TIDMKAZ
RNS Number : 6091X
KAZ Minerals PLC
23 February 2017
KAZ MINERALS PLC
6(TH) FLOOR
CARDINAL PLACE
100 VICTORIA STREET
LONDON SW1E 5JL
Tel: +44 (0) 20
7901 7800
======================
23 February 2017
KAZ MINERALS PLC AUDITED RESULTS
FOR THE YEARED 31 DECEMBER 2016
FINANCIAL HIGHLIGHTS
-- Gross EBITDA(1) of $492 million (2015: $208 million) driven by Bozshakol and Aktogay
- EBITDA of $351 million (2015: $202 million), excludes pre-commercial earnings
- Operating profit up 142% to $218 million (2015: $90 million)
-- Gross Revenues(2) increase 43% to $969 million (2015: $677 million)
- 2016 full year copper sales volumes of 141 kt (2015: 84 kt), offset 12% lower copper price
- Revenues were $766 million (2015: $665 million)
-- Group net cash cost of 59 USc/lb (2015: 109 USc/lb)
- Bozshakol gross cash cost of 106 USc/lb and net cash cost of
27 USc/lb, supported by lower costs in start-up period
- East Region and Bozymchak gross cash cost of 191 USc/lb and
net cash cost of 68 USc/lb (2015: 109 USc/lb)
-- Gross liquid funds of $1,108 million, net debt of $2,669 million at 31 December 2016
- Aktogay project budget reduced by $200 million to $2.1 billion
- $100 million of final payments at Bozshakol will now fall in 2017
- New $300 million Development Bank of Kazakhstan facility and
$50 million increase to PXF obtained in December 2016
- Gearing metrics significantly improved and set to reduce further
OPERATIONAL HIGHLIGHTS
-- 73% growth in copper production to 140 kt
- Bozshakol output of 45 kt copper cathode equivalent from 50 kt
copper in concentrate in 2016
- Aktogay output of 18 kt copper cathode from oxide ore,
production from sulphide ore commenced in February 2017
- Optimised Bozymchak mine tripled copper and gold production
2017 OUTLOOK
-- Industry leading production growth and low cost position to continue in 2017
- Aktogay to reach commercial production and Bozshakol to reach design capacity in the year
- Group copper production(3) to increase to 225-260 kt, gold production(3) 135-170 koz
- Zinc in concentrate expected to be 70-75 kt, silver production(3) 2,750-3,000 koz
- Bozshakol and Aktogay 2017 gross cash cost guidance of 125-145 USc/lb
- East Region and Bozymchak 2017 gross cash cost guidance of
230-250 USc/lb, impacted by lower copper volumes
$ million (unless otherwise stated) 2016 2015
----------------------------------------------- ------ -------
Gross Revenues(2) 969 677
Gross EBITDA(1,8) 492 208
Revenues 766 665
EBITDA (excluding special items)(8) 351 202
Operating profit 218 90
Profit before taxation 220 12
Underlying Profit/(Loss) 180 (10)
EPS - basic and diluted ($) 0.40 (0.03)
EPS - based on Underlying Profit/(Loss) ($)(4) 0.40 (0.02)
Free Cash Flow(5) (60) (145)
Free Cash Flow before interest 119 2
Gross cash cost (USc/lb)(6) 156 230
Net cash cost (USc/lb)(7) 59 109
Net debt 2,669 2,253
----------------------------------------------- ------ -------
(1) Includes EBITDA from pre-commercial operations.
(2) Includes revenues from pre-commercial operations.
(3) Copper, gold and silver production used for the 2017
guidance is payable metal in concentrate produced plus finished
metal production.
(4) Reconciliation of EPS based on Underlying Profit/(Loss) is
found in note 8 in the financial information.
(5) Net cash flow from operating activities before capital
expenditure and non-current VAT associated with expansionary and
new projects, less sustaining capital expenditure.
(6) Cash operating costs, including pre-commercial production
costs, excluding purchased cathode, divided by the volume of copper
cathode equivalent sales.
(7) Cash operating costs, including pre-commercial production
costs, excluding purchased cathode, less by-product Gross Revenues,
divided by the volume of copper cathode equivalent sales.
