TIDMKAZ
RNS Number : 0678Y
Kazakhmys PLC
27 August 2009
?
27 August 2009
KAZAKHMYS PLC HALF-YEARLY REPORT
FOR THE PERIOD ENDED 30 JUNE 2009
FINANCIAL & PRODUCTION OVERVIEW
* Increased production and sales reflect success of management actions to maximise
efficiency
*
* Production of 170 kt of copper cathode equivalent, an 8% increase on the
previous period, assisted by use of stockpiled ore and productivity improvements
* Sales of 200 kt of copper cathode equivalent, benefiting from reductions in
inventory
* Cash costs significantly lower than 2008
*
* Net cash costs of 76 US cents per pound, compared to 116 US cents per pound for
the full year 2008
* Aided by cost reductions, lower input prices, currency devaluation and higher
volumes in copper and by-products
* Average realised copper price of $4,024 per tonne in H1 2009
*
* 51% below average realised copper price for H1 2008
* Current price of $6,305 per tonne recovering from $2,902 per tonne at year end
* Financial performance benefited from improved costs and higher sales volumes,
but affected by lower period on period copper prices
*
* Revenue declined 42% to $1,648 million
* EBITDA declined 49% to $533 million excluding share of EBITDA from ENRC
* Cash generated of $406 million
OTHER HIGHLIGHTS
* Progress on major copper growth projects
*
* Pre-feasibility studies completed at both Aktogay and Boschekul
* Significant improvements in power tariffs in Kazakhstan
*
* Creating a commercial environment for further investment and expansion of power
assets
OUTLOOK
* Copper production expected to exceed annual target of 300 kt given additional 15
kt produced from stockpiled material
*
* Costs for the full year should be at the lower end of the target range of 90 to
120 US cents per pound
* Power demand anticipated to increase in H2 along with further expected increase
in tariffs
+--+--------------------------------------------+----------------+----------------+
| $ million (unless otherwise stated) | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+-----------------------------------------------+----------------+----------------+
| Revenues | 1,648 | 2,838 |
+-----------------------------------------------+----------------+----------------+
| Earnings: | | |
+-----------------------------------------------+----------------+----------------+
| | Group EBITDA excluding special items1 | 717 | 1,050 |
+--+--------------------------------------------+----------------+----------------+
| | Profit before taxation | 645 | 886 |
+--+--------------------------------------------+----------------+----------------+
| | Underlying Profit | 269 | 610 |
+--+--------------------------------------------+----------------+----------------+
| EPS: | | |
+-----------------------------------------------+----------------+----------------+
| | Basic and diluted ($) | 0.96 | 1.34 |
+--+--------------------------------------------+----------------+----------------+
| | Based on Underlying Profit2 ($) | 0.50 | 1.34 |
+--+--------------------------------------------+----------------+----------------+
| Free Cash Flow3 | 299 | 391 |
+-----------------------------------------------+----------------+----------------+
| ROCE4 (%) | 5 | 11 |
+-----------------------------------------------+----------------+----------------+
| Cash cost of copper after by-product credits5 | 76 | 94 |
| (USc/lb) | | |
+--+--------------------------------------------+----------------+----------------+
1 Reconciliation of Group EBITDA excluding special items to operating profit is
found in note 5(a).
2 Reconciliation of EPS based on Underlying Profit is found in note 9(b).
3 Net cash flows from operating activities less sustaining capital expenditure
on tangible and intangible assets.
4 Profit from all operations before taxation and finance items, excluding
special items, as a percentage of the average of opening and closing capital
employed.
5 Total of Kazakhmys Copper cash operating costs excluding purchased concentrate
less by-product revenues, divided by the volume of copper cathode equivalent
sales.
All references to $ refer to US dollars unless otherwise stated.
Oleg Novachuk, Chief Executive of Kazakhmys PLC, said: "This has been a strong
six month performance with a successful execution of our operational
initiatives delivering higher production and lower costs. Their actions,
combined with a recovering copper price and targeted capital expenditure, led to
solid cash flow generation and an improving balance sheet. Demand for copper has
been positive and with our strong customer relationships in China we have been
well placed to take advantage of this opportunity. Demand in our power business
has been modest, but the outlook for both demand and pricing is improving. Going
forward we will continue to focus on operational efficiencies, cash flow
generation and to move forward with our growth opportunities."
For further information please contact:
+----------------------------------------------------------+---------------------+
| Kazakhmys PLC | |
+----------------------------------------------------------+---------------------+
| John Smelt, Head of Corporate Communications | Tel: +44 20 7901 |
| | 7882 |
| | Tel: +44 787 964 |
| | 2675 |
+----------------------------------------------------------+---------------------+
| Irene Burton, Financial Analyst | Tel: +44 20 7901 |
| | 7814 |
+----------------------------------------------------------+---------------------+
| Zulfira Mukhamediyarova, Senior Manager - Media | Tel: +77 27 266 317 |
| Relations | |
+----------------------------------------------------------+---------------------+
| Merlin | |
+----------------------------------------------------------+---------------------+
| David Simonson | Tel: +44 20 7653 |
| | 6620 |
+----------------------------------------------------------+---------------------+
| Tom Randell | Tel: +44 20 7653 |
| | 6620 |
+----------------------------------------------------------+---------------------+
| Leonid Fink | Tel: +44 20 7653 |
| | 6620 |
+----------------------------------------------------------+---------------------+
Copies of the half-yearly report will not be mailed to shareholders. Copies can
be obtained from the Kazakhmys website (www.kazakhmys.com) or by contacting the
Corporate Communications department at the Company's registered office.
REGISTERED OFFICE
6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL.
FORWARD-LOOKING STATEMENT
This half-yearly report includes forward-looking statements with respect to the
business, strategy and plans of Kazakhmys and its current goals, assumptions and
expectations relating to its future financial condition, performance and
results. By their nature, forward-looking statements involve known and unknown
risks, assumptions and uncertainties and other factors which may cause actual
results, performance or achievements of Kazakhmys to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.
Although Kazakhmys believes that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be given that such
expectations will prove to have been correct. Actual results could differ
materially from those set out in the forward-looking statements.
No part of this half-yearly report constitutes, or shall be taken to constitute,
an invitation or inducement to invest in Kazakhmys PLC, or any other entity, and
shareholders are cautioned not to place undue reliance on the forward-looking
statements. Except as required by the Listing Rules and applicable law,
Kazakhmys does not undertake any obligation to update or change any
forward-looking statements to reflect events occurring after the date of this
half-yearly report.
CHIEF EXECUTIVE'S REVIEW
BACKGROUND
These are a positive set of results, and I should like to start by thanking my
colleagues for delivering so well over the first six months of 2009 and for
meeting the challenges set in such a demanding environment.
The current year started with the backdrop of low commodity prices and an
uncertain economic outlook. As mentioned in our 2008 Annual Report and Accounts,
our aim in 2009 was to preserve cash and protect profit margins as much as
possible. We planned to reduce capital expenditure, lower costs and cut back or
suspend production at operations where margins were insufficient.
In the first six months of 2009 we have delivered on all of these objectives and
exceeded production and sales targets, through increased production at several
mines, the use of stockpiled material, reductions of inventory, improvements in
recovery rates and other efficiencies. Our major growth projects, at Aktogay and
Boschekul, have both completed their pre-feasibility studies and confirmed their
potential as large, low cost and long life assets.
COPPER PRODUCTION AND SALES
The suspension of four mines, at the end of 2008, should have resulted in a
decline in ore output of around 3 MT with consequential reductions in metal
production. However, a series of actions taken by management has allowed us to
offset the impact of the suspensions and maximise production. Output was raised
at several producing mines, such that ore output declined by just 1.5 MT to 16
MT.
The processing of previously stockpiled ore and higher recovery rates, at the
concentrators and smelters, meant that the production of copper in concentrate
from own material actually increased by 4.5% to 178 kt and the production of
copper cathode equivalent rose by 8% to 170 kt. Action was also taken to reduce
inventories of finished product, in order to release working capital, as a
result of which sales of copper cathode equivalent were 200 kt during the
period.
PRODUCTION AND SALES OF BY-PRODUCTS
In our by-products, principally zinc, silver and gold, there were similar
benefits from the processing of stockpiled material, release of work in progress
and improved recovery rates, which offset the decline in ore output. Compared to
the first half of 2008, there were increases in production of 15%, 10% and 8%,
respectively. There may be a limited further release of work in progress in
silver and gold in the second half of the year.
MARKETS AND DEMAND
For the 2009 financial year, contracts are in place for the sale of around 90%
of our anticipated copper cathode production, slightly higher than last year,
with sales evenly split between Europe and China. Demand for copper softened at
the end of last year, though without the significant disruptions seen in some
other commodities. There was a noticeable improvement in demand for copper in
early March and we took advantage of this opportunity to actively sell material
from inventory. Non-contract, or 'spot sales', have been dominated by our
Chinese customers for most of the year, reflecting underlying demand for
material. In the period under review, 16.6 kt of copper concentrate was sold,
equivalent to 15.9 kt of cathode. These concentrate sales were led by buoyant
demand for concentrate due to the excess smelting capacity in China.
As previously reported, at the start of the year we hedged 8.5 kt of production
for each month in 2009, around one third of our anticipated production. This was
done to protect some of our higher cost operations, in the event of prolonged
weakness in the copper price. These transactions offset the negative impact of
copper prices falling below $3,000 per tonne at the cost of sacrificing the
upside when the price rose above $4,000 per tonne.
At the start of 2009 we set a production target of 300 kt of copper cathode
equivalent for the full year. The final number may be increased by the
additional copper, just under 15 kt of copper in concentrate, which was produced
in the first six months from stockpiled material.
COST CONTROL
Cost control in the first six months of the year has been above expectations and
has shown the ability of operational management to quickly respond to the
challenging conditions of the last 12 months. Gross costs have reduced by 19% to
143 US cents per pound, compared to 177 US cents per pound in 2008. This sharp
reduction has been achieved by a mixture of active cost control by management,
lower input prices, higher sales volumes and the 25% devaluation of the tenge in
February 2009. By-product credits of $294 million resulted in a net cash cost of
76 US cents per pound, below the 90 to 120 US cents per pound range that we set
at the start of the year, and significantly better than the 116 US cents per
pound average for the full year 2008.
Costs in the second half of the year are likely to be higher as input costs,
such as diesel, have risen and inflation in Kazakhstan may increase as a
consequence of the earlier devaluation. However, subject to the prices received
for our by-products, we remain on track to stay within the target range
mentioned above.
FINANCIAL PERFORMANCE
The dominant influence on the financial results was the decline in commodity
prices, with the average realised sales price of copper at $4,024 per tonne for
the first six months of the year, compared to $8,192 per tonne in the prior
period. Reflecting this decline in metals prices, revenue fell 42% to $1,648
million, despite approximately $100 million from the additional material sold
from inventory. The improved production costs, mentioned above, helped reduce
the impact of lower prices on profitability, such that EBITDA for our managed
businesses was $533 million. Including our 26.0% share of ENRC's results, Group
EBITDA amounted to $717 million, a decline of 32% from $1,050 million in the
prior period. Earnings per share, including our share of ENRC's equity
accounted earnings, was 50 US cents per share compared to 134 US cents per
share for the first six months of 2008.
FINANCIAL POSITION
The control of costs and release of working capital had a significant impact on
our ability to generate cash, even in a lower price environment. Over the six
months, the business generated cash of $406 million, from which we funded
capital expenditure of $196 million, made debt repayments of $175 million and
terminated the contract with AES at Ekibastuz GRES-1 for an initial cash
settlement of $80 million in April 2009. Our net debt reduced to $1,628 million
from the year end to $1,568 million at 30 June 2009, with cash and deposits on
the balance sheet of $491 million.
In March 2009, we started repayments on our $2.1 billion debt facility, at the
rate of $44 million per month. The facility is repayable over 48 months and
stood at $1,925 million at 30 June 2009. The interest rate on a substantial
portion of the facility in 2009 is fixed at 2.3%, which is highly competitive.
We also have an undrawn facility of $150 million, which was renegotiated in
March 2009 and extended to March 2010.
We will continue to reduce our debt as opportunities arise, however, the low
interest rate on our pre-export finance debt facility makes refinancing
unattractive at prevailing market rates.
POWER BUSINESS
Power generation at our Ekibastuz GRES-1 power plant was 32% lower in the first
half of the year compared to the previous period, at 3,761 GWh, as economic
conditions in Kazakhstan reduced demand. We have started to see some recovery in
power consumption and believe that the outlook is improving, particularly as
other commodity producers in Kazakhstan recover and start absorbing more of
their own power output.
The negotiations to sell 25% of Ekibastuz GRES-1 to Samruk-Kazyna, retaining a
75% equity interest, are at an advanced stage. The proposed transaction is in
keeping with our intention at the time of purchase, to seek a strategic partner
to assist in the development and investment of Ekibastuz GRES-1. Ekibastuz
GRES-1 is the largest power station in Kazakhstan, with a capacity of 2,250 MW,
but with the potential to increase to its original nameplate capacity of 4,000
MW. This substantial increase in capacity will require total investment of
around $1 billion, across the five producing turbines and the three dormant
turbines. Given the capital commitment needed to deliver this increase in
capacity and the potential output of Ekibastuz GRES-1, which is substantially
above our own needs, we may consider reducing our holding further.
A key issue for Kazakhstan has been the need to increase tariffs, thereby
improving investment returns and encouraging investment in the sector. Without
this action, Kazakhstan will suffer increasingly severe power shortages and
economic growth will be delayed. The average tariff for the first six months of
the year was 2.84 KZT per kWh, but the regulated ceiling for 2009 is now 3.6 KZT
per kWh. These prices remain considerably below most international prices, but
compare to 2.35 KZT per kWh, when we bought Ekibastuz GRES-1 in May 2008. The
increase in tariffs seen already, and the expectation for future increases,
starts to justify the investment required to increase capacity. The Government
has also made good progress in improving the national grid, which will assist
sales in the domestic market.
STRATEGY
Our strategy remains unchanged, from the time of our Listing - to optimise the
performance of our assets, deliver our growth projects and take advantage of the
natural resource opportunities in Central Asia.
During 2009, the primary focus has been on optimising our assets, in order to
improve our efficiency. There have been significant operational achievements so
far this year, but for longer term improvements, we continue to work on our
operational improvement programme. This programme is at an early stage, though
productivity, safety and cost control remain key targets.
Good progress has also been made on our major copper growth projects at Aktogay
and Boschekul, and both projects have now completed their pre-feasibility
studies. The studies indicate that they are both economically sound projects
using conservative pricing estimates.
We believe that the copper market will return to a shortage of supply and we
have large, viable projects that are near to existing infrastructure and in
close proximity to our customers in China. We will now seek to take these
projects forward to feasibility stage, with suitable financing arrangements, in
order to provide a good return for our investors.
Our 26% stake in ENRC is currently worth $4.67 billion or 59% of our market
capitalisation. ENRC also mainly operate in Kazakhstan, though in a different
suite of metals to us. We believe that this significant holding provides
strategic opportunities, but any future potential action with the stake will be
based solely on creating value for all our shareholders.
DIVIDEND
At the time of Listing, we stated that we would pay a dividend based on the
underlying profitability and funding requirements of the business. We believed
then that this policy was prudent for a business subject to the cyclical pricing
of commodities and the last 12 months have shown it to be appropriate. The
Board has decided not to pay an interim dividend for this half year, as we
believe that we should continue to preserve cash and reduce debt. The Board
will, of course, keep this under review.
CORPORATE SOCIAL RESPONSIBILITY
I regret to inform that there have been 13 fatalities since the start of the
year, compared to 18 in the first six months of 2008. We continue to invest
resources and place a significant emphasis on improving our health and safety
record. In the first six months of 2009 this has included spending on protective
clothing and new training and reporting systems in order to reduce unsafe
behaviour and practice. Specific action is being taken to improve materials and
training relating to roof falls, which continue to be a noticeable cause of
fatalities.
We have completed construction of two educational establishments - in Astana and
Balkhash - both of which are due to open on 1 September 2009. The school in
Astana will provide training in such demanded professions as construction,
transport, metalwork and catering. The technical college in Balkhash is designed
to annually train 800 students in technical specialities for the mining sector.
A similar college built in Satpayev has now seen its first year of 200
graduates.
OUTLOOK
So far, we have met the challenges of 2009, but the global economy remains
fragile and we will continue to focus on cash generation and margin protection.
We continue to believe that the long-term supply/demand fundamentals for copper
are positive and as our major projects move forward, we will be well placed to
take advantage of this outlook. The power market has had a weak start to the
year, but the opportunities are as positive as we anticipated at the time of
acquisition.
DIVISIONAL REVIEW
SUMMARY OF GROUP EBITDA EXCLUDING SPECIAL ITEMS
+--+------------------------------------------+------------------+------------------+
| $ million | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+---------------------------------------------+------------------+------------------+
| Group | 717 | 1,050 |
+---------------------------------------------+------------------+------------------+
| | | | |
+--+------------------------------------------+------------------+------------------+
| | Kazakhmys Copper | 453 | 990 |
+--+------------------------------------------+------------------+------------------+
| | Kazakhmys Gold | 9 | 6 |
+--+------------------------------------------+------------------+------------------+
| | Kazakhmys Power | 41 | 8 |
+--+------------------------------------------+------------------+------------------+
| | Kazakhmys Petroleum | - | - |
+--+------------------------------------------+------------------+------------------+
| | MKM | 45 | 55 |
+--+------------------------------------------+------------------+------------------+
| | Share of EBITDA of ENRC | 184 | - |
+--+------------------------------------------+------------------+------------------+
| | Corporate unallocated | (15) | (9) |
+--+------------------------------------------+------------------+------------------+
The Group's EBITDA in the first half of 2009 was $717 million, 32% lower than in
the same period in 2008. The fall in commodity prices which occurred in the
second half of 2008 resulted in the average copper price in the first six months
of 2009 being over 50% below the prior period average, with the consequence that
Kazakhmys Copper's EBITDA declined from $990 million to $453 million. Kazakhmys
Power made an EBITDA contribution of $41 million, up from $8 million in the
first half of 2008 following its acquisition in May of that year. MKM's EBITDA
fell as the downturn in the European automotive and construction industries
impacted demand for its products. The share of ENRC's EBITDA of $184 million has
been recognised as Kazakhmys commenced equity accounting for its stake in ENRC
in the second half of 2008.
REVIEW OF KAZAKHMYS COPPER
KAZAKHMYS COPPER PRODUCTION SUMMARY
Copper
+--------------------------------------------+------------------+-----------------+
| kt (unless otherwise stated) | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+--------------------------------------------+------------------+-----------------+
| Ore output | 16,013 | 17,472 |
+--------------------------------------------+------------------+-----------------+
| Copper grade (%) | 1.19 | 1.22 |
+--------------------------------------------+------------------+-----------------+
| Copper in own concentrate | 178 | 171 |
+--------------------------------------------+------------------+-----------------+
| Copper cathodes from own concentrate1 | 154 | 157 |
+--------------------------------------------+------------------+-----------------+
| Copper cathodes from own concentrate | 170 | 157 |
| equivalent2 | | |
+--------------------------------------------+------------------+-----------------+
| Copper cathodes from purchased concentrate | 4 | 17 |
+--------------------------------------------+------------------+-----------------+
| Copper rod production | 5 | 24 |
+--------------------------------------------+------------------+-----------------+
1 Includes cathode converted into rod.
2 Includes copper sold as concentrate and cathode converted into rod.
In the first six months of 2009, as Kazakhmys Copper focused on reducing
operating expenditure and protecting profit margins, output was suspended at the
higher cost mines of Belousovsky, Kounrad, North Nurkazgan and sections of the
West and North mines. Akbastau mine, which reported output of 1 MT of ore in the
first half of 2008, ceased operations to preserve the ore body ahead of the
construction of a new concentrator at the site which will reduce transportation
costs. The mine closures reduced ore output by almost 3 MT, but the lost ore
volumes were partially offset by an improved performance from the South mine,
following operational difficulties in the first half of 2008, and the successful
launch of the West Nurkazgan underground mine in early 2009.
