Sustainable development

From the beginning, the Company’s operations have been based on sustainable development principles that include three focus areas: the green agenda, the needs of local communities, and the Company's own people, including encouraging their professional growth and creating working conditions that are safe and fair. The Company has issued regular GRI reports (Global Reporting Initiative) and plans to issue its third GRI report soon, which will cover the period 2008-2009. Some of the key sustainability aspects, which are presented in detail in the GRI reports, have been summarized in this report.

Environmental protection and environmental production safety

Environmental protection activities have been one of the key tasks over this reporting year. In 2009, all units within the Group continued their efforts to reduce their environmental impact and ensure the prudent use of natural resources.

MINE SITE ON NEZHDANINSKOYE DEPOSIT

In accordance with Russian legislation, all of the Group’s companies used a system to monitor the quality of atmospheric air and bodies of water located near their facilities. The Company implemented measures aimed at creating waste dumps that mitigate the negative impact of waste on the environment.

Apart from statutory regular environmental measures, some of the Group’s companies continued with the implementation of an environment management system (SEM), in accordance with the principles of International Standard ISO 14001:2004. SEM implementation is currently continuing at the Olimpiada, Kuranakh, and Zapadnoye Mines.

A complex of measures, aimed at encouraging the reasonable use of water resources and their protection from pollution, was implemented throughout the Company’s business units. Water intake for domestic and industrial water supplies is from surface water and underground sources. Water supplies and sewage systems at gold extraction plants are arranged according to the closed water turnover cycle. In 2009, there were no emergency discharges of polluted effluents into bodies of surface water.

Environmental production safety measures are the responsibility of environmentally trained professionals. In 2009, 18 of the Company’s specialists underwent training (seminars and courses) in industrial environmental protection.

Industrial and labor safety

In 2009, the Group’s efforts were aimed at providing safe working conditions and also ensuring employee compliance with statutory regulations and rules on industrial and labor safety. Each business unit within the Group’s companies operates in compliance with locally developed Production control regulations with regard to compliance with the requirements of industrial safety when operating hazardous production units, as approved by the regional authorities representing the Federal Agency for Ecological, Technological and Atomic Supervision (RosTekhNadzor).

Incidents, accidents and emergencies at the Company
There were no emergency situations at any of the Group’s units in the reporting period. However, the Kuranakh mill registered one incident, namely a fire in the reactivation section. No incidents occurred at other units of the Group.

During 2009, the Group units registered 49 accidents, including 5 fatal accidents.

The number of hazardous production facilities at the Group’s business units
In 2009, the units of the Group operated 207 hazardous production facilities, an increase of 26 from 2008. The increase was due to the Konstantinovsky building stone quarry (the Verninskoye deposit), areas for the transportation of hazardous cargo by rail and special purpose vehicles, and portal crane platforms at the Zapadnoye mine and the Delbe quarry (the Kurakhan mine), which were commissioned and registered in the State Registry for Hazardous Facilities. The total number of hazardous facilities also increased by 21, due to KazakhGold Group companies being included into the Group.

In 2009, each unit within the Group developed and implemented industrial and labor safety initiatives. In 2009, the total expenditure on industrial and labor safety was RUB 128.5 million, compared with RUB 106.1 million in 2008.

Table 6.1. Accidents in the Group’s business units in 2008 and 2009

¹KazakhGold Group data are reported for the period of August – December 2009.

MINE CAMP AT VERNINSKOYE

Table 6.2. The number and type of hazardous production facilities of the Group

²KazakhGold Group data are reported for the period of August – December 2009.

All of the Company’s units perform regular medical checks of employees working in health hazard areas. Medical aid posts are established at all of the Group’s business units, to carry out a medical inspection on employees before their shift begins, during working hours and at the end of their shift.

Industrial and labor safety training
All units of the Company have introduced industrial and labor safety training programs. New hires undergo a safety induction and are appointed a mentor for the duration of their training. All units of the Company conduct regular appraisals of the management and professionals working in industrial and labor safety. During the reporting year, the Company completed appraisals of 1,174 managers, specialists and white collar workers, and 10,798 blue-collar workers.

Social responsibility and charity

The Company has social programs in place to support local people in the regions where it carries out its operations. The Company works with local authorities, assisting with the reconstruction of local infrastructure, and implementing sponsorship and charity programs.