(8) Reconciliation to operating profit provided in note 4(a)(i)
in the financial information.
Oleg Novachuk, Chief Executive, said: "The successful launch of
our major growth projects has increased copper output by 73% at an
industry leading net cash cost of 59 USc/lb. Following the recent
commencement of production at the Aktogay sulphide concentrator
both Aktogay and Bozshakol are operational. KAZ Minerals is now
well positioned to achieve its target of 300 kt of copper
production in 2018, delivering significant copper growth with low
operating costs into a strengthening market."
For further information please contact:
KAZ Minerals
PLC
==================== ========================== ===================
Chris Bucknall Investor Relations, Tel: +44 20 7901
London 7882
Investor Relations, Tel: +44 20 7901
Anna Mallere London 7814
Maksut Zhapabayev Corporate Communications, Tel: +7 727 244 03
Almaty 53
==================== ========================== ===================
Instinctif Partners
==================== ========================== ===================
Tel: +44 20 7457
David Simonson 2020
==================== ========================== ===================
REGISTERED OFFICE
6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL,
United Kingdom.
NOTES TO EDITORS
KAZ Minerals PLC ("KAZ Minerals" or "the Group") is a high
growth copper company focused on large scale, low cost, open pit
mining in Kazakhstan. It operates three mines and three
concentrators in the East Region of Kazakhstan, the Bozymchak
copper-gold mine in Kyrgyzstan, the Bozshakol open pit copper mine
in the Pavlodar region of Kazakhstan and the Aktogay open pit
copper mine in the East Region of Kazakhstan. In 2016, total copper
cathode equivalent output was 140 kt with by-products of 75 kt of
zinc in concentrate, 120 koz of gold bar equivalent and 3,103 koz
of silver bar equivalent.
The Group's major growth projects at Bozshakol and Aktogay are
expected to deliver one of the highest growth rates in the industry
and transform KAZ Minerals into a company dominated by world class,
open pit copper mines.
Bozshakol is a first quartile asset on the global cost curve and
will have an annual ore processing capacity of 30 million tonnes
when fully ramped up, with a mine life of 40 years at a copper
grade of 0.36%. The mine and processing facilities will produce 100
kt of copper cathode equivalent and 120 koz of gold in concentrate
per year over the first 10 years of operations.
Aktogay is a large scale, open pit mine similar to Bozshakol,
with a mine life of more than 50 years and average copper grades of
0.37% (oxide) and 0.33% (sulphide). Aktogay commenced production of
copper cathode from oxide ore in December 2015 and copper in
concentrate production from sulphide ore commenced in February
2017. The sulphide concentrator will have an annual ore processing
capacity of 25 million tonnes when fully ramped up. Aktogay is
competitively positioned on the global cost curve and will produce
an average of 90 kt of copper cathode equivalent from sulphide ore
and 15 kt of copper cathode from oxide ore per year over the first
10 years of operations.
KAZ Minerals is listed on the London Stock Exchange, the
Kazakhstan Stock Exchange and the Hong Kong Stock Exchange and
employs around 13,000 people, principally in Kazakhstan.
FORWARD-LOOKING STATEMENTs
These results include forward-looking statements with respect to
the business, strategy and plans of KAZ Minerals and its current
goals, assumptions and expectations relating to its future
financial condition, performance and results. Although KAZ Minerals
believes that the expectations reflected in such forward-looking
statements are reasonable and are made by the Directors in good
faith, no assurance can be given that such expectations will prove
to be correct. By their nature, forward-looking statements involve
known and unknown risks, assumptions and uncertainties and other
factors which are unpredictable as they relate to events and depend
on circumstances that will occur in the future which may cause
actual results, performance or achievements of KAZ Minerals to be
materially different. These forward-looking statements should not
be construed as a profit forecast.
No part of these results constitute, or shall be taken to
constitute, an invitation or inducement to invest in KAZ Minerals
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, KAZ Minerals does
not undertake any obligation to update or change any
forward-looking statements to reflect events occurring after the
date of these results.
