Additional information

Report on compliance with the principles and recommendations of the code of corporate governance

This report on compliance with the principles and recommendations of the Code of Corporate Governance was reviewed by the Company’s Board of Directors at its Meeting on 18 March 2020. The Board of Directors confirms that this report contains complete and reliable information regarding the Company’s compliance with the principles and recommendations of the Code of Corporate Governance for 2019.

Uralkali consistently follows the main principles of the Code of Corporate Governance and its recommendations by steadily complying with requirements of the relevant laws and using best corporate governance practices. The Company’s corporate governance structure (model) is a traditional one: the General Shareholders Meeting (GSM) comprises a superior management body, the Board of Directors is responsible for general oversight, the Management Board is a collegial executive body, and the CEO is the sole executive body. The Board of Directors has established five committees that are consultative and advisory bodies, four of which are chaired by independent directors, and one (the Strategy Committee) by a non-executive director. Committees and commissions (working groups) reporting to the CEO have been established for advancing various areas of Uralkali’s activities, and the decisions of these working groups are offered in the format of recommendation. The Company has a Corporate secretary who ensures compliance with necessary legal regulations and procedures, participates in information disclosure, and ensures cooperation between the Company’s governing bodies, shareholders and regulators. The Company has also created an internal audit division, the Internal Audit Directorate, which reports directly to the Audit Committee. Other significant aspects of the Company’s corporate governance models and practices are described in the Corporate Governance section of the Annual Report.

The Company assesses its compliance with the principles of corporate governance using a methodology that has been applied for many years; as the main principles and recommendations of the Code of Corporate Governance are related to the activities of the Company’s management bodies and the procedures for carrying out these activities, the Company, represented by the Corporate Secretary and the employees of the Corporate Governance department, who work closely with the Company’s management bodies, continuously monitors, collects and evaluates information in line with the format recommended by the Bank of Russia (below). Information on the Company’s key developments is disclosed in accordance with the established procedure in the form of essential facts or, in some cases, press releases and quarterly reports. The Company has a reporting system in place for its individual departments, which regularly submit reports to the meetings of relevant Board committees; the CEO also regularly submits reports on the results of the Company’s operations at Board meetings. By determining the status of the Company’s compliance with corporate governance principles and explaining any deviations from the criteria for assessing compliance with corporate governance, the Company presents the existing practices, and the Board of Directors discusses the Report and assesses its completeness and reliability. At present, the Company does not plan to bring about significant changes to its established corporate governance system and deems it relevant to the Company’s needs at the current stage of its development. At the same time, the Company remains up to date with the development of standard corporate governance practices both in Russia and abroad, and constantly monitors opportunities to apply new practices within Uralkali.

Mineral resources review

Our Ref: U30418 Uralkali JORC Report 01Jan2020_Final 201219.docx

The Board of Directors

Joint Stock Company Uralkali

63 Pyatiletki Street

Berezniki

618426

Perm Territory

Russian Federation

SRK Consulting (UK) Limited

5^th Floor Churchill House

17 Churchill Way

City and County of Cardiff

CF10 2HH, Wales

United Kingdom

E-mail: enquiries@srk.co.uk

URL: www.srk.co.uk

Tel: + 44 (0) 2920 348 150

Fax: + 44 (0) 2920 348 199

20 December 2019

Dear Sirs,

1. INTRODUCTION

This is a report to confirm that SRK Consulting (UK) Limited (SRK) has reviewed all of the key information on which the most recently (1 January 2020) reported Mineral Resource and Ore Reserve statements for the Mining Assets of Public Joint Stock Company Uralkali (Uralkali or the Company) are based. Specifically, it sets out SRK’s view regarding the tonnes and grade of rock which has the potential to be mined by the existing and planned mining operations (the Mineral Resource), the quantity of product expected to be produced as envisaged by the respective Business Plan (the Ore Reserve) and the work done to derive these.

SRK has not independently re-calculated Mineral Resource and Ore Reserve estimates for Uralkali’s operations but has, rather, reviewed the quantity and quality of the underlying data and the methodologies used to derive and classify the estimates as reported by Uralkali and made an opinion on these estimates including the tonnes, grade and quality of the potash planned to be exploited in the current mine plan, based on this review. SRK has then used this knowledge to derive audited Mineral Resource and Ore Reserve statements according to the guidelines and terminology proposed in the JORC Code (2012 version).

This report presents both the existing Uralkali resource estimates according to Russian standard reporting terminology and guidelines and SRK’s audited JORC Code statements. All of these estimates are dated as of 1 January 2020. SRK assessment covers the Mineral Resources and Ore Reserves at Berezniki 2, Berezniki 4, Ust-Yayvinsky, Solikamsk 1, Solikamsk 2, Solikamsk 3 and Polovodovsky.

Table 1-1 below summarises the current licence status for each of the assets noted above.

