April 2015

Nordgold: Business System of Nordgold Oleg Maksimov, Head of BSN

2 2

Business System of Nordgold (BSN) Description

• In 2012, Nordgold took an active decision to make operational efficiency a top priority for the company:

• Management has started a bottom-up approach to develop the BSN programme

• Efficiency designated as one of the core values of the company

• Key target of BSN is transform the workforce and improve operational processes

• We created BSN as an “umbrella” brand for all efficiency improvement initiatives in the company

• BSN is being implemented by a dedicated group of internal consultants (referred to as Navigators)

BSN AIMS TO ESTABLISH BEST-IN-CLASS SUSTAINABLE PROCESSES AT THE

COMPANY’S OPERATING ASSETS, ENSURING THEY ARE AS EFFICIENT, LOW

COST, SUSTAINABLE AND, ABOVE ALL, AS SAFE AS POSSIBLE

1998 2009

2011 2000

Total production

optimisation

Continuous

improvement

Business

Systems

Production

consulting

3 3

MODULES WORKFORCE

TRAINING COSTS

REDUCTION OPERATIONAL IMPROVEMENT

HSE SUPPORT

KEY

PROJECTS

RESULTS

Lean Academy and

training

Idea of the month

5S concept

implementation

Kaizen teams,

Visualisation

Standardisation

Communication

(dialogues)

Turnaround

programmes

Overall effectiveness

of equipment (OEE)

programme

Benchmarking

Debottleneck

modeling (volume)

GTS centers

Management of

Investment projects

Consumption rates

in mining and milling

areas

SG&A reduction

Headcount reduction

TOP-20 materials

Price reduction

Outsourcing vs.

insourcing analysis

HSE dialogs

HSE models,

reports, audits

White boards and

SOPs development

Exchange of best

practices

♦ Change in people’s

mindset, cultural

transformation

♦ 2% structural effect

on EBITDA

♦ Best operational

practices/processes

♦ Budget effect on

EBITDA

♦ Zero fatalities

♦ Best industry LTI

♦ Best practice

sharing

♦ Target TCC & FCF

♦ Budget effect on

EBITDA

BSN Consists of 5 Components

SAP IMPLEMENTATION

Implementation of

three waves of SAP

project

Post implementation

control and

improvement

♦ Process support by

SAP system

♦ Consolidation and

standardisation of

information

1 2 3 4 5

4 4

BSN Contribution to Nordgold’s EBITDA

• In 2012-2014, Nordgold realised more than US$124 million of EBITDA gains via:

• Costs reduction (c. 60%)

• Productivity improvements through implementation of debottlenecking projects (c. 40%)

• Nordgold is targeting a further US$55 million EBITDA gains in 2015 but the focus has now shifted from

costs reductions to increasing productivity

• 3 mines in West Africa estimated to contribute the largest share, accounting for c.70% of the total

19

39 43

25

19 68

10

7

7

2014A

64

2 5

17

2012A 2015E

55

2013A

52

West Africa Undeground Russian Open Pits Productivity

improvement

Cost

reduction

57%

43%

BSN Effect on 2015 EBITDA by Source BSN Effect on EBITDA, 2012-2015, US$ million

5 5

Generation of efficiency projects is

part of BP / SBP process

Each Department Head is

provided with an efficiency plan

Projects generated by joint teams

(BSN + production)

Reward based on performance

against KPIs on an annual and

quarterly basis for Department

Heads, linked to gold production,

OCF and BSN efficiency target

(10-15%)

Efficiency Projects Motivation & KPI

Project office and Navigators on-

site at each mine

Line managers responsible for

implementation

Dedicated Team

BSN achieved US$64 million of

EBITDA gains in 2014

Targeting more than US$55 million

in 2015

Setting Targets Communication

Operational

Efficiency

and Growth

Weekly status update at each mine

sites

Monthly dialogue with Dep COOs

Quarterly review by CEO

Sustainability of BSN is Built on 5 Key Elements

Заправочная /

масляная колонка

в гараже

Мобильное

техобслуживание

Кайзен

5С

Визуализация

Стандартизация

Предложения по

усовершенствованию

Инфраструктура

буровых работ4

Участок горных работ

Поломка

переходника

перфоратора

Поломка

переходника

перфоратора

Поломка

переходника

перфоратора

Подготовка и заказ

буровой площадки

Расширить объем «банка идей», чтобы включить предложения

по улучшению производственных показателей и показателей

ОТиПБ

Нематериальное поощрение (лучшая идея месяца)