Whilst ore output declined 8% compared to the prior period, copper in
concentrate production was 5% higher, the result of improved operational
efficiency. Measures taken in the second half of 2008 and completed in the first
half of 2009, include the upgrade of concentrators, for example Nurkazgan and
Karagaily, which enabled stockpiled materials to be processed in 2009,
contributing almost 15 kt of copper in concentrate. In addition, the overall
copper recovery rate at the concentrators was raised from 84% to 86% when
comparing the two periods.
The Zhezkazgan smelter had one of its two furnaces closed during the period,
limiting its capacity but enabling more efficient utilisation levels. In the
first six months of 2009, excess Zhezkazgan concentrate was shipped to the
Balkhash smelter or was sold as copper concentrate into China. The copper
concentrate sales are reflected in the copper cathodes from own concentrate
equivalent figure shown above. In the prior period there were no external copper
concentrate sales as all concentrate was processed into cathodes.
The 4 kt of production of cathodes from purchased concentrate was from the
rundown of inventory held at 31 December 2008. Copper rod production is demand
driven, and the lower premiums on offer in 2009 led to production being limited
to local demand rather than exported for sale to China as was the case in the
prior year.
Over the second half of 2009, the contribution to production from the processing
of stockpiled material is expected to be reduced, such that Kazakhmys is on
target to meet the market guidance of copper cathode equivalent production of
300 kt in 2009, but the additional cathode from stockpiled material may lift the
final number.
Zinc
+--------------------------------------------+------------------+-----------------+
| kt (unless otherwise stated) | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+--------------------------------------------+------------------+-----------------+
| Zinc grade (%) | 4.04 | 3.32 |
+--------------------------------------------+------------------+-----------------+
| | | |
+--------------------------------------------+------------------+-----------------+
| Zinc in concentrate | 76 | 66 |
+--------------------------------------------+------------------+-----------------+
| Zinc in metal | 9 | 25 |
+--------------------------------------------+------------------+-----------------+
The suspension of mining at Akbastau and also at Abyz (whilst stockpiles are
cleared), has led to zinc metal in ore output falling in the first half of 2009
compared to the prior period. The low grade Akbastau ore in the first six months
of 2008 lowered the average zinc grade in that period.
Zinc in concentrate production was higher than in the first half of 2008,
benefiting from the processing of stockpiled material, successfully improving
zinc recovery rates at concentrators and the timing of receipts from material
from third party processing.
The zinc metal refinery suspended output in March 2009 following several months
of running down work in progress at the site. Options are being reviewed for the
future of the zinc refinery. All of Kazakhmys' zinc concentrate production is
now sold externally.
Precious Metals
+--------------------------------------------+------------------+-----------------+
| koz (unless otherwise stated) | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+--------------------------------------------+------------------+-----------------+
| Average silver grade (g/t) | 20.41 | 20.56 |
+--------------------------------------------+------------------+-----------------+
| Silver own production | 9,145 | 8,329 |
+--------------------------------------------+------------------+-----------------+
| Average gold grade (g/t) | 0.61 | 0.94 |
+--------------------------------------------+------------------+-----------------+
| Gold own production | 68 | 63 |
+--------------------------------------------+------------------+-----------------+
Extracted silver and gold metal in ore both decreased in the first half of 2009
compared to the prior period, with gold in particular being impacted by the
suspension of production at the Abyz, Kosmurun and Akbastau mines. The
suspension of these mines also lowered the average gold grade. Finished goods
production from own material was however, higher for both silver and gold as
stockpiled material was processed and recovery rates at the concentrators were
improved. The processing of stockpiled material is likely to reduce over the
second half of 2009, thereby impacting the production levels of both materials.
KAZAKHMYS COPPER FINANCIAL SUMMARY
+--+---------------------------------------------+---------------+-----------------+
| $ million (unless otherwise stated) | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+------------------------------------------------+---------------+-----------------+
| Sales revenues: | 1,104 | 1,786 |
+------------------------------------------------+---------------+-----------------+
| | | |
+------------------------------------------------+---------------+-----------------+
| | Copper cathodes | 721 | 1,265 |
+--+---------------------------------------------+---------------+-----------------+
| | Copper rods | 17 | 195 |
+--+---------------------------------------------+---------------+-----------------+
| | Copper concentrate | 72 | - |
+--+---------------------------------------------+---------------+-----------------+
| | Zinc (metal and concentrate) | 60 | 84 |
+--+---------------------------------------------+---------------+-----------------+
| | Silver | 117 | 129 |
+--+---------------------------------------------+---------------+-----------------+
| | Gold | 60 | 59 |
+--+---------------------------------------------+---------------+-----------------+
| | Other | 57 | 54 |
+--+---------------------------------------------+---------------+-----------------+
| | | |
+------------------------------------------------+---------------+-----------------+
| Average realised price of copper ($/tonne) | 4,024 | 8,192 |
+------------------------------------------------+---------------+-----------------+
| | | |
+------------------------------------------------+---------------+-----------------+
| EBITDA excluding special items | 453 | 990 |
+------------------------------------------------+---------------+-----------------+
| | | |
+------------------------------------------------+---------------+-----------------+
| Net cash costs excluding purchased concentrate | 76 | 94 |
| (USc/lb) | | |
+------------------------------------------------+---------------+-----------------+
| | | |
+------------------------------------------------+---------------+-----------------+
| Capital expenditure | 148 | 343 |
+------------------------------------------------+---------------+-----------------+
| | Sustaining | 94 | 163 |
+--+---------------------------------------------+---------------+-----------------+
| | Expansionary | 54 | 180 |
+--+---------------------------------------------+---------------+-----------------+
Revenues
Revenues from copper have fallen significantly due to weaker prices. Offsetting
the lower prices, the sales volumes of copper products in the first half of 2009
benefited from a reduction in inventory of finished goods of 26 kt such that
copper cathode and rod sales were 184 kt, up from 177 kt in 2008. Rod sales in
the first six months of 2009 were only made to local customers as the premium
into China was not sufficiently attractive.
Following the trial sales of copper concentrate in the second half of 2008 and
the closure of one Zhezkazgan furnace, copper concentrate was sold for the first
time in meaningful quantities. In the first half of 2009, 16.6 kt of copper in
concentrate was sold to China on a contractual basis with no such sales in the
first half of 2008.
The overall percentage of revenue attributable to copper has fallen from 82% to
73% as by-products contributed a greater proportion to revenues.
Zinc revenues were largely derived from zinc in concentrate sales in the first
half of 2009 as the production of zinc metal was suspended in March 2009. The
decrease in average zinc prices from $2,272 per tonne to $1,323 per tonne
together with the lower volumes of zinc metal sold led to the reduction in
revenue between the periods.
Silver became Kazakhmys' second most important metal in 2008 as strong prices
led to revenues of $129 million in the first six months of 2008. A sharp fall in
average prices from $17 per ounce to $13 per ounce has reduced sales by 9% in
the first half of 2009, despite volumes of granules sold rising by 675 koz to
8,038 koz and $9 million of revenues from concentrate sales.
Gold revenues were in line with those in the first half of 2008 as the average
gold price has remained consistent and as volumes sold of 66 koz were only
slightly higher than in the prior period.
EBITDA excluding special items
EBITDA excluding special items has fallen by $537 million as revenues have
sharply declined, offset to a limited extent by a reduction in Kazakhmys
Copper's costs.
Kazakhmys Copper's cost of sales decreased by 19% compared to the prior period,
due to a combination of a number of cost reduction measures, implemented at the
end of 2008, including the closure of selected higher cost mines and the
renegotiation of supplier contracts, the impact of the devaluation of the tenge
in February 2009 and no purchases of copper concentrate taking place in the
first half of 2009.
The decision to suspend selected mines in 2009 reduced ore output by 3 MT,
although this was partially offset by higher output from other mines, driving
down costs including fuel, consumables and transportation costs. Where possible,
the workers and equipment at the suspended mines were re-assigned to other
operations.
The economic downturn gave Kazakhmys the opportunity in the fourth quarter of
2008 to renegotiate terms with many of its suppliers to reduce input prices.
Falls in the price of commodities such as oil and steel have also had a
beneficial impact on costs.
The tenge devalued against the US dollar in February 2009, moving from
approximately 120 KZT/$ to 150 KZT/$. Whilst many production costs are
indirectly linked to the US dollar, the devaluation resulted in a reduction in
tenge denominated costs such as labour, local services and utilities. The
devaluation may lead to higher inflation in Kazakhstan in the second half of
2009.
In 2008, Kazakhmys purchased copper concentrate to utilise spare capacity at the
smelters but, due to the reduction in production capacity following the
suspension of one of the Zhezkazgan smelter furnaces, no third party copper
concentrate has been purchased in 2009. In the first half of 2008, 17 kt of
copper concentrate was purchased.
Administrative expenses fell by 5% due to the impact of the tenge devaluation
and lower social spending, which were partially offset by costs incurred in
respect of the suspended operations and the recently launched change management
programme. Social responsibility costs fell by $15 million or by 45% as the
Group reduced its extensive social programme in light of the challenging
economic environment and also in the first half of 2008, a $10 million
contribution was made to the city of Astana for its 10th anniversary
celebration.
Other operating expenses rose as a charge of $16 million was booked in respect
of copper hedges entered into during the first half of 2009 for approximately
one third of monthly production. Further details of the copper hedging programme
can be found in the Financial Review.
Net cash cost
The gross cash cost of own copper (before by-product credits) fell from 177 US
cents per pound to 143 US cents per pound when comparing the first six months of
2008 and 2009. The sales volumes of copper was significantly higher in 2009,
which, combined with the cost factors noted earlier, led to the gross cash cost
reducing on a per unit basis.
The reduced net cash cost of own copper in the first half of 2009 of 76 US cents
per pound, down from 94 US cents per pound in the prior period, reflects the
lower cost per unit noted above. However, the reduction was partially offset by
lower by-product credits due to weaker commodity prices.
Capital expenditure
Kazakhmys Copper's capital expenditure in the first half of 2009 was
significantly below the relatively high levels in the prior period, the result
of the Group's focus on conserving cash during the economic downturn. Capital
expenditure was reduced by rationing the spend on new projects and renegotiating
existing supply contracts. Due to the level of capital expenditure in recent
years, these actions should not impact short-term output.
The capital expenditure for stay in business and maintenance in the first half
of 2009 mainly related to the residual payments for mining equipment purchased
in the prior year. The scope of the 2009 equipment programme has been reduced
with the focus on essential replacements. Areas of investment in the first half
of 2009 included maintenance at Kazakhmys Copper's smelters and power stations.
Work was performed on installing a copper anode production line at the
Zhezkazgan smelter to improve the quality of copper cathode produced.
In February 2009, Kazakhmys Copper commenced production from the newly
commissioned underground Nurkazgan West mine in the Karaganda Region. Capital
expenditure during the first half of 2009 included the development of
infrastructure at the mine to bring it to the production stage. Further
expenditure will be committed to increase the capacity of the underground mine
to 4 MT of ore per year by 2011.
The pre-feasibility study was successfully completed for the Boschekul sulphide
ore deposit in April 2009. The pre-feasibility study confirmed the technical and
economic viability of the mine. Additional work is being conducted to identify
options to further improve the economics. Financing options for the project are
being assessed after which the project is expected to progress to the
feasibility stage.
The Aktogay deposit includes both oxide and sulphide ore. The pre-feasibility
study for the sulphide project has been completed, the results of which are
being assessed together with the feasibility study for the oxide project
(completed in late 2008). Financing options for Aktogay are being considered
prior to the project moving to the feasibility stage.
REVIEW OF KAZAKHMYS GOLD
KAZAKHMYS GOLD PRODUCTION SUMMARY
+----------------------------------------------+-----------------+-----------------+
| | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+----------------------------------------------+-----------------+-----------------+
| Ore output (kt) | 746 | 857 |
+----------------------------------------------+-----------------+-----------------+
| Average gold grade (g/t) | 1.46 | 1.50 |
+----------------------------------------------+-----------------+-----------------+
| Gold doré production (koz) | 20 | 22 |
+----------------------------------------------+-----------------+-----------------+
The reduction in ore output, when comparing the first half of 2008 against 2009,
is due to the closure of the Zhaima mine in September 2008 as the deposit was
fully exploited. Output from the Mizek oxide and Mukur mines was largely
unchanged between the periods. The gold grade has fallen slightly, the result of
a small decline in the gold content in ore at the Mukur mine.
The 2 koz decrease in gold doré production reflects the reduction in metal in
ore extracted, although there was a small continued contribution from the Zhaima
mine as work in progress was processed.
KAZAKHMYS GOLD FINANCIAL SUMMARY
+--+--------------------------------------------+-----------------+-----------------+
| $ million (unless otherwise stated) | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+-----------------------------------------------+-----------------+-----------------+
| Sales revenues | 19 | 18 |
+-----------------------------------------------+-----------------+-----------------+
| | | |
+-----------------------------------------------+-----------------+-----------------+
| Average realised price ($/ounce) | 958 | 918 |
+-----------------------------------------------+-----------------+-----------------+
| | | |
+-----------------------------------------------+-----------------+-----------------+
| EBITDA excluding special items | 9 | 6 |
+-----------------------------------------------+-----------------+-----------------+
| | | |
+-----------------------------------------------+-----------------+-----------------+
| Cash cost ($/ounce) | 447 | 459 |
+-----------------------------------------------+-----------------+-----------------+
| | | |
+-----------------------------------------------+-----------------+-----------------+
| Capital expenditure | 3 | 4 |
+-----------------------------------------------+-----------------+-----------------+
| | Sustaining | 1 | 1 |
+--+--------------------------------------------+-----------------+-----------------+
| | Expansionary | 2 | 3 |
+--+--------------------------------------------+-----------------+-----------------+
Kazakhmys Gold revenues increased by $1 million to $19 million in the first half
of 2009, despite a slight decrease in production volumes compared with the prior
period. The increase in revenue was due to sales of finished goods held at the
start of the period.
EBITDA excluding special items for the first half of 2009 was higher than the
prior period as Kazakhmys Gold's profitability benefited from favourable gold
market conditions, and the devaluation of the tenge in February 2009.
Capital expenditure
In the first half of 2009, Kazakhmys Gold's capital expenditure mainly related
to the development of the Bozymchak deposit which successfully moved from the
feasibility stage to development stage during the period. Expenditure was also
incurred on sustaining Kazakhmys Gold's existing mining operations and the
continuing technical studies of the Akjilga and Mizek sulphide deposits.
The development of the Bozymchak copper and gold deposit is proceeding,
following the positive results from the feasibility study completed in early
2009. The deposit has probable reserves of 7,982 kt with a copper grade of 0.89%
and a gold grade of 1.42 g/t. Open pit mining operations at the deposit are
expected to commence in 2011. Kazakhmys is reviewing financing options for the
project's development.
The technical studies on the Mizek sulphide project have been on-going during
the period and are expected to be completed in the second half of 2009.
Development of the infrastructure at the Mizek sulphide site remains on hold
subject to the results of these studies.
Exploration work at the Akjilga silver and copper deposit in Tajikistan was
conducted in the first six months of 2009, including drilling work to improve
the definition of the deposit's resources. Further work will continue at the
site throughout the remainder of 2009.
REVIEW OF KAZAKHMYS POWER
Kazakhmys completed the acquisition of the Ekibastuz GRES-1 coal-fired power
plant and the Maikuben West coal mine, which are located in north east
Kazakhstan's Pavlodar Oblast, on 29 May 2008 from AES Corporation. AES were
retained as the operator of the power plant and coal mine under a management
services agreement which has now ended, following which Kazakhmys assumed full
operational responsibility for the power plant and coal mine during the second
quarter of 2009.
During the first half of 2009, KEGOC, the operator of Kazakhstan's power
network, completed a line linking the North and West regions of Kazakhstan.
Construction work has also been carried out to expand the capacity of the North
to South power line which, by the end of 2009, should have reached 1,350 MW. The
upgraded linkage of Kazakhstan's power grids is expected to reduce the volumes
imported from abroad and increase domestic demand from Kazakhstan based power
stations.
KAZAKHMYS POWER PRODUCTION SUMMARY
+----------------------------------------------+-----------------+-----------------+
| | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+----------------------------------------------+-----------------+-----------------+
| Net power generated (GWh) | 3,761 | 5,506 |
+----------------------------------------------+-----------------+-----------------+
| Net power generated attributable to | 3,761 | 938 |
| Kazakhmys1 (GWh) | | |
+----------------------------------------------+-----------------+-----------------+
| Net dependable capacity (MW) | 2,256 | 2,036 |
+----------------------------------------------+-----------------+-----------------+
| | | |
+----------------------------------------------+-----------------+-----------------+
| Coal extraction (kt) | 1,654 | 1,771 |
+----------------------------------------------+-----------------+-----------------+
| Coal extraction attributable to Kazakhmys1 | 1,654 | 377 |
| (kt) | | |
+----------------------------------------------+-----------------+-----------------+
1 Period from acquisition on 29 May 2008.
Ekibastuz GRES-1's net power generation decreased by 32% to 3,761 GWh for the
first six months of 2009 compared to the prior period as demand from industrial
customers reduced, leading to a surplus of supply. Market conditions have
progressively improved in the second quarter of 2009, with a consequent increase
in the net power generated by Ekibastuz GRES-1 as sales to Russia resumed,
domestic demand showed signs of recovery and neighbouring stations had
maintenance outages.
The net dependable capacity increased from 2,036 MW in the first half of 2008,
to 2,256 MW in the same period in 2009, with the completion of the major
overhaul of Unit 6 in the second half of 2008. Unit 5 ceased operation in April
2009 for a major overhaul and is expected to restart production in November
2009, in time for the winter season. More limited maintenance has been performed
on Units 3 and 6 during the first half of 2009.
KAZAKHMYS POWER FINANCIAL SUMMARY
+--+---------------------------------------------------+--------------+--------------+
| $ million (unless otherwise stated) | Six months | 1 month |
| | ended | 20081 |
| | 30 June 2009 | |
+------------------------------------------------------+--------------+--------------+
| Sales revenues | 85 | 19 |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| Average tariff price (KZT/kWh) | 2.84 | 2.40 |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| Average cost (KZT/kWh) | 1.54 | 1.44 |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| EBITDA excluding special items | 41 | 8 |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| Capital expenditure | 20 | 3 |
+------------------------------------------------------+--------------+--------------+
| | Sustaining | 4 | 1 |
+--+---------------------------------------------------+--------------+--------------+
| | Expansionary | 16 | 2 |
+--+---------------------------------------------------+--------------+--------------+
1 Period from acquisition on 29 May 2008.
Revenue
The electricity generated by Ekibastuz GRES-1 is sold externally to a
combination of business and residential customers. Approximately 20% of the
output is exported to Russia. Of the total revenue, $74 million was attributable
to electricity sales and $11 million to external sales of coal from the Maikuben
West coal mine.
