Results of geological exploration

In 2009, the Company continued the implementation of the 2006-2010 Exploration Program, which was approved by the Board of Directors of OJSC Polyus Gold immediately after the incorporation of the Company in 2006. In 2009, the Group‘s exploration team worked at 29 hard-rock gold deposits and at 25 placer sites in five regions of the Russian Federation, namely in the Krasnoyarsk, Magadan, Irkutsk and Amur Regions and in the Republic of Sakha (Yakutia). Moreover, exploration work began in August in Kazakhstan at the Aksu, Bestobe, Zholymbet deposits, etc. (see Geological exploration in Kazakhstan).

Expenses on geological exploration work in the Russian Federation in 2009 totaled USD 32.5 million , compared to USD 138 million in 2008. These expenses were capitalized. The total drill works in 2009 amounted to 164.2 thousand meters, compared to 291.2 thousand meters in 2008. This reduction in drilling operations and investments was related to the completion of certain geological exploration work in 2009, feasibility studies of deposit development conditions and estimation of reserves without field work.

The completion of the exploration work in 2009 resulted in an increase in reserves under categories В+С₁+С₂ in the amount of 320.7 tonnes. Moreover, the reserves of the following deposits were listed on the state reserves balance:

• Nezhdaninskoye deposit – 151.5 tonnes
• Bamskoye deposit – 94.3 tonnes
• Olimpiada deposit – 69.8 tonnes
• Mukodek deposit – 3.4 tonnes
• Alluvial deposits – 1.7 tonnes

Moreover, due to the acquisition of KazakhGold Group’s assets, the Group's reserves under categories В+С₁+С₂ increased by 125 tonnes.¹

¹In Kazakhstan, Russian (or Soviet) system of reserves classification is applied.

Krasnoyarsk region

In 2009, the Company carried out exploration activities across eight projects in the Krasnoyarsk Region: the Kvartsevaya Gora, Olimpiada (deep levels) and Poputninskoye deposits, and the Kuzeyevskaya, Panimbinskaya, Olimpiadinskaya, Zyryanovskaya, and Razdolinskaya ore fields.

Exploration work on the deep levels of the Olimpiada deposit
In 2009, exploration work was mainly performed in the Vostochny pit, ore body No. 4. As a result, the body was opened and explored to deeper levels of –450 m with no changes in parameters and limitations on depth.

According to Minutes of the Territorial Reserves Committee for the Krasnoyarsk Region No. 730-op dated 24 September 2009, reserves in the amount of 69.8 tonnes (2.2 million ounces) of gold were listed on the balance. The increase is due to the transfer of off-balance reserves under category С₂ to balance reserves.

Exploration efforts in 2009 confirmed that the grade remains at the same level as the primary ores that have been explored.

According to the data received, a preliminary block model of the deposit has been prepared. At the same time, the resource potential of ore body No. 4 at lower than +50 m is more than 500 tonnes (16 million ounces) of gold with an average grade of 3.6 g/t.

Kvartsevaya Gora deposit
The exploration of the deposit was completed in the reporting year. According to the results, a feasibility study of permanent exploration conditions and reserves calculation was prepared and has been submitted for state expert examination.

The total reserves under categories С₁+С₂ submitted for expert examination amounted to 14.4 tonnes (0.5 million ounces), including balance reserves in the amount of 13.1 tonnes (0.4 million ounces).

Olimpiadinskaya field
Within the limits of the licensed area, exploration work was performed under the following project: Completion of exploration and measurement work at the Olimpiadinskaya field in 2005-2009.

Field work was carried out at the Olimpiadinskaya (Verkhnechirimbinsky and Polcansky) and Kvartsevaya Gora (Tynachay) ore fields. The project work has been completed. Preparation of the report on the results of exploration and measurement work is underway in accordance with the license agreements.

The Uspensky area of the Blagodatnoye ore field, with predicted resources amounting to 60 tonnes (1.9 million ounces) under category Р₃, was selected.

