Description of production assets
and operating results for 2009

In 2009, the Group produced 1,261 thousand ounces¹ of gold compared to 1,222 thousand ounces in 2008, a 3.2% year-on-year growth. The growth in production is primarily a result of launching the Titimukhta project in the Krasnoyarsk Region, and the effects of acquiring a controlling stake in KazakhGold Group Limited, one of the leading gold producers in Kazakhstan, in the third quarter of 2009.

A number of negative factors significantly complicated the operation of the Group's production units in the reporting year. First, due to the depletion of high-grade oxide ores in 2008 and the transition to processing refractory sulphide ores, there was a decrease in the average gold grade of the ore processed. Second, there were substantial volumes of ore at stockpiles that had accumulated from 1996-2007 that needed to be processed to ensure stable chemical-mineralogical composition and physical-mechanical properties of the feed in the future. As a result, the feed supplied to the mills was of various technological types that required re-adjustment of the mills' operational schedules and additional time to stabilize the technological process. At Mill No. 1, for example, ores of three different types were processed (Olenye deposit ore, mixed-type ore from Zapadny and Vostochny pits at the beginning of the year, and the Titimukhta deposit ore during the rest of the year). At Mills No. 2 and No. 3, stockpiled, partly oxidized ores were processed at the beginning of the year, whereas those mills were switched over to newly mined ore in the second half of the year.

VOSTOCHNY PIT OF OLIMPIADA MINE

Other significant factors influencing the Group's operating results in 2009 were: implementation of the final stage of the Olimpiada Mine expansion project while maintaining running production; modernization of the Kuranakh Mine mill.

In 2009, the volume of rock moved at the Group's existing and new production units and projects amounted to 48.6 million cubic meters, compared to 50.8 million in 2008. In 2009, the Group mined 18.4 million tonnes of ore, compared to 6.6 million tonnes in 2008. The multiple growth of ore mining resulted from the transfer to sulfide ores at the Olimpiada Mine, and the start of mining at the Group's new projects: Titimukhta, Blagodatnoye and Verninskoye.

Ore processing in 2009 was 13.8 million tonnes, compared to 10.8 million in 2008. The increase in ore processing resulted from Mill No. 3 of the Olimpiada Mine reaching its designed capacity.

Table 2. Results of business operations of the Group in 2007-2009²

¹Including 30 thousand ounces produced by KazakhGold Group in August – December 2009 in the form of slimes, flotation and gravity concentrate, and other semiproducts.

²KazakhGold Group data is reported for the period from August to December 2009.

³KazakhGold Group production for August – December 2009 in the form of slime, flotoand gravity concentrate, and other semiproducts

Krasnoyarsk business unit: Olimpiada Mine

Description of production capacities
The Olimpiada Mine is located in the Severo-Yeniseisk District of the Krasnoyarsk Region, 500 kilometers north of Krasnoyarsk. Three mills are currently operating:

• Mill No. 1 was commissioned in 1996 and processed oxidized ores from the Olimpiada deposit until 2008. After the the depletion of oxidized ores in 2008 Mill No. 1 was remodeled to process ores coming from the Titimukhta deposit and the production capacity was raised from 1.5 to 2.2 million tonnes per year.
• Mill No. 2 was commissioned in 2001 and currently applies the technology of biological and hydrometallurgical processing (biological oxidation) to handle refractory sulphide ores with a design capacity of 3 million tonnes of ore per year.
• Mill No. 3 was commissioned in 2007. The mill also employs the biological oxidation process to handle refractory sulphide ores. The plant’s design capacity is 5 million tonnes of ore per year.

The refining of gold produced at the Olimpiada Mine is performed by the Krasnoyarsk non-ferrous metals plant.

EXCAVATING AT BLAGODATNOYE DEPOSIT

Power at the Olimpiada Mine is supplied by OJSC Krasnoyarskenergo and is generated by on-site facilities as well.

Characteristics of the deposit and the types of ores
The Olimpiada gold ore deposit includes two pits: Zapadny and Vostochny. Ore bodies No. 1, 2, and 3 are located at Zapadny pit.

