings	(8,464)		-		(8,464)
Deferred tax liability	-		(9,531)		(9,531)
Net assets acquired	15,531		38,123		53,654
Debt investment acquired					1,572
					55,226
Satisfied by:
Carrying value of investment in JV held previously					14,175
Consideration paid in cash					20,000
Revaluation to fair value of previously held interest					12,651
Bargain purchase gain (negative goodwill)					8,400
Total					55,226

18.   Investments in Associates and Joint Ventures (continued)

The total gain on acquisition of the remaining interest in the joint venture was US$21.1 million, comprising a US$12.7 revaluation to fair value of previously held interest and a bargain purchase gain of US$8.4 million. The bargain purchase gain resulted from AngloGold Ashanti Limited's strategic decision to exit the Russian Federation.

 

Equity investment in Polygon Gold Inc.

Polygon Gold Inc. ("Polygon"), a private shell company, was set up between Polymetal and Tyner Enterprises Inc ("Tyner") who initially held 250 and 100 shares respectively in the new venture. Tyner is controlled and managed by Len Homeniuk, a non-executive Director of Polymetal International plc.

On 14 May 2012, Polymetal sold 100% of Amikan Holding Limited to Polygon in exchange for consideration of US$20 million in cash and 750 ordinary shares of Polygon. In addition, Sibproekt LLC ("Sibproekt"), an unrelated local partner, provided a US$21 million loan to Polygon and received 100 newly issued Polygon shares for no consideration. This resulted in Polymetal holding an initial 81.8% equity ownership in Polygon. Under the new shareholder agreement, Polymetal obtained one of the four board seats, giving it significant influence.

On 4 June 2012, Polygon's share capital was increased to 1,571 shares by the issuance of 471 new shares to an affiliate of Gazprombank OJSC ("Gazprombank") for a total consideration of US$14.2 million paid in cash. The proceeds from the offering will be used to finance the Veduga project and repay part of Polygon's debt. In addition, Gazprombank has expressed an interest in providing project financing to Polygon to develop Veduga into a producing mine.

On 7 June 2012, Polymetal sold 230 of its shares in Polygon to Sibproekt for a total consideration of US$8.0 million payable in cash of which US$3.0 million is payable by 28 February 2013.

The Group's equity ownership in Polygon Gold Inc. had now decreased to 42.6%. It continued to exercise significant influence over Polygon.

In addition, the Group has provided a $10 million convertible debt facility to Polygon (see Note 24). The Group has guaranteed a $17 million bank loan owed by Sibproekt, which is repayable in December 2012, by placing US$18 million in a restricted bank account as security (see Note 19). It had accepted a put option under which Tyner can require Polymetal to acquire its 6.4% interest for US$9.0 million (subject to certain conditions including the operation achieving commercial production). The put option is considered to have negligible fair value as of both the transaction date and 30 June 2012.

The effects of these transactions are shown on a combined basis below:

		US$'000
Net assets of subsidiary disposed of (100% basis)		53,654
Intercompany debt asset transferred to Polygon		3,331
Less fair value of interest in associate undertaking retained		(20,201)
Net assets disposed of		36,784
Loss on disposal		(8,784)
Total consideration		28,000
Less unpaid consideration		(3,000)
Proceeds from disposal of subsidiary		25,000

The above loss on disposal arose partly due to the 6.4% interest in Polygon, which has a fair value of $3 million, being transferred to Tyner, a related party, for a cash consideration of US$ nil in exchange for introducing the other funding partners into the project and for assuming an ongoing management role. The remaining loss arose principally due to the dilution in Polymetal's economic interest as a result of the 100 shares being issued to Sibproekt on 14 May 2012 for no consideration. The Group considers that Sibproekt's local operating expertise will though be of significant benefit to the project.

19.    Short-term deposit

The US Dollar-denominated bank deposit of US$18 million bears interest of 5.1% per annum and had a maturity at inception of 205 days. The deposit represents the collateral for a bank loan provided to Sibproekt LLC, one of the participants of Polygon, an associate in which the Group holds a 42.6% stake (see Note 18).

20.    Inventories

	30 June 2012		31 December 2011		30 June 2011
	US$'000		US$'000		US$'000
Inventories expected to be recovered after twelve months
Consumables and spare parts	56,555		44,318		42,141
Total	56,555		44,318		42,141
Inventories expected to be recovered in the next twelve months
Ore stock piles	266,987		216,243		200,812
Сopper, gold and silver concentrate	123,660		72,973		28,763
Work in-process	64,736		48,859		52,771
Metal for refinery	40,813		17,718		18,832
Dore	38,888		22,889		36,262
Refined metals	23		24		27
Total metal inventories	535,107		378,706		337,467
Consumables and spare parts	230,123		234,510		220,279
Deferred stripping costs	8,332		-		-
Other	-		-		546
Total	773,562		613,216		558,292

At 30 June 2012 the Group has presented separately the metal for refinery and the gold and silver concentrate in respect of Dukat and Amursk-Albazino of US$108.3 million (31 December 2011: US$ 45.3 million). Previously these amounts were included within work in-process. The comparative figures have been restated to be presented on a consistent basis.