Kuzeevskaya area
Seven anomalous geochemical fields were identified at the Kuzeevskaya area in 2009 based on the results of analysis results that located previously known ore occurrences. In 2010, analysis of a well-known veined ore grade mineralization at the Fartovyi, Zolotoy and Malo- Vesnensky areas and anomalous field No. 1 is expected.

According to the results of the work performed, the resource potential of the Kuzeevskaya ore cluster amounts to 48 tonnes (1.5 million ounces) under categories Р₁+Р₂+Р₃.

Panimbinskaya area
Exploration of the Panimbinskaya area was carried out at the Zolotoe and Mikhaylovskoye ore occurrences. According to reserves calculations, it is expected that the Panimbinskoye deposit reserves will amount to at least 64 tonnes (2 million ounces) of gold, including balance reserves within the limits of the open-cast pit of 45 tonnes (1.4 million ounces). An increase in the mineral and raw material base of the deposit is possible at the south-eastern flank of the deposit.

Temporary technological standards were prepared in accordance with technological studies. A recommended beneficiation scheme allows the production of Dore bead that is 86.4% gold. Additional studies were conducted with regard to the use of heap leaching techniques.

Zyryanovskaya area
At the Zyryanovskaya area, work including data processing, analytical works and preparation of reports was underway in 2009. The parameters of ore grade mineralization and estimated resources of the Zyryanovskaya area under categories Р₁+Р₂+Р₃ amounted to 13.5 tonnes (0.4 million ounces).

Razdolinskaya area
At the Razdolinskaya area, work such as data processing, including the calculation of predicted resources, preparation of technical and economic calculations, analysis of the technological properties of ores, mineralogical researches, geochemical and geophysical surveys was underway.

Poputninskoye deposit
Technological tests of ores were performed as part of the exploration work, and the hydrogeological and geotechnical conditions of mining at the deposit were estimated. As a result, the main data required for evaluating resources and preparing feasibility studies of temporary conditions were obtained.

Online measurement indicated that gold reserves amounted to 67.6 tonnes (2.1 million ounces) under categories С₁+С₂ with an average grade of 3.7 g/t.

A combined technological scheme is recommended for primary ore processing. Total gold recovery from start to finish is 89.9%.

Irkutsk Region (hard-rock)

In 2009, exploration work in the Irkutsk Region was carried out at the following units: the Verninslkoye, Pervenets and Zapadnoye deposits, Artemyevskoye ore field (the Zheltukhtinskaya, Verkhne-Kevaktinskaya and Illigirskaya areas), and the Kropotkinsky ore cluster (Medvezhy area).

Verninskoye, Pervenets deposits
2009 saw the completion of the preparation of a feasibility study of permanent exploration conditions and reserves calculation. The materials have been submitted to the State Reserves Commission of the Federal Agency for Subsoil Use. It is expected that, following the approval of the SRC, balance reserves will amount to 242 tonnes (7.8 million ounces) under categories С₁+С₂ with a cutoff grade of 0.75 g/t. The increase in reserves will amount to 194 tonnes (6.2 million ounces).

Zapadnoye deposit
2009 saw the completion of the preparation of a feasibility study of conditions and reserves calculation. The materials have been submitted to the State Reserves Commission. Balance reserves of gold in the amount of 16 tonnes (0.5 million ounces) under categories С₁+С₂ with an average grade of 2.59 g/t are to be approved. The expected increase in reserves due to a supplementary exploration is 9.8 tonnes (0.3. million ounces).

Kropotkinsky ore cluster
Prospecting work continued in the Medvezhy Zapadny area. Currently, the most important results were achieved in the western part of the area. Online measurement of resources under category Р₁ amounted to 26 tonnes (0.8 million ounces).