The Vostochny pit contains ore body No. 4, which contains the bulk of the ore and gold reserves, consisting of separately measured oxidized and sulphide ore reserves. Extraction of oxidized ores in the Vostochny pit ended in 2007, and their processing stopped in 2008.

Sulphide ores represent metasomatic ore bodies with rare (3%-4%, and up to 10 % in the most enriched sections) impregnations of sulphide minerals, mainly arsenic pyrite, pyrite, antimonite, pyrrhotine. The average gold grade of sulphide ores is 3.5 g/t.

In 2009, the primary ore both from Vostochny and Zapadny pits of the Olimpiada Mine were processed. Ore is mined by benches 10 meters high with selective transporting of ore and stripping to external dumps.

Mining technology
The Olimpiada Mine operates as an open pit mine with surface stockpiling. Rock is removed from the pits by excavation and mining complexes. Benches are 10 meters in height. Benches not in operation are 30 meters high and at an extreme angle. The benches are at 75°-80° angles, while non-operational benches are at 60°-75° angles. The sites are from 30 meters to 80-100 meters in width.

Rock is excavated from the pits with preliminary ripping via a set of drilling and blasting operations, which is required by the hardness of the ore and rock.

Mined rock is loaded onto trucks (Caterpillar САТ 777D, 777F and Komatsu HD 785-5 with a carrying capacity of 90 tonnes; Terex M3300 АС with a carrying capacity of 136 tonnes; BelAZ-7540 and BelAZ-7548 with a carrying capacity of 30 and 40 tonnes, respectively) using excavators (EKG-10, EKG-5А, Komatsu PC1250-7, Liebherr R-994 with a bucket capacity of 10 m³ and 5 m³) with waste rock transported to external dumps and ore transported to the blending stockpile.

Mining is conducted with the use of SBSh 250, MNA 32, DML Ingersoll Rand, DML LP AtlasCopco, PV 275, ROC L8 rock drills.

Starting from December 2008 mix-pump trucks are used to charge the boreholes with explosives. Emulsive explosives (VET-300, VET-500 and VET-300) are used in the open pit Vostochny to break 80% of the total volume of rocks.

Sulphide ore processing
Gold present in sulphide ores is bound with sulphides and cannot be extracted by direct cyanidation. Unlike oxidized ores, sulphide ores require additional technological processing for extracting gold.

Sulphide ore processing is performed at two plants – Mill No. 2 and Mill No. 3. Ore delivered by dump trucks from the ore stockpile is fed through the grizzly screens to the prime crusher’s hopper and then goes to grinding.

Ore milling is performed in two stages on one production line. The first stage is performed on semiautogenous grinding mills operating in an open cycle, and the second stage is performed in ball mills operating in a closed-loop cycle along with the hydraulic cyclones. The discharge from the hydraulic cyclones undergoes screening and is forwarded to flotation benefication in compressed gas machines.

The bacterial oxidation (biooxidation) process for extracting gold from refractory sulphide ores in the conditions of the Far North was performed for the first time in the world at the Olimpiada Mining and Concentration Plant. The flotation concentrate is forwarded to the concentrate biochemical oxidation units of Mill No. 2 and Mill No. 3, while the flotation tailings go via thickening process to sorbate desalinization or to the tailing pit.

After deacidification with flotation tailings and lime milk, the oxidized concentrate undergoes final oxidation. Further, the pulp goes to the pre-cyanidation tanks and is then forwarded to the desalinization columns.

The remainder of the process of extracting gold from sulphide ores is similar to that used at the Titimukhta deposit, except for the use of different sorbents (Mill No. 2 uses resin and Mill No. 3 uses absorbent carbon) and, accordingly, different sorbent desorption processes.

At Mill No. 3, the sorption pulp tailings undergo screening and filtering, resulting in the formation of a cake (which is transported to the landfill) and filtrate, which, together with sorption tailings from Mill No. 2, are sent to the tailing pounds after screening and decontamination.

Operations of the Olimpiada Mine in 2009
The volume of ore mined at the Olimpiada Mine in 2009 was 10.6 million tonnes, compared to 1.5 million in 2008.