In the first six months of 2009, the economic downturn led to major industrial
electricity consumers cutting their output, lowering demand for power.
Electricity sales volumes fell by 37% or 2,230 GWh when compared to the first
six months of 2008, as there was oversupply into the marketplace. In the first
half of 2008, Ekibastuz GRES-1 sold power into Russia throughout the period,
however in the first half of 2009, agreement was only reached in March after
which sales resumed.
In April 2009, new regulations were introduced on tariffs which raised the
tariff ceiling to 3.60 KZT/kWh for 2009 and provided indicative tariffs for
future years which could reach 8.80 KZT/kWh in 2015. The realised tariffs for
the first four months of 2009 were 2.76 KZT/kWh in Kazakhstan, but had risen to
a June average of 3.12 KZT/kWh and further rises are anticipated over the second
half of 2009. The average tariff over the first half of 2008 in
Kazakhstan was 2.40 KZT/kWh.
As sales are largely denominated in tenge, the currency devaluation in February
2009 has had a negative impact on the revenues when reported in US dollars.
EBITDA excluding special items
EBITDA is primarily generated by Ekibastuz GRES-1, which comprised over 90% of
Kazakhmys Power's EBITDA. The main cost at the power station is coal, which is
sourced primarily from the nearby Bogatyr mine, with additional volumes being
supplied from the Maikuben West mine. Bogatyr coal tariffs were increased by
almost 9% in the first half of 2009. Both Ekibastuz GRES-1 and Maikuben West
took measures to control costs in the period and raise operating efficiency.
Partially offsetting the loss in revenues from the tenge devaluation was a
currency related decrease in the costs of both Ekibastuz GRES-1 and Maikuben
West which are substantially denominated in tenge.
Average cost
The cash cost per kilowatt hour of electricity increased by 7% or 0.10 KZT/kWh
in the first half of 2009 as electricity production volumes were lower, leading
to a greater fixed cost per unit. The upwards cost pressure from the lower
volumes was partially offset by the tenge devaluation.
Capital expenditure
In the first half of 2009, Kazakhmys Power's capital expenditure included costs
for the overhaul of Unit 5 as part of the continuing programme to modernise the
five operating units at Ekibastuz GRES-1. Expenditure was also incurred to
sustain the operations of the existing operating plant along with equipment
purchases for the Maikuben West coal mine.
The overhaul of Unit 5 commenced in April 2009 and will increase the unit's
gross dependable capacity from 430 MW to the nameplate capacity of 500 MW. The
overhaul work will also involve the installation of an electrostatic
precipitator to reduce ash emissions. The unit is expected to be operational in
late 2009 and the electrostatic precipitator is planned to be commissioned in
the second half of 2010.
The refurbishment of the three dormant units at Ekibastuz GRES-1 form part of
the medium to long-term capital expenditure programme for the power station.
Preliminary work has commenced on Unit 8 and is expected to continue through
2010 and 2011. The other two dormant units are scheduled to be restored
following Unit 8. Once the dormant units have been refurbished, the plant will
be restored to its nameplate capacity of 4,000 MW. The expansion programme is
dependent upon the achievement of tariff increases in future years.
The modernisation programme includes a number of environmental improvements to
the power plant, with the installation of electrostatic precipitators to reduce
ash emissions to international benchmark standards and improvements to ash
disposal systems.
REVIEW OF KAZAKHMYS PETROLEUM
KAZAKHMYS PETROLEUM FINANCIAL SUMMARY
+----------------------------------------------+-----------------+-----------------+
| $ million | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+----------------------------------------------+-----------------+-----------------+
| EBITDA excluding special items | - | - |
+----------------------------------------------+-----------------+-----------------+
| | | |
+----------------------------------------------+-----------------+-----------------+
| Capital expenditure | 17 | 17 |
+----------------------------------------------+-----------------+-----------------+
Kazakhmys Petroleum continued oil exploration work on the East Akzhar field
during the first half of 2009, finishing the 3D seismic survey and analysis
which started in 2008, the results of which will be used to determine the
location of future deep wells. The drilling of the first deep well, which
commenced in 2008, was completed at a depth of 5,185 metres. As expected, oil
was found, however the recoverability is still to be determined as technical
difficulties were encountered during testing which require the removal of
sections of the inner tubing.
Once the full depth of the first deep well was reached, the drilling rig was
relocated to the site of the second deep well. At the end of June 2009, the
second deep well had reached a depth of 4,362 metres with the target depth of
5,200 metres. The site of the third deep well, which will commence drilling
later in 2009, has been selected and initial site work has begun.
The capital expenditure incurred during the first half of 2008 was for 3D
seismic work and drilling on the first deep well. In the first six months of
2009, the capital expenditure was largely drilling related, completing the first
deep well and starting the second deep well. Further 3D seismic work will be
undertaken over an area of the field which previously had not been surveyed
following the resolution of certain contractual issues.
REVIEW OF MKM
MKM FINANCIAL SUMMARY
+--+--------------------------------------------+-----------------+-----------------+
| $ million (unless otherwise stated) | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+-----------------------------------------------+-----------------+-----------------+
| GVA1 (EUR million) | 64 | 85 |
+-----------------------------------------------+-----------------+-----------------+
| | | |
+-----------------------------------------------+-----------------+-----------------+
| | Wire section (EUR million) | 14 | 21 |
+--+--------------------------------------------+-----------------+-----------------+
| | Flat section (EUR million) | 32 | 42 |
+--+--------------------------------------------+-----------------+-----------------+
| | Tubes and bars (EUR million) | 18 | 22 |
+--+--------------------------------------------+-----------------+-----------------+
| | | |
+-----------------------------------------------+-----------------+-----------------+
| EBITDA excluding special items | 45 | 55 |
+-----------------------------------------------+-----------------+-----------------+
| | | |
+-----------------------------------------------+-----------------+-----------------+
| Capital expenditure | 3 | 5 |
+--+--------------------------------------------+-----------------+-----------------+
1 "GVA" is Gross Value Added which is calculated as turnover less the input cost
of copper cathode, i.e. MKM's 'value add'. It is not a statutory reporting
measure. The GVA figures are presented in Euros, MKM's operating currency.
The difficult economic conditions experienced by European industries in the
first half of 2009 had a negative impact on demand for MKM's semi-finished
copper products. Sales volumes declined by 21%, falling from 149 kt to 118 kt,
the main drivers being the wire and flat sections. As a result, GVA decreased by
EUR21 million or 25% from EUR85 million in the prior period to EUR64 million in the
first half of 2009.
Wire products, containing wire rod and drawn wires saw sales volumes fall by 25%
as weakness in the automotive industry led to lower order volumes. Flat
products, consisting of plates, strips and sheets experienced a 15% decrease in
demand and tubes and bars saw volumes reduce by 17% due to the downturn in MKM's
core European markets. Whilst customers continue to operate at low inventory
levels, MKM has seen a pick-up in orders in the third quarter of 2009 across
certain business units.
EBITDA excluding special items was $45 million, $10 million below EBITDA in the
prior period of $55 million. The EBITDA figure includes a $36 million IFRS
inventory adjustment ($28 million in the first half of 2008) due to the rising
copper price over the period. As sales revenues have been impacted by weak
demand, MKM management have taken effective steps to control costs including
reducing working hours and releasing temporary staff. The weakening of the Euro
also impacted EBITDA by $7 million when presented in US dollars.
Capital expenditure was restricted to replacement spend and was primarily
focused on flat products and tubes and bars.
FINANCIAL REVIEW
BASIS OF PREPARATION
The financial information presented on pages 31 to 52 has been prepared in
accordance with IFRS using consistent accounting policies as those adopted in
the financial statements for the year ended 31 December 2008.
INCOME STATEMENT
A summary of the consolidated income statement is shown below:
+--+---------------------------------------------------+--------------+--------------+
| $ million (unless otherwise stated) | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+------------------------------------------------------+--------------+--------------+
| Revenues | 1,648 | 2,838 |
+------------------------------------------------------+--------------+--------------+
| Operating costs excluding depreciation, depletion, | (1,115) | (1,788) |
| amortisation, mineral extraction tax and special | | |
| items | | |
+------------------------------------------------------+--------------+--------------+
| Segmental EBITDA excluding special items | 533 | 1,050 |
+------------------------------------------------------+--------------+--------------+
| Special items: | | |
+------------------------------------------------------+--------------+--------------+
| | Less: impairment of property, plant and equipment | (23) | (2) |
+--+---------------------------------------------------+--------------+--------------+
| | Less: provisions against inventories | (10) | - |
+--+---------------------------------------------------+--------------+--------------+
| | Less: loss on disposal of property, plant and | (1) | - |
| | equipment | | |
+--+---------------------------------------------------+--------------+--------------+
| Less: mineral extraction tax | (71) | - |
+------------------------------------------------------+--------------+--------------+
| Less: depreciation, depletion and amortisation | (142) | (157) |
+------------------------------------------------------+--------------+--------------+
| Operating profit | 286 | 891 |
+------------------------------------------------------+--------------+--------------+
| Share of profits from associate | 119 | - |
+------------------------------------------------------+--------------+--------------+
| Profit before finance items and taxation | 405 | 891 |
+------------------------------------------------------+--------------+--------------+
| Net finance income/(expenses) | 240 | (5) |
+------------------------------------------------------+--------------+--------------+
| Profit before taxation | 645 | 886 |
+------------------------------------------------------+--------------+--------------+
| Income tax expense | (130) | (276) |
+------------------------------------------------------+--------------+--------------+
| Profit for the period | 515 | 610 |
+------------------------------------------------------+--------------+--------------+
| Minority interests | 1 | (2) |
+------------------------------------------------------+--------------+--------------+
| Profit attributable to owners of the Company | 516 | 608 |
+------------------------------------------------------+--------------+--------------+
| EPS - basic and diluted ($) | 0.96 | 1.34 |
+------------------------------------------------------+--------------+--------------+
| EPS based on Underlying Profit ($) | 0.50 | 1.34 |
+--+---------------------------------------------------+--------------+--------------+
The significant reduction in copper prices seen during the fourth quarter of
2008 eased at the beginning of 2009 with prices stabilising but at levels well
below the highs experienced in the last few years. However, the depressed copper
prices seen in the first quarter of 2009, when the average realised copper price
was $3,319 per tonne, proved to be short lived and copper prices started to
increase in the second quarter when the average realised copper price was $4,831
per tonne, an increase of 46%. The average realised price for the six month
period was 51% lower than the prior period at $4,024 per tonne compared to
$8,192 per tonne in 2008. Offsetting the lower prices were strong sales volumes
across all commodities with copper cathode equivalent sales of 200 kt compared
to 177 kt in the prior period, largely due to the processing of stockpiled ore
and a reduction in inventory levels of finished goods. Revenues and sales
volumes of by-products, particularly silver, started at low levels at the
beginning of the period but increased significantly during the second quarter.
Despite these factors, and a full six month's contribution from Kazakhmys Power
following its acquisition in May 2008, revenues fell by 42% to $1,648 million
compared to the prior period.
In January 2009, the Group commenced a hedging programme which was intended to
cover production from the higher cost mines in the Zhezkazgan Region such that
the viability of these mines is protected in the event of a decrease in the
copper price below $3,000 per tonne. The hedges cover 90 kt, or approximately
30% of the estimated copper production for 2009, and establish a price
protecting floor and a cap to the price receivable on the hedged copper sales.
During the first quarter of the year, the average copper price was between the
floor and the cap and no settlement on the hedges was required. However, during
the second quarter, $16 million was paid out to settle the hedges. While the
copper price remains above the cap, as is currently the case, settlement of the
hedges will be required resulting in an additional expense and cash outflow for
the Group.
In February 2009, the National Bank of Kazakhstan announced that it would
support the tenge, within a range of 3%, at a lower level of 150 KZT/$,
resulting in a devaluation of approximately 25%. Whilst the devaluation has a
beneficial impact on the profitability of the Kazakhmys Copper mining business
as its revenues are mostly based on US dollar metals prices and approximately
40% to 50% of its costs are denominated in tenge, there is an adverse impact on
the profitability of the Kazakhmys Power business since its revenues and costs
are largely denominated in tenge.
In response to the market conditions that existed at the end of 2008 and
beginning of 2009, a series of cost cutting measures were implemented in the
operating businesses. In addition, the impact of the rising consumer price index
in Kazakhstan and global mining industry inflation has largely subsided with
cost pressures for fuel costs, mining consumables, transportation costs and
employee costs diminishing. However, the impact of the devaluation of the tenge
may prove to be inflationary and could potentially push up input prices
denominated in tenge in the short to medium term.
Profit before finance items and taxation decreased by 55% to $405 million and
our key performance measure for earnings, Group EBITDA excluding special items,
was $717 million, a 32% decrease compared to 2008. A reconciliation of Group
EBITDA excluding special items by operating segment is shown below.
RECONCILIATION OF EBITDA EXCLUDING SPECIAL ITEMS
Following the change in tax legislation in Kazakhstan on 1 January 2009 which
introduced the mineral extraction tax (MET), this tax is now excluded from the
EBITDA excluding special items key financial indicator. The Directors believe
that the exclusion of the MET provides a more informed measure of the
operational profitability of the Group given the nature of the tax as further
explained in the 'Taxation' section below.
+---------------------------------------------+-----------------+-----------------+
| $ million | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+---------------------------------------------+-----------------+-----------------+
| Segmental EBITDA excluding special items | | |
| and revenue based taxes | | |
+---------------------------------------------+-----------------+-----------------+
| Kazakhmys Copper | 453 | 990 |
| MKM | 45 | 55 |
| Kazakhmys Power | 41 | 8 |
| Kazakhmys Gold | 9 | 6 |
| Kazakhmys Petroleum | - | - |
| Corporate unallocated | (15) | (9) |
+---------------------------------------------+-----------------+-----------------+
| Total segmental EBITDA excluding special | 533 | 1,050 |
| items | | |
+---------------------------------------------+-----------------+-----------------+
| Share of EBITDA of associate1 | 184 | - |
+---------------------------------------------+-----------------+-----------------+
| Group EBITDA excluding special items | 717 | 1,050 |
+---------------------------------------------+-----------------+-----------------+
1 The share of EBITDA of associate excludes the mineral extraction tax of the
associate.
Special items for the period of $34 million relate to the impairment of
property, plant and equipment of $23 million, provisions against inventories of
$10 million and the loss on disposal of property, plant and equipment of $1
million. These special items have arisen during the period largely due to the
curtailment in the Group's capital expenditure programme with a focus on
selected projects, and the continuing low demand for certain of the Group's
by-products within Central Asia.
EQUITY ACCOUNTING
Following the share exchange with the Government and incremental market
purchases of shares during the second half of 2008, the Group's shareholding in
ENRC stands at 26%. Accordingly, the Group has equity accounted for its interest
in ENRC.
The share of profits from the associate recognised in the consolidated income
statement, net of tax, is $119 million based on the results of ENRC for the six
months ended 30 June 2009, which were published on 19 August 2009.
Under equity accounting, the $64 million dividend received from ENRC in June
2009 has not been recognised in the consolidated income statement, but is
instead netted off against the carrying value of the investment in associate in
the consolidated balance sheet.
Based on the 2009 interim dividend announced by ENRC on 19 August 2009 of 6 US
cents per share, the Group should receive $20 million in October 2009.
NET FINANCE ITEMS
Net finance income for the period was $240 million compared to a net finance
expense of $5 million in the prior period. This difference is primarily due to
the impact of the devaluation of the tenge as explained above. A net exchange
gain of $283 million has arisen in the period as a result of the retranslation
of US dollar denominated monetary assets and liabilities within the Group's
Kazakhstan subsidiaries as a direct result of the devaluation, since the
businesses in Kazakhstan are obliged to prepare their accounts in tenge.
Furthermore, the Group has incurred interest charges of $29 million during the
period on the pre-export finance debt facility (PXF) which carries a margin of
US$ LIBOR + 1.25%. In December 2008, the Group took out a series of six month
and 12 month interest rate swaps to hedge against the impact of short-term
volatility in US$ LIBOR rates thereby fixing the estimated cost of servicing a
substantial proportion of the outstanding PXF balance at 2.29%, including
margin, for 2009. At 30 June 2009, $1.0 billion of the $1.9 billion drawn down
under the PXF was covered by these interest rate swaps.
TAXATION
The Government of Kazakhstan introduced a new Tax Code which came into force on
1 January 2009. Included within the new tax legislation was a phased reduction
in corporate income tax (CIT) rates from 30% in 2008 to 15% in 2011, with a rate
of 20% being applicable for 2009.
However, off-setting the reduction in CIT rates was the introduction of the MET.
The MET is a revenue based tax based on the volume and metal content of
extracted ore and global commodity prices and does not take into account the
profitability of operations. Given the significant increases in commodity prices
since the start of the year, particularly for copper, the Group has booked an
expense of $71 million in relation to the MET.
The table below shows the Group's effective tax rate as well as the all-in
effective tax rate which takes into account the impact of the MET and removes
the impact of special items and non-recurring items on the Group's tax charge.
+---------------------------------------------+-----------------+-----------------+
| $ million (unless otherwise stated) | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+---------------------------------------------+-----------------+-----------------+
| Profit before taxation | 645 | 886 |
+---------------------------------------------+-----------------+-----------------+
| Add: mineral extraction tax | 71 | - |
+---------------------------------------------+-----------------+-----------------+
| Add: special items | 34 | 2 |
+---------------------------------------------+-----------------+-----------------+
| Less: foreign exchange gain arising on | (283) | - |
| devaluation of the tenge | | |
+---------------------------------------------+-----------------+-----------------+
| Less: share of profits from associate | (119) | - |
+---------------------------------------------+-----------------+-----------------+
| Adjusted profit before taxation | 348 | 888 |
+---------------------------------------------+-----------------+-----------------+
| Income tax expense | 130 | 276 |
+---------------------------------------------+-----------------+-----------------+
| Add: mineral extraction tax | 71 | - |
+---------------------------------------------+-----------------+-----------------+
| Less: tax effect of special items foreign | (51) | - |
| exchange gain arising on devaluation of the | | |
| tenge | | |
+---------------------------------------------+-----------------+-----------------+
| Adjusted tax expense | 150 | 276 |
+---------------------------------------------+-----------------+-----------------+
| Effective tax rate (%) | 20.2 | 31.2 |
+---------------------------------------------+-----------------+-----------------+
| All-in effective tax rate1(%) | 43.1 | 31.1 |
+---------------------------------------------+-----------------+-----------------+
1 All-in effective tax rate is calculated as the income tax expense plus the MET
and removing the tax effect of special items and other non-recurring
items, divided by profit before taxation which is adjusted for the MET, special
items and other non-recurring items and the share of profits from the associate.
The overall income tax expense for the period was $130 million, a decrease of
$146 million compared to the prior period. Whilst the effective rate of tax for
the period was 20.2% compared to a rate of 31.2% in the prior period due to the
reduction in the CIT rate and a lower excess profits tax (EPT) charge, the
all-in effective tax rate, which is a more representative tax rate on the
recurring profits of the Group's managed businesses, was significantly higher at
43.1% compared to 31.1% in the prior period as a result of the introduction of
the MET.