Материальное поощрение

А. Надю (A

Nadeau)Спонсор

Руководитель

/ Навигатор1

МР /

ИС

ФЯ/

ТК

Положение на 2-й неделе

1 4

Общие цели OPS2

Повышение

эксплуатационно

й готовности

Оптимизировать

график смен

Процесс

HSC3

Временные

нормы HSC

АН/

ТК

2

Увеличение

коэффициента

использования

Повышение

производительно

сти

Контроль

произво-

дительности

Контроль качества

бурения

АН,

ФЯ/ИТ

3

Повышение

производительно

сти

Оптимизация

методов

выемочных работ

6 6

Jan13 Dec14

Case Study – Lefa Turnaround

Cost dynamics and dore production, 2013-2014

Monthly cost, USD 000’ Monthly production, oz

AVERAGE 2013 - US$19.1 mln

AVERAGE 2014 - US$15.5 mln

Monthly Spending:

AVERAGE 2013 - 13,900 oz

AVERAGE 2014 - 16,899 oz

Monthly Production:

Lefa – Turnaround case

When we started Lefa turnaround programme, the

mine generated negative FCF and had AISC well

above US$1,000/oz

During 2 years management team with BSN support

were working under efficiency improvement

With the increased level of monthly production total

cash cost spends decreased by US$3.5-4 million

across the whole value chain (mining, processing,

SG&A)

Key success factors of the turnaround program:

Headcount reduction from 2,300 to 1,500

employees, as well as overtimes reduction

Lower reagent consumption by improvement

of control and processes automatisation

Mine planning, grade control improvement

and mining from new pits – Firifirini, Kankarta

North

Control over SG&A, including travelling costs

Sustainability lower costs of logistics

Training of operators

Accurate planning to reduce overstock

Improvement of overall efficiency of

equipment (OEE)

7 7

Case Study – Tires Costs Decrease

Total spending on tires was decreased by almost 50% YoY in 2014

Volumes of tire consumed were reduced by 44% YoY

The significant improvement was achieved due to the implementation of tire GTS

program (started in early-2013)

Key elements of the program includes:

Launch of repair workshops to extend the life of damaged tires

Regular pressure check, development of tire rotation procedure

Road management with regular grading and sheeting, especially during the

rain season. Use of crushed material to maintain the roads

Root cause analysis for each tire damage

Development of tire management software for reporting and data capturing

TIRE MANAGEMENT PROGRAM

Mine Act 2013 Act 2014 Diff. Mine Act 2013 Act 2014 Diff.

Aprelkovo 462,000 369,009 -20% Aprelkovo 160 115 -28%

Berezitovy 827,000 374,969 -55% Berezitovy 128 108 -16%

Neryungri 767,000 508,662 -34% Neryungri 99 42 -58%

Lefa 5,362,000 2,034,636 -62% Lefa 269 121 -55%

Bissa 663,000 1,279,310 93% Bissa 36 71 97%

Taparko 1,682,000 694,599 -59% Taparko 229 94 -59%

Total 9,763,000 5,261,185 -46% Total 921 551 -40%

Dump Trucks, thsd. USD Dump Trucks, Tires Consumption, piece

Nordgold – reduction of tires consumption

new

new

30%

30%

new

new

30%

30%

8 8

Case Study– Fuel Economy

Savings on Fuel / HFO / Oils with Total

8

• Lefa has longstanding relationships with its Fuel/HFO/Oils suppliers with the largest

supplier accounting for c.US$71 million of annual spending

• Last year BSN together with Lefa team tested the quality of supplied products and

identified the following issues:

- HFO shortfall in calorific density of HFO

- LFO low grade of color and lub oils contamination

- Decline of quality of oil supplies

• The procurement team conducted a further market review comparing the prices

among other potential alternative suppliers, which revealed scope for material price

reduction from the largest supplier

Results:

• Total annualized savings of US$6.4 million

• Annualised savings on HFO of US$2.0 million driven by:

- Change in pricing mechanism to be based on Platts FOB MED HFO Cargoes 3.5%

- Improvement in transportation costs

• Annualised savings on LFO of US$0.3 million due to additional discount of 100 GNF/l

• Annualised savings on Lubs of US$4.1 million

9 9

Case Study – Overall Equipment Efficiency (Ongoing)

Nordgold OEE project Downtime analysis

* - first three years

Mining is an important part of our production

chain

We are constantly seeking for mining

efficiency improvement

Detailed productivity analysis for comparable

open pit operations and mining equipment

Recommended opportunities for

incorporation into a business improvement

plan

Estimated potential cost reduction value for

the identified opportunities

UR, act

UR, target

Payload, act

Payload, target

Speed, act

Speed, target

OEE, target

%

%

%

56%

62%

20 / 49 *

20 / 49 *

20,3

21,3

71

13 323

117%

Factor KPI Improvement

+ 11%

+ 0%

+ 5%

Travel empty

285

(19%)

331

(23%)809

(56%)

Loading Travel loaded

154

(11%)

39

(3%)

Utilization time Dump

TA

PA

RK

O

Productive time during the day, min

Productivity per truck

Daily moved, all fleet

km/h

m3/h**

m3

km/h

* Not checked with weight scales

bcm / t

bcm / t

** Productive time included only

OEE calculation