Preparation, expert examination, and agreement of the project relating to geological exploration, as well as area grid-type geochemical and geophysical surveys (grid size: 100×20 m out of 6 km²) were carried out in the Medvezhy Vostochny area.

Artemyevskoye ore field
Geological prospecting and exploration work continued on the most prospective sections of the Zheltuktinskaya and Verkhne-Kevaktinskaya areas.

The probable resources of categories Р₁+Р₂ in the Verkhne-Kevaktinskaya area amounted to 16 tonnes (0.5 million ounces) of gold.

The probable resources in the Zheltuktinskaya area amounted to 18 tonnes (0.6 million ounces) of gold under categories Р₁+Р₂.

Area grid-type geochemical and geophysical surveys were carried out in the Illigirskaya area, as well as drilling and mining. The probable resources of category Р₂ amounted to 19 tonnes (0.6 million ounces) of gold. Geological prospecting and exploration work is underway.

Mukodekskoye ore field
In 2009, prospecting work was completed on the Mukodek deposit. A feasibility study of temporary conditions and balance reserves of 3.4 tonnes (0.1 million ounces) of gold under category С₂ was approved for underground mining.

Irkutsk Region (alluvial deposits)

In 2009, the Company continued geological exploration at placer deposits in the Irkutsk Region. Exploration activities were carried out at 25 areas while operational exploration was carried out in 22 areas.

In 2009, the operational growth of reserves under category С₁+С₂ due to measurement and exploration work amounted to 3.2 tonnes (0.1 million ounces), and the probable resources of category Р₁ was 200 kg (6 thousand ounces).

According to the Territorial Reserves Committee’s expert examination, 2.7 tonnes (0.1 million ounces) of gold were listed on the balance.

Republic of Sakha (Yakutia)

Geological exploration work in the Republic of Sakha (Yakutia) in 2009 was executed at the functioning Kuranakh Mine’s Kuranakh group of deposits, as well as on two advanced projects at the Nezhdaninskoye and Piniginskoye deposits.

Kuranakh ore field
A new feasibility study with a reserves calculation for the Kuranakh ore field deposits was completed in 2009. The balance reserves of gold were revalued and increased by 7% up to 113.5 tonnes (3.5 million ounces) under categories С₁+С₂.

A feasibility study of permanent exploration conditions and a reserves calculation were prepared with regard to the technogenic deposits of the ore field. The balance reserves of gold amounted to 27.4 tonnes (0.9 million ounces) with an average grade of 0.71 g/t. Their approval by the State Reserves Commission is planned for 2010.

Nezhdaninskoye deposit
The State Reserves Commission approved permanent exploration conditions and a reserves calculation with regard to the project on additional exploration of the deposit. The reserves of gold under categories С₁+С₂ amounted to 628.6 tonnes (20.2 million ounces) for combined mining. The growth in gold reserves amounted to 151.5 tonnes (4.9 million ounces).

Piniginskoye deposit
In 2009, laboratory and technological research was conducted by the Federal State Unitary Enterprise Central Research Institute for the Exploration of Non-Ferrous and Precious Metals. According to the results of the above research, total gold recovery is 95%.

Amur Region

Work on two exploration projects was carried out in the Amur Region: auditing and prospecting was performed at the Bamskoye deposit in the Apsakanskaya hard-rock gold area.

Bamskoye deposit
Temporary exploration conditions and a reserves calculation under categories С₁+С₂ in the amount of 107.5 tonnes (3.5 million ounces) of gold were approved by the State Reserves Commission with regard to the Bamskoye deposit.

Apsakanskaya area
A prospective section of the Apsakanskaya area was selected to evaluate ore-grade gold by drilling and mining by categories С₂ and Р₁. Production is expected to have the scale of a medium-size deposit (25-30 tonnes) (0.8-1 million ounces). Areas for subsequent measurement activities were selected.

Magadan Region

Geological exploration work was carried out on 5 projects in the Magadan Region.