A significant increase in ore mining goes in line with the mining and processing plan. Not all the ore mined is processed in the same period – it goes first to the stock piles, where it is blended to reach homogeneity in terms of grade and chemical composition, and only after that it is supplied to the mills. The balance of stockpiled ore at Olimpiada mine at 1 January 2010 was 12 million tonnes.

ORE LOADING AT OLIMPIADA

Ore processing at the Olimpiada Mine in 2009 was 8.9 million tonnes, compared to 6.6 million in 2008.

Mill No. 3 reached its designed capacity in 2009. Stockpiled, partly oxidized ores were processed at Mills No. 2 and 3 at the beginning of the year, whereas those mills switched to newly mined ore in the second half of the year.

At Mill No. 1, ores of three different types were processed in 2009 (Olenye deposit ore, mixed type ore from the Zapadny and Vostochny pits at the beginning of the year, and the Titimukhta deposit ore during the rest of the year).

According to the technological standards for processing oxidized and primary (sulphide) ores from the Olimpiada deposit, primary ores include those containing more than 20% sulphide sulphur. Ores containing less than 20% sulphide sulphur were classed as oxidized. Engineers at the Olimpiada mine also use the term "mixed type ores”. According to the technological standards, the ores are primary since the content of sulphide sulphur ranges from 20 to 80%. Once mined, the ores were considered to be primary, but were stored in a separate stockpile. In 2009, mixed type ores were processed at Mill No. 1 according to the carbon-in-leach method. In 2009, mixed type ore processing totaled 1,163 thousand tonnes.

2009 saw the completion of the processing of Olenye deposit ores (316 thousand tonnes) and the beginning of the processing of Titimikhta ores (602 thousand tonnes).

The production of refined gold at the Olimpiada Mine in 2009 was 26.1 tonnes, or 839 thousand ounces, compared to 27.1 tonnes (873 thousand ounces) in 2008. Production was reduced sulphide as a result of the transition to processing refractory sulfide ores, feed supplies of various technological types that require readjusting the mills' operational schedules and additional time for stabilizing the technological process, and the final stage of the Olimpiada Mine expansion project being implemented during production.

As compensation for the negative impact of the above factors, additional measures have been developed aimed at increasing the plants’ operational efficiency. In particular, the Olimpiada Mine organized additional reclaiming of ores and implemented certain measures provided by the program aimed at increasing the mill’s production for 2009-2010. As a result, performance was significantly increased in late 2009. Subsequently, as long as the two-year program is implemented, further improvements in the mill’s operational efficiency are expected.

Irkutsk hard rock business unit: Zapadnoye Mine

Description of production facilities
The Zapadnoye Mine is located in the Bodaibo District of the Irkutsk Region. The mine is in the process of developing the Zapadnoye gold ore deposit, which is a constituent part of the Sukhoi Log ore field and, on its eastern side, borders the largest gold ore field in Russia – Sukhoi Log.

Gold is currently produced at the mill that was commissioned in 2004 with a capacity of up to 0.8 million tonnes of ore per year.

The refinement of gold produced at the Zapadnoye Mine is performed by the Krasnoyarsk Non-Ferrous Metal Works.

Characteristics of the deposit and types of ore
The Zapadnoye gold deposit is represented by three saddle-shaped bodies of ore. Ore concentrations confined to zones of veined impregnation of quartz-sulphide mineralization. The ore bodies are found in a feathering formation in respect to each other and have a combined length of 2,700 m. Down toward the wings, the ore bodies pitch out significantly and stretch to a length of 150-350 m. The thickness of the ore bodies at the folder curve is 15-35 m and thin out at the wings to 3-8 m.

Ores in the deposit are represented by sericite and quartz siltstones, sandstones and carbon containing schist forming horizons of fine and coarse rhythmical interstratifications and hosting quartz-sulphide mineralization. Low sulphide (mainly pyrite) ores have a total content of 2–6% sulphides. Gold like in the fields of Sukhoi Log and Verninskoye is dominantly fine but 85% of it is greater than 0.07 mm.

Technology of mining operations
The Zapadnoye deposit is mined using the open pit method. The average rate of ore and host rock hardness determines the need to conduct drilling and blasting operations in preparing the rock for excavation.