In a period of rising copper prices, as has been the case during 2009, the
retrospective application of the MET to earlier periods of low prices magnifies
the negative impact of the tax on profitability. Accordingly, subsoil contracts
which were loss making, and therefore largely exempt from the full effects of
the MET during the first quarter of 2009 when the copper price remained
comparatively low, are now subject to the full impact of the MET for the whole
six month period given the significant increases in copper prices seen during
the period.
Therefore, during periods of low copper prices, the all-in effective tax rate is
significantly higher than the effective tax rate as the MET does not take into
account the profitability of operations. However, as both the copper price and
profitability of operations increase, as was seen during the second quarter of
2009, the all-in effective tax rate decreases as the impact of the MET lessens,
given its revenue based nature.
Management continue to hold discussions with the Government over seeking a
reduction in the MET payable and exempting subsoil contracts from the full
impact of the tax when commodity prices are low.
Furthermore, the new tax legislation removed the tax stabilisation of subsoil
use contracts and changed the EPT methodology. Based on 2009 production and
material flows within the Kazakhmys Copper division, EPT is unlikely to be
levied and therefore there is no EPT charge for the period, compared to a charge
of $24 million in the prior period. The EPT charge for the period of $1 million
relates to the Kazakhmys Gold division only.
UNDERLYING PROFIT AND EARNINGS PER SHARE
Profit for the year attributable to owners of the Company decreased to $516
million from $608 million, a decrease of 15% compared to the prior period.
Underlying Profit is seen as a more informed measure of the performance of the
Group as it removes non-recurring or variable non-trading items from profit for
the period, and their resulting tax and minority interest impacts. Therefore, it
provides a more consistent basis for comparing the underlying trading
performance of the Group between 2009 and 2008.
The reconciliation of Underlying Profit from profit attributable to owners of
the Company is set out below.
+------------------------------------------------+----------------+----------------+
| $ million | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+------------------------------------------------+----------------+----------------+
| Profit attributable to owners of the Company | 516 | 608 |
+------------------------------------------------+----------------+----------------+
| Special items: | | |
+------------------------------------------------+----------------+----------------+
| Impairment of property, plant and equipment | 23 | 2 |
+------------------------------------------------+----------------+----------------+
| Provisions against inventories | 10 | - |
+------------------------------------------------+----------------+----------------+
| Loss on disposal of property, plant and | 1 | - |
| equipment | | |
+------------------------------------------------+----------------+----------------+
| Net foreign exchange gain arising on | | |
| devaluation of the tenge: | | |
+------------------------------------------------+----------------+----------------+
| Managed businesses | (283) | - |
+------------------------------------------------+----------------+----------------+
| Associate | (62) | - |
+------------------------------------------------+----------------+----------------+
| Tax effect of non-recurring items: | | |
+------------------------------------------------+----------------+----------------+
| Managed businesses | 51 | - |
+------------------------------------------------+----------------+----------------+
| Associate | 12 | - |
+------------------------------------------------+----------------+----------------+
| Minority interest effect of non-recurring | 1 | - |
| items | | |
+------------------------------------------------+----------------+----------------+
| Underlying Profit | 269 | 610 |
+------------------------------------------------+----------------+----------------+
Basic earnings per share decreased to $0.96 from $1.34, a decrease of 28%.
Earnings per share based on Underlying Profit was $0.50 compared to $1.34 for
the prior period, a decrease of 63%. The reduction in both measures of EPS is as
a result of the lower underlying profitability of the Group during the period,
as well as an increase in the weighted average number of shares in issue which
increased from 455.4 million in the prior period to 535.2 million in 2009
following the share exchange with the Government in July 2008.
DIVIDENDS
In response to the current economic environment with lower commodity prices for
the Group's products, continued market uncertainty over the sustainability of
any recovery and the need to meet funding requirements in the near term, the
Directors have not declared an interim dividend for 2009. This decision is in
keeping with the Group's dividend policy determined at the time of Listing.
KEY FINANCIAL INDICATORS
The definitions of our key financial indicators are shown in the Glossary and
these measures are set out below:
+---------------------------------------------+------------------+----------------+
| | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+---------------------------------------------+------------------+----------------+
| Group EBITDA excluding special items ($ | 717 | 1,050 |
| million) | | |
+---------------------------------------------+------------------+----------------+
| EPS based on Underlying Profit ($) | 0.50 | 1.34 |
+---------------------------------------------+------------------+----------------+
| Free Cash Flow ($ million) | 299 | 391 |
+---------------------------------------------+------------------+----------------+
| Return on Capital Employed (%) | 5 | 11 |
+---------------------------------------------+------------------+----------------+
| Net cash cost of copper after by-product | 76 | 94 |
| credits excluding purchased concentrate | | |
| (USc/lb) | | |
+---------------------------------------------+------------------+----------------+
CASH FLOWS
A summary of cash flows is shown below.
+---------------------------------------------+-----------------+-----------------+
| $ million | Six months | Six months |
| | ended | ended |
| | 30 June 2009 | 30 June 2008 |
+---------------------------------------------+-----------------+-----------------+
| Segmental EBITDA | 499 | 1,048 |
+---------------------------------------------+-----------------+-----------------+
| Impairment losses | 60 | 9 |
+---------------------------------------------+-----------------+-----------------+
| Loss on disposal of property, plant and | 1 | - |
| equipment | | |
+---------------------------------------------+-----------------+-----------------+
| Dividends received from associate | 64 | - |
+---------------------------------------------+-----------------+-----------------+
| Foreign exchange gain/(loss) adjustment | 43 | (12) |
+---------------------------------------------+-----------------+-----------------+
| Working capital movements1 | (137) | (86) |
+---------------------------------------------+-----------------+-----------------+
| Interest paid | (32) | (18) |
+---------------------------------------------+-----------------+-----------------+
| Income taxes paid | (68) | (379) |
+---------------------------------------------+-----------------+-----------------+
| MET paid | (24) | - |
+---------------------------------------------+-----------------+-----------------+
| Net cash flows from operating activities | 406 | 562 |
+---------------------------------------------+-----------------+-----------------+
| Sustaining capital expenditure | (107) | (171) |
+---------------------------------------------+-----------------+-----------------+
| Free Cash Flow | 299 | 391 |
+---------------------------------------------+-----------------+-----------------+
| Expansionary and new project capital | (89) | (202) |
| expenditure | | |
+---------------------------------------------+-----------------+-----------------+
| Interest received | 5 | 19 |
+---------------------------------------------+-----------------+-----------------+
| Acquisition of subsidiaries, net of liquid | - | (1,154) |
| funds and borrowings acquired | | |
+---------------------------------------------+-----------------+-----------------+
| Payment of deferred consideration arising | (83) | - |
| from business acquisition | | |
+---------------------------------------------+-----------------+-----------------+
| Capital transactions with shareholders | - | (121) |
+---------------------------------------------+-----------------+-----------------+
| Dividends paid | - | (125) |
+---------------------------------------------+-----------------+-----------------+
| Proceeds from disposal of property, plant | 1 | - |
| and equipment | | |
+---------------------------------------------+-----------------+-----------------+
| Other movements | (4) | 10 |
+---------------------------------------------+-----------------+-----------------+
| Cash flow movement in net (debt)/liquid | 129 | (1,182) |
| funds | | |
+---------------------------------------------+-----------------+-----------------+
1 Working capital movements are exclusive of any accruals relating to the MET.
Cash flows from operating activities during the period were $406 million, a
decrease of $156 million compared to the prior period primarily due to the lower
level of earnings and adverse working capital movements as explained below:
* the processing of stockpiled ore within Kazakhmys Copper during the period
together with a sharp reduction in inventory levels of finished goods, and the
related increase in sales, coupled with an increase in commodity prices, has
contributed to a positive working capital movement of approximately $80 million
in respect of inventories, and an adverse working capital impact of
approximately $60 million on trade receivables from customers within the
Kazakhmys Copper division;
* negative final pricing adjustments on provisionally priced contracts at 31
December 2008 within Kazakhmys Copper of approximately $50 million were paid to
Chinese customers in January and February 2009 due to the sharp fall in copper
prices at the end of 2008. This contributed to the adverse working capital
movement in respect of trade and other payables within Kazakhmys Copper; and
* within MKM the adverse working capital impact on inventory levels of $37 million
and trade receivables of $23 million was largely commodity price driven.
Despite these adverse working capital movements, working capital levels are
being tightly controlled and managed across all of the Group's businesses.
The level of income taxes paid for the period was $68 million which is
significantly lower than the $379 million paid in the prior period. This sharp
reduction is primarily as a result of the lower earnings of the Group for the
period and the corresponding level of payments on account being made to the
Kazakhstan tax authorities. At 31 December 2008, Kazakhmys Copper had an income
tax receivable balance of approximately $100 million as a result of the payments
on account being made during 2008 not taking into account the sharp reduction in
profitability seen in the last quarter of the year. Payments on account for the
first quarter of 2009 continued to be based on the significantly higher level of
earnings for 2008, with agreement being reached with the tax authorities in the
second quarter that no further payments on account would be required until the
tax receivable balance had been utilised. Given the increase in commodity prices
and higher profitability of Kazakhmys Copper in the second quarter, it is
expected that the tax receivable balance will be fully utilised in the second
half of the year, when tax payments on account will recommence.
As a result of the cost cutting measures introduced at the end of 2008, capital
expenditure during the period was significantly reduced: sustaining capital
expenditure was $64 million lower at $107 million compared to the prior period,
and expansionary and new project capital expenditure was $113 million lower at
$89 million. Despite this reduction in capital expenditure, significant items of
expenditure during the period included expenditure on the pre-feasibility
studies on Aktogay and Boschekul, expenditure on the Zhezkazgan and Balkhash
smelters to improve recovery rates, ramping up of the Nurkazgan West underground
mine which commenced mining operations in February 2009, the refurbishment of
Unit 5 and installation of an electrostatic precipitator at Ekibastuz GRES-1 and
continued exploration work within Kazakhmys Petroleum.
The Group received a dividend of $64 million from ENRC in June 2009, whereas
there was no corresponding amount in the prior period.
Interest paid during the period was $32 million, $14 million higher than the
prior period primarily due to the payment of six months of interest under the
PXF in 2009 compared to only one month in the first half of 2008 as the PXF was
drawn down to fund the acquisition of Kazakhmys Power in May 2008. Lower cash
balances, coupled with significantly lower US$ LIBOR interest rates in 2009
compared to the prior period, also meant that interest income received on cash
and deposits has fallen from $19 million to $5 million in 2009.
The Group paid $3 million in January 2009 as deferred consideration relating to
the Kazakhmys Power acquisition. Furthermore, as stated below, on termination of
the management contract of the Ekibastuz GRES-1 power plant and Maikuben West
coal mine, the Group paid an additional $80 million in April 2009 under the
earnout agreement relating to the 2008 financial year.
BALANCE SHEET
Equity attributable to owners of the Company was $6,382 million as at 30 June
2009, a decrease of $1,095 million compared to the balance as at 31 December
2008. Whilst the Group has been profitable for the period, the impact of the
devaluation of the tenge has given rise to a non-cash foreign exchange loss
within equity of $1,216 million due to the retranslation on consolidation of the
Group's Kazakhstan-based subsidiaries whose functional currency is the tenge.
The Group's 26% investment in ENRC is shown within investment in associate in
the consolidated balance sheet and has a book value of $3,745 million at 30 June
2009 compared to $4,045 million at 31 December 2008, as the Group's share of
equity accounted earnings of $119 million for the period has been offset by the
$64 million dividend received from ENRC in June 2009 and the net share of losses
of the associate recognised within equity of $355 million. At 30 June 2009, the
ENRC shareholding had a market value of $3,620 million based on the public price
quotation on the London Stock Exchange, and this had risen further to $4,671
million on 26 August 2009.
The Group's cash and deposits balance at 30 June 2009 stood at $491 million
compared to $572 million at 31 December 2008. The management of cash continues
to be tightly controlled by the Group's Treasury department who work closely
with the operating divisions. Robust counterparty limits are set and adhered to,
and the investment of cash and deposits are only made with approved
counterparties of high credit worthiness within assigned credit limits that are
regularly reviewed. Furthermore, cash flows in and out of Kazakhstan are also
monitored and controlled on a regular basis to minimise foreign exchange and
credit risk, and to ensure that sufficient cash is held within Kazakhstan for
working capital purposes.
The Group's net debt position stood at $1,568 million at 30 June 2009 compared
with $1,628 million at 31 December 2008. Whilst the net debt level increased in
the first quarter of 2009 as commodity prices remained depressed, the beneficial
impact of stronger commodity prices seen in the second quarter, improved working
capital management and the dividend receipt from ENRC in June had the net effect
of reducing the overall net debt position. Monthly repayments under the PXF of
$44 million commenced in March 2009 with $175 million of capital being repaid
during the period, thereby reducing the outstanding balance drawn under the PXF
to $1,925 million at 30 June 2009. Repayments will continue until March 2013.
In June 2009, the MKM trade finance facility was refinanced with a syndicate of
banks. The size of this facility has been reduced from EUR230 million to EUR170
million, due to lower copper prices and more efficient management of inventory.
The new trade finance facility is for a three year period with interest being
payable on drawn balances at a rate of EURIBOR + 3.00%. At 30 June 2009,
borrowings under this facility were $148 million, up from $121 million at 31
December 2008 as a result of higher working capital requirements due to higher
copper prices towards the end of the period.
On 26 August 2008 the Group signed a $200 million revolving credit facility with
a group of banks for general corporate purposes and to provide standby
liquidity. On 30 March 2009 the facility was reduced to $150 million and
extended for a further six months to 31 March 2010. The facility has remained
undrawn since its inception.
In March 2009, the Group agreed the early completion of the management contract
with AES Corporation ('AES'), such that management of the Ekibastuz GRES-1 power
plant and Maikuben West coal mine transferred to the Group during the second
quarter of the year. The early completion agreement included an earnout of $80
million for the 2008 financial year which was paid in April 2009, and a payment
of $102 million which will be paid in January 2010. The $102 million payment,
which is included within provisions in the balance sheet, is covered by a
standby letter of credit to AES. This is made up of $15 million cash collateral,
with the remainder of $87 million being secured by a pledge over ENRC shares.
Further ENRC shares are also liable to be pledged under the terms of the letter
of credit in the event that the ENRC share price falls below a certain level.
Under this facility these shares are pledged until no later than 15 December
2009, the latest date at which the letter of credit must be cash collateralised.
RISK FACTORS
The significant risks and uncertainties identified by Kazakhmys that could
materially affect the Group's financial condition, performance, strategies and
prospects, together with their potential impact and the mitigating actions being
taken by management, are set out on pages 48 to 50 of the 2008 Annual Report and
Accounts, which is available at www.kazakhmys.com.
Whilst commodity prices have risen and access to liquidity has improved during
the first half of 2009, due to continued volatility seen in global capital
markets and uncertainty regarding the recoverability of the world's economies,
risks relating to commodity prices and liquidity are considered to remain
significant for the Group. The termination of the management agreement with AES
for Ekibastuz GRES-1 has reduced exposure to third parties managing certain of
the Group's assets, however significant assets remain under third party
management. There have been no other significant changes in the material risks
faced by the Group.
In the view of the Board, the risk factors set out in the 2008 Annual Report and
Accounts continue to be the significant risks and uncertainties for the
remaining six months of the year. A summary of the disclosure given in the 2008
Annual Report and Accounts is set out below.
OPERATIONAL RISKS
Health, safety and the environment
Mining is a hazardous industry and failure to adopt and embed health, safety and
environmental management systems could result in harm to Kazakhmys' employees,
the environment and the communities in which the Group operates as well as fines
and penalties and damage to its reputation. Policies and measures at a national
and international level to tackle climate change will increasingly affect the
business, presenting environmental and regulatory risks.
Business interruption
The business of mining, smelting and refining metals and the production of power
involves a number of risks and hazards, including, but not limited to,
geological and technological challenges, weather and other natural phenomena
such as flood and earthquake, equipment failure and loss of key inputs such as
coal, which can cause material mine or plant shutdowns or periods of reduced
production.
Assets controlled by third parties
Some Kazakhmys Group assets are managed by third parties under management
service agreements. Management of these assets may not comply with the Group's
operating standards, controls and procedures.
Kazakhmys also holds a 26% investment in ENRC PLC. The business and financial
performance of this investment is not controlled by the Group.
New projects
The identification and development of new projects involves many risks including
geological, engineering and regulatory risks. If the Group fails to adopt an
appropriate procurement and project management strategy, it may experience
delays to project schedules and cost. Regulatory risks include failure to obtain
and maintain applicable permits, licences or approvals from the relevant
authorities to carry out or operate certain works.
There are numerous uncertainties in estimating mineral reserves. Reserves are
estimated using available geological, technical and economic information. The
process involves a number of informed judgements and assumptions that are valid
at the time but may change when new information becomes available.
Political risk
Most of the Group's mining and power operations are in Kazakhstan. Accordingly,
the Group is substantially dependent on the economic and political conditions
prevailing in Kazakhstan. As Kazakhstan has a relatively short history as an
independent nation, there remains the potential for social, political, economic,
legal and fiscal instability.
Subsoil use rights
In Kazakhstan and certain other countries in which the Group operates, all
subsoil reserves belong to the State. Subsoil use rights are not granted in
perpetuity, and any renewal must be agreed before the expiration of the relevant
contract or licence. Rights may be terminated if the Group does not satisfy its
licensing or contractual obligations, which may include periodic payment of
royalties to State authorities and the satisfaction of mining, development,
environmental, health and safety requirements.
FINANCIAL RISKS
Commodity prices
Kazakhmys' results are strongly influenced by commodity prices, as the Group's
normal policy is to sell its products under contract prices determined by
reference to prevailing market prices on international global metal exchanges.
Commodity prices are dependent on a number of factors impacting world supply and
demand and, as a result, commodity prices may be subject to significant
fluctuations from year to year. Commodity price fluctuations can also have an
impact on demand for specialist staff, equipment, materials and supplies in the
mining sector, which can cause skills and material shortages and create cost
pressure on the Group's operating and capital costs which affect financial
performance.
Liquidity risk
The Group is exposed to liquidity risks, including risks associated with
refinancing borrowings as they mature, the risk that borrowing facilities are
not available to meet cash requirements, and the risk that financial assets
cannot readily be converted to cash without the loss of value.
Taxation
As the tax legislation in Kazakhstan has been in force for a relatively short
period of time, tax risks in Kazakhstan are substantially greater than typically
found in countries with more developed tax systems. Tax law is evolving and is
subject to different and changing interpretations, as well as inconsistent
enforcement.
Tax regulation and compliance is subject to review and investigation by the
authorities who may impose severe fines, penalties and interest charges.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by
the European Union and that the half-yearly report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
* an indication of important events that have occurred during the first six months
of the financial year and their impact on this condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
* material related party transactions in the first six months of the year and any
material changes in the related party transactions described in the Kazakhmys
Annual Report and Accounts 2008.
The Directors of Kazakhmys PLC are listed in the Kazakhmys Annual Report and
Accounts 2008.