In 2009, the total cost of such programs amounted to RUB 261.16 million.

In 2008, OJSC Polyus Gold entered into a social and economic cooperation agreement with the Irkutsk Region Administration to provide financial support over the period 2008-2010. This financial support totals RUB 61 million, which is to be spent on the reconstruction of the municipal infrastructure, as well as on sponsorship and charity programs. This agreement addresses the needs of the Bodaibo District of the Irkutsk Region, providing for repairs to be made to the municipal water intake, as well as for the renovation of kindergartens, schools and medical institutions. It also addresses the issues related to the delivery of goods to northern areas and provides for targeted charity and material assistance. In 2008-2009, the total cost of initiatives covered by this agreement came to RUB 54.8 million.

In the reporting period, the Company continued its efforts towards the Polyus Gold Grant Competition – CAF (the “Program”), which seeks to select and support the most promising social initiatives, programs and projects proposed by citizens and non-profit organizations, while encouraging participation from local people and attracting public interest for social initiatives.

As part of this program, non-profit organizations (including governmental, local and non-governmental organizations) may apply for a grant in the regions, in which the Company operates. Winners are awarded project grants.

Since its launch, the program has received 276 applications, including 49 applications in 2009. More than 20 projects have received funding under the Program.

Some of the projects funded by the Program

Muzey v chemodane (Museum in a trunk):. This initiative was proposed by the Municipal Museum of the Northern-Yenisei district (the industrial settlement of Severo-Yeniseyskiy in the Krasnoyarsk Region. The initiative, which is aimed at children from remote settlements in the Northern-Yenisey district, is designed to provide children with a basic education about the culture of museums.

“Creative” Cine Laboratory for physically challenged teenagers: This project was established by a branch of the Nekrasov Library (Krasnoyarsk). The project provides social integration for 20 disabled children, who work in a film studio to produce short videos of their own and learn basic film shooting and editing skills.

Mom’s School: This project was proposed by the Severo- Yeniseysk Kindergarten No. 3 in the industrial settlement of Severo-Yeniseyskiy (the Krasnoyarsk Region). The project seeks to improve the problems related to the lack of boarding capacity at preschool organizations in the district. More than 30 families from the remote settlements of Teya, Bryanka, Vangash and Novaya Kalami, who currently have to keep their young children at home, will be able to consult specialists on issues such as parenting, education, and the physical and psychological well-being of their children.

Pravovoy Praktikum (Legal Hands-on Training): This project was proposed by the A.M. Gorky municipal library (Krasnoyarsk). The project will provide socially insecure groups of people living in Krasnoyarsk with consultancy and practical assistance on social and legal issues. A legal assistance agency and a hotline will be organized and staffed with volunteer law seniors.

Grown-ups and Children: This project was proposed by a club in the settlement of Marakan (in the Irkutsk Region). The project aims to provide the settlement with a family club entitled “Ochag”, which will be a modern sports and leisure center, offering sports clubs and a variety of hobby groups, such as women’s aerobics, board games for adults and children, computer literacy, and so on.

Preventing breast cancer among the women of the Bodaibo district: The project was initiated by the Baikal Cancer Association (Irkutsk). The project is a medical education campaign, aimed at the early detection of cancer among women and teenage girls from Bodaibo, and the settlements of Mamakan, Balakhninsky, Artemovsky, Vasiliyevsky and Marakan. The project will also provide expertise from regional medical specialists and a wealth of educational materials on the issue.

Mountaineering Classes project: The project is an initiative by School No. 3 (Bodaibo, Irkutsk Region), which will provide the Irkutsk Region’s first mobile mountaineering wall, to be used at summer health camps for tourist gatherings, military exercises, and so on. The project will also see mountaineering classes being organized for kids and teenagers living in Bodaibo.

As winning applicants progress through their projects, they receive the necessary training and advice from regional coordinators.

Thus, 23 workshops were provided in 2009, with participation from 459 people, and 497 people received free advice on project activities. In 2009, the regional coordinators held 12 public events, including project fairs, best project presentations, prizes for competition participants, and so on.

Important social initiatives realized as a part of the Program have been widely acclaimed. In 2009, the Program was a winner of the Efficient Project Management award, which is part of the PEOPLE INVESTOR competition, an initiative to assist in selecting and promoting best practices and innovations in the area of talent management, as well as building partner relationships and developing local communities to improve the transparency and efficiency of the operations of Russian businesses. This award has recognized the importance of the Group’s social investments.