Mined rock is loaded on trucks by excavators, with waste rock transported to external dumps and ore to the mill’s blending stockpile.

The pit configuration, mining technology and type of equipment used are determined by the patterns of ore’s occurrence, the thinness of the ore bodies and the ore’s relatively low gold grade.

Ore processing technology
More than 90% of the gold in the Zapadnoye deposit is in mineral form, and only a small portion of it is found in pyrite and pyrrhotine in very thin clots. The mill uses gravitation technology with subsequent cyanidation of the concentrate.

Operation of the Zapadnoye Mine in 2009
In 2009, the Zapadnoye Mine mined 1,155 thousand tonnes of ore with an average grade of 1.78 g per ton, compared to 950 thousand tonnes mined in 2008.

In 2009, the Zapadnoye Mine processed 505 thousand tonnes of ore, compared to 495 thousand tonnes in 2008.

The difference in ore mining and processing was due to the fact that ore with low content was stored at a dedicated depot yard to be processed in subsequent periods.

The Zapadnoye Mine performed well in 2009, producing 0.75 tonnes or 24 thousand ounces of refined gold.

Currently, the Zapadnoye Mine is the only Russian mining and metallurgical company with a commercialized industrial-scale production process of extracting gold from ores similar to those found in one of the largest deposits in Russia and in the world – Sukhoi Log.

Irkutsk alluvial gold business unit: Alluvial deposits

Description of production capacities
Polyus Gold is currently the largest gold producer from the alluvial deposits located in the Bodaibo District in the Irkutsk Region.

Alluvial deposits in the Bodaibo District have been developed since 1846, i.e. for more than 160 years. Almost all producing deposits used to be developed by hydrauliс, pit-based, underground, selective or dredging techniques, i.e. they are technogenic.

The development of the above deposits involves the use of dredging, quarrying and underground techniques. The mining involves dredges and draglines with a bucket volume of 6-20 m³, mining shovels with shovels of 5 m³, various class bulldozers, open-pit dump trucks and sluice boxes.

Gold mining and washing technology
The Company’s plants perform gold mining using quarrying and dredging techniques.

Strip mining is performed by walking and mine excavators, and bulldozers depending on a gold-bearing placer’s characteristics.

For the development of deep-seated deposits, walking excavators with a 42.5 m digging depth capacity are used. They are also used during the preparation of dredge quarries when using the “excavator-dredger” combination. During the development of permafrost or frozen rocks, a drill and fire system is utilized, as well as ripping by heavy-duty bulldozers.

ALLUVIAL OPERATIONS, IRKUTSK REGION, DREDGE No. 133

Production is performed by dredging (dredgers with 250, 380 and 400 liter buckets), bulldozing and excavating.

When utilizing open cast mining techniques, goldwashing is performed using different types of jiggers (PGSh-2-50, GVSh, TOK-200, PKO-100, PBO and others).

Gold recovery is performed by gravity separation without the use of chemical agents.

STRIPPING WORKS AT ALLUVIAL DEPOSITS, IRKUTSK REGION

The water supply for mining work is managed by a closed-loop recirculation system. Industrial water is cleaned by settling and filtration without the use of chemical agents.

In order to increase the level of gold extraction, jigging condensation technology is being implemented, which will enable the extraction of fine gold grains in different morphological forms. In 2007-2008, dredger No. 134 was transferred from box trapping to the jigging method of condensation, and dredger PBO-100 No. 12 with jigging technology was put into operation. In 2009, the implementation, improvement and industrial operation of jigging methods of product condensation continued. The operations performed in 2009 confirmed the efficiency of using jigging techniques.

Operations of alluvial deposits in 2009
The total gold production from the alluvial deposits in 2009 amounted to 6 tonnes or 194 thousand ounces, compared to 5.6 tonnes or 181 thousand ounces in the previous year. In 2009, the average grade amounted to 0.66 g/m³ including: dredging – 0.34 g/m³, quarrying – 0.97 g/m³.