SRK has been provided with copies of all of the licences listed above and has confirmed that the Mineral Resources and Ore Reserves stated in this report fall within the boundaries of such licences. SRK notes that all licences have been re-issued and amended between 2015 and 2018 and the expiry dates amended/extended to the dates shown above. SRK notes that for the licence for mining of carnalite ore (#2541) which relates to an area adjacent to Solikamsk-1 and the extreme western portion of Soliamsk-3, Uralkali has indicated that this material is being accessed for mining of carnalite from the existing infrastructure of Solikamsk-1 and therefore SRK has reported this material alongside the sylvinite estimates given for this mine.

The licenses for some of the operating and development mines will expire within the term of the 20-year Business Plan, even though some of these mines are planned to continue operating beyond this time and have resources and reserves to support this. SRK, however, considers it reasonable to assume that Uralkali will obtain extensions to these licences in due course on application as long as it continues to fulfil its licence obligations and the Mineral Resource and Ore Reserve estimates given here reflect this assumption.

Uralkali has informed SRK that it acquired an exploration licence during 2014, termed Romanov (#2550), which covers an area to the south of the current Berezniki operations. SRK understands this licence area was explored historically and is currently estimated to have resources classified in the Russian P1 and P2 categories. SRK understands that Uralkali has plans in place to undertake further exploration drilling on this licence and to then re-estimate the resources based on this drilling with a view to increasing the confidence in the assigned classification. SRK considers there to be insufficient data currently available to report these P1 and P2 resources as Mineral Resources as defined by the JORC Code in this case and therefore this licence is not discussed any further in this report.

In addition to this, during 2017 Uralkali acquired a further exploration licence termed Izversky (#2682) which is immediately adjacent to the eastern portion of the current Berezniki-4 mine. SRK understands this has the potential to increase the Mineral Resources and therefore extend the Berezniki-4 operations to the east, however, there are currently no estimated resources on this licence. SRK understands that Uralkali has plans in place to undertake further exploration drilling on this licence and to then estimate the resources based on this drilling. There is therefore currently insufficient data currently available to report Mineral Resources as defined by the JORC Code and therefore this licence is not discussed any further in this report.

While not reflected in the current licences held by Uralkali, SRK understands that Uralkali is considering applying for an extension of its licence for Solikamsk-2 (#2548) to the west to encompass an additional area which would have the potential to increase the Mineral Resource associated with this licence (albeit that this would be done under a separate license). This became allowed following the adoption of the Decree of the Government of the Russian Federation No. 429 dated 3 May 2012, which means that it is now possible to increase the boundaries of subsoil plots granted for geological exploration and/or detailed prospecting and production of minerals in any spatial direction. This can be done repeatedly throughout the term of the mineral licence but applies only to the same mineral(s) as specified on the existing licence and, notably the amount of additional resource encompassed by the increase in area may not exceed 20% of the resources of the initial licence and as entered into the state balance. SRK understands that Uralkali is evaluating this further before applying for a licence extension. While the area under consideration was drilled previously in the Soviet era, and while this confirmed the presence of mineralisation, assuming this licence extension is applied for and granted, then further exploration and drilling will be required to determine the quantity and quality mineralisation present to the level of confidence that could then be potentially reported as a Mineral Resource.

2. QUANTITY AND QUALITY OF DATA

2.1 Introduction

The descriptions of data quantity and quality given in Section 2.2 below relate to the original Uralkali sites before the merger with JSC Silvinit; namely Berezniki-2, Berezniki-4 and Ust-Yayvinsky while those in Section 2.3 relate to the former JSC Silvinit sites; namely Solikamsk-1, Solikamsk-2, Solikamsk-3 and Polovodovsky. These are commented upon separately because the exploration process followed differs slightly between the two.

2.2 Original Uralkali Operations

The resource and reserve estimates derived by Uralkali for the original Uralkali sites are primarily based on exploration drilling undertaken between 1972 and 1998. A specially laid out drilling programme was developed for each mine with the aim of enabling 10% of the contained resources to be assigned to the A category of resources as defined by the Russian Reporting Code, 20% to the B category and 70% to the C1 category.

The A category is the highest category in the Russian Reporting Code and only used where the stated tonnage and grade estimates are considered to be known to a very high degree of accuracy. The B, C1 and C2 categories are lower confidence categories, with C2 denoting the least level of confidence of the three categories. All of these categories, apart from C2, are acceptable for use in supporting mining plans and feasibility studies. In the case of the Uralkali assets, blocks have been assigned to the A category where the drillhole spacing is less than 1 km, to the B category where the drillhole spacing is between 1 and 2 km and to the C1 category where the drillhole spacing is 2 km. Areas drilled at a larger spacing than this, up to a 4 km spacing, have historically been assigned to the C2 category, although it is noted that as at 1 January 2020, there are no C2 resources reported for these assets.