OLEG NOVACHUK
CHIEF EXECUTIVE
26 August 2009
INDEPENDENT REVIEW REPORT TO KAZAKHMYS PLC
INTRODUCTION
We have been engaged by Kazakhmys PLC (the 'Company') to review the condensed
set of financial statements in the half-yearly financial report for the six
months ended 30 June 2009 which comprises the primary financial statements and
the related explanatory notes that have been reviewed. We have read the other
information contained in the half-yearly financial report and considered whether
it contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained
in ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed
by the Independent Auditor of the Entity' issued by the Auditing Practices
Board. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our work, for this report,
or for the conclusions we have formed.
DIRECTORS' RESPONSIBILITIES
The half-yearly financial report is the responsibility of, and has been approved
by, the Directors. The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European Union.
OUR RESPONSIBILITY
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
SCOPE OF REVIEW
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of half-yearly financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
CONCLUSION
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2009 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
ERNST & YOUNG LLP
LONDON, UNITED KINGDOM
26 August 2009
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
SIX MONTHS ENDED 30 JUNE 2009
+-------------------------------------------------------------+---------+---------+---------+
| $ million (unless otherwise stated) | Notes | Six | Six |
| | | months | months |
| | | ended | ended |
| | | 30 June | 30 June |
| | | 2009 | 2008 |
+-------------------------------------------------------------+---------+---------+---------+
| Revenues | 5 | 1,648 | 2,838 |
+-------------------------------------------------------------+---------+---------+---------+
| Cost of sales | | (1,028) | (1,685) |
+-------------------------------------------------------------+---------+---------+---------+
| Gross profit | | 620 | 1,153 |
+-------------------------------------------------------------+---------+---------+---------+
| Selling and distribution expenses | | (52) | (58) |
+-------------------------------------------------------------+---------+---------+---------+
| Administrative expenses | | (209) | (207) |
+-------------------------------------------------------------+---------+---------+---------+
| Other operating income | | 19 | 31 |
+-------------------------------------------------------------+---------+---------+---------+
| Other operating expenses | | (32) | (19) |
+-------------------------------------------------------------+---------+---------+---------+
| Impairment losses | 6 | (60) | (9) |
+-------------------------------------------------------------+---------+---------+---------+
| Operating profit | | 286 | 891 |
+-------------------------------------------------------------+---------+---------+---------+
| Share of profits from associate | 13 | 119 | - |
+-------------------------------------------------------------+---------+---------+---------+
| Profit before finance items and taxation | | 405 | 891 |
+-------------------------------------------------------------+---------+---------+---------+
| Finance income | 7 | 468 | 64 |
+-------------------------------------------------------------+---------+---------+---------+
| Finance costs | 7 | (228) | (69) |
+-------------------------------------------------------------+---------+---------+---------+
| Profit before taxation | | 645 | 886 |
+-------------------------------------------------------------+---------+---------+---------+
| Income tax expense | 8 | (130) | (276) |
+-------------------------------------------------------------+---------+---------+---------+
| Profit for the period | | 515 | 610 |
+-------------------------------------------------------------+---------+---------+---------+
| Attributable to: | | | |
+-------------------------------------------------------------+---------+---------+---------+
| Owners of the Company | | 516 | 608 |
+-------------------------------------------------------------+---------+---------+---------+
| Minority interests | | (1) | 2 |
+-------------------------------------------------------------+---------+---------+---------+
| | | 515 | 610 |
+-------------------------------------------------------------+---------+---------+---------+
| Earnings per share attributable to owners of the Company | | | |
+-------------------------------------------------------------+---------+---------+---------+
| Basic and diluted ($) | 9 | 0.96 | 1.34 |
+-------------------------------------------------------------+---------+---------+---------+
| EPS based on Underlying Profit - basic and diluted ($) | 9 | 0.50 | 1.34 |
+-------------------------------------------------------------+---------+---------+---------+
| Dividends | | | |
+-------------------------------------------------------------+---------+---------+---------+
| Dividends per share (US cents) | 10 | - | 27.4 |
+-------------------------------------------------------------+---------+---------+---------+
| Total amount of dividends | 10 | - | 125 |
+-------------------------------------------------------------+---------+---------+---------+
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (UNAUDITED)
SIX MONTHS ENDED 30 JUNE 2009
+-------------------------------------------------------------+---------+---------+---------+
| $ million | Notes | Six | Six |
| | | months | months |
| | | ended | ended |
| | | 30 June | 30 June |
| | | 2009 | 2008 |
+-------------------------------------------------------------+---------+---------+---------+
| Profit for the period | | 515 | 610 |
+-------------------------------------------------------------+---------+---------+---------+
| Other comprehensive (loss)/income for the period after tax: | | | |
+-------------------------------------------------------------+---------+---------+---------+
| Unrealised gain on available for sale investment | 16(b) | - | 2,595 |
+-------------------------------------------------------------+---------+---------+---------+
| Losses on cash flow hedges taken to equity | 16(b) | (65) | - |
+-------------------------------------------------------------+---------+---------+---------+
| Losses on cash flow hedges included in income statement | 16(b) | 16 | - |
+-------------------------------------------------------------+---------+---------+---------+
| Exchange differences on retranslation of foreign operations | | (1,216) | 3 |
+-------------------------------------------------------------+---------+---------+---------+
| Share of other comprehensive income of associate | 13 | (355) | - |
+-------------------------------------------------------------+---------+---------+---------+
| Other comprehensive (loss)/income for the period | | (1,620) | 2,598 |
+-------------------------------------------------------------+---------+---------+---------+
| Total comprehensive (loss)/income for the period | | (1,105) | 3,208 |
+-------------------------------------------------------------+---------+---------+---------+
| Attributable to: | | | |
+-------------------------------------------------------------+---------+---------+---------+
| Owners of the Company | | (1,096) | 3,206 |
+-------------------------------------------------------------+---------+---------+---------+
| Minority interests | | (9) | 2 |
+-------------------------------------------------------------+---------+---------+---------+
| | | (1,105) | 3,208 |
+-------------------------------------------------------------+---------+---------+---------+
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AT 30 JUNE 2009
+-----------------------------------------------------+---------+---------+---------+----------+
| $ million | Notes | At | At | At |
| | | 30 June | 30 June | 31 |
| | | | | December |
| | | 2009 | 2008 | 2008 |
+-----------------------------------------------------+---------+---------+---------+----------+
| | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Assets | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Non-current assets | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Intangible assets | 11 | 965 | 1,322 | 1,126 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Tangible assets | | 2,947 | 3,752 | 3,601 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Property, plant and equipment | 12 | 2,698 | 3,331 | 3,326 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Mining assets | | 249 | 421 | 275 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Investment in associate | 13 | 3,745 | - | 4,045 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Available for sale investments | 14 | - | 4,996 | - |
+-----------------------------------------------------+---------+---------+---------+----------+
| Other non-current investments | | 6 | 7 | 5 |
+-----------------------------------------------------+---------+---------+---------+----------+
| | | 7,663 | 10,077 | 8,777 |
+-----------------------------------------------------+---------+---------+---------+----------+
| | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Current assets | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Inventories | | 573 | 967 | 734 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Prepayments and other current assets | | 211 | 224 | 238 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Income taxes reclaimable | | 28 | 81 | 126 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Trade and other receivables | | 280 | 381 | 233 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Investments | | 59 | 55 | 32 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Cash and cash equivalents | 15 | 432 | 505 | 540 |
+-----------------------------------------------------+---------+---------+---------+----------+
| | | 1,583 | 2,213 | 1,903 |
+-----------------------------------------------------+---------+---------+---------+----------+
| TOTAL ASSETS | | 9,246 | 12,290 | 10,680 |
+-----------------------------------------------------+---------+---------+---------+----------+
| | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Equity and liabilities | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Equity | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Share capital | 16(a) | 200 | 168 | 200 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Share premium | | 2,648 | 570 | 2,648 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Capital reserves | 16(b) | (1,163) | 4,688 | 449 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Retained earnings | | 4,697 | 3,954 | 4,180 |
+-----------------------------------------------------+---------+---------+---------+----------+
| | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Equity attributable to owners of the Company | | 6,382 | 9,380 | 7,477 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Minority interests | | 11 | 16 | 20 |
+-----------------------------------------------------+---------+---------+---------+----------+
| TOTAL EQUITY | | 6,393 | 9,396 | 7,497 |
+-----------------------------------------------------+---------+---------+---------+----------+
| | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Non-current liabilities | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Deferred tax liability | | 213 | 519 | 266 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Employee benefits | | 34 | 40 | 40 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Provisions | | 101 | 103 | 198 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Borrowings | 17 | 1,541 | 1,248 | 1,702 |
+-----------------------------------------------------+---------+---------+---------+----------+
| | | 1,889 | 1,910 | 2,206 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Current liabilities | | | | |
+-----------------------------------------------------+---------+---------+---------+----------+
| Provisions | | 128 | 286 | 133 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Borrowings | 17 | 518 | 212 | 498 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Trade and other payables | | 224 | 402 | 306 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Income taxes payable | | 36 | 82 | 36 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Derivative financial instruments | | 57 | - | 2 |
+-----------------------------------------------------+---------+---------+---------+----------+
| Dividend payable | | 1 | 2 | 2 |
+-----------------------------------------------------+---------+---------+---------+----------+
| | | 964 | 984 | 977 |
+-----------------------------------------------------+---------+---------+---------+----------+
| TOTAL LIABILITIES | | 2,853 | 2,894 | 3,183 |
+-----------------------------------------------------+---------+---------+---------+----------+
| TOTAL EQUITY AND LIABILITIES | | 9,246 | 12,290 | 10,680 |
+-----------------------------------------------------+---------+---------+---------+----------+
The condensed consolidated half-yearly financial statements were approved by the
Board of Directors on 26 August 2009.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
SIX MONTHS ENDED 30 JUNE 2009
+--+------------------------------------------------------------+--------+----------+---------+
| $ million | Notes | Six | Six |
| | | months | months |
| | | ended | ended |
| | | 30 June | 30 |
| | | 2009 | June |
| | | | 2008 |
+---------------------------------------------------------------+--------+----------+---------+
| | | | |
+---------------------------------------------------------------+--------+----------+---------+
| Cash flows from operating activities | | | |
+---------------------------------------------------------------+--------+----------+---------+
| | Cash inflow before interest, income taxes and dividends | 18 | 442 | 959 |
| | from associate | | | |
+--+------------------------------------------------------------+--------+----------+---------+
| | Interest paid | | (32) | (18) |
+--+------------------------------------------------------------+--------+----------+---------+
| | Income taxes paid | | (68) | (379) |
+--+------------------------------------------------------------+--------+----------+---------+
| | Dividends from associate | | 64 | - |
+--+------------------------------------------------------------+--------+----------+---------+
| Net cash inflow from operating activities | | 406 | 562 |
+---------------------------------------------------------------+--------+----------+---------+
| Cash flows from investing activities | | | |
+---------------------------------------------------------------+--------+----------+---------+
| | Interest received | | 5 | 19 |
+--+------------------------------------------------------------+--------+----------+---------+
| | Purchase of intangible assets | 11 | (5) | (8) |
+--+------------------------------------------------------------+--------+----------+---------+
| | Proceeds from disposal of property, plant and equipment | 12 | 1 | 7 |
+--+------------------------------------------------------------+--------+----------+---------+
| | Purchase of property, plant and equipment | 12 | (186) | (346) |
+--+------------------------------------------------------------+--------+----------+---------+
| | Investments in mining assets | | (5) | (19) |
+--+------------------------------------------------------------+--------+----------+---------+
| | Licence payments for subsoil contracts | | (3) | (2) |
+--+------------------------------------------------------------+--------+----------+---------+
| | Proceeds from disposal of non-current investments | | - | 7 |
+--+------------------------------------------------------------+--------+----------+---------+
| | Acquisition of non-current investments | | (1) | (2) |
+--+------------------------------------------------------------+--------+----------+---------+
| | Investment in short-term bank deposits (net) | | (33) | 3 |
+--+------------------------------------------------------------+--------+----------+---------+
| | Payment of deferred consideration arising from business | | (83) | - |
| | acquisition | | | |
+--+------------------------------------------------------------+--------+----------+---------+
| | Acquisition of subsidiaries (net of cash acquired) | | - | (995) |
+--+------------------------------------------------------------+--------+----------+---------+
| Net cash flows used in investing activities | | (310) | (1,336) |
+---------------------------------------------------------------+--------+----------+---------+
| Cash flows from financing activities | | | |
+---------------------------------------------------------------+--------+----------+---------+
| | Purchase of Company's issued share capital | | - | 121 |
+--+------------------------------------------------------------+--------+----------+---------+
| | Proceeds from borrowings - net of arrangement fees paid of | | 244 | 1,155 |
| | $3 million (2008: $26 million) | | | |
+--+------------------------------------------------------------+--------+----------+---------+
| | Repayment of borrowings | | (386) | (64) |
+--+------------------------------------------------------------+--------+----------+---------+
| | Dividends paid by the Company | | - | (125) |
+--+------------------------------------------------------------+--------+----------+---------+
| Net cash flows (used in)/from financing activities | | (142) | 845 |
+---------------------------------------------------------------+--------+----------+---------+
| | Net (decrease)/increase in cash and cash equivalents | 19 | (46) | 71 |
+--+------------------------------------------------------------+--------+----------+---------+
| | Cash and cash equivalents at the beginning of the period | 19 | 540 | 439 |
+--+------------------------------------------------------------+--------+----------+---------+
| | Effect of exchange rate changes on cash and cash | 19 | (62) | (5) |
| | equivalents | | | |
+--+------------------------------------------------------------+--------+----------+---------+
| Cash and cash equivalents at the end of the period | 15 | 432 | 505 |
+--+------------------------------------------------------------+--------+----------+---------+
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
SIX MONTHS ENDED 30 JUNE 2009
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| | | Attributable to owners of the Company | | |
+-------------------------------+-------+----------------------------------------------------+-----------+---------+
| $ million |Notes | Share | Share | Capital | Retained | Total | Minority | Total |
| | | capital | premium | reserves1 | earnings | | interests | equity |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| | | | | | | | | |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| At 1 January 2009 | | 200 | 2,648 | 449 | 4,180 | 7,477 | 20 | 7,497 |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| Total comprehensive | | - | - | (1,612) | 516 | (1,096) | (9) | (1,105) |
| (loss)/income for the period | | | | | | | | |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| Share-based payment | | - | - | - | 1 | 1 | - | 1 |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| At 30 June 2009 | | 200 | 2,648 | (1,163) | 4,697 | 6,382 | 11 | 6,393 |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| | | | | | | | | |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| At 1 January 2008 | | 170 | 570 | 2,088 | 3,591 | 6,419 | 14 | 6,433 |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| Total comprehensive income | | - | - | 2,598 | 608 | 3,206 | 2 | 3,208 |
| for the period | | | | | | | | |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| Purchase of Company's issued | | (2) | - | 2 | (121) | (121) | - | (121) |
| share capital | | | | | | | | |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| Share-based payment | | - | - | - | 1 | 1 | - | 1 |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| Equity dividends paid by the | 10 | - | - | - | (125) | (125) | - | (125) |
| Company | | | | | | | | |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
| At 30 June 2008 | | 168 | 570 | 4,688 | 3,954 | 9,380 | 16 | 9,396 |
+-------------------------------+-------+---------+---------+-----------+----------+---------+-----------+---------+
1 Refer to note 16(b) for an analysis of 'capital reserves'.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED 30 JUNE 2009
1. General information
Kazakhmys PLC (the 'Company') is a public limited company incorporated in the
United Kingdom. The address of the registered office is 6th Floor, Cardinal
Place, 100 Victoria Street, London SW1E 5JL, United Kingdom. The Group comprises
the Company and its consolidated divisions as set out below.
The Group operates in the natural resources industry. The Group's operations are
primarily conducted through the Company's principal division, Kazakhmys Copper,
whose major business is the mining and processing of copper ore into copper
cathodes and copper concentrate, and the refining and sale of precious metals
and other by-products of its copper mining process.
In line with the Group's strategy of diversifying away from the core copper
business, the Group now operates in a number of divisions within the natural
resources sector, the principal activities of which are as follows as at 30 June
2009:
+-------------------------------------+----------------------+--------------------+
| Operating entity | Principal activity | Country of |
| | | incorporation |
+-------------------------------------+----------------------+--------------------+
| Kazakhmys Copper | Mining and | Kazakhstan |
| | processing copper | |
+-------------------------------------+----------------------+--------------------+
| MKM | Copper processing | Germany |
+-------------------------------------+----------------------+--------------------+
| Kazakhmys Power | Power generation | Kazakhstan |
+-------------------------------------+----------------------+--------------------+
| Kazakhmys Gold | Mining and | Kazakhstan |
| | processing gold | |
+-------------------------------------+----------------------+--------------------+
| Kazakhmys Petroleum | Oil and gas | Kazakhstan |
| | exploration | |
+-------------------------------------+----------------------+--------------------+
These condensed consolidated half-yearly financial statements for the six months
ended 30 June 2009 were authorised for issue in accordance with a resolution of
the Board of Directors on 26 August 2009. The information for the year ended 31
December 2008 does not constitute statutory accounts as defined in section 240
of the Companies Act 1985. A copy of the statutory accounts for that year, which
were prepared in accordance with International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board (IASB) and
interpretations issued by the International Financial Reporting Interpretations
Committee (IFRIC) of the IASB, as adopted by the European Union up to 31
December 2008, has been delivered to the Registrar of Companies. The auditors'
report under section 235 of the Companies Act 1985 in relation to those accounts
was unqualified and does not include a statement under section 237(2) and
section 237(3) of the Companies Act 1985.
2. Basis of preparation
(a) Condensed consolidated half-yearly financial statements
These condensed consolidated half-yearly financial statements have been prepared
in accordance with IAS 34 'Interim Financial Reporting'. These condensed
consolidated half-yearly financial statements do not include all the information
and disclosures required in the annual financial statements, and should be read
in conjunction with the 2008 Annual Report and Accounts.
(b)Comparative figures
Where a change in the presentational format of these condensed consolidated
half-yearly financial statements has been made during the period, comparative
figures have been restated accordingly.
3.Significant accounting policies
(a)Basis of accounting
These condensed consolidated half-yearly financial statements have been prepared
under a historical cost basis, except for certain classes of property, plant and
equipment which have been revalued at 1 January 2002 to determine deemed cost as
part of the first-time adoption of IFRS at that date, and derivative financial
instruments which have been measured at fair value. These condensed consolidated
half-yearly financial statements are presented in US dollars ($) and all
monetary amounts are rounded to the nearest million ($ million) except when
otherwise indicated.
The accounting policies adopted are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2008 except for the adoption of new standards and interpretations noted
below. Adoption of these standards and interpretations did not have any
significant impact on the financial position and performance of the Group.
* IFRS 8 'Operating segments'. The Group adopted IFRS 8 on 1 January 2009 which
requires that the disclosure of segmental information within the financial
statements is aligned with how the Board monitors the Group's divisions (see
note 5). The adoption of IFRS 8 has not significantly changed the segmental
disclosure for the Group as the Group's five operating segments disclosed under
IFRS 8 are the same as the business segments disclosed under IAS 14 'Segment
reporting' as shown in the 2008 Annual Report and Accounts;
* IAS 1 'Presentation of Financial Statements (Revised)'. The Group adopted IAS 1
(Revised) on 1 January 2009 which introduces the condensed consolidated
statement of other comprehensive income as a primary statement and is shown
separately from the condensed consolidated income statement. The statement of
changes in equity now only includes details of transactions with owners, with
non-owner changes in equity being presented as a single line;
* Amendments to IFRS 1 and IAS 27 - 'Cost of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate'. The Group adopted the amendments to
IFRS 1 and IAS 27 on 1 January 2009 which covers the accounting for group
reorganisations when an entity establishes a new entity as its parent company.