The main factors affecting performance in 2009 included: acquisition of a new alluvial enterprise in 2008, putting advanced mining and transport equipment into operation, favorable weather conditions (early spring, warm and extended autumn).

Yakutia business unit: Kuranakh Mine

Description of production capacities
The Kuranakh mine is located in the Aldan Region of the Republic of Sakha (Yakutia), several kilometers away from the Kuranakh settlement. The mine develops gold ore deposits associated with the Kuranakh ore field.

Currently, gold production is carried out at the gold concentrating plant (mill) commissioned in 1965 with an aggregate production capacity of 3.6 million tonnes per year. The modernization of the Kuranakh Mill is planned for completion in the second half of 2010 to raise the annual capacity to 4.5 million tonnes of ore per year.

A MINE TRUCK CARRYING ORE TO THE PLANT KURANAKH MINE

The refinement of gold produced at the Kuranakh Mine is carried out at the Priokskiy Non-Ferrous Metals Plant (Ryazan Region).

Deposits and characteristics of ores
In the course of development, the Kuranakh ore field deposits have been significantly affected by mining operations. Mainly the central parts of the deposits with the most uniform ore bodies and the highest gold grade have been developed.

All the Kuranakh ore field deposits reveal common geological structures, morphologies and lithologies. The gold bodies have ribbon-like forms with pinch-and-swell structures. The ores are primarily oxidized of the quartzsulphide type, brecciform, clayish with sandstone and carbonate rock. The gold is represented by microscopic (0.05-0.001 mm) and submicroscopic (below 1?m) particles. Gold is in an unbound state and is genetically related to sulphides, iron and quartz hydroxides.

Mining technologies
Mining at the Kuranakh ore field deposits employs open cut, drilling and blasting operations. A downward transport system of development is used by layer, with each layer being at most 10 m.

Bulldozers are used incidentally for mining or loosening ore. Ore mining with bulldozers is performed by trenching terraces a maximum of 5 m high. Blasting operations use the most common type of explosives, igdanite.

The aggregate annual mined rock mass production at the pits will be more than 10 million cubic meters after modernization, and the production of the ore will constitute about 4.5 million tonnes of the above total.

Ore processing technology at the Kuranakh Mine
Ores at all Kuranakh ore field deposits have good cyanidation at low consumption of sodium cyanide. The Kuranakh gold concentration plant uses the process of cyanic leaching with sorption concentration of gold on resin.

Production operations of the Kuranakh Mine in 2009
In 2009, the Kuranakh Mine mined 3,606 thousand tonnes with an average gold grade of 1.39 g/t, compared to 3,899 thousand tonnes in 2008.

In 2009, the Kuranakh Mine processed 3,463 thousand tonnes, compared to 3,696 thousand tonnes in 2008. Gold recovery remained almost at the same level, with 84.2% in 2009 and 84.6% in 2008.

The production of refined gold at the Kuranakh Mine in 2009 was 4.2 tonnes, or 135 thousand ounces, compared to 4.5 tonnes, or 144 thousand ounces, in 2008. This reduction in metal production at the Kuranakh Mine is primarily related to its modernization and a slight decrease in the average gold grade. The modernization program is expected to enhance the production rate in 2010.

Kazakhstan business unit: KazakhGold Group

In August of the reporting year, the Company successfully completed the transaction on the acquisition of 50.1% of shares in KazakhGold Group Ltd. The key assets of KazakhGold Group Limited located in the Akmola Region of Kazakhstan, i.e. Aksu, Bestobe and Zholymbet, and a number of deposits at various stages of development in the north and east of the country were included in the newly-founded Kazakhstan business unit of the Company.

AKSU MINE, KAZAKHSTAN, OPEN PIT MINING

Description of production capacities
The Aksu, Bestobe and Zholymbet deposits are mined using the open pit and underground mining methods. Underground mining is used primarily for high-grade ores with a gold grade of up to 10.0 g/t. Open pit mining is used for low-grade oxidized ores with a gold grade of up to 2.0 g/t.