As a result of the above process, each mine is typically drilled on a 2 km by 2 km grid or less before a decision is taken to develop the mine. This information is, however, then supplemented by underground drilling once the access development is in place. This typically creates a grid of intersections measuring 400 m by 200 m. While Uralkali does not regularly upgrade the categorisation of its resources based on this drilling, which it rather uses to optimise the mining layouts, it does periodically undertake a re-estimation calculation on specific areas and will take into account the available data from this underground drilling in doing this where relevant. The most recent update of the estimation for Berezniki-4, for example, was undertaken in 2006.

The drillholes, whether drilled from surface or underground, have been sampled at intervals of at least 16 cm and the samples were crushed and milled under the control of the geology department to produce an approximate 100 g sample prior to submission to the laboratory.

Assaying was carried out at an in-house laboratory. Approximately 5–6% of samples were repeat assayed internally while a similar percentage are sent to an independent third party external laboratory located in Berezniki (JSC Persil) for check assaying. All assaying was by classical wet chemistry techniques.

2.3 Former Silvinit Operations

These deposits were discovered in 1925 and each has been subjected to a number of exploration and drilling campaigns as follows:

• Solikamsk-1 — 7 phases between 1925 and 1990 (including exploration outside the current mining lease);
• Solikamsk-2 — 7 phases between 1925 and 2002 (including exploration outside the current mining lease); and
• Solikamsk-3 — 7 phases between 1957 and 1975;

The resource and reserve estimates are therefore primarily based on exploration drilling undertaken between 1925 and 2002. There is no exploration drilling currently being undertaken from surface at the operating mines, however, exploration drilling has recently been undertaken at the Polovodovsky prospect and the resource estimate for this asset has been updated following two phases of work during 2013 and 2014 and this updated estimate has superseded the original estimate undertaken in 1975.

Exploration has generally been undertaken by State enterprises based in Solikamsk and Berezniki although the recent drilling at Polovodovsky has been undertaken by a third party contractor.

The total number of exploration holes and metres drilled at each mine/prospect is as follows:

• Solikamsk-1 — 53 holes for some 18,600 m;
• Solikamsk-2 — 192 holes for some 5,700 m (of which some 95 are from underground);
• Solikamsk-3 — 117 holes for some 45,250 m; and
• Polovodovsky — 152 holes for some 50,800 m up to 1975 and 36 holes for some 12,650 m between 2009 and 2012.

The diamond drillholes, whether drilled from surface or underground, were drilled with a diameter of either 92 mm or 112 mm for surface holes and 50–76 mm for underground holes. Holes were sampled at intervals between 10 cm and 6 m, averaging between 105 cm to 130 cm. Core recovery through the sylvinite horizons is reported to be good at an average of 84–85%, while the recovery through the carnalite horizon at Solikamsk-1 is reported to be 74%.

Core was split in half with one half retained for reference and the other half crushed, milled and split under the control of the geology department to produce a small sample (100 g) for submission to the laboratory for assay.

Assaying has been carried out at an in house laboratory using classical wet chemistry techniques. Approximately 5–6% of samples were repeat assayed internally while a similar percentage were sent to an independent third party external laboratory located in Berezniki (JSC Persil) for check assaying, which SRK understands to be at the neighbouring Uralkali mine laboratory.

A total of 423 samples have to date been taken for density measurements using the water displacement method.

In the case of these former Silvinit mines, blocks have been assigned to the A category where the drillhole spacing is less than 1,200 m, to the B category where the drillhole spacing is between 1,200 m and 2,400 m and to the C1 category where the drillhole spacing is 2,400 m. Areas drilled at a larger spacing than this, but on average with a spacing of up to 4,000 m have been assigned to the C2 category, although it is noted that as at 1 January 2020, there are no C2 resources reported for these assets. Each mine is drilled on an approximate 2. 4 km by 2.4 km grid or less before a decision is taken to develop the mine. This information is, however, then supplemented by underground drilling once the access development is in place. This typically creates a grid of intersections measuring from 100 m by 300 m or in cases up to 400 m by 800 m. As is the case with the Berezniki mines, the Uralkali does not upgrade the estimation or categorisation of its resources for the Solikamsk mines based on this underground drilling on a regular basis but rather uses this to optimise the mining layouts. Notwithstanding this, a full re-estimation calculation was undertaken by Silvinit in 2006 (see below) for the Solikamsk mines and this took into account the available data from underground drilling where available. Furthermore, the Polovodovsky deposit resource estimate was updated in 2013/2014 following the completion of additional exploration drill holes.

3. RESOURCE ESTIMATION

3.1 Introduction

The most up to date resource statements produced by Uralkali are those derived for the annual 5GR reports which give the status as of 1 January each year. The completion of 5GR reports is a statutory requirement. These estimates are produced using standard classical Russian techniques and are essentially based on calculations made in previous years and adjusted for mining during the prior year. Given that the estimates reported herein are being produced before the end of 2019 and before the formal submission of final full year 5GR reports by Uralkali, SRK notes that for the purposes of these estimates the depletion for mining is based on actual production data for January to August 2019 inclusive (8 months) and forecast data for September to December 2019 (4 months). This section comments primarily on these statements.