In 2009, the Company continued its focused assistance program designed to support orphanages, which is a joint project with the RF Chamber of Commerce and Industry’s “Orphan Support Center” charity fund. 21 orphanages in the Krasnoyarsk Region, the Irkutsk Region, Yakutia and the Magadan Region received support from the program in 2009. The program provided children at orphanages with computer classrooms, sensory rooms, musical instruments and sports equipment. The total expense incurred was RUB 5.4 million. Sewing and carpentry equipment was supplied to provide occupational guidance to the children. In 2009, the Bodaibo Mining College in the Irkutsk region received support from a joint project, which was designed to provide orphanage alumni with training and education at vocational schools and technical colleges, located in the regions, in which the Group operates. The college received advanced computers, display stands and laboratory benches worth a total of RUB 1.252 million, which has helped to improve its learning environment.

The Company traditionally takes part in cultural and sportsrelated projects. In 2009, the Group sponsored the football club Dinamo Moscow, and also became a general sponsor of the Students’ Basketball Association of Russia’s basketball tournament. The Company also sponsored a military band parade in Red Square, organized by the Central Military Orchestra of the RF Ministry of Defense.

Human Resources management

The Company’s people are one of its core assets, ensuring the success of its growth strategy. The Company has in place motivational and talent development systems at all levels, ranging from the operating mines to the management. As a part of its substantial growth plans for the near future, the Company has been working with higher education institutions, vocational schools and students, to ensure that its business units will be adequately staffed with qualified specialists, even if it sees a significant increase in production capacity.

FREE-STYLE WRESTLING CONTEST, KRASNOYARSK. POLYUS WAS THE GOLDEN SPONSOR OF THE EVENT

The personnel motivation system is developed as a balanced combination of material and psychological incentives.

The material incentives include KPIs, both team and individual, annual and monthly KPI reviews, and KPI bonuses. This year, the Company has successfully completed a project to implement KPI systems in the operational business units, and has also started a a KPI project for participants in investment activities.

MATROSOV MINE'S HOCKEY TEAM AT THE MAGADAN CHAMPIONSHIP

Identifying and rewarding excellence in employees is the most important tool to boost motivation. In 2009, 12 employees received the Excelling Worker Award, while 12 other employees were conferred Excelling Specialist titles, and a further 6 received the honorary title of Excelling Manager. 12 employees were awarded with honor certificates. 20 employees received merit certificates established by the General Director of Polyus Gold.

With the operations of its units located in areas that are remote from education and cultural centers, the Company also organizes leisure activities for its people, including corporate parties, on-site performances, and creativity contests for employees and their families (photo and drawing competitions).

OLIMPIADA MINE CAMP

The Group’s companies have all of the necessary leisure and sports facilities. For example, the Kuranakh mine in the Republic of Sakha (Yakutia) offers its employees training classes in swimming, basketball, futsal, aerobics and other sports. A well-organized recreation zone is available in a shift camp at the Olimpiada mine, offering employees a modern gym, as well as cycling, skiing and regular classes in futsal, volleyball, and basketball.

In 2009, the Group carried out a corporate-wide employee survey, designed to improve the existing motivation system. The survey covered all business units, apart from the Kazakh business unit established in 2009. Based on the survey results, the Company management developed recommendations to be used by managers to improve management efficiency and contact with employees, as well as to make a more active use of psychological incentives. The survey results have also been used in manager development plans.

In 2009, over 33% of the Company’s employees took part in training programs. As a result, in 2009, around 17% of trainees improved their qualifications and were promoted. More than 50% of the professional training program was completed using the Company’s own corporate training facilities.

Eight corporate seminars were held, which saw participation from 200 managers and specialists from all over the Group. The meetings were aimed at coordinating activities, formulating universal approaches to solving business tasks, and creating agreed competences for the group’s CEO and specialists.

In 2009, the Group’s management also organized 13 internal seminars, which have become an integral part of the Company’s corporate culture. The seminars were designed to develop internal communications and improve efficiency with regard to decision-making on cross-functional issues.

