OREANDA-NEWS. On June 15, 2009 OJSC “Polymetal” (LSE, MICEX, RTS: PMTL) (“Polymetal” or the “Company”) announced that it has entered into a definitive sale and purchase agreement (“SPA”) to acquire a 100% interest in the Varvarinskoye Gold-Copper Mine in Kazakhstan (“Varvarinskoye”) from Orsu Metals Corporation (“Orsu”) for an aggregate purchase price of up to US20 million (plus any deferral interest) (the “Transaction”), reported the press-centre of Polymetal.

TRANSACTION DESCRIPTION
Under the terms of the SPA, Polymetal will acquire 100% of the shares in Three K Exploration and Mining Limited (“ThreeK”), a wholly-owned subsidiary of Orsu which currently owns Varvarinskoye (directly and indirectly). The total consideration payable to Orsu by Polymetal comprises of US8 million in cash payable upon completion, and deferred consideration of up to a maximum of US12 million (plus any deferral interest), contingent on and calculable in reference to future prices of gold and copper.

Prior to entering into the Transaction, Orsu held certain debt and hedging obligations relating to Varvarinskoye with a syndicate of banks including Investec Bank, Nedbank Limited and Natixis Bank (collectively, the “Lenders”). Specifically:

 (A)     Debt obligations in the amount of approximately US73 million, comprising of a US35 million Export Credit Insurance Corporation, South Africa (“ECIC”) Loan , a US8 million Convertible Loan, a US18 million Commercial Loan, and US12 million of overdue hedging obligations; and

(B)     Gold forward contracts totaling 338,468 ounces at a strike price of US574.25 per ounce with a total estimated value of approximately negative US140 million (based on a spot gold price of US950 per ounce).

As part of the Transaction, Polymetal has reached preliminary agreement with the Lenders to restructure current debt and hedging obligations, under which these obligations will be transferred to the Varvarinskoye asset level, with limited recourse to Polymetal. In addition, Lenders have agreed to restructure the existing hedging contracts (in a form acceptable to Polymetal) to allow Varvarinskoye to benefit from future gold price upside.

The repayment schedule of the resulting debt and hedging liabilities will be rescheduled with final repayment becoming due in 2013 (35% of the total liabilities) and 2014 (65% of the total liabilities). In addition, a cash sweep mechanism will apply to all free cash flows generated from Varvarinskoye in the preceding years. Polymetal has agreed to provide Lenders with a corporate guarantee of US\\$90 million, which may be called upon in certain limited circumstances.

The Transaction is conditional on the Lenders, Varvarinskoye and Polymetal entering into definitive refinancing documents, which will be subject to the Lenders’ and ECIC final approval.

In addition, the Transaction is conditional upon, inter alia, obtaining necessary regulatory approvals (including receipt of an anti-monopoly approval from the Agency of the Republic of Kazakhstan for the Protection of Competition and receipt of an unconditional waiver by the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan in relation to the rights of the Republic of Kazakhstan to acquire shares in Varvarinskoye arising out of the Subsoil Use Law of the Republic of Kazakhstan) and Orsu shareholders approving the Transaction.

It is currently agreed with the Lenders that, following the completion of the Transaction, Polymetal will advance a US20 million loan to Varvarinskoye to fund its working capital requirements and certain capital expenditure items. This loan will be unsecured and subordinated to the debt and hedging obligations.

ASSET DESCRIPTION AND TRANSACTION RATIONALE
Varvarinskoye is situated in north-western Kazakhstan, 130 kilometers from the regional center Kostanai and 10km from the border with Russia. Approximately US240 million was invested by Orsu Metals and its predecessor company, European Minerals Corporation, to build an open-pit mine, a 4.2 Mtpa processing plant and all related infrastructure.

The mine commenced production of gold in December 2007 and copper-gold concentrate in March 2008.

In the first quarter of 2009, Varvarinskoye produced a total of 13,599 ounces of gold and 1,743 tonnes of copper recovered to concentrate. In January 2009, Orsu completed an updated mine plan, including updated mineral reserve and resource estimates calculated using gold price of US700 per ounce and copper price of US1.5 per pound as at January 1, 2009.

Polymetal believes that the prospective acquisition represents the following strategic benefits:

Geographic diversification through entry into Kazakhstan, which is considered as one of the most attractive gold mining regions in the former Soviet Union;

Acquisition of a large modern plant, located in the region with excellent infrastructure, cheap energy, and highly prospective geological settings;

Increased exposure to gold in line with its previously announced corporate strategy;

Tremendous reserve growth potential after the streamlining and optimization of mining and processing operations.