The first resource estimates undertaken and approved for each of the former Silvinit operations were as follows:

• Solikamsk-1 and 2 — 1952;
• Solikamsk-3 — 1962; and
• Polovodovsky — 1975

The resource estimates at each of the active mines have undergone various updates since this time, the most recent of which was in 2006. These estimates were approved by the State Committee for Reserves and take into account all surface and underground drilling data available at that time. As noted above, additional exploration drilling has recently been undertaken at Polovodovsky, and the original estimate produced in 1975 has been updated during 2013 and 2014.

3.2 Estimation Methodology

Each seam and each mine is treated separately in the resource estimation procedure. In each case the horizons are first divided into blocks such that each sub-divided block has reasonably consistent borehole spacing within it; that is more intensely drilled areas are subdivided from less intensely drilled areas. Each resulting “resource block” is then evaluated separately using the borehole intersections falling within that block only.

Specifically, composited K2O and MgO grades are derived for each borehole that intersected each block and mean grades are then derived for each block by simply calculating a length weighted average of all of these composited intersections. No top cuts are applied and all intersections are allocated the same weighting.

A separate plan is produced for each seam showing the results of the above calculations, the lateral extent of each sub block, and any areas where the seams are not sufficiently developed. The aerial coverage of each block is then used with the mean thickness of the contained intersections to derive a block volume. The tonnage for each block is then derived from this by applying a specific gravity factor calculated by averaging all of the specific gravity determinations made from samples within that block.

The data for each resulting block is plotted on a Horizontal Longitudinal Projection (HLP). This shows the horizontal projection of the extent of each block as well as its grade and contained tonnage. The HLP also shows the block classification, this being effectively a reflection of the confidence of the estimated tonnes and grade.

3.3 Uralkali Resource Statements

Table 3-1 below summarises SRK’s understanding of the sylvinite resource statements prepared by Uralkali to reflect the status of its assets as of 1 January 2020. Uralkali’s statements are based on a minimum seam thickness of 2 m and a minimum block grade which, dependent on the mine, varies between 11.4% K2O (Polovodovsky) and 15.5% K2O (Ust-Yayvinsky). Table 3-2 below summarises SRK’s understanding of the carnalite resource statement prepared by Uralkali to reflect the status of its assets as of 1 January 2020. Uralkali’s carnalite statements (Solikamsk-1 only) are based on a minimum seam thickness of 2m and a minimum block grade of 7.2% MgO.

SRK notes that while Mineral Resources for carnalite are only shown in this report at Solikamsk-1, as this is the only operation that is currently mining and processing such and where there is a plan to mine this in the future as is reflected in the Business Plan, there is carnalite present at other Uralkali sites, in particular at Ust-Yayvinsky. This has been estimated by Uralkali and been assigned generally to B and C1 classification categories, however, as there is no plan currently to exploit this material at present this mineralisation has been excluded from this report.

3.4 SRK Audited Mineral Resource Statements

Table 3-3 and Table 3-4 below present SRK’s audited Mineral Resource statements for sylvinite and carnalite respectively. SRK has re-classified the resource estimates using the terminology and guidelines proposed in the JORC Code. In doing this, SRK has reported those blocks classified as A or B by Uralkali as Measured, those blocks classified as C1 as Indicated and those blocks classed as C2 as Inferred. SRK’s audited Mineral Resource statements are reported inclusive of those Mineral Resources converted to Ore Reserves. The audited Ore Reserve is therefore a sub set of the Mineral Resource and should not be considered as additional to this.

SRK has not attempted to optimise Uralkali’s Business Plan. Consequently, SRK’s audited resource statements are confined to those seams that both have the potential to be mined economically and which are currently being considered for mining by Uralkali only.

3.5 SRK Comments

SRK has reviewed the estimation methodology used by Uralkali to derive its estimates, and the geological assumptions made, and considers these to be reasonable given the information available. SRK has also undertaken various re-calculations both of individual blocks and seams as a whole and has in all cases found no material errors or omissions.

Overall, SRK considers the resource estimates reported by Uralkali to be a reasonable reflection of the total quantity and quality of material demonstrated to be present at the assets and which has potential to be exploited as of 1 January 2020.

The audited Mineral Resource statement as at 1 January 2020 presented above is different to that presented as at 1 January 2019, as last reviewed and reported by SRK, largely as a function of mining depletion during 2019 and also some minor re-assessments completed over 2019 by Uralkali.

4. ORE RESERVE ESTIMATION

4.1 Введение

Uralkali does not report reserves as these are typically defined by reporting guidelines and terminology developed in Europe, North America and Australia; that is, estimates of the tonnage and grade of total material that is planned to be delivered to the various processing plants over the life of the mine. SRK has therefore derived estimates of such using historical information supplied by Uralkali and gained during its site visits regarding the mining losses and dilution experienced during mining to date. SRK has also restricted the resulting estimates to those areas planned to be mined by Uralkali in its Business Plan during the next 20 years, i.e. from 2020 to 2039 inclusive. The Business Plan assumes that Uralkali will successfully re-negotiate some its licences as required over this period and the Ore Reserve Statements therefore also assume this will be the case.