In 2009, the Group continued to actively use remote training and education. A new hire orientation program, “Gold is Our Work”, has been developed, based on a set of educational and instructional materials, and is now being implemented. Remote education packages, including “Personnel Motivation”, “Is It Easy to be a Manager?”, four courses in MS Office (Word, Excel, Outlook, PowerPoint), “Successful Negotiations”, “The Basic Principles of Industrial Safety”, and “Project Management (a basic course)”, are available to all of the Group’s employees.

In 2008, the Company launched a corporate program entitled “Learn the Price of Gold!”, in order to encourage collaboration with higher ediucational institutions. This program is designed to promote long-term, mutually beneficial cooperation with universities, as well as to ensure that young specialists are adapted to the Company’s industrial and social environment. In the course of implementing the program, the Company entered into general agreements with universities such as the Siberian Federal University, Irkutsk Technological University and North-East University (Magadan).

The program offers senior students salaried practical training in their particular fields and enables them to adapt to the corporate culture with a view to their future employment. Mutually beneficial cooperation with universities is one of the most important components of the program, as it includes the participation of university specialists in scientific research work and assistance from professors and teachers in implementing the Company’s employee training programs, as well as the participation by leading specialists and enterprise heads in the universities’ educational activities.

In 2009, 340 university students underwent practical training at the Group’s enterprises in the Krasnoyarsk Region, the Irkutsk Region and Yakutia. The compensation of trainees during this training period was between RUB 15,000 and 40,000. The transportation and accommodation costs incurred by the Group came to approximately RUB 2.5 million. 95 students have received regular positions since the program started.

The Magadan business unit expects to commission a new gold-mining plant (the Natalka mine) at some point in the next several years, and has been actively engaging schools and universities to ensure that the new mine will have adequate staffing. A multilateral occupational guidance program includes secondary school-leavers meeting with Company representatives, as well as university lectures, a local TV series about the progress of the Natalka project, and so on.

According to Mr. A. I. Shirokov, the principal of the North-East State University, this initiative has resulted in a higher number of applicants to the university’s technical faculties.

The Company is equally focused on the development of managers at various levels. In 2009, a strategic session was held for the first time with participation from the heads of the Group’s enterprises who are part of the Company’s senior management reserve. The session brought together participants from all business units and was aimed at improving the strategic and tactical management skills of the senior reserve managers, including practical training in new management roles and integration with the Company’s senior management.

2009 also saw the launch of a new corporate educational program for managers in the middle management reserve. The program is based on the educational and instructional materials developed by the International Institute of Management LINK and the Open University Business School (UK). The educational program provides its participants with knowledge and skills, in accordance with the NOS requirements (National Occupational Standards for management and leadership).

As of 31 December 2009, the actual head-count1 in the Group was 19,208 people, an increase of 26.3% on 2008 figures. The increase is primarily due to the launch of the Titimukhta project, as well as the ongoing project to construct the Blagodatnoye mine, as well as the acquisition of KazakhGold Group assets.

The personnel structure³ remained generally unchanged, as compared with the previous reporting periods. As at the end of 2009, the average production personnel head-count was 15,435 people (81.2% of total personnel). The share of blue-collar workers and managers in this total was 77.8% and 8%, respectively. The gender structure of employment is dominated by men (82.3% of the average head-count, as at the end of the year). The number of retirees employed across the Group comes to 9.9%, equaling 2008 figures, with female retirees making up 3.65% of total personnel. The average age across the Group is 40.5.

With the number of personnel engaged in investment projects decreasing by 6%, the number of employees working in the operations business units has increased from 83% to 89%.

The Group generated an additional 460 jobs in 2009, including 308 jobs at JSC MMC Kazakhaltyn and 142 jobs at LLC CHOP Polyus Shield.

In order to achieve a leaner employment structure, the Group cut 382 jobs and, between December 2008 and the end of 2009, cut 659 jobs in total. The completed exploration resulted in substantial staff reductions at OJSC SVMC (the Nezhdaninskoye deposit) and OJSC Matrosov Mine (the Natalka depoist). Personnel cuts also affected CJSC Polyus (the Olimpiada mine) with 17, LLC LZRK (the Zapadnoye deposit) with 70, Lenzoloto (alluvial operations) with 14, and JSC MMC Kazakhaltyn with 53 redundancies, respectively.

Employment breakdown by region (average head-count)

Employment breakdown between operational and investment business units (average head-count)