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922005NORILSK NICKEL • ANNUAL REPORT •NORILSK NICKEL • ANNUAL REPORT •200593The full production volume of Polus for the year ended31 December 2005 was 1,038 thousand ounces of gold comparedto 1,085 thousand ounces of gold in 2004. The reductionin reported output was primarily due to the fact that apart of the gold produced at Olimpiada MEC in 2005 wasrefined by the Krasnoyarsk Precious Metals Plant only at thebeginning of 2006. These data will be considered when preparingfinancial statements for 2006. The reduction in gold productionat the alluvial deposits of Lenzoloto in the Irkutskregion was offset by the consolidation of Aldanzoloto GRK(Republic of Sakha – Yakutia) acquired in the second half of2005.Gold production in 2005(100% = 1,038 thousand ounces)CJSC PolusOlimpiada MECThe Olimpiada MEC with annual gold output over the pastten years at least 804,000 ounces is the main production facilityof Polus, accounting for 76% of the gold produced by theGroup.In 2005, the Olimpiada MEC produced 813,000 ounces ofgold, thus meeting its planned target. Part of this gold wasrefined by the Krasnoyarsk Precious Metals Plant only at thebeginning of 2006. Therefore, the refined gold output atOlimpiada MEC amounted to 783,000 ounces. It mined 1,631.3thousand tonnes of oxidized ore and 3,561.8 thousand tonnesof sulfide ore with respective gold grades of 8.6 g/tonne and3.3 g/tonne. The production of oxidized ores fell by 10.58%in 2005, while the production of sulfide ores grew by 4.97%.Gold extraction rate from the oxidized ore processed by theOlimpiada MEC increased from 96.9% in 2004 to 97.1% in2005. Gold extraction rate for sulfide ores also grew insignificantlyfrom 80.2% in 2004 to 80.74% in 2005.Due to the reduction of the reserves of more enriched oxidizedores, which are expected to be fully exhausted by 2008, in 2005a large-scale investment project was initiated to extend the facilitiesof the Olimpiada MEC with a view to preserving stablegold production volumes from sulfide ores.In 2005, Olimpiada MEC began construction of the third sectionof the gold extraction plant for primary ore processing.The design capacity of Gold-Extracting Plant No. 3 is 5 milliontonnes of ore per annum. The launch of the new plantis scheduled for 2007 and the target design capacity is plannedto be achieved in 2008. The launch of plant No. 3 will providefor the processing of the primary ore reserves not processedto date and will increase the overall capacity for sulfideore processing to 8 million tonnes.As part of the project for the reconstruction of the OlimpiadaMEC, it is also planned to extend the Vostochny and Zapadnypits, increase the pit base of the company and construct a roadand housing for its employees.In 2005, the Olimpiada MEC outsourced the refining of goldto an independent precious metals refinery – the KrasnoyarskPrecious Metals Plant.OJSC LenzolotoAlluvial gold depositsIn 2005, Lenzoloto companies washed 10.8 million m 3 ofgold bearing sands with an average gold grade of 0.6 g/m 3 .Lenzoloto companies mined 212,000 ounces of gold, adecrease in production by 14% compared to the previousyear. Alluvial gold production volumes in the Irkutsk region continuedto fall.OJSC Aldanzoloto GRKKuranakh MECIn 2005, Kuranakh MEC mined 3,368 thousand tonnes ofore (of which 797 thousand tonnes were mined after thecompany was consolidated by Polus from 1 October 2005).In 2005, gold production by Kuranakh MEC amounted to27,000 ounces of gold after the company was consolidatedby Polus from 1 October 2005.In 2005, the Kuranakh MEC outsourced the refining of goldto the Prioksky Precious Metals Plant.In 2005, industrial testing of the heap leaching technology startedon the ores of the Kuranakh ore field. In 2006, it is plannedto obtain 6,100 ounces of gold at the Nadezhny heap leachingsection by processing 300 thousand tonnes of ore withaverage gold grade of 0.9 g/tonnes and extraction rate of70%.The total annual pit output of the Kuranakh MEC is approximately11 million m 3 of mined rock and almost 3.6 milliontonnes of mined ore.LLC LGMCZapadny MECIn 2005, Zapadny MEC mined 623.4 thousand tonnes of orewith an average gold grade of 1.61 g/tonne, increasing productionalmost twice. The production of gold at Zapadny MECfor the year ended 31 