4.2 Modifying Factors

The Modifying Factors applicable to the derivation of reserves comprise estimates for ore losses and planned and unplanned dilution associated with the separation of the ore and waste. This is normally a function of the orebody characteristics and mining methods selected. The Modifying Factors considered by SRK to be appropriate for the sylvinite and carnalite being mined at each of the assets are shown below in Table 4-1 below. The Tonnage Conversion Factor takes into account both the percentage of material expected to be left behind in pillars and the amount of dilution expected to be included when mining the ore and is applied to the in situ resource tonnage to derive the tonnage of material expected to be delivered to the plants. The K2O/MgO Grade Conversion Factor accounts for the expected difference in grade between the in situ resource and the above plant feed tonnage as a result of incorporation within the latter of waste extracted along with this and is therefore applied to the in situ grade to derive the grade of ore expected to be delivered to the plants. Uralkali undertakes an annual reconciliation to compare the ore tonnes mined each year with the resource that has been sterilised by this mining and it is these figures for the last 12–14 years that SRK has reviewed to derive the Tonnage Conversion Factor. Similarly, Uralkali keeps a record of the in situ grade of the material sterilised by mining each year and SRK has compared these with the grade of material reported to have been fed to the plants over the last 12–14 years to derive the Grade Conversion Factor. Given this, SRK is confident that the Modifying Factors used reflect the geometry of the orebodies being mined and the mining methods currently being used. The Ust-Yayvinsky and Polovodovsky assets are both in development. Specifically, Ust-Yayvinsky is currently under construction and Polovodovsky is at an advanced stage of study/investigation and Uralkali has recently made a decision to develop this project. For these assets there is no production history and therefore SRK has derived modifying factors using information obtained from Uralkali from the studies it has undertaken on both these assets, but also taking cognisance of the historical information regarding the mining losses and dilution experienced during mining to date at Uralkali’s other existing and analogous operations.

4.3 SRK Audited Reserve Statements

As with its audited Mineral Resource statements, SRK’s Ore Reserve statements have been re-classified using the terminology and guidelines proposed in the JORC Code. To facilitate this, SRK has been provided with actual production and operating cost data for 2009 to 2019 and a production forecast for 2020 to 2039 inclusive reflecting Uralkali’s current plans regarding the refurbishment of some existing processing facilities and also the installation of additional facilities.

SRK’s audited Ore Reserve statement is therefore confined to those seams that are currently being considered for mining within the next 20 years only. Specifically, SRK has classed that material reported in the tables above as a Measured Mineral Resource, and which is planned to be exploited within the first ten years of the Business Plan, as a Proved Ore Reserve; and that material reported in the tables above as an Indicated Mineral Resource, and which is planned to be exploited within the Business Plan, and also that material reported above as a Measured Mineral Resource, but which is planned to be mined during the second 10 years of the Business Plan, as a Probable Ore Reserve. The exception to this reporting classification is for the Polovodovsky Ore Reserve as noted below, which is reported entirely as a Probable Ore Reserve.

SRK’s Ore Reserve statement includes an Ore Reserve for Ust-Yayvinsky even though this is still under construction. This is because SRK considers the work done to date has been completed to an advanced stage, detailed project documentation has been completed and the necessary permits are in place. Furthermore, work on shaft construction has been underway for a few years with the shaft sinking activities nearing completion.

In addition, and for the first time, SRK’s Ore Reserve statement as at 01 January 2020 includes an Ore Reserve for Polovodovsky. This is because SRK has reviewed the status of this project and available documentation and considers this work has been competed to a sufficiently advance level for the reporting of Ore Reserves (i.e. SRK considers this work to be between a Pre-Feasibility Study and Feasibility Study level overall). While further design work will be on-going on the Polovodovsky project as this progresses, which may change the forecast assumptions from those currently envisaged to some degree and therefore the reported Ore Reserve, SRK has undertaken a sensitivity analysis to the assumed production parameters, capital costs and operating costs and considers that this project demonstrates robust economic viability and positive cashflows justifying both its development and inclusion in the Ore Reserve statement. As only the first year of assumed production (i.e. minor ramp up quantities) in the current Business Plan falls within the first 10 year period (i.e. to 2029) and because SRK considers the level of work on this project is currently commensurate to a level of between a Pre-Feasibility Study and Feasibility Study assessment, SRK considers reporting this as a Probable Ore Reserve to be appropriate at this stage.