ANNUAL GENERAL MEETING
The 2017 Annual General Meeting will be held at 12.15pm on
Thursday 27 April 2017 at Linklaters LLP, One Silk Street, London
EC2Y 8HQ, United Kingdom.
The 2016 Annual Report and Accounts and details of the business
to be conducted at the Annual General Meeting will be mailed to
shareholders and posted on the Company's website
(www.kazminerals.com) in late March 2017.
Chairman's Statement
Reflecting on our progress
2016 has been an exceptional year for KAZ Minerals in which we
completed the construction of our major growth projects, Bozshakol
and Aktogay. The project budget for Aktogay was reduced by $200
million and the Group's copper production rose by 73% accompanied
by strong cost management. Bozshakol began production of copper in
February 2016 and Aktogay commenced output from sulphide ore in
February 2017. With the projects now operational, it is an
appropriate point to reflect on the transformation of the Group
over the past few years.
After securing long-term finance facilities from the China
Development Bank and assembling a world-class project team, the
Group began the construction of Bozshakol in 2011 and Aktogay in
2012. In 2013, the sale of non-core assets focused the Group on
copper and realised $2.2 billion of cash proceeds. A restructuring
in 2014 disposed of higher cost assets and reduced headcount from
around 56,000 to 9,000, with the Group retaining the high grade
polymetallic underground mines in the East Region of Kazakhstan,
the Bozymchak mine in Kyrgyzstan and two greenfield sites in
development.
With the completion of Bozshakol and Aktogay, KAZ Minerals has
built and launched two major new copper mines in Kazakhstan, the
result of over $4 billion of investment. These mines are of
national and international significance given their large scale and
low cost position and will generate economic growth and employment
opportunities in Kazakhstan over the next 40 to 50 years. We are
proud to be a leading developer of natural resources in Kazakhstan,
working in partnership with all of our stakeholders.
Delivering value and growth
KAZ Minerals has entered 2017 with a portfolio of first quartile
assets which are expected to produce between 225 and 260 kt of
copper this year and we are on track to achieve our medium-term
guidance of around 300 kt in 2018, representing a compound annual
growth rate of over 50% per year from 2015. Whilst the Group
delivered on its strategic objectives in 2016, the market backdrop
remained challenging for copper producers. Copper prices were at
low levels throughout most of the year, although it was encouraging
to see a recovery in November, with the LME price rising by 18% and
finishing the year at $5,501 per tonne. The strengthening of the
copper price in the fourth quarter was driven mainly by improved
expectations for demand growth in China.
Following the commencement of commissioning at Bozshakol in
December 2015, production began in February 2016 and after a
relatively smooth ramp up, we were able to declare the project
commercial in October 2016. This was a major achievement for the
Group and demonstrates our ability to successfully execute projects
of this scale.
Our projects division completed the construction of the Aktogay
sulphide processing facilities ahead of schedule and the expected
budget for the project has been reduced by $200 million. I am
delighted to report that in early 2017 we commenced production from
sulphide ore. We look forward to ramping up production in 2017 and
delivering the growth and highly competitive operating costs that
we believe our projects can deliver.
During 2016, the Group's operational focus has been on achieving
our production targets whilst maintaining strict control over costs
and capital expenditure. We successfully met our production targets
and we have reported first quartile net cash costs at Bozshakol,
the East Region and Bozymchak. Sustaining capital expenditure was
also managed closely, resulting in expenditure below the guidance
we gave for 2016.
Health and safety
The safety of our employees and contractors is of the utmost
concern to the Board. It is disappointing to report that, although
injury rates have declined slightly, there has been an increase in
the number of fatalities in 2016 compared to the prior year. The
Health, Safety and Environment Committee, of which I am a member,
visited key sites in Kazakhstan in 2016 and it is clear that every
effort is being made to improve safety performance through a number
of ongoing initiatives. The goal of zero fatalities remains our
highest strategic priority. We are confident that the transition to
open pit mining and the implementation of enhanced safety
procedures at our new operations across the Group will lead to
lasting improvements in workplace safety.
Governance
The Company is a UK incorporated, premium listed, FTSE stock
with a majority free float and is subject to the full provisions of
the UK Takeover Code. There were no changes to the Board in 2016.