During the six months ended 30 June 2012, the Group recognised a US$2.9 million write-down to net realisable value of its concentrate in Albazino-Amursk due to low content of precious metals. During the six months ended 30 June 2011 and year ended 31 December 2011, the Group recognised write-down to net realisable of US$ 1.6 million and US $2.8 million respectively relating to its ore stock piles in Varvara due to poor gold and copper recovery on ore with lower content of precious metals.

During the six month period ended 30 June 2012 the Group reversed previous obsolescence provisioning against consumables and spare parts inventory in the amount of US$2.4 million (six months ended 30 June 2011: write-down of US $0.6 million; year ended 31 December 2011: reversal of US$0.6 million).

The amount of inventories held at net realisable value at 30 June 2012, 31 December 2011 and 30 June 2011 was nil.

21.    Borrowings

In the period ended 30 June 2012, the Group drew down a total of US$976 million and repaid US$936 million, a net draw down of US$40 million. It secured new facilities in the period of US$100 million with an unrelated party, which was fully drawn down in the period. The credit facility is repayable in thirteen equal semi-annual instalments starting from March 2014.

Included in the $936 million was the repayment of the Otkritie "REPO" facility of US$250 million in February 2012. At 30 June 2012, the Group had undrawn borrowing facilities of US$516 million (31 December 2011: US$803 million;

30 June 2011: US$393 million).

22.    Commitments and Contingencies

Taxation

Russian tax, currency and customs legislation is subject to varying interpretations and changes, which can occur frequently. Management's interpretation of such legislation as applied to the transactions and activity of the companies of the Group may be challenged by the relevant regional and federal authorities. Recent events within the Russian Federation suggest that the tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments.

As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

With regards to matters where practice concerning payment of taxes is unclear, management estimated the tax exposure at 30 June 2012 to be approximately US$34.7 million (31 December 2011: US$46.7 million; 30 June 2011: US$32.2 million).

CJSC Serebro Magadana

During 2011, a field tax audit was performed in relation to CJSC Serebro Magadana with respect to all taxes, duties and contributions to social funds for the period 1 January 2008 to 31 December 2009.

As a result of this audit the tax authorities issued an assessment of $9.1m (including interest and penalties) for the two years ended 31 December 2009 under audit. The most significant issue under dispute is in relation to the alleged incorrect application of technical loss limits in the calculation of mineral extraction tax. The company has objected to the assessment and believes they have strong grounds to defeat the tax authority's challenge based on both tax law and case law precedent. 

Litigation

During the respective periods, the Group was involved in a number of court proceedings (both as a plaintiff and as a defendant) arising in the ordinary course of business.

On July 10 2012, the Russian Supreme Arbitration Court made a final ruling related to the CJSC Serebro Magadana tax dispute, and supported the tax authorities, requiring the Group to pay US$28.1 million in additional taxes (including fines and accrued interest). See Note 14 for additional information.

23.    Stated capital account and retained earnings

At 30 June 2012, the Company's issued share capital consisted of 382,685,785 ordinary shares of no par value, each carrying one vote (31 December 2011: 382,685,785 ordinary shares). The Company does not hold any ordinary shares in treasury. The ordinary shares reflect 100% of the total issued share capital of the Company.

Reserves available for distribution to shareholders are based on the available cash in the Company under Jersey law. The ability to distribute cash up to the Company from the Russian and Kazakh operating companies will be based on the statutory historical information of each stand-alone entity, which is prepared in accordance with Russian or Kazakh accounting standards and which differs slightly from IFRS. Russian legislation identifies the basis of distribution as accumulated profit. However, current legislation and other statutory regulations dealing with distribution rights are open to legal interpretation; consequently, actual distributable reserves may differ from the amount of accumulated profit under Russian statutory accounting rules.

24.    Related Parties

Related parties are considered to include shareholders, affiliates, associates, joint ventures and entities under common ownership and control with the Group and members of key management personnel. In the course of its business the Group entered into various transactions with Nomos-Bank (an entity in which Alexander Nesis, a significant shareholder of the Company, also holds a substantial interest), equity method investees and its employees and officers as follows:

	Six months ended				Year ended
	30 June 2012		30 June 2011		31 December 2011
	US$'000		US$'000		US$'000
Interest expense on loans provided by Nomos-Bank	1,159		1,299		2,339
Interest income on deposits placed with Nomos-Bank	1,628		-		-
Revenue from sales to Nomos-Bank	240,270		117,985		258,794
Other income form entities under common control	2,205		1,065		1,559
Lease payments to Nomos Leasing	-		-		5,082

Outstanding balances are presented below:

