OREANDA-NEWS. November 19, 2014. Further to the announcement of 17 July 2014, Polyus Gold International Limited (LSE - PGIL, OTC (US) - PLZLY, “Polyus Gold” or the “Company”), the largest gold producer in Russia, announces the preliminary results of its review of the mineral resource and ore reserve estimates for the Natalka deposit.

Summary

Resource block model update and mineral resource and ore reserve re-estimate underway to be completed in January 2015.

Preliminary findings suggest a 15-20% downward revision in the resource and a 55-65% reduction in the reserve estimates due to a change in the interpretation of the deposit mineralisation, the more stringent requirements of JORC Code (2012) compared to JORC Code (2004), the application of updated economic assumptions and an increase in cut-off grades.

The Company intends to review its options with regard to the project development. Commissioning of the project in 2015 is no longer targeted.

Once completed, the re-estimate of the Natalka ore reserve is expected to result in a non-cash impairment charge to the book value of the project. The scale of the impairment charge is yet to be determined.

As announced on 27 December 2013, the Company decided to re-sequence the development of the Natalka project. The launch of the plant was re-scheduled from mid-2014 to mid-2015 by intentionally extending the construction schedule. At the same time, the Company initiated a thorough revision of the project, including the analysis of technical options to improve the economic attractiveness of the project and reduce its operational risks, and a review of the Natalka deposit resource block model. The latter was intended to ensure the incorporation of all newly available information from recent drilling campaigns and mining operations and the verification of historical geological data. Micromine Consulting Services and AMC Consultants Pty Ltd (“the Consultants”), independent mining industry consultants, were contracted to perform the relevant studies and update the resource block model and the mineral resource and ore reserve estimates.

Previous Natalka mineral resource and ore reserve estimates were based on the 2011 resource block model reviewed by Micon International and documented in its mineral expert report of February 2012 prepared in accordance with JORC Code (2004) requirements. The estimates are included in the Company’s 2013 Annual Report. In accordance with the existing Licence Agreement, mining works at Natalka commenced in early 2013. To 31 October 2014, a total of 9,220 thousand tonnes of ore have been extracted containing approximately 250 thousand ounces of gold, which is less than what was expected from the 2011 mineral resource block model.

The Consultants’ preliminary findings, made available to the Company, suggest that in the 2011 resource model the channel sampling information comprising approximately 60% of the resource database and derived from historical Soviet-era underground samples dating as far back as 1945 had significant location errors, caused by coordinate conversions, and poor quality control support, which resulted in a systematic positive bias. The interpolation of this high-grade data into adjacent areas, in line with conventional block modelling methodology, in conjunction with the results of the 2004-2006 and 2010-2011 drilling campaigns, resulted in the 2011 block model which consisted of areas of relatively high-grade (2.0 g/t and higher) material, surrounded by a halo of abundant low-grade stock-work mineralisation.

Contrary to this assumption, the Consultants’ preliminary reports, made available to the Company, suggest that the Natalka deposit is represented by a narrow, steeply-dipping structurally controlled mineralisation where grades are highest immediately adjacent to quartz-vein cores and has high continuity along strike and dip, while tending to decrease out into the wall rock across strike. By using this interpretation, in conjunction with the application of updated economic assumptions and of the more stringent requirements of JORC Code (2012) compared to JORC Code (2004), the Natalka measured, indicated and inferred resources are expected to total 48-50 million ounces of gold at 1.0-1.2 g/t with 0.4 g/t cut-off, compared to 59.7 million ounces at 1.71-1.74 g/t with 0.4 g/t cut-off as per the previous estimates, which is equal to a 15-20% reduction in the deposit resources. Proven and probable reserves are expected to total 11-14 million ounces of gold at 1.6-1.75 g/t with 0.6 g/t cut-off, compared to 31.6 million ounces at 1.6 g/t with 0.4 g/t cut-off as per the previous estimates, which is equal to a 55-65% contraction in the deposit reserves.

The Consultants’ detailed report is expected to be completed in January 2015, including a re-estimate of the Natalka mineral resource and ore reserve estimates, based on a new resource model for the deposit. The new model will exclude the optimistically biased underground assay results. The new model will incorporate all quality-controlled resource drilling data, including the results of recent grade control drilling and actual mining. The model is expected to better reflect the orientation of the mineralisation zones, prevent smearing of high grades in the main veins into the wall rock, and enable analysis and modelling of the true range of grade correlation in the strike and dip directions of the veins, thereby providing a reliable basis for mineral resource estimation, for further mine-planning studies, and for ore reserve estimation. A verification drilling programme is underway to confirm that the new model accurately predicts the tonnage and grade of low, medium and high grade ore. The increased cut-off grade employed in reserve estimation reflects the application of updated economic assumptions.

Due to the ongoing operational review and the current findings, the Company intends to reconsider its options with regards to the project development, including potential partnerships. The Company is no longer targeting a commissioning of the project in summer 2015. Construction works onsite will be significantly slowed down until a decision with regards to the project development is made. Natalka remains one of the largest development projects in the gold industry, but the Company needs to thoroughly weigh it up against other attractive potential projects in its pipeline to ensure the best return on shareholders’ capital. The latter include a number of previously or recently identified attractive brownfield and greenfield opportunities in the Company’s current operating regions.

Once completed, the re-estimate of the Natalka ore reserve is expected to result in a non-cash impairment charge to the book value of the project which will be included in the full year 2014 financial results to be published in March 2015 and the scale of which is yet to be determined.

The change in the interpretation of deposit mineralisation is unique to Natalka and is not relevant to the Company’s other deposits.