December 2005 was 13,545 ounces ofgold. During 2005 in the course of the geological explorationwork on the Chertovo Koryto deposit, LGMC also produced1,575 ounces of gold.In 2005, the Zapadny MEC outsourced the refining of goldto an independent precious metals refinery – the KrasnoyarskPrecious Metals Plant.OJSC Matrosov MineMatrosov mineIn summer 2005, Matrosov Mine continued geological explorationon the flanks and deep horizons of the Natalka deposit.Design work was also completed for a geological explorationfor new licenses for the Degdekan and Tokichan (westernsite) ore fields.As a result, reserves of the Natalka deposit below 600 metersgrew by 576 tonnes with gold grade of 1.59 g/tonne. Also,a new Vostochnaya ore body was discovered, parallel to themain exploration area.According to a quick-look analysis of the reserves of theNatalka deposit following the geological exploration, theyamounted to more than 1,000 tonnes for B+C1 category and500 tonnes for C2 category. The geological exploration resultsfor the deposit are planned to be presented to the StateCommittee for Reserves of Russia in 2006.GOLD MINING ASSETS OF MMC NORILSK NICKEL(Polus)9
942005NORILSK NICKEL • ANNUAL REPORT •NORILSK NICKEL • ANNUAL REPORT •200595••• Review of salesperformanceSales of gold by Polusand its subsidiaries('000 ounces)9.5Entities 2005 2004 2003Polus 795 819 794domestic sales 334 819 794export sales 461 – –Lenzoloto 211 257 –LGMC (1) 15 – –Aldanzoloto GRK (2) 27 – –YVMC (2) 1 – –Matrosov mine (3) 1 10 –Total (4) 1,049 1,086 794Notes:(1) Includes sales of LGMC subsidiaries mining hard rock gold deposits (CJSCTonoda, CJSC GRK Sukhoy Log).(2) Includes sales of Aldanzoloto GRK and YVMC from the time of their acquisitionby Polus (1 October 2005). Total sales of the companies for the year ended31 December 2005 were 93,900 ounces and 1,700 ounces of gold, respectively.(3) Sale of residual amounts of gold after the cleanup of the gold extractionplant.(4) Totals may differ from the sum of the components due to rounding.During 2005, Polus sold gold in the domestic market at aminor discount to its global price. Sales were made throughthe centralized distribution system: Polus sold both its own goldand gold of subsidiaries (except for Matrosov Mine and newlyacquired companies – Aldanzoloto GRK, YVMC, which soldgold under direct contracts with banks) acting on the basis ofagency agreements with them.In addition, Polus obtained an export license from the Ministryof Economic Development of Russia and in February 2005concluded its first direct export contract. Sales of gold in theinternational market amounted to 461 thousand ounces ofgold. Deliveries of gold bullion in accordance with the standardsof the London Bullion Market Association were made directlyto the buyer's vault (Credit Suisse, Zurich, Switzerland). Saleswere at prices determined on the basis of the London fixingplus an agreed upon premium.••• Commitment toenvironmental protectionPolus is committed to the use of environmentally friendly miningand extraction technologies and to reducing the use ofcyanide application in gold production in order to decrease risksto its employees, the residential areas located nearby Polus goldmining operations and to the environment as a whole.Polus companies conduct their production activities in accordancewith the requirements of Russian environmental legislationand the International Cyanide Management Code inthe production of gold and work with the federal environmentalagencies and public environmental organizations.During 2005, the total cost of environment protection measuresfor Polus amounted to USD 3 million.Polus9.6The Olimpiada MEC has created and effectively operates asanitary, state-of-the-art industrial laboratory accredited bythe Accreditation System of Analytical Laboratories.On-going monitoring of atmospheric air demonstrated that in2005 the plant did not exceed the established limits for sourcesof emission and the concentration of controlled pollution didnot exceed the set norms.To ensure compliance with pollutant limits for atmosphericemissions and increase the efficiency of the dust and gaspurification equipment, the plant performs organizationalmeasures and reconstructs and modernizes production facilities.During 2005, the plant completed the construction of thethird section