Adoption of these amendments did not have any impact on the half-year results;
and
* IFRIC 16 'Hedges of a Net Investment in a Foreign Operation'. The Group adopted
IFRIC 16 on 1 January 2009 which provides further guidance on the accounting for
hedges of net investments in foreign operations. Adoption of the IFRIC did not
have any impact on the half-year results.
In preparing these condensed consolidated half-yearly financial statements the
Group has adopted all the extant accounting standards issued by the IASB and all
the extant interpretations issued by the IFRIC as at 30 June 2009.
(b) Exchange rates
The following foreign exchange rates against the US dollar have been used in the
preparation of the condensed consolidated half-yearly financial statements:
+-----------------------------+--------+---------+--------+---------+--------+---------+
| | 30 June 2009 | 30 June 2008 | 31 December |
| | | | 2008 |
+-----------------------------+------------------+------------------+------------------+
| | Spot | Average | Spot | Average | Spot | Average |
+-----------------------------+--------+---------+--------+---------+--------+---------+
| Kazakhstan tenge | 150.41 | 144.72 | 120.75 | 120.52 | 120.77 | 120.30 |
+-----------------------------+--------+---------+--------+---------+--------+---------+
| Euro | 0.71 | 0.75 | 0.63 | 0.65 | 0.71 | 0.68 |
+-----------------------------+--------+---------+--------+---------+--------+---------+
| UK pounds sterling | 0.61 | 0.67 | 0.50 | 0.51 | 0.69 | 0.54 |
+-----------------------------+--------+---------+--------+---------+--------+---------+
(c) Devaluation of the tenge
In February 2009, the National Bank of Kazakhstan announced that it would
support the tenge within a range of 3%, at a lower level of 150 KZT/$, resulting
in a devaluation of the tenge of approximately 25%. The impact of the
devaluation in the half-yearly financial statements is as follows:
* net finance income includes a net foreign exchange gain of $283 million which
primarily arises due to the retranslation of US dollar denominated monetary
assets and liabilities within the Group's Kazakhstan subsidiaries which have a
tenge functional currency;
* the goodwill balance arising on the acquisition of Kazakhmys Power has been
retranslated as at 30 June 2009 since the goodwill arises in respect of
businesses acquired whose functional currencies are the tenge. This gives rise
to a foreign exchange loss of $112 million being recognised within equity and a
corresponding reduction in the goodwill balance to $456 million as at 30 June
2009; and
* a non-cash foreign exchange loss of $1,216 million (which includes the $112
million goodwill foreign exchange loss) has been recognised within equity. This
is primarily due to the retranslation on consolidation of the Group's Kazakhstan
based subsidiaries on whose functional currency is the tenge.
4. Business Acquisition - Ekibastuz Power Plant and Maikuben West Coal Mine
On 29 May 2008 the Group acquired 100% of the Ekibastuz GRES-1 coal-fired power
plant and Maikuben West coal mine in Kazakhstan. In accordance with IFRS 3
'Business combinations' based on further information received during the period
in relation to the fair value of provisions at the acquisition date, the
acquisition fair value has been amended such that the fair value of provisions
is $26 million lower at $21 million than that published in the 2008 Annual
Report and Accounts. Accordingly, the restated net identifiable assets balance
is $696 million (previously: $670 million) and goodwill arising on acquisition
is $568 million (previously: $594 million).
As a requirement of IFRS, the goodwill balance has been retranslated as at 30
June 2009 since the goodwill arises in respect of businesses acquired whose
functional currencies are the tenge. This gives rise to a foreign exchange loss
of $112 million being recognised within equity and a corresponding reduction in
the goodwill balance to $456 million as at 30 June 2009.
5. Segment information
For management purposes the Group is organised into five separately managed
business units, as shown below, according to the nature of the products and
services provided. Each of these business units represents an operating segment
in accordance with IFRS 8 'Operating segments'. The operating segments are:
Kazakhmys Copper
The Kazakhmys Copper business is managed as one operating segment and comprises
a Kazakhstan based company, Kazakhmys Corporation LLC, and a UK based company,
Kazakhmys Sales Limited. The principal activity of Kazakhmys Corporation LLC is
the processing and sale of copper and other metals, while Kazakhmys Sales
Limited consists of a trading function responsible for the purchase of exported
products from Kazakhmys Corporation LLC and subsequently applies an appropriate
mark-up prior to onward sale to third parties.
The products produced by the Kazakhmys Copper business are subject to the same
risks and returns, exhibit similar long-term financial performance and are sold
through the same distribution channels. The business processes substantially all
the copper ore it produces and utilises most of the copper concentrate it
processes. The segment also has a number of activities that exist solely to
support the mining operations including power generation, coal mining and
transportation. These other activities generate less than 10% of total revenues
(both external and internal) and the related assets are less than 10% of total
assets of the operating segment.
The UK trading function is a sales function on behalf of the Kazakhmys Copper
business and consequently the assets and liabilities related to those trading
operations, i.e. trade payables and trade receivables, are included within the
Kazakhmys Copper operating segment.
MKM
MKM operates in Germany, where it manufactures copper and copper alloy
semi-finished products. MKM faces different risks to the Group's other
businesses, and produces different products, and is therefore shown as a
separate operating segment.
Kazakhmys Power
Kazakhmys Power operates in Kazakhstan. The principal activity of the Kazakhmys
Power operating segment, representing the Ekibastuz GRES-1 LLP and Maikuben West
LLP businesses, is the sale of electricity and coal to external customers. This
segment does not include the power stations and coal mines which are part of the
Kazakhmys Copper segment as the output from those power stations and coal mines
are primarily used within the Kazakhmys Copper business, and the level of
external sales is comparatively insignificant.
Kazakhmys Gold
The principal activities of the Kazakhmys Gold operating segment is the mining
and processing of gold ore into refined ore and exploration and development
activity in the precious metal sector within the Central Asian region. The
Kazakhmys Gold business operates primarily in Kazakhstan and has development
projects in Kyrgyzstan and Tajikistan.
Kazakhmys Petroleum
The Kazakhmys Petroleum business holds a licence to conduct oil and gas
exploration and development activity in the East Akzhar Exploration Block in
western Kazakhstan.
The key performance measure of the operating segments is EBITDA excluding
special items. Special items are those items which are non-recurring or variable
in nature and which do not impact the underlying trading performance of the
business.
The Group's Treasury department monitors finance income and finance costs at the
Group level on a net basis rather than on a gross basis at an operating segment
level.
The accounting policies adopted by each operating segment are consistent with
those published in the 2008 Annual Report and Accounts. There are no
inter-segment sales within the Group.
(a)Segmental information
(i) Income statement information
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| | Six months ended 30 June 2009 |
+-------------------------+-------------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Sales to external | 1,104 | 440 | 85 | 19 | - | - | 1,648 |
| customers | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Gross profit | 525 | 58 | 35 | 2 | - | - | 620 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Operating costs | (272) | (24) | (19) | (3) | - | (16) | (334) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Segmental operating | 253 | 34 | 16 | (1) | - | (16) | 286 |
| results | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Share of profits from | | | | | | | 119 |
| associate1 | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Profit before finance | | | | | | | 405 |
| items and taxation | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Net finance income | | | | | | | 240 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Income tax expense | | | | | | | (130) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Profit for the period | | | | | | | 515 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
1 Share of profits from associate is net of tax.
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| | Six months ended 30 June 2008 |
+-------------------------+-------------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Sales to external | 1,786 | 1,015 | 19 | 18 | - | - | 2,838 |
| customers | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Gross profit | 1,070 | 75 | 5 | 3 | - | - | 1,153 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Operating costs | (211) | (33) | (3) | (3) | (2) | (10) | (262) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Profit before finance | 859 | 42 | 2 | - | (2) | (10) | 891 |
| items and taxation | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Net finance costs | | | | | | | (5) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Income tax expense | | | | | | | (276) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
| Profit for the period | | | | | | | 610 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+--------+
(ii)Balance sheet information
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| | At 30 June 2009 |
+-------------------------+--------------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Assets | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Tangible and intangible | 1,857 | 141 | 1,282 | 107 | 508 | 17 | 3,912 |
| assets1 | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Non-current | 5 | 1 | - | - | - | - | 6 |
| investments1 | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Intragroup investments | - | - | - | - | - | 6,433 | 6,433 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Operating assets2 | 654 | 293 | 46 | 26 | 1 | 56 | 1,076 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Current investments | 59 | - | - | - | - | - | 59 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Cash and cash | 182 | 9 | 25 | 7 | 12 | 197 | 432 |
| equivalents | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Segment assets | 2,757 | 444 | 1,353 | 140 | 521 | 6,703 | 11,918 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Income taxes | | | | | | | 28 |
| reclaimable | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Investment in associate | | | | | | | 3,745 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Elimination | | | | | | | (6,445) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Total assets | | | | | | | 9,246 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Liabilities | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Employee benefits and | 116 | 7 | 112 | 1 | 27 | - | 263 |
| provisions | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Operating liabilities3 | 250 | 23 | 6 | 3 | 3 | 9 | 294 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Segment liabilities | 366 | 30 | 118 | 4 | 30 | 9 | 557 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Deferred tax liability | | | | | | | 213 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Borrowings | | | | | | | 2,059 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Income taxes payable | | | | | | | 36 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Elimination | | | | | | | (12) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Total liabilities | | | | | | | 2,853 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
1 Tangible and intangible assets are located in the principal country of
operations of each operating segment, i.e. (i) Kazakhstan - Kazakhmys Copper,
Kazakhmys Power and Kazakhmys Petroleum; (ii) Germany - MKM; and (iii) Kazakhmys
Gold is split between $20 million in Kazakhstan, $69 million in Kyrgyzstan and
$18 million in Tajikistan. Of the non-current investments, $5 million is held in
Kazakhstan and $1 million is held in Germany.
2 Operating assets include inventories, prepayments and other current assets and
trade and other receivables.
3 Operating liabilities include trade and other payables, derivative financial
instruments and dividends payable.
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| | At 30 June 2008 |
+-------------------------+--------------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Assets | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Tangible and intangible | 2,323 | 176 | 1,775 | 292 | 497 | 11 | 5,074 |
| assets1 | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Non-current | 5 | 2 | - | - | - | 4,996 | 5,003 |
| investments1 | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Intragroup investments | - | - | - | - | - | 3,227 | 3,227 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Operating assets2 | 1,033 | 511 | 38 | 23 | - | 25 | 1,630 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Current investments | 55 | - | - | - | - | - | 55 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Cash and cash | 296 | 1 | 105 | 8 | 29 | 66 | 505 |
| equivalents | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Segment assets | 3,712 | 690 | 1,918 | 323 | 526 | 8,325 | 15,494 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Income taxes | | | | | | | 81 |
| reclaimable | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Elimination | | | | | | | (3,285) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Total assets | | | | | | | 12,290 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Liabilities | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Employee benefits and | 118 | 11 | 272 | 2 | 26 | - | 429 |
| provisions | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Operating liabilities3 | 219 | 72 | 105 | 3 | - | 63 | 462 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Segment liabilities | 337 | 83 | 377 | 5 | 26 | 63 | 891 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Deferred tax liability | | | | | | | 519 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Borrowings | | | | | | | 1,460 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Income taxes payable | | | | | | | 82 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Elimination | | | | | | | (58) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Total liabilities | | | | | | | 2,894 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
1 Tangible and intangible assets are located in the principal country of
operations of each operating segment, i.e. (i) Kazakhstan - Kazakhmys Copper,
Kazakhmys Power and Kazakhmys Petroleum; (ii) Germany - MKM; and (iii) Kazakhmys
Gold is split between $125 million in Kazakhstan, $131 million in Kyrgyzstan and
$36 million in Tajikistan. Of the non-current investments, $4,996 million is
held in The Netherlands, $5 million is held in Kazakhstan and $2 million is held
in Germany.
2 Operating assets include inventories, prepayments and other current assets and
trade and other receivables.
3 Operating liabilities include trade and other payables, derivative financial
instruments and dividends payable.
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| | At 31 December 2008 |
+-------------------------+--------------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Assets | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Tangible and intangible | 2,277 | 150 | 1,631 | 137 | 520 | 12 | 4,727 |
| assets1 | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Non-current | 4 | 1 | - | - | - | - | 5 |
| investments1 | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Intragroup investments | - | - | - | - | - | 6,249 | 6,249 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Operating assets2 | 888 | 233 | 27 | 22 | 1 | 36 | 1,207 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Current investments | 32 | - | - | - | - | - | 32 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Cash and cash | 330 | - | 26 | 14 | 5 | 165 | 540 |
| equivalents | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Segment assets | 3,531 | 384 | 1,684 | 173 | 526 | 6,462 | 12,760 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Income taxes | | | | | | | 126 |
| reclaimable | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Investment in associate | | | | | | | 4,045 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Elimination | | | | | | | (6,251) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Total assets | | | | | | | 10,680 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Liabilities | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Employee benefits and | 122 | 7 | 214 | 2 | 26 | - | 371 |
| provisions | | | | | | | |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Operating liabilities3 | 240 | 28 | 24 | 2 | 3 | 15 | 312 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Segment liabilities | 362 | 35 | 238 | 4 | 29 | 15 | 683 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Deferred tax liability | | | | | | | 266 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Borrowings | | | | | | | 2,200 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Income taxes payable | | | | | | | 36 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Elimination | | | | | | | (2) |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
| Total liabilities | | | | | | | 3,183 |
+-------------------------+-----------+--------+-----------+-----------+-----------+-------------+---------+
1 Tangible and intangible assets are located in the principal country of
operations of each operating segment, i.e. (i) Kazakhstan - Kazakhmys Copper,
Kazakhmys Power and Kazakhmys Petroleum; (ii) Germany - MKM; and (iii) Kazakhmys
Gold is split between $33 million in Kazakhstan, $81 million in Kyrgyzstan and
$23 million in Tajikistan. Of the non-current investments, $4 million is held in
Kazakhstan and $1 million is held in Germany.
2 Operating assets include inventories, prepayments and other current assets and
trade and other receivables.
3 Operating liabilities include trade and other payables, derivative financial
instruments and dividends payable.
(iii)Earnings before interest, tax, depreciation and amortisation (EBITDA)
excluding special items1
+--+-----------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | Six months ended 30 June 2009 |
+--------------------------+-----------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Operating profit/(loss) | 253 | 34 | 16 | (1) | - | (16) | 286 |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Special items: | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | Add: impairment of | 23 | - | - | - | - | - | 23 |
| | property, plant and | | | | | | | |
| | equipment | | | | | | | |
+--+-----------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | Add: provisions | 10 | - | - | - | - | - | 10 |
| | against inventories | | | | | | | |
+--+-----------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | Add: loss on disposal | 1 | - | - | - | - | - | 1 |
| | of property, plant | | | | | | | |
| | and equipment | | | | | | | |
+--+-----------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Profit/(loss) before | 287 | 34 | 16 | (1) | - | (16) | 320 |
| finance items and | | | | | | | |
| taxation excluding | | | | | | | |
| special items | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Add: depreciation and | 96 | 11 | 25 | 8 | - | 1 | 141 |
| depletion | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Add: amortisation | 1 | - | - | - | - | - | 1 |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Add: mineral extraction | 69 | - | - | 2 | - | - | 71 |
| tax2 | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Segment EBITDA excluding | 453 | 45 | 41 | 9 | - | (15) | 533 |
| special items | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Share of EBITDA of | | | | | | | 184 |
| associate3 | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Group EBITDA excluding | | | | | | | 717 |
| special items | | | | | | | |
+--+-----------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
1 EBITDA excluding special items is defined as profit before interest, taxation,
depreciation, depletion and amortisation, as adjusted for special items. Special
items are those items which are non-recurring or variable in nature and which do
not impact the underlying trading performance of the business.
2 The mineral extraction tax has been excluded from the key financial indicator
of EBITDA excluding special items to improve the comparability of the
operational profitability of the Group between periods.
3 The share of EBITDA of the associate excludes the mineral extraction tax of
the associate.
+--+-----------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | Six months ended 30 June 2008 |
+--------------------------+-----------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Operating profit/(loss) | 859 | 42 | 2 | - | (2) | (10) | 891 |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Special items: | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | Add: impairment of | - | - | - | - | 2 | - | 2 |
| | property, plant and | | | | | | | |
| | equipment | | | | | | | |
+--+-----------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Profit/(loss) before | 859 | 42 | 2 | - | - | (10) | 893 |
| finance items and | | | | | | | |
| taxation excluding | | | | | | | |
| special items | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Add: depreciation and | 129 | 13 | 5 | 6 | - | 1 | 154 |
| depletion | | | | | | | |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Add: amortisation | 2 | - | 1 | - | - | - | 3 |
+--------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Group EBITDA excluding | 990 | 55 | 8 | 6 | - | (9) | 1,050 |
| special items | | | | | | | |
+--+-----------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
1 EBITDA excluding special items is defined as profit before interest, taxation,
depreciation, depletion and amortisation, as adjusted for special items. Special
items are those items which are non-recurring or variable in nature and which do
not impact the underlying trading performance of the business.
(iv)Net liquid funds/(debt)
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| | At 30 June 2009 |
+-------------------------+-------------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Cash and cash | 182 | 9 | 25 | 7 | 12 | 197 | 432 |
| equivalents | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Current investments | 59 | - | - | - | - | - | 59 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Borrowings1 | (15) | (151) | (69) | - | - | (3,735) | (3,970) |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Inter-segment | 15 | - | 69 | - | - | 1,827 | 1,911 |
| borrowings2 | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Net liquid funds/(debt) | 241 | (142) | 25 | 7 | 12 | (1,711) | (1,568) |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
1 Borrowings of Corporate unallocated are presented net of capitalised
arrangement fees of $19 million.
2 Borrowings of Corporate unallocated include amounts borrowed from the
Kazakhmys Copper segment and amounts lent to the Kazakhmys Power segment.
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| | At 30 June 2008 |
+-------------------------+-------------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Cash and cash | 296 | 1 | 105 | 8 | 29 | 66 | 505 |
| equivalents | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Current investments | 55 | - | - | - | - | - | 55 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Borrowings1 | - | (228) | (164) | (1) | - | (2,415) | (2,808) |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Inter-segment | - | - | 64 | - | - | 1,284 | 1,348 |
| borrowings2 | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Net liquid funds/(debt) | 351 | (227) | 5 | 7 | 29 | (1,065) | (900) |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
1 Borrowings of Corporate unallocated are presented net of capitalised
arrangement fees of $26 million.
2 Borrowings of Corporate unallocated include amounts borrowed from the
Kazakhmys Copper segment and amounts lent to the Kazakhmys Power segment.
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| | At 31 December 2008 |
+-------------------------+-------------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Cash and cash | 330 | - | 26 | 14 | 5 | 165 | 540 |
| equivalents | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Current investments | 32 | - | - | - | - | - | 32 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Borrowings1 | (11) | (121) | (171) | (4) | - | (3,687) | (3,994) |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Inter-segment | 11 | - | 171 | 4 | - | 1,608 | 1,794 |
| borrowings2 | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
| Net liquid funds/(debt) | 362 | (121) | 26 | 14 | 5 | (1,914) | (1,628) |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+---------+
1 Borrowings of Corporate unallocated are presented net of capitalised
arrangement fees of $21 million.