The deposits have been mined for more than 60 years. Ore processing is performed by two gravity sorption mills in Aksu and Zholymbet with a design capacity of 500 thousand tonnes and 400 thousand tonnes respectively, and a gravity flotation mill in Bestobe with a design capacity of 300 thousand tonnes. Ores mined using the open pit method are processed by heap leaching. Deposits produce gravity concentrate, flotation concentrate, gold-bearing electrolysis slimes and high-grade salable (fluxing) ores with a gold grade of more than 50 g/t.

Aksu
The Aksu Mine is located 15km east of Stepnogorsk and mines two deposits – the Aksu deposit and the Quartzite Hills deposit. The ore types are veins and mineralized zones.

The deposits are mined using the underground and open pit methods. High grade ores mined underground are processed by a gravity sorption mill. Low grade ores mined using the open pit method are processed by heap leaching.

The Aksu mill operates in accordance with the following scheme. Ore mined underground is treated using a three stage crushing process in an open cycle, and it then goes through a two-stage wet grinding, including classification by spiral classifiers and control classification by hydrocyclones (particle size up to 85% –0.074 mm). The first stage product goes through jigging operations, and the concentrate is shipped to customers. The effluent coming from hydrocyclones is thickened and forwarded to the hydrometallurgical process where it goes through pre-cyanidation, gold sorption, desorption, and electrolysis before it becomes cathode gold.

Heap leaching technology includes ore stockpiling, application of cyanide solutions, sorption of productive solutions, desorption, and electrolysis prior to the receipt of cathode slime. The design capacity of the heap leaching complex is 500 thousand tonnes.

Bestobe
The Bestobe Mine is located 85 km east of Stepnogorsk. The mine was commissioned in 1932. The ore types there are veins and mineralized zones.

Ores are mined using the underground and open pit methods. High grade ores mined underground are processed by a gravity flotation mill. Low grade ores mined using the open pit method are processed by heap leaching.

The Bestobe mill operates in accordance with the following scheme. Ore is treated using a twostage crushing process in an open cycle, and then it goes through grinding, including control classification by hydrocyclones (particle size up to 65% –0.074 mm). The first stage product goes through jigging operations, and the gravity concentrate is amalgamated to placer gold. The effluent coming from hydrocyclones is floated into sulphide goldbearing concentrate, which is then thickened in thickeners, vacuum filters and dryer drums, and shipped to customers.

The heap leaching technologies used at Aksu and Bestobe are the same. Desorption and regeneration of coal is performed at the Aksu mill. The design capacity of the heap leaching complex is 500 thousand tonnes.

Zholymbet
The mine is located 95 km south of Stepnogorsk and 125 km north of Astana (the capital of the Republic of Kazakhstan).

The ore types there are veins and mineralized zones. Ores are mined using the underground and open pit methods. The ores produced are processed at the Zholymbet mill.

The Zholymbet mill operates in accordance with the following scheme. Ore is treated using a two-stage crushing process in an open cycle, and then a two-stage wet grinding, including classification by spiral classifiers and control classification by hydrocyclones (particle size up to 85% –0.074 mm). The first stage product goes through jigging operations, and the concentrate is shipped to customers. The effluent coming from hydrocyclones is thickened and forwarded to the hydrometallurgical process where it goes through precyanidation, gold sorption, desorption, and electrolysis before it becomes cathode gold.

Production operations of Aksu, Bestobe and Zholymbet plants in August – December 2009
In August – December 2009, KazakhGold Group Limited produced 941 kg (30.3 thousand ounces) of gold in the form of slimes, flotation and gravity concentrate, and other semiproducts. Including 376 kg (12.1 thousand ounces) produced at the Zholymbet Mine, 338 kg (10.9 thousand ounces) and 227 kg (7.3 thousand ounces) produced at Bestobe and Aksu Mines, respectively.

The key factor influencing the operating results of KazakhGold Group in 2009 was deteriorated condition of fixed assets as they have not been modernized in the last 20 years. Work on implementing new ore processing technologies have been haphazard. Repeated reorganizations of the company led to the loss of a significant part of the Company’s infrastructure.

In September – December 2009, measures to stabilize production capacities and increase the Kazakhstan business unit’s output of finished goods were implemented. The implementation of the above measures is expected to result in a substantial increase in gold production in 2010.