Uralkali plans to implement the Polovodovsky Project in two stages. The first stage includes the construction of two shafts, which is the most complex and time-consuming element of the project and which, based on the current project schedule, is expected to be completed by 2025. For the second stage of the project, Uralkali is considering two principal options, with a decision on which option to proceed with expected to be made by 2023. Option 1 comprises the construction of a new mine and related infrastructure but assumes that further processing of the extracted ore will be at one or more of Uralkali’s existing processing facilities. Option 2 comprises the construction of a new mining and processing complex inclusive of a new dedicated beneficiation plant at the Polovodovsky site. The Ore Reserves presented in Table 4-2 for Polovodovsky are reported on the assumption that this is developed under Option 2. Should this be the case then this is expected to be completed and the mine to have reached capacity by 2030 at which point the Uralkali Business Plan forecasts that the total annual production capacity of final product from all operations would increase to 17.8 million tonnes.

The completion of the Polovodovsky Project, including the timing and the results thereof (and along with the estimated increase in capacity) is subject to a number of factors, some of which may be outside of Uralkali’s control, for example, the timely completion of the work by contractors and subcontractors engaged, any geological complexities inherent in the implementation of the project and the general market condition. Accordingly, the exact timing and the effect of the implementation of the Polovodovsky Project may differ from that currently envisaged as noted above.

SRK can confirm that the Ore Reserve Statements presented in Table 4-2 and Table 4-3 below, for sylvinite and carnalite respectively, have been derived from the resource blocks provided to SRK and incorporate sufficient estimates for ore losses and dilution based on actual historical data. The break-even price required to support this statement over the period of the Business Plan is between USD90-115/tonne product produced, in January 2020 terms. This is calculated as the price required to cover all cash operating costs but excluding distribution costs (i.e. all on site mining, processing, maintenance, G&A operating costs and corporation tax).

SRK can also confirm that no Inferred Mineral Resources have been converted to Ore Reserves and notes that the Mineral Resource statements reported above are inclusive of, and therefore include, those Mineral Resources used to generate the Ore Reserves.

The large difference between SRK’s audited Mineral Resource statement and its audited Ore Reserve statement is partly a function of the relatively low mining recovery inherent in the Room and Pillar mining method employed and partly a function of the fact that SRK has limited the Ore Reserve statement to that portion of the Mineral Resource on which an appropriate level of technical work has been completed. In this case, this relates to the period covered by the next 20 years of Uralkali’s Business Plan (i.e. 2020 to 2039 inclusive).

Notwithstanding this, SRK considers that the actual life of some of the mines will extend beyond the current 20-year period covered by the Business Plan. In particular, at the currently assumed production rates, the following current operating mines have the potential to extend beyond that covered by the current 20-year Business Plan approximately as follows:

• Berezniki-4: 20 years
• Solikamsk-2: 18 years
• Solikamsk-3: 19 years

In terms of the Ust-Yayvinsky and Polovodovsky, projects under construction and development, at the currently assumed start-up dates and production rates, these have the potential to extend beyond the current 20-year Business Plan by approximately 15 years and 40 years respectively.

4.4 SRK Comments

The overall audited total Ore Reserve statement as at 1 January 2020 presented above of 1,255.9Mt with an average grade of 16.5% K2O has a slightly higher total tonnage when compared to that presented as at 1 January 2019 of 1,123.7Mt with an average grade of 16.7% K2O (the previous SRK audited Ore Reserve Statement for the Uralkali Mineral Assets). While there are individual differences at each individual mine as a result of mining during 2019, extensions of, and revisions to, the forecast mined tonnages in the Uralkali 20-year Business Plan from 2020 to 2039 and revisions to the Mineral Resource statement, the principal reason for the overall increase is due to inclusion of Ore Reserves for Polovodovsky (some 131Mt at 15.2% K2O) for the first time in the current statement.

In summary, the following changes are noted between the 1 January 2019 and 1 January 2020 Ore Reserve statements:

• Berezniki-2: The total Ore Reserve as at 1 January 2020 of 50.4Mt with an average grade of 20.1% K2O compares to 55.9Mt with an average grade of 19.5% K2O as at 1 January 2019. The reduction in the Ore Reserve tonnage in the current statement is primarily a function of mining depletion during 2019 while the grade increase is function of a higher ‘Grade Conversion Factor’ being applied which reflects an increasing trend in this factor over the last 3 years, based on analysis of actual mining and plant data. Based on the Uralkali Business Plan projections and the remaining Ore Reserve, this mine is forecast to be fully depleted by 2026 and so it should be expected that this Ore Reserve will gradually reduce in future years as this is depleted by mining.
• Berezniki-4: The total Ore Reserve as at 1 January 2020 of 362.6Mt with an average grade of 18.7% K2O compares to 361.8Mt with an average grade of 18.7% K2O as at 1 January 2019. Despite mining depletion during 2019, the Ore Reserve tonnage reported as at 1 January 2020 has increased slightly as a function of the latest Uralkali Business Plan projections for the 20-year Business Plan period. The forecast projections assume that this mine will increase its production rate up to its capacity of some 19.8Mt of ore mined per annum for most of the 20-year Business Plan period and Uralkali has budgeted investments in additional mining equipment in order to achieve this. SRK considers the forecast mined tonnages achievable and as noted above, even allowing for this, Berezniki 4 still has potential to continue mining for some 20 years beyond the current 20-year Business Plan at the increased production rate.
• Ust-Yayvinsky: The total Ore Reserve as at 1 January 2020 of 176.4Mt with an average grade of 16.7% K2O compares to 170.2Mt with an average grade of 16.7% K2O as at 1 January 2019. The slight increase in the Ore Reserve tonnage is a function of the latest Uralkali Business Plan with more production falling within the 20-year period compared to the previous 20-year plan. The UstYayvinsky Project is under construction and work is ongoing on the surface facilities and conveyor to Berezniki Plant 3 (and Plant 3 expansion). It is currently expected that the mine will begin production in 2022 albeit at a low rate and assuming access of ore from development works and then ramp up to production capacity of 11Mtpa in the years thereafter. SRK has reviewed the current status of the Ust-Yayvinsky Project and the further work required to complete this and considers the forecast remaining construction schedule and mined tonnages assumed by the Uralkali Business Plan to be reasonable and achievable.
• Solikamsk-1: The total Ore Reserve as at 1 January 2020 of 79.0Mt with an average grade of 15.7% K2O compares to 90.8Mt with an average grade of 16.0% K2O as at 1 January 2019. The Ore Reserve tonnage has reduced due to a combination of mining during 2019 but also some reductions to the Mineral Resource estimate to remove areas to be left for safety pillars and where it has been assessed that there has been replacement of sylvinite mineralisation with halite. SRK considers the projections to be reasonable and based on the Uralkali Business Plan projections but notes that this mine is forecast to be fully depleted by 2036 and so it should be expected that this Ore Reserve will gradually reduce in future years as this is depleted by mining.
• Solikamsk-2: The total Ore Reserve as at 1 January 2019 of 159.1Mt with an average grade of 14.5% K2O compares to 156.1Mt with an average grade of 14.5% K2O as at 1 January 2019. The slight increase in Ore Reserve tonnage in the current statement is a function of the latest 20-year Business Plan. Adjustments to the Ore Reserve statement for Solikamsk-2 mine have been made in prior years owing to the water inflow event which occurred in late 2014 in the northern extremity of the Solikamsk-2 licence area. Minimal mining production has occurred from this mine during 2019. It is however noted that should Uralkali make the decision to resume and continue mining from the existing Solikamsk-2 mine it could do so and access additional ore previously removed from the Ore Reserve, assuming the water inflow remains under control. However, production is now forecast to resume at full capacity following the sinking of a new shaft and construction of a new surface complex in the southern portion of this licence area to service a ‘New Solikamsk-2’ mine (including a conveyor system to transport ore to the existing Solikamsk-2 processing facility). Shaft sinking commenced during 2018 and has continued during 2019. SRK has reviewed the current status of the New Solikamsk 2 Project and the further work required to complete this and while this will be challenging and there is a risk of a delay in mining production commencing from the ‘New Solikamsk-2’ mine from that currently envisaged in the Uralkali Business Plan, SRK considers the forecast construction period to be achievable. Further, should a delay in construction occur, it is likely that Uralkali would be able to compensate for the resulting production shortfall by temporarily increasing production from other mines which have spare operating capacity. As noted above, Solikamsk-2 also has potential to continue mining for some 18 years beyond the current 20-year Business Plan at the forecast production rate.
• Solikamsk-3: The total Ore Reserve as at 1 January 2020 of 297.2Mt with an average grade of 15.1% K2O compares to 289.0Mt with an average grade of 15.1% K2O as at 1 January 2019. The Ore Reserve tonnage in the current statement is higher than the previous one due to the current Business Plan assuming expanded mine production occurs over a longer period of the 20-year plan. Work on the expansion of the Solikamsk-3 mine is on-going but SRK considers the forecast remaining construction period to achieve expanded production and the forecast mined tonnages to be reasonable. Further, as noted earlier in this report, Solikamsk-3 also has potential to continue mining for some 19 years beyond the current 20-year Business Plan at the forecast production rate.
• Polovodovsky: The total Ore reserve as at 1 January 2020 of 131.3Mt with an average grade of 15.2% K2O is the first Ore Reserve has been reported for this mine. SRK has reviewed the status of this project and available documentation and considers this work has been competed to a sufficiently advance level for the reporting of Ore Reserves (i.e. SRK considers this work to be between a Pre-Feasibility Study and Feasibility Study level overall).
  