2 Borrowings of Corporate unallocated include amounts borrowed from the
Kazakhmys Copper segment and amounts lent to the Kazakhmys Power and Kazakhmys
Gold segments.
(v) Capital expenditure, depreciation and impairment losses
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | Six months ended 30 June 2009 |
+-------------------------+-----------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Property, plant and | 145 | 2 | 20 | 1 | 17 | 2 | 187 |
| equipment | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Mining assets | 3 | - | - | 2 | - | - | 5 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Intangible assets | 6 | 1 | - | - | - | 3 | 10 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Capital expenditure1 | 154 | 3 | 20 | 3 | 17 | 5 | 202 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Depreciation and | 96 | 11 | 25 | 8 | - | 1 | 141 |
| depletion | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Amortisation | 1 | - | - | - | - | - | 1 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Depreciation, depletion | 97 | 11 | 25 | 8 | - | 1 | 142 |
| and amortisation | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Impairment losses | 58 | 2 | - | - | - | - | 60 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
1 Capital expenditure within the Kazakhmys Copper segment includes capitalised
depreciation of $1 million for property, plant and equipment. Capital
expenditure on intangible assets within the Kazakhmys Copper segment includes $5
million capitalised in respect of contractual reimbursements to the Government
for geological information and social commitments.
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | Six months ended 30 June 2008 |
+-------------------------+-----------------------------------------------------------------------------+
| $ million | Kazakhmys | MKM | Kazakhmys | Kazakhmys | Kazakhmys | Corporate | Total |
| | Copper | | Power | Gold | Petroleum | unallocated | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Property, plant and | 319 | 4 | 3 | 2 | 17 | 1 | 346 |
| equipment | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Mining assets | 17 | - | - | 2 | - | - | 19 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Intangible assets | 7 | 1 | - | - | - | - | 8 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Capital expenditure | 343 | 5 | 3 | 4 | 17 | 1 | 373 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Depreciation and | 129 | 13 | 5 | 6 | - | 1 | 154 |
| depletion | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Amortisation | 2 | - | 1 | - | - | - | 3 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Depreciation, depletion | 131 | 13 | 6 | 6 | - | 1 | 157 |
| and amortisation | | | | | | | |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
| Impairment losses | 6 | 1 | - | - | 2 | - | 9 |
+-------------------------+-----------+-------+-----------+-----------+-----------+-------------+-------+
(b) Revenues by product
Revenues by product are as follows:
+--------------------------------------------------------+------------+-----------+
| $ million | Six months | Six |
| | | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+--------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------+------------+-----------+
| Kazakhmys Copper | | |
+--------------------------------------------------------+------------+-----------+
| Copper cathodes | 721 | 1,265 |
+--------------------------------------------------------+------------+-----------+
| Copper concentrate | 72 | - |
+--------------------------------------------------------+------------+-----------+
| Copper rods | 17 | 195 |
+--------------------------------------------------------+------------+-----------+
| Total copper products | 810 | 1,460 |
+--------------------------------------------------------+------------+-----------+
| Silver | 117 | 129 |
+--------------------------------------------------------+------------+-----------+
| Gold bullion | 60 | 59 |
+--------------------------------------------------------+------------+-----------+
| Zinc concentrate | 42 | 45 |
+--------------------------------------------------------+------------+-----------+
| Zinc metal | 18 | 39 |
+--------------------------------------------------------+------------+-----------+
| Other by-products | 22 | 21 |
+--------------------------------------------------------+------------+-----------+
| Other revenue | 35 | 33 |
+--------------------------------------------------------+------------+-----------+
| Total by-products | 294 | 326 |
+--------------------------------------------------------+------------+-----------+
| Total | 1,104 | 1,786 |
+--------------------------------------------------------+------------+-----------+
| MKM | | |
+--------------------------------------------------------+------------+-----------+
| Wire | 179 | 484 |
+--------------------------------------------------------+------------+-----------+
| Sheets and strips | 161 | 329 |
+--------------------------------------------------------+------------+-----------+
| Tubes and bars | 89 | 188 |
+--------------------------------------------------------+------------+-----------+
| Metal trade | 11 | 14 |
+--------------------------------------------------------+------------+-----------+
| | 440 | 1,015 |
+--------------------------------------------------------+------------+-----------+
| Kazakhmys Power | | |
+--------------------------------------------------------+------------+-----------+
| Electricity generation | 74 | 18 |
+--------------------------------------------------------+------------+-----------+
| Coal | 11 | 1 |
+--------------------------------------------------------+------------+-----------+
| | 85 | 19 |
+--------------------------------------------------------+------------+-----------+
| Kazakhmys Gold | | |
+--------------------------------------------------------+------------+-----------+
| Gold doré | 19 | 18 |
+--------------------------------------------------------+------------+-----------+
| | 19 | 18 |
+--------------------------------------------------------+------------+-----------+
| Total revenues | 1,648 | 2,838 |
+--------------------------------------------------------+------------+-----------+
(c) Revenues by destination
Revenues by destination are attributed to countries on the basis of the
customer's location and are shown below:
+--------------------------------------------------------+------------+-----------+
| $ million | Six months | Six |
| | | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+--------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------+------------+-----------+
| Sales to third parties | | |
+--------------------------------------------------------+------------+-----------+
| Europe | 923 | 1,950 |
+--------------------------------------------------------+------------+-----------+
| China | 458 | 569 |
+--------------------------------------------------------+------------+-----------+
| Kazakhstan | 180 | 185 |
+--------------------------------------------------------+------------+-----------+
| Other | 87 | 134 |
+--------------------------------------------------------+------------+-----------+
| Total | 1,648 | 2,838 |
+--------------------------------------------------------+------------+-----------+
Three customers, collectively under common control, within the Kazakhmys Copper
segment represent 15% of total Group revenue for the period. The total revenue
from these customers is $253 million. The revenue from each customer does not
individually represent more than 10% of total Group revenue.
6.Impairment losses
+--------------------------------------------------------+------------+-----------+
| $ million | Six months | Six |
| | | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+--------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------+------------+-----------+
| Impairment of property, plant and equipment | 23 | 2 |
+--------------------------------------------------------+------------+-----------+
| Provisions against prepayments and other current | 2 | 1 |
| assets | | |
+--------------------------------------------------------+------------+-----------+
| Provisions against trade and other receivables | 16 | - |
+--------------------------------------------------------+------------+-----------+
| Provisions against inventories | 19 | 6 |
+--------------------------------------------------------+------------+-----------+
| | 60 | 9 |
+--------------------------------------------------------+------------+-----------+
7. Finance income and finance costs
+--------------------------------------------------------+------------+-----------+
| $ million | Six months | Six |
| | | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+--------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------+------------+-----------+
| Finance income | | |
+--------------------------------------------------------+------------+-----------+
| Interest income | 5 | 13 |
+--------------------------------------------------------+------------+-----------+
| Foreign exchange gains | 463 | 51 |
+--------------------------------------------------------+------------+-----------+
| Total finance income | 468 | 64 |
+--------------------------------------------------------+------------+-----------+
| Finance costs | | |
+--------------------------------------------------------+------------+-----------+
| Interest expense | (37) | (10) |
+--------------------------------------------------------+------------+-----------+
| Interest on employee obligations | (2) | (2) |
+--------------------------------------------------------+------------+-----------+
| Unwinding of discount on provisions | (23) | (3) |
+--------------------------------------------------------+------------+-----------+
| Finance costs before foreign exchange losses | (62) | (15) |
+--------------------------------------------------------+------------+-----------+
| Foreign exchange losses | (166) | (54) |
+--------------------------------------------------------+------------+-----------+
| Total finance costs | (228) | (69) |
+--------------------------------------------------------+------------+-----------+
$283 million of the net foreign exchange gain of $297 million for the period
arises as a result of the devaluation of the tenge in February 2009 (see note
3(c)).
8. Income tax
(a)Income tax expense
Major components of income tax expense for the periods presented are:
+--------------------------------------------------------+------------+-----------+
| $ million | Six months | Six |
| | | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+--------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------+------------+-----------+
| Current income tax | | |
+--------------------------------------------------------+------------+-----------+
| Corporate income tax - current period (UK) | 1 | 25 |
+--------------------------------------------------------+------------+-----------+
| Corporate income tax - current period (overseas) | 151 | 274 |
+--------------------------------------------------------+------------+-----------+
| Corporate income tax - prior periods | (11) | (3) |
+--------------------------------------------------------+------------+-----------+
| Excess profits tax - current period | 1 | 25 |
+--------------------------------------------------------+------------+-----------+
| | 142 | 321 |
+--------------------------------------------------------+------------+-----------+
| Deferred income tax | | |
+--------------------------------------------------------+------------+-----------+
| Corporate income tax - current period | (20) | (22) |
+--------------------------------------------------------+------------+-----------+
| Corporate income tax - prior periods | 8 | (22) |
+--------------------------------------------------------+------------+-----------+
| Excess profits tax - current period | - | (1) |
+--------------------------------------------------------+------------+-----------+
| | (12) | (45) |
+--------------------------------------------------------+------------+-----------+
| Income tax expense | 130 | 276 |
+--------------------------------------------------------+------------+-----------+
(b) Income tax reconciliation
A reconciliation of the income tax expense applicable to the accounting profit
before tax at the UK statutory income tax rate to the income tax expense at the
Group's effective income tax rate for the periods presented is as follows:
+--+------------------------------------------------------+------------+-----------+
| $ million | Six months | Six |
| | | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+---------------------------------------------------------+------------+-----------+
| | | |
+---------------------------------------------------------+------------+-----------+
| Profit before taxation | 645 | 886 |
+---------------------------------------------------------+------------+-----------+
| At UK statutory income tax rate of 28.0% (30 June 2008: | 181 | 253 |
| 28.5%) | | |
+---------------------------------------------------------+------------+-----------+
| Tax effect of share of profits from associate | (33) | - |
+---------------------------------------------------------+------------+-----------+
| Overprovided in previous years - current income tax | (11) | (3) |
+---------------------------------------------------------+------------+-----------+
| Under/(over)provided in previous years - deferred | 8 | (22) |
| income tax | | |
+---------------------------------------------------------+------------+-----------+
| Effect of domestic tax rates applicable to individual | (44) | 11 |
| Group entities | | |
+---------------------------------------------------------+------------+-----------+
| Release of deferred tax liability due to change in | (1) | - |
| future tax rates | | |
+---------------------------------------------------------+------------+-----------+
| Unrecognised/(use of previously unrecognised) tax | 3 | (9) |
| losses | | |
+---------------------------------------------------------+------------+-----------+
| Unremitted overseas earnings | 4 | - |
+---------------------------------------------------------+------------+-----------+
| Non-deductible expenses/(non-taxable income): | | |
+---------------------------------------------------------+------------+-----------+
| | Non-taxable income on zinc plant | - | (6) |
+--+------------------------------------------------------+------------+-----------+
| | Non-deductible expenses | 22 | 28 |
+--+------------------------------------------------------+------------+-----------+
| Excess profits tax | 1 | 24 |
+---------------------------------------------------------+------------+-----------+
| At effective income tax rate of 20.2% (30 June 2008: | 130 | 276 |
| 31.2%) | | |
+--+------------------------------------------------------+------------+-----------+
Corporate income tax is calculated at 28.0% (30 June 2008: 28.5%) of the
assessable profit for the period for the Company and its UK subsidiaries, and
20.0% (30 June 2008: 30.0%) for the operating subsidiaries in Kazakhstan. The
MKM tax rate is calculated at 28.48% (30 June 2008: 28.48%) and relates to
German corporate income tax and trade tax.
Excess profits tax is levied on profitable subsoil contracts whose cumulative
internal rate of return for contractual activities exceeds 20%. The EPT charge
for the period of $1 million relates to the contractual activities of the
Kazakhmys Gold division only.
New tax legislation was introduced in Kazakhstan with effect from 1 January 2009
which leads to a phased reduction in the corporate income tax rate from 30% in
2008 to 15% in 2011. The corporate income tax rate for 2009 is 20%. This
reduction in corporate income tax rates has the effect of significantly lowering
the Group's effective tax rate compared to prior years. Offsetting the reduction
in corporate income tax rates is the introduction of the mineral extraction tax,
a revenue based tax, which is included within cost of sales in the condensed
consolidated income statement. The mineral extraction tax expense for the period
of $71 million has been excluded from the effective income tax rate of 20.2%
above, and is also excluded from Group EBITDA excluding special items.
9. Earnings per share
(a)Basic and diluted EPS
Basic EPS is calculated by dividing profit for the period attributable to owners
of the Company by the weighted average number of ordinary shares of 20 pence
each outstanding during the period. The Company has no dilutive potential
ordinary shares.
The following reflects the income and share data used in the EPS computations.
+--------------------------------------------------------+------------+-----------+
| $ million | Six months | Six |
| | | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+--------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------+------------+-----------+
| Net profit attributable to owners of the Company | 516 | 608 |
+--------------------------------------------------------+------------+-----------+
+--------------------------------------------------------+-------------+-------------+
| Number | Six months | Six |
| | | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+--------------------------------------------------------+-------------+-------------+
| | | |
+--------------------------------------------------------+-------------+-------------+
| Number of shares | | |
+--------------------------------------------------------+-------------+-------------+
| Weighted average number of ordinary shares of 20 pence | 535,240,338 | 455,432,843 |
| each for EPS calculation | | |
+--------------------------------------------------------+-------------+-------------+
| EPS - basic and diluted ($) | 0.96 | 1.34 |
+--------------------------------------------------------+-------------+-------------+
(b) EPS based on Underlying Profit
The Group's Underlying Profit is the profit for the period after adding back
items which are non-recurring or variable in nature and which do not impact the
underlying trading performance of the business, together with their resultant
tax and minority interest effects, are shown in the table below. EPS based on
Underlying Profit is calculated by dividing Underlying Profit by the weighted
average number of ordinary shares of 20 pence each outstanding during the
period. The Directors believe EPS based on Underlying Profit provides a more
consistent measure for comparing the underlying trading performance of the
Group.
The following shows the reconciliation of Underlying Profit from the reported
profit and the share data used in the computations for EPS based on Underlying
Profit:
+--+------------------------------------------------------+------------+-----------+
| $ million | Six months | Six |
| | | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+---------------------------------------------------------+------------+-----------+
| | | |
+---------------------------------------------------------+------------+-----------+
| Net profit attributable to owners of the Company | 516 | 608 |
+---------------------------------------------------------+------------+-----------+
| Special items: | | |
+---------------------------------------------------------+------------+-----------+
| | Impairment of property, plant and equipment | 23 | 2 |
+--+------------------------------------------------------+------------+-----------+
| | Provisions against inventories | 10 | - |
+--+------------------------------------------------------+------------+-----------+
| | Loss on disposal of property, plant and equipment | 1 | - |
+--+------------------------------------------------------+------------+-----------+
| Net foreign exchange gain arising on devaluation of the | | |
| tenge: | | |
+---------------------------------------------------------+------------+-----------+
| | Managed businesses | (283) | - |
+--+------------------------------------------------------+------------+-----------+
| | Associate | (62) | - |
+--+------------------------------------------------------+------------+-----------+
| Tax effect of non-recurring items: | | |
+---------------------------------------------------------+------------+-----------+
| | Managed businesses | 51 | - |
+--+------------------------------------------------------+------------+-----------+
| | Associate | 12 | - |
+--+------------------------------------------------------+------------+-----------+
| Minority interest effect of non-recurring items | 1 | - |
+---------------------------------------------------------+------------+-----------+
| Underlying Profit | 269 | 610 |
+--+------------------------------------------------------+------------+-----------+
+--------------------------------------------------------+-------------+-------------+
| Number | Six months | Six |
| | | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+--------------------------------------------------------+-------------+-------------+
| | | |
+--------------------------------------------------------+-------------+-------------+
| Number of shares | | |
+--------------------------------------------------------+-------------+-------------+
| Weighted average number of ordinary shares of 20 pence | 535,240,338 | 455,432,843 |
| each for EPS based on Underlying Profit calculation | | |
+--------------------------------------------------------+-------------+-------------+
| EPS based on Underlying Profit - basic and diluted ($) | 0.50 | 1.34 |
+--------------------------------------------------------+-------------+-------------+
10.Dividends paid and proposed
The dividends declared and paid during the six months ended 30 June 2009 and
2008 are as follows:
+--------------------------------------------------------+------------+-----------+
| | Per share | Amount |
| | US cents | $ million |
+--------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------+------------+-----------+
| Six months ended 30 June 2009 | | |
+--------------------------------------------------------+------------+-----------+
| Final dividend in respect of year ended 31 December | - | - |
| 2008 | | |
+--------------------------------------------------------+------------+-----------+
| Six months ended 30 June 2008 | | |
+--------------------------------------------------------+------------+-----------+
| Final dividend in respect of year ended 31 December | 27.4 | 125 |
| 2007 | | |
+--------------------------------------------------------+------------+-----------+
11.Intangible Assets
During the six months ended 30 June 2009, the Group acquired intangible assets
totalling $10 million (30 June 2008: $16 million, of which $8 million was
acquired through the acquisition of Kazakhmys Power). Included within this
amount is $5 million (30 June 2008: $nil) which has been capitalised by the
Group in respect of contractual reimbursements to the Government for geological
information and social commitments. The latter amount is a non-cash item and is
recorded within provisions for payments of licences.
In addition to the above, during the six months ended 30 June 2009, intangible
assets:
* increased by $nil as a result of the business acquisition (30 June 2008: $8
million);
* decreased by $26 million based on further information received during the period
in relation to the fair value of provisions in respect of the acquisition of
Kazakhmys Power in May 2008, which resulted in an increase in the fair value of
net identifiable assets acquired, and a corresponding decrease in goodwill;
* decreased by $142 million as a result of foreign exchange movements on the
translation of intangible assets (30 June 2008: $nil) primarily due to the
devaluation of the tenge. Included within this amount is a foreign exchange loss
of $112 million which arises as a result of IFRS requiring the goodwill balance
to be retranslated as at 30 June 2009 since the goodwill arises in respect of
businesses acquired whose functional currencies are the tenge. Accordingly, the
goodwill balance arising from the acquisition of Kazakhmys Power decreases to
$456 million as at 30 June 2009. $30 million of the foreign exchange movement on
intangible assets relates to licences and other intangibles;
* decreased by $2 million as a result of the reclassification of intangible assets
to mining assets (30 June 2008: $nil); and
* decreased by $1 million as a result of the amortisation expense (30 June 2008:
$3 million).
12. Property, plant and equipment
During the six months ended 30 June 2009, the Group acquired property, plant and
equipment with a cost of $186 million (30 June 2008: $346 million), of which $89
million related to new and expansionary projects (30 June 2008: $202 million).
Assets with a book value of $2 million were disposed of by the Group during the
six months ended 30 June 2009 (30 June 2008: $7 million) resulting in a loss on
disposal of $1 million (30 June 2008: $nil).
In addition to the above additions and disposals, during the six months ended 30
June 2009 property, plant and equipment:
* increased by $nil as a result of the business acquisition (30 June 2008: $985
million);
* increased by $1 million as a result of capitalised depreciation (30 June 2008:
$nil);
* decreased by $29 million as a result of transfers to mining assets (30 June
2008: $nil);
* decreased by $628 million as a result of foreign exchange movements on
translation (30 June 2008: increased by $2 million) primarily due to the
devaluation of the tenge;
* decreased by $23 million as a result of impairment (30 June 2008: $2 million);
and
* decreased by $133 million as a result of the depreciation expense (30 June 2008:
$122 million).
