Untitled - PRIME Gold

902005NORILSK NICKEL • ANNUAL REPORT •NORILSK NICKEL • ANNUAL REPORT •200591••• Review ofoperatingperformanceGeological and geodesic exploration9.4In 2005, Polus more than doubled its resource base: on1 January 2006 the recorded reserves of the company perRussian classification (categories B+C1+C2) grew to 56,875thousand ounces (including B+C1 – to 32,569 thousandounces) as compared to 25,721 thousand ounces (includingB+C1 – 17,522 thousand ounces) in 2004.The validation of 222 tonnes at the Blagodatnoye deposit(Krasnoyarsk Region) with the State Committee for Reservesof the Russian Federation, the acquisition of three gold miningassets in the Republic of Sakha – Yakutia and the acquisitionof new licenses for subsoil use in Krasnoyarsk, Irkutsk,Magadan and Amur regions were all key factors in the increaseof Polus's resource base.The considerable growth of Polus's recorded mineral resourcebase resulted from both the acquisition of licenses and sharesin gold mining companies and from active geological explorationwork during the year. The validation by the StateCommittee for Reserves of the Russian Federation of theBlagodatnoye deposit resources may be credited as the mostsignificant result of geological exploration work in 2005. Itwas the first time in Russia in the last 10 years that theresources of a newly explored major gold deposit were includedin the state resources.In 2005, Lenzoloto performed exploration work at 24 licensedareas of alluvial gold and one area of hard rock gold.In addition, projects were prepared for the prospect appraisalwork at Eastern site (Magadan region), the Razdolinsky siteand the Zyryanovsky site, prospect appraisal and explorationwork at the Quartzevaya Gora deposit (Krasnoyarsk region) andexploration work at the Bamsky deposit (Amur region).At the end of 2005, preparations began for geologic explorationprojects and an audit of reserves in accordance with theJORC Code at the Kuranakh ore field and the Nezhdaninsky andKyuchus 1 deposits in the Republic of Sakha (Yakutia).The volume of drilling work grew significantly in 2005 – morethan 2.5 times to 143 thousand running meters as comparedto 57 thousand running meters in 2004.Ore mined and gold producedOperating highlights of Polus('000 tonnes or as noted)2005 2004 2003Ore minedOlimpiada deposit (1)Ore minedOxidized ore 1,631 1,824 1,710Sulfide ore 3,562 3,385 4,074Average gold grade (g/tonne)Oxidized 8.6 10.9 11.1Sulfide 3.3 4.6 3.7Alluvial gold deposits (2)Sand washed (million cubic meters) 10.8 13.06 –Average gold grade (g/m 3 ) 0.6 0.6 –Kuranakh ore field (3)Ore mined 842 – –Average gold grade (g/tonne) 1.67 – –Zapadnoye deposit (4)Ore mined 623 272 –Average gold grade (g/tonne) 1.61 2.1 –Natalka deposit (5)Ore mined – 94 –Average gold grade (g/tonne) – 2.8 –GOLD MINING ASSETS OF MMC NORILSK NICKEL(Polus)9In 2005, Polus's companies conducted geological explorationat the following 9 licensed gold deposits: Natalka deposit,Blagodatnoye deposit, Olimpiada deposit, Panimbinskayadeposit, Titimukhta, Chertovo Koryto, Mukodek, Verninskoyeand Degdekanskoye ore field.Gold produced ('000 ounces)Olimpiada deposit (1) 783 820 832Alluvial gold deposits (2) 212 246 –Kuranakh ore field (3) 27 – –Zapadnoye deposit (4) 15 11 –Natalka deposit (5) 1 8 –Nezhdaninskoye deposit 1 – –Total production of gold 1,038 1,085 832Notes:(1) Total gold output at the Olimpiada MEC amounted to 813,000 ounces. Since a part of the gold produced at Olimpiada MEC in 2005 was refined by theKrasnoyarsk Precious Metals Plant in January 2006, this amount will be taken into account when preparing financial statements for 2006.(2) Polus began to consolidate its 57.0% interest in Lenzoloto (subsequently increased to 68.2%), which develops alluvial gold deposits, in April 2004. The datafor 2004 represent the volume of sands washed and gold produced by Lenzoloto from the date of consolidation up until 31 December 2004.(3) The deposits at the Kuranakh ore field are developed by Aldanzoloto GRK, which was acquired by Polus in September 2005. The data reflect indicators consolidatedfrom 1 October 2005.(4) The Zapadnoye deposit is developed by the Lenskaya Gold Mining Company, a 100% subsidiary of Polus created at the end of 2004. In 2004, the Zapadnoyedeposit was mined by a company, which was part of Lenzoloto. Data for 2004 are included from the date of consolidation of Lenzoloto by Polus up until31 December 2004. The total ore mined in the Zapadnoye deposit in 2004 amounted to 314,000 tonnes. The production volume of Zapadny MEC includes theamount of gold produced through the testing of ore processing technology at the Chertovo Koryto deposit.(5) Polus began to consolidate its 57.1% interest in Matrosov Mine (subsequently increased 88.4%), which develops the Natalka deposit, in April 2004. The datafor 2004 represent the volume of ore mined and gold produced by Matrosov Mine from the date of consolidation up until 31 December 2004. The volume ofore mined by Matrosov Mine in 2004 amounted to 180,000 tonnes and the volume of gold production amounted to 14,000 ounces. Mining and extraction ofgold at the Natalka deposit were suspended in summer 2004 in order to conduct geological exploration work to further explore the flanks and deep horizonsof the deposit.1 Geologic exploration license is held by Yakutskaya Mining Company(Republic of Sakha – Yakutia)