	30 June 2012		31 December 2011		30 June 2011
	US$'000		US$'000		US$'000
Short-term loans provided to equity method investments	3,155		315		362
Long-term loans provided to equity method investments	5,424		6,303		5,881
Short-term loans provided to entity under common control	-		1,522		1,745
Long-term loans provided to entity under common control	-		-		195
Total loans provided to related parties	8,579		8,140		8,183
Short-term loans provided by Nomos-Bank	9,354		8,318		10,330
Long-term loans provided by Nomos-Bank	21,469		25,223		26,921
Long-term loans provided by equity method investments	1,954		1,860		2,133
Total loans provided by related parties	32,777		35,401		39,384
Other accounts receivable for related parties	5,402		2,940		-
Interest receivable from Nomos-Bank	321		1,573		-

During the six months ended 30 June 2012 US$ 4.1 million was provided to various equity method investments, including Polygon Gold Inc, and companies held in Joint venture with AngloGold Ashanti Limited. Once control over these companies was obtained, US$3.3 million of the loans provided ceased to be included in the tables above.

The US$1.2 million loan provided to Polygon Gold Inc is the drawn amount of a US$ 10 million facility provided by the Group (see Note 18). The loan has a coupon of 8% and is convertible into new shares in Polygon Gold Inc up to 31 December 2012. The percentage interest receivable is calculated as the amount of convertible debt divided by 250,000 (approximately US$15.9 thousand per share).

Carrying values of other long-term loans provided to related parties as at 30 June 2012, 30 June 2011 and 31 December 2011 approximate their fair values.

The amounts outstanding at the balance sheet dates are unsecured and expected to be settled in cash. No expense has been recognised in the reporting period for bad or doubtful debts in respect of the amounts owed by related parties. All trade payable and receivable balances are expected to be settled on a gross basis.

In the period, the Group entered into an agreement with Tyner Enterprises Inc, an entity controlled by Leonard Homeniuk, a non-executive director of Polymetal. As set out in Note 18, on 14 May 2012, a 6.4% interest in a new venture, Polygon, was transferred to Tyner and a put option on those shares was granted.

25.    Notes to the condensed consolidated statements of cash flows

			Six months ended				Year ended
	Notes		30 June 2012		30 June 2011		31 December 2011
			US$'000		US$'000		US$'000
Profit before tax			220,782		210,728		408,847
Adjustments for:
Depreciation and depletion, recognised in statement of comprehensive income			54,753		34,905		96,654
Write-down of exploration assets			-		-		13,263
Additional  mining tax charges following the Supreme Arbitration Court decision			14,351		-		-
Write-down of inventory to net realisable value	6		556		2,215		6,232
Share-based compensation	10		27,391		28,997		57,116
Finance costs	13		14,242		13,668		28,746
Finance income			(3,378)		(638)		(4,208)
Loss on disposal and write-down of assets	11		2,362		1,804		6,203
Change in contingent consideration liability			2,332		3,957		6,828
Change in allowance for doubtful debts	11		732		(422)		(1,171)
Loss from equity method investments			478		410		1,952
Change in fair value of derivatives			-		1,855		1,855
Foreign exchange loss/(gain)			59,652		(43,897)		13,634
Gain on acquisition of remaining interest in joint venture			(21,051)		-		-
Loss/(Profit) on  disposal of subsidiaries			8,784		(4,931)		(4,931)
Other non-cash expenses, net			3,615		(3,517)		1,388
Movements in working capital
Increase in inventories			(158,172)		(139,472)		(222,889)
Decrease/(Increase) in VAT receivable			10,119		(6,623)		(22,766)
Increase in trade and other receivables			(38,454)		(1,419)		(19,556)
Decrease/(Increase) in prepayments to suppliers			2,770		(14,138)		(11,437)
Increase in trade and other payables			41,836		48,877		6,394
Increase in other taxes payable			4,774		7,001		8,676
Cash generated from operations			248,474		139,360		370,830
Interest paid			(19,310)		(14,406)		(32,414)
Income tax paid			(71,239)		(45,244)		(126,317)
Net cash generated by operating activities			157,925		79,710		212,099

Additions to property, plant and equipment of US$1.4 million, US$6.9 million and US$4.8 million during the six months ended 30 June 2012 and 30 June 2011, and  year ended 31 December 2011, respectively, were acquired on deferred payment terms.

26.    Subsequent Events

On 10 July 2012, a subsidiary of Polymetal International plc, PMTL Holding Limited, completed the squeeze out (i.e. purchase) of the 617,316 remaining shares (0.15%) of JSC Polymetal not owned, at a cost of US$9.9 million.

On 10 July 2012, the Russian Supreme Arbitration Court made a final ruling on the tax dispute of the Group, and supported the tax authorities, requiring the Group to pay US$28.1 million in additional taxes (including fines and accrued interest). Further disclosure is provided within Note 14.

On 20 August 2012, the restrictions over the bank deposit being used to guarantee a bank loan owed by Sibproekt (see Note 19) were released when Sibproekt repaid the bank loan in full.

 

END

 

 

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