13. Investment in associate
+----------------------------------------------------------------------+-----------+
| $ million | At |
| | 30 |
| | June 2009 |
+----------------------------------------------------------------------+-----------+
| At 1 January 2009 | 4,045 |
+----------------------------------------------------------------------+-----------+
| Share of profits from associate1 | 119 |
+----------------------------------------------------------------------+-----------+
| Net share of losses of associate recognised in other comprehensive | (355) |
| income2 | |
+----------------------------------------------------------------------+-----------+
| Dividends received | (64) |
+----------------------------------------------------------------------+-----------+
| At 30 June 2009 | 3,745 |
+----------------------------------------------------------------------+-----------+
1 Share of profits from associate is net of tax.
2 Including share of associate's minority interest loss of $10 million.
The investment in associate relates to the Group's 26.0% shareholding in ENRC
PLC (334,824,860 ordinary shares). At 30 June 2009, the Group's shareholding in
ENRC had a market value of $3,620 million (31 December 2008: $1,600 million)
which is determined by reference to the published price quotation on the London
Stock Exchange.
Despite the continued volatility in share prices, particularly those of natural
resource companies, the Directors do not believe that the Group's investment in
associate is impaired at 30 June 2009 as the Directors' assessment of ENRC's
recoverable amount, using long-term forecasts and assumptions, supports ENRC's
carrying value at 30 June 2009.
The accounting period end of ENRC is 31 December.
The following is a summary of the financial information of the Group's
investment in ENRC based on ENRC's published results:
+----------------------------------------------------------------------+-----------+
| $ million | At |
| | 30 |
| | June 2009 |
+----------------------------------------------------------------------+-----------+
| | |
+----------------------------------------------------------------------+-----------+
| Share of associate's balance sheet | |
+----------------------------------------------------------------------+-----------+
| Total assets | 2,229 |
+----------------------------------------------------------------------+-----------+
| Total liabilities | (346) |
+----------------------------------------------------------------------+-----------+
| Net assets | 1,883 |
+----------------------------------------------------------------------+-----------+
| Carrying amount of the investment | 3,745 |
+----------------------------------------------------------------------+-----------+
+----------------------------------------------------------------------+-----------+
| $ million | Six |
| | months |
| | ended |
| | 30 |
| | June 2009 |
+----------------------------------------------------------------------+-----------+
| | |
+----------------------------------------------------------------------+-----------+
| Share of associate's revenue and profit | |
+----------------------------------------------------------------------+-----------+
| Revenue | 441 |
+----------------------------------------------------------------------+-----------+
| Operating profit | 156 |
+----------------------------------------------------------------------+-----------+
| Profit before finance items and taxation | 163 |
+----------------------------------------------------------------------+-----------+
| Net finance income and share of profits of joint ventures and | 5 |
| associates | |
+----------------------------------------------------------------------+-----------+
| Income tax expense | (49) |
+----------------------------------------------------------------------+-----------+
| Profit for the period | 119 |
+----------------------------------------------------------------------+-----------+
In May 2009 a portion of the ENRC shareholding was pledged against a $102
million standby letter of credit in respect of the final payment due to AES
Corporation in January 2010 relating to the termination of the Kazakhmys Power
management services agreement. Further ENRC shares are also liable to be treated
as part of the pledge in the event that the ENRC share price falls below a
certain level under the terms of the letter of credit. Under this facility,
these shares are pledged until no later than 15 December 2009, the latest date
at which the letter of credit must be cash collateralised.
14.Available for sale investment
+-----------------------------------------------------------------------+--------+
| $ million | Total |
+-----------------------------------------------------------------------+--------+
| At 1 January 2008 | 2,401 |
+-----------------------------------------------------------------------+--------+
| Revaluation to fair value | 2,595 |
+-----------------------------------------------------------------------+--------+
| At 30 June 2008 | 4,996 |
+-----------------------------------------------------------------------+--------+
The available for sale investment relates to the Group's shareholding in ENRC
(prior to this investment being treated as an associate) and the fair value is
determined by reference to the published price quotation on the London Stock
Exchange.
Following the share exchange with the Government in July 2008, the investment
was reclassified from being an available for sale investment to being an
investment in associate. The unrealised gain on the available for sale
investment, included within capital reserves, was impaired through other
comprehensive income.
15.Cash and cash equivalents
+----------------------------------------------+-----------+-----------+---------------+
| $ million | At | At | At |
| | 30 | 30 June | 31 |
| | June 2009 | 2008 | December 2008 |
+----------------------------------------------+-----------+-----------+---------------+
| Cash deposits with maturities of less than | 25 | 69 | 44 |
| three months | | | |
+----------------------------------------------+-----------+-----------+---------------+
| Cash at bank | 406 | 435 | 496 |
+----------------------------------------------+-----------+-----------+---------------+
| Petty cash | 1 | 1 | - |
+----------------------------------------------+-----------+-----------+---------------+
| | 432 | 505 | 540 |
+----------------------------------------------+-----------+-----------+---------------+
16.Share capital and reserves
(a)Authorised and allotted share capital
+--------------------------------------------------+-------------+----------+----------+
| | Number | GBP | $ |
| | | million | million |
+--------------------------------------------------+-------------+----------+----------+
| At 30 June 2009, 31 December 2008 and 30 June | | | |
| 2008 | | | |
+--------------------------------------------------+-------------+----------+----------+
| Authorised share capital - ordinary shares of 20 | 750,000,000 | 150 | - |
| pence each | | | |
+--------------------------------------------------+-------------+----------+----------+
| Allotted and called up share capital | | | |
+--------------------------------------------------+-------------+----------+----------+
| At 30 June 2009 and 31 December 2008 | 535,240,338 | 107 | 200 |
+--------------------------------------------------+-------------+----------+----------+
| At 1 January 2008 | 460,123,288 | 92 | 170 |
+--------------------------------------------------+-------------+----------+----------+
| Purchase of Company's issued share capital | (5,169,000) | (1) | (2) |
+--------------------------------------------------+-------------+----------+----------+
| At 30 June 2008 | 454,954,288 | 91 | 168 |
+--------------------------------------------------+-------------+----------+----------+
Commencing from October 2007, the Company began a share buy-back programme,
which concluded in January 2008, whereby the Company bought back and cancelled
15,079,577 ordinary shares at a total cost of $390 million including expenses,
of which 5,169,000 were cancelled in January 2008 at total cost of $121 million
including expenses.
(b)Capital reserves
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| $ million | Reserve | Net | Currency | Capital | Hedging | Total |
| | fund | unrealised | translation | redemption | reserve | |
| | | gains | reserve | reserve | | |
| | | reserve | | | | |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| | | | | | | |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| At 1 January 2009 | 42 | (2) | 410 | 6 | (7) | 449 |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| Losses on cash flow hedges taken | - | - | - | - | (65) | (65) |
| to equity | | | | | | |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| Losses on cash flow hedges | - | - | - | - | 16 | 16 |
| included in income statement | | | | | | |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| Currency translation differences | - | - | (1,218) | - | - | (1,218) |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| Share of gains/(losses) of | - | 1 | (342) | - | 4 | (345) |
| associate recognised in other | | | | | | |
| comprehensive income | | | | | | |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| At 30 June 2009 | 42 | (1) | (1,150) | 6 | (60) | (1,163) |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| | | | | | | |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| At 1 January 2008 | 38 | 1,594 | 452 | 4 | - | 2,088 |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| Unrealised gain on available for | - | 2,595 | - | - | - | 2,595 |
| sale investments | | | | | | |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| Currency translation differences | - | - | 3 | - | - | 3 |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| Purchase of Company's issued | - | - | - | 2 | - | 2 |
| share capital | | | | | | |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
| At 30 June 2008 | 38 | 4,189 | 455 | 6 | - | 4,688 |
+----------------------------------+---------+------------+-------------+------------+---------+---------+
(i) Reserve fund
In accordance with legislation of the Republic of Kazakhstan the reserve fund
comprises prescribed transfers from retained earnings amounting to 15% of
Kazakhmys LLC's charter capital.
(ii) Net unrealised gains reserve
The net unrealised gains reserve is used to record the fair value movements of
available for sale investments including those of the associate.
(iii) Currency translation reserve
The foreign currency translation reserve is used to record exchange differences
arising from the translation of the financial statements of subsidiaries whose
functional currency is not the US dollar into the Group's presentation currency.
(iv) Capital redemption reserve
As a result of the share buy-back programme, transfers were made from share
capital to the capital redemption reserve based on the nominal value of the
shares cancelled.
(v) Hedging reserve
The hedging reserve is used to record the fair value movements of derivative
financial instruments that have been designated as cash flow hedges. Upon
settlement or expiry of the hedge, the gain or loss recognised within the
hedging reserve is recycled out to the income statement. In January 2009, the
Group commenced a hedging programme covering 90 kt, or approximately 30% of the
estimated copper production for 2009, which established a price protecting floor
and a cap to the price receivable on the hedged copper sales. During the period,
$16 million was paid out to settle the hedges and this loss has been transferred
from the hedging reserve to the income statement.
17.Borrowings
Details of the Group's significant borrowings are:
(i) Pre-export finance debt facility
In February 2008, Kazakhmys Finance PLC signed a five year pre-export finance
debt facility for $2,100 million with a syndicate of banks to be used for
general corporate purposes, including the acquisition of the Ekibastuz GRES-1
power plant and Maikuben West coal mine and incremental purchases of shares in
ENRC. As at 30 June 2009, the facility was fully drawn. The loan is secured over
copper sales contracts with certain designated customers. Monthly loan
repayments commenced in March 2009 and will continue for four years until final
maturity in February 2013. Arrangement fees with an amortised cost as at 30 June
2009 of $16 million (gross cost before amortisation of $26 million) have been
netted off against these borrowings in accordance with IAS 39. Interest is
payable on the drawn balance at a rate of US$ LIBOR + 1.25%. Kazakhmys PLC,
Kazakhmys LLC and Kazakhmys Sales Limited act as guarantors of the loan.
(ii) Revolving trade finance facility
In May 2006, MKM entered into a revolving trade finance facility with a
syndicate of banks for a four year loan to finance the repayment of external
borrowings and intercompany balances due to Kazakhmys LLC, and to fund working
capital. In June 2009, the facility was refinanced with a new EUR170 million
facility for three years with a final maturity in June 2012. Interest is payable
on the drawn balance at a rate of EURIBOR + 3.0%. Arrangement fees with an
amortised cost as at 30 June 2009 of $3 million have been netted off against
these borrowings in accordance with IAS 39. The loan is secured over the
inventories and receivables of MKM.
(iii) Revolving credit facility
In August 2008, Kazakhmys Finance PLC signed a $200 million revolving credit
facility with a group of banks for general corporate purposes and to provide
standby liquidity. On 30 March 2009 the facility was reduced to $150 million and
the term extended to 31 March 2010. The facility has remained undrawn since its
inception.
18.Reconciliation of profit before taxation to net cash inflow from operating
activities
+----------------------------------------------------------+-----------+-----------+
| $ million | Six | Six |
| | months | months |
| | ended | ended |
| | 30 June | 30 June |
| | 2009 | 2008 |
+----------------------------------------------------------+-----------+-----------+
| | | |
+----------------------------------------------------------+-----------+-----------+
| Profit before taxation | 645 | 886 |
+----------------------------------------------------------+-----------+-----------+
| Interest income | (5) | (13) |
+----------------------------------------------------------+-----------+-----------+
| Interest expense | 37 | 10 |
+----------------------------------------------------------+-----------+-----------+
| Depreciation and depletion | 141 | 154 |
+----------------------------------------------------------+-----------+-----------+
| Amortisation | 1 | 3 |
+----------------------------------------------------------+-----------+-----------+
| Share of profits from associate | (119) | - |
+----------------------------------------------------------+-----------+-----------+
| Impairment losses | 60 | 9 |
+----------------------------------------------------------+-----------+-----------+
| Unrealised foreign exchange gain | (229) | (4) |
+----------------------------------------------------------+-----------+-----------+
| Loss on disposal of property, plant and equipment | 1 | - |
+----------------------------------------------------------+-----------+-----------+
| Operating cash flows before changes in working capital | 532 | 1,045 |
| and provisions | | |
+----------------------------------------------------------+-----------+-----------+
| Decrease/(increase) in inventories | 34 | (125) |
+----------------------------------------------------------+-----------+-----------+
| Increase in prepayments and other current assets | (12) | (10) |
+----------------------------------------------------------+-----------+-----------+
| Increase in trade and other receivables | (84) | (26) |
+----------------------------------------------------------+-----------+-----------+
| Increase in employee benefits | 2 | 2 |
+----------------------------------------------------------+-----------+-----------+
| Increase in provisions | 24 | 5 |
+----------------------------------------------------------+-----------+-----------+
| (Decrease)/increase in trade and other payables | (54) | 68 |
+----------------------------------------------------------+-----------+-----------+
| Cash inflow from operations before interest, income | 442 | 959 |
| taxes and dividends from associate | | |
+----------------------------------------------------------+-----------+-----------+
19.Movement in net liquid funds/(debt)
+--------------------------------+------------+------------+-------------+------------+
| $ million | At 1 | Cash flow | Net | At 30 June |
| | January | | exchange | 2009 |
| | 2009 | | translation | |
+--------------------------------+------------+------------+-------------+------------+
| | | | | |
+--------------------------------+------------+------------+-------------+------------+
| Cash and cash equivalents | 540 | (46) | (62) | 432 |
+--------------------------------+------------+------------+-------------+------------+
| Current investments | 32 | 33 | (6) | 59 |
+--------------------------------+------------+------------+-------------+------------+
| Borrowings | (2,200) | 142 | (1) | (2,059) |
+--------------------------------+------------+------------+-------------+------------+
| Net debt | (1,628) | 129 | (69) | (1,568) |
+--------------------------------+------------+------------+-------------+------------+
+--------------------------------+------------+-------------+---------+-------------+----------+
| $ million | At 1 | Business | Cash | Net | At 30 |
| | January | acquisition | flow | exchange | June |
| | 2008 | | | translation | 2008 |
+--------------------------------+------------+-------------+---------+-------------+----------+
| | | | | | |
+--------------------------------+------------+-------------+---------+-------------+----------+
| Cash and cash equivalents | 439 | - | 71 | (5) | 505 |
+--------------------------------+------------+-------------+---------+-------------+----------+
| Current investments | 57 | - | (3) | 1 | 55 |
+--------------------------------+------------+-------------+---------+-------------+----------+
| Borrowings | (197) | (159) | (1,091) | (13) | (1,460) |
+--------------------------------+------------+-------------+---------+-------------+----------+
| Net liquid funds/(debt) | 299 | (159) | (1,023) | (17) | (900) |
+--------------------------------+------------+-------------+---------+-------------+----------+
GLOSSARY
Board, Board of Directors or Directors
The Board of Directors of the Company
Capital employed
The aggregate of equity attributable to owners of the Company, minority
interests and borrowings
Cash cost of copper after by-product credits
The total of cash operating costs excluding purchased concentrate less
by-product revenues, divided by the volume of copper cathode equivalent sales
Company or Kazakhmys
Kazakhmys PLC
dollar or $
United States dollars, the currency of the United States of America
EBITDA
Earnings before interest, taxation, depreciation, depletion and amortisation
ENRC or ENRC PLC
Eurasian Natural Resources Corporation PLC
EPS
Earnings per share
EPS based on Underlying Profit
Profit before special items and other non-recurring or variable non-trading
items, and their resulting taxation and minority interest impact, divided by the
weighted average number of ordinary shares in issue during the period
EPT
Excess profits tax
EURIBOR
European Inter Bank Offer Rate
Euro or EUR
Euro, the currency of certain member states of the European Union
Free Cash Flow
Net cash flow from operating activities less sustaining capital expenditure on
tangible and intangible assets
g/t
Grammes per metric tonne
Government
The Government of the Republic of Kazakhstan
the Group
Kazakhmys PLC and its subsidiary companies
Group EBITDA
Earnings before interest, taxation, depreciation, depletion and amortisation
adjusted for special items and including the share of EBITDA of the associate
GVA
Gross value added, which is calculated as turnover less the input cost of copper
cathode
GW
Gigawatt, a unit of power equal to one billion watts
GWh
Gigawatt-hour, one gigawatt-hour represents one hour of electricity consumed at
a constant rate of one gigawatt
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IFRIC
International Financial Reporting Interpretations Committee
IFRS
International Financial Reporting Standards
Kazakhmys LLC or Kazakhmys Corporation LLC
Kazakhmys Corporation LLC, the Group's principal operating subsidiary in
Kazakhstan
Kazakhmys Copper
An operating segment of the Group comprising of Kazakhmys Corporation LLC and
Kazakhmys Sales Limited, which includes the processing and sale of copper and
other metals and onward sale to third parties
Kazakhmys Gold
An operating segment of the Group, which includes the processing of gold ore
into refined ore and exploration and development activity in the precious metals
sector in Central Asia
Kazakhmys Petroleum
An operating segment of the Group, which holds a licence to conduct oil and gas
exploration and development activity in the East Akzhar exploration block in
western Kazakhstan
Kazakhmys Power
An operating segment of the Group, which includes the Ekibastuz GRES-1
coal-fired power plant and Maikuben West coal mine whose principal activity is
the sale of electricity and coal to external customers
Kazakhstan
The Republic of Kazakhstan
KEGOC
Kazakhstan Electricity Grid Operating Company
koz
Thousand ounces
kt
Thousand metric tonnes
kW
kilowatt, a unit of power equal to one thousand watts
kWh
kilowatt hour
lb
pound, unit of weight
LIBOR
London Inter Bank Offer Rate
Listing
The listing of the Company's ordinary shares on the London Stock Exchange on 12
October 2005
LME
London Metal Exchange
Managed businesses
Represents the Kazakhmys Copper, Kazakhmys Power, Kazakhmys Gold, Kazakhmys
Petroleum, MKM and corporate divisions
MKM
MKM Mansfelder Kupfer und Messing GmbH, the Group's operating subsidiary in the
Federal Republic of Germany and an operating segment of the Group, which
manufactures copper and copper alloy semi-finished products
MT
Million metric tonnes
MW
Megawatt, a unit of power equivalent to one million watts
Ounce or oz
A troy ounce, which equates to 31.1035 grammes
PXF
Pre-export finance debt facility
ROCE
Return on Capital Employed, defined as profit before taxation and finance items,
excluding special items, as a percentage of the average of opening and closing
capital employed
$/t or $/tonne
US dollars per metric tonne
Segmental EBITDA
Earnings before interest, taxation, depreciation, depletion and amortisation
from the Group's managed businesses
Special items
Those items which are non-recurring or variable in nature and which do not
impact the underlying trading performance of the business. Special items are set
out in note 5 to the consolidated condensed half-yearly financial statements
t
Metric tonnes
tenge or KZT
The official currency of the Republic of Kazakhstan
Underlying Profit
Profit for the half-year to 30 June 2009 after adding back items which are
non-recurring or variable in nature and which do not impact the underlying
trading performance of the business and their resultant tax and minority
interest effects
USc/lb
US cents per pound
This information is provided by RNS
The company news service from the London Stock Exchange
END
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