  As noted above, the Polovodovsky Project will include the development of a new mine through the sinking of two shafts. Uralkali will make a further decision in 2023 whether to develop the project and process ore at one or more of the existing processing facilities or develop a new dedicated processing complex. The project has been designed to have a production capacity of 12.5Mt of ore per annum (equivalent to some 2.8Mt per annum of final product production) and assuming the Option 2 development strategy is selected, is anticipated to commence production in 2029 and reach 12.5Mtpa capacity from 2030.
• Solikamsk-1 (carnalite): The total Ore Reserve as at 1 January 2020 of 13.1Mt with an average grade of 9.5% MgO compares to 13.1Mt with an average grade of 9.6% K2O as at 1 January 2019. The Ore Reserve tonnages between statements are similar despite mining depletion during 2019 as the resource remains sufficient to support mining at the same rate throughout the 20-year Business Plan and there is potential to continue mining carnalite ore well beyond the current 20-year Business Plan period.
• The 20-year Business Plan includes a number of large capital investment projects and expansions to both the Berezniki and Solikamsk operations (the capital costs of which have been taken into account in Uralkali’s Business Plan and which SRK has taken account of in determining the economics of the operations) and as such the Ore Reserve reported here takes into account the additional amount of material planned to be mined over this period.

While SRK notes that the forecast production assumptions at some of the mines and processing facilities are somewhat higher than that actually achieved at times in the last few years, we understand that this reduced production rate historically has primarily partly been driven by the prevailing market conditions rather than capacity constraints (with the exception of Solikamsk-2 due to the water inflow incident) at the various operations. SRK therefore assumes that the forecast increase in production levels at some of the facilities is warranted and justified based on Uralkali’s market expectations going forward.

SRK has reviewed the expansions and capital investment programmes proposed by Uralkali at a high level and considers the work proposed and the timeline assumed for the work to be completed to be generally reasonable and achievable and further considers the cost estimates to have been estimated to a sufficient level of accuracy to enable the reporting of Ore Reserves. Furthermore, SRK has undertaken a sensitivity assessment on the various key parameters and inputs to the Business Plan including the investment programmes costs in addition to assumed product prices and operating costs, which indicated that the Uralkali operations are robust to material changes in these.

Notwithstanding the above, SRK considers the timeframe for construction of the ‘new Solikamsk-2’ mine to be challenging and believes there is a risk this could be delayed. Should a delay in construction occur, it is however likely that Uralkali would be able to compensate for the resulting production shortfall by temporarily increasing production from other mines which have spare operating capacity. In some cases, the expansion projects are already underway and some of the increases to mining and processing capacities are assumed to be achieved by de-bottlenecking the existing facilities in addition to upgrading and adding new equipment (mining and processing) and processing lines.

SRK also notes that in order to achieve these increases in production, Uralkali will need to ensure that sufficient resources, management and staffing are available given that many of these expansions are taking place simultaneously and alongside major construction projects, such as that underway at UstYayvinsky, Solikamsk-2 and Solikamsk-3, and soon to be at Polovodovsky.

5. CONCLUDING REMARKS

In SRK’s opinion the Mineral Resource and Ore Reserve statements as included herein are materially compliant with the JORC Code and are valid as at 1 January 2020. In accordance with additional reporting requirements of the JORC Code (2012), included in an Appendix to this report are the JORC checklist tables which include additional details and commentary on Sampling Techniques and Data, Estimation and Reporting of Mineral Resources and Estimation and Reporting of Ore Reserves.

SRK considers that should the Ore Reserves as presented herein be re-stated in accordance with the reporting requirements of the United States Securities and Exchange Commission (the “SEC”), specifically Securities Act Industry Guide 7 (“Industry Guide 7”), such Ore Reserves would not be materially different.

The Competent Person (as defined by the JORC Code) who has supervised the production of the Mineral Resource and Ore Reserve statements presented herein is Dr Mike Armitage C Geol., C Eng., who is a Corporate Consultant at SRK UK Consulting Ltd. Dr Armitage is a geologist with over 35 years’ experience in the mining industry and has been responsible for reporting of Mineral Resource and Ore Reserves on various properties internationally for almost 30 years.

Dr Armitage is a full time employee of SRK and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he has undertaken to qualify as a Competent Person as defined by the JORC Code. He is a Member of the Institute of Materials, Minerals and Mining and a Fellow of the Geological Society which are ‘Recognised Overseas Professional Organisations’ included in a list promulgated by ASX from time to time. Dr Armitage has visited the Uralkali sites and operations a number of times between 2010 and most recently in 2018.

Dr Mike Armitage

Chairman & Corporate Consultant

Project Director

(Resource Geology),

SRK Consulting (UK) Limited

Nick Fox

Principal Consultant

Project Manager

(Geology/Mineral Economics),

SRK Consulting (UK) Limited

APPENDIX. JORC CHECKLIST TABLES

Section 1 Sampling Techniques and Data

Section 3 Estimation and Reporting of Mineral Resources

Section 4 Estimation and Reporting of Ore Reserves

Glossary

Disclaimer

Verification of PJSC Uralkali Integrated Report 2019

D. Osipov

CEO

E. Kalinina

Chief Accountant

PJSC Uralkali Annual Report is approved by the decision of the Company’s Board of Directors of 18 March 2020 (the Board of Directors’ Meeting Minutes No. 376 dated 18 March 2020).

Data validity of the Annual Report is confirmed by the Revision Commission of PJSC Uralkali.

Contacts