OREANDA-NEWS. According to Q1 2007 results, ore mined increased 8,1% to 644 th. tons compared to the same period in 2006. The volume of ore mined by underground operations increased 16,1%; whereas open-pit mining rose 5,8% compared to the comparable 2006 period, reported the press-centre of  Polymetal. Underground mining accounted for 21,3% of the total volume mined in the first quarter of this year - up from 19,8% in Q1 2006. The Company expects an increase in the share and volume of underground mining in coming years as the Lunnoye deposit transitions from open-pit to underground mining. The volume of ore processed in the reported period increased 13,1% to 502 th. tons. The positive dynamics were due to significant increases in ore processed at both the Vorontsovskoye and Khakanja deposits.


Based on first quarter 2007 results, Polymetal’s gold production dropped 4,7% (compared to the same period in 2006) to 55,6 th. oz., which was primarily due to a significant 37,1% drop in gold production at Khakanja. The Company believes that this drop, which was forecast, can be attributed to mine sequencing at the deposit. Silver production fell to 3,554 th. oz. (a 16,6% fall off from Q1 2006) - primarily due to head grade issues.


Expansion overview
During Q1 2007, the Company’s scientific and technical review board approved pre-feasibility studies for the expansion of Dukat’s production plant to 1,5 mln. tpa. During Q2 2007, Polymetal plans to start work on the project’s feasibility study and working drawings.
Polymetal believes that the Dukat expansion will come on line during the second half of 2008.
The Company is also actively moving forward with its expansion plans at Vorontsovskoye, which will increase production capacity at the plant by 50 percent (to 940 th. tpa). The Vorontsovskoye expansion is also scheduled to come on line during the second half of 2008.


Exploration overview
Polymetal continued its three-pronged strategy of actively exploring existing deposits, potential new stand-alone projects and regional campaigns. Exploration is targeted at replacing and expanding reserves at existing mines and finding potentially promising sites to develop.
During the first quarter of 2007, the Company spent approximately $9,5 mln on exploration expenses - which represented a significant increase over figures from the comparable period in 2006 (less than $1 mln).
The Company focused significant exploration activity on the Dukat flanks and the Albazino development project.
The Dukat flanks (license area: Dukat Ore Field) is a potentially promising area surrounding the existing Dukat deposit that the Company believes will be able to increase the deposit’s mineral resource base and feed the planned production expansion at the processing plant. Polymetal plans to complete a JORC-compliant resource and reserve audit for a portion of the licensed area in the second half of 2007.
In the reported period, Polymetal continued geological survey at Albazino’s flanks - looking to increase the mineral resource base at the deposit and upgrade the current resource categories.
During the reported period, public hearings were held to discuss potential flowsheets for the project and the construction of two processing plants — one [an ore processing plant] located directly on site and the other [a gold processing plant] located in Amursk.
Internal scoping studies suggest that the project may produce from 200-250 th. oz. of gold per year; and the Company believes that the project will come on line during the second half of 2010. Preliminary studies indicate that the project CapEx will be from $150-200 mln.

Hedge overview
A substantial portion of Polymetal’s silver production is promised to ABN Amro in 2007 under fixed price, forward sales contracts. This year marks the last year of a “hedge” book that was established in 2004, as a condition for a long-term international syndicated loan.
In 2007, Polymetal is obligated to deliver approximately 13,9 mln. oz. of silver to ABN Amro at a price range of $6 — $8,6/oz.[under min/max price contracts] — which is significantly below the average market price for silver.
During Q1 2007, the Company closed 2,7 mln. oz. of its hedging obligations. Currently, Polymetal is still required to deliver slightly more than 11,2 mln. oz. of silver prior to the end of 2007.


Production guidance
Based on life-of-mine plans [developed in conjunction with SRK Consulting] and production results from Q1, the Company anticipates that its 2007 year-end production will be approximately 230-250 th. oz. of gold and between 16-18 mln. oz. of silver.