Omchaksky prospective area
Measurement and exploration work at the Zolotaya Rechka site of the Omchaksky ore cluster continued. Measured resources under P₂ category amounted to 50 tonnes of gold (1.6 million ounces).

Degdekanskoye Ore Field
Hydro-geological and data processing work was performed at the Degdekanskoye deposit. Expected reserves of С₁+С₂ gold amounted to 120 tonnes (3.9 million ounces).

When testing the technological properties of ores, gold recovery reached 82.3% with regard to oxidized ores and 75.7% with regard to primary ores.

Tokichanskoye (Vostochnaya area)
Data processing work was performed along with insignificant analytical studies at the Tokichanskoye (Vostochnaya area) field.

Probable Р₁ resources at the Tokichanskoye field amounted to 26 tonnes (0.8 million ounces) of gold.

Doroninskoye Ore Field
The results of the work performed at the Doroninskoye ore field did not identify any mineable gold grades. Mineralization of polymetallic silver is expected to be identified. Probable Р₁ resources amounted to: Ag – 9,600 tonnes, Sn – 120,000 tonnes.

Chai-Yuryinskaya prospective area
At the Chai-Yuryinskaya prospective area, the work of the reporting period complete the first stage of exploration works at the license block of Chai-Yuryinskaya prospective area for 2006-2009.

Probable Р₂ resources amounted to 13.6 tonnes (0.4 million ounces) of gold.

Kazakhstan

Since August 2009, the Company has been carrying out exploration works at the following deposits in the Republic of Kazakhstan: Bestobe, Zholymbet, Aksu, Akzhal, Yuzhnoye Karaul-Tube, Kvartsitovye Gorli, and Kasbulakh.

During the months since then, operational exploration has mainly been performed to provide for the current underground mining at the Bestobe, Aksu and Zholymbet deposits. Geological exploration work aimed at the evaluation of reserves for open mining was performed at the Aksu deposit (Karyerny and Kotenko sites) and at the Yuzhnoye Karaul-Tube deposit. Total volume of drilling in Kazakhstan business unit in September – December 2009 amounted to 8.1 thousand meters.

The evaluation of part of the existing reserves in accordance with the JORC was begun at the end of the reporting year.

Mineral resources base as at 01.01.2010¹

Table 3. Mineral resources base in accordance with the classification of the RF State Reserves Committee

¹Reserves and resources of each deposit are given in full and include reserves and resources attributable to the share of minority shareholders of the companies in Polyus Gold Group.

Changes in the Company’s mineral resources base in the reporting year. B+C1+C2 reserves, in millions of ounces

Mineral resources of the Company according to the JORC

The Company has been keeping a balance of mineral resources in accordance with the Russian and international classifications since its foundation. The Company’s reserves are accounted for by the State balance of mineral resources of the Russian Federation. The Company has been auditing mineral and raw material resources in accordance with the JORC Code in order to provide the investing community with information on both reserves and resources.

The first audit of the ore reserves and mineral resources of OJSC Polyus Gold was executed by SRK Consulting in 2005. The audit included the analysis of a number of deposits in the Kasnoyarsk, Magadan and Irkutsk Regions. Since then, the Company has been assigning audits of corporate fields in accordance with the JORC standards on a regular basis upon completion of geological surveys and exploration work. Since 2006, the international audit of the Company’s deposits has been performed by MICON International.

The Company performed an international audit of the Titimukhta, Chertovo Koryto and Blagodatnoye deposits in 2008. The total proved and probable reserves (P&P) amounted to 74.1 million ounces, and the total measured and indicated (M&I) mineral resources amounted to 80.4 million ounces.

An international audit of reserves was not performed in the reporting year.

Table 4. Mineral resources of the Company according to the JORC
Table 4.1. Measured, indicated and expected resources

Table 4.2. Proved and probable reserves

Table 4.3. Mineral reserves and resources of the Company according to the JORC Code