of the tailing pond and local sewage treatmentfacilities with a capacity of 1,500 m 3 per day. It started theconstruction of local stormwater treatment facilities. Jointly withspecialists from the leading institutes of Russia, scientificresearch work was conducted to select an effective technologyfor the treatment of unbalanced water in the tailing pond.Rational use of water resources ensured the reduction ofwastewater discharge to surface water reservoirs by 322 thousandm 3 (or by 32%) as compared to the previous year.The company pays particular attention to the organization ofwaste treatment. Waste of hazard class 1 is fully transferredto special companies for reclamation, waste of hazard classes2 and 3 is reclaimed internally and waste of hazard classes4 and 5 is buried in internal waste dumps at which a rangeof measures is implemented to prevent harmful impact onthe natural environment. All the waste disposal operationsare performed in accordance with the approved waste generationnorms.In 2005, capital investment in environmental protection measuresamounted to USD 1.6 million.LenzolotoLenzoloto's key environmental protection activities are aimedat preventing the pollution of water by suspended substancesas a result of mining work. In 2005, a set of hydraulic structureswas constructed including cascades of dams and settlingbasins, conduits and ditches with a capacity of 1.2 million m 3and a range of special measures were implemented to preventthe discharge of oil products in the hydrosphere.To ensure the continuous monitoring of the quality of wastewatertreatment, an industrial sanitation lab was created andoperated by LLC LenRem, a subsidiary of Lenzoloto.During 2005, Lenzoloto's environmental protection costsamounted to about USD 800 thousand.Aldanzoloto GRKDuring 2005, pollutant atmospheric emissions at AldanzolotoGRK came from 279 sources and amounted to 52.5% of theestablished limit. Water consumption was at 74.5% of theestablished limit.A building adjacent to the well at the Kuranakh mine was constructed,the tailing pond at the Kuranakh gold extractionplant was reconstructed and capital repairs were performedon the septic tanks at the Kuranakh mine.During 2005, the environmental protection costs of AldanzolotoGRK amounted to approximately USD 100 thousand.LGMCZapadny MEC develops the Zapadnoye deposit without thedisposal of wastewater into water bodies and employs a recirculatedwater supply.In 2005, the first section of the tailing pond dam was constructed.Observation wells were drilled. A settling basin forthe hydrometallurgical unit was constructed with a high degreeof protection and an impermeable screen from weldedpolyethylene sheets covering the entire floor and walls of thebasin.For atmospheric air protection, a cyclone was installed on theboiler in the rotational village and ventilation equipment wasinstalled in the cyanide warehouse and the hydrometallurgicalunit.During 2005, environmental protection costs amounted tomore than USD 100 thousand.YVMCEnvironmental measures taken at the Nezhdaninsky mine in2005 were aimed at ensuring the safe flow of spring floodwaterand mitigation of the risk of pollution. The tailing ponddam at the gold extraction factory was strengthened and theunderground water intake facilities providing for the potableand process water needs were inspected, at the total cost ofUSD 20 thousand.Matrosov MineIn 2005, the Matrosov Mine performed an additional geologicalsurvey of the Natalka deposit. In 2005, the mine restoredthe fencing of the sanitary protection zone for undergroundwater intake and in the second half of the year stopped themine water discharge to the Natalkin creek. In performingthe geological exploration work drilling sites were equippedwith special ditches for the settling of the heavy residues ofdrilling mud, preventing their penetration into the surfacewatercourse. Drilling mud was used to reduce the dust emissionto the atmospheric air in the process of drilling.During 2005, the environmental protection costs of MatrosovMine amounted to approximately USD 300 thousand.GOLD MINING ASSETS OF MMC NORILSK NICKEL(Polus)9During 2005, the average gold sale price for the group amountedto USD 449 per ounce (with the average London fixing ofUSD 444 per ounce).
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