KAZ Minerals continues to comply fully with the requirements of the
UK Corporate Governance Code, with more than half of the Board
excluding the Chairman comprising independent non-executive
Directors. We have commenced a thorough review of Board succession
planning due to the current stage of the Group's development, with
the Aktogay sulphide plant entering commissioning in 2016 bringing
to an end the construction phase of the major growth projects.
Managing the balance sheet
The ramp up of Bozshakol to commercial production and the
commencement of output from sulphide ore at Aktogay has greatly
reduced the Group's project execution risk and the growth from the
major projects is improving our debt metrics. Our near-term
financing priority is to continue de-gearing to more normalised
levels.
Since drawing the Bozshakol and Aktogay CDB facilities, and the
PXF facility that was put in place at the time of the 2014
restructuring, the Group has made debt repayments of over $1.1
billion. We have now passed the point of peak gearing, reporting
Gross EBITDA of $492 million in 2016 and net debt of $2,669 million
at the year end. We have significantly reduced the ratio of net
debt to Gross EBITDA and we expect to continue this trajectory in
2017.
KAZ Minerals' liquidity position during the ramp up period of
the two projects has been supported by a new $300 million facility
with the Development Bank of Kazakhstan, obtained in December 2016.
It is the Group's intention to refinance its PXF facility in the
first half of 2017, in advance of which we obtained and drew an
additional commitment of $50 million in December 2016.
Dividends
The Group's dividend policy, established at the time of Listing,
is for the Board to consider the cash generation and financing
requirements of the business and then to recommend a suitable
dividend. This maintains flexibility which is appropriate given the
underlying cyclicality of a commodity business. The Group has a
strong record of payments to shareholders, with returns of $2,095
million in ordinary dividends, buy-backs and special dividends
since its Listing in 2005.
Whilst the outlook for the Group's financial position is
positive, given the ramp up of Bozshakol and Aktogay and with net
debt to EBITDA expected to fall rapidly, the Group has invested
heavily in the projects and it is our near-term priority to
continue to reduce our gearing metrics. Accordingly, the Board does
not recommend a dividend in respect of the 2016 financial year,
although it is the Board's intention that the Group resumes
dividend payments in the future.
Outlook
The progress made in bringing the major growth projects into
production positioned KAZ Minerals for a period of strong organic
growth, which we are now delivering. The recent recovery in copper
prices is welcome and the combination of increasing output, higher
prices for our products and low operating costs should generate
significant value for shareholders. I look forward to reporting on
our continued success and further progress towards achieving our
goals in 2017.
chief executive's review
I am pleased to report another year of successful delivery
against our operational targets in 2016 as we ramped up copper
production from our new low cost mines. The Group's first major
growth project, Bozshakol, commenced copper output in late February
and within eight months we declared the project commercial. Mill
throughput at Bozshakol averaged over 75% of design capacity in the
fourth quarter. The ramp up of Bozshakol was the key driver of the
73% increase in copper output, to 140 kt in 2016.
The second major growth project, Aktogay, commenced
commissioning of its main sulphide concentrator earlier than
anticipated in December 2016 and the capital budget for the project
was reduced by a total of $200 million during the year. Production
of copper from sulphide ore at Aktogay began in February 2017. The
East Region and Bozymchak mines also met or exceeded production
guidance across all metals in 2016, at a net cash cost of 68 USc/lb
of copper.
Health and safety
I am disappointed to report that five fatalities occurred at our
East Region operations in 2016 involving three contractors and two
employees of KAZ Minerals. A contractor fatality also occurred
during the construction of the sulphide concentrator at
Aktogay.
The number of fatalities in 2016 has increased compared to the
prior year, with three occurring as a result of a single incident.
We consider all fatalities to be avoidable and we remain committed
to achieving our goal of zero fatalities. The rate of fatal
incidents at our operations is considerably lower today than it was
five years ago and the frequency of injuries has also reduced.
We are continuing our efforts to improve health and safety
performance, with initiatives in 2016 including the implementation
of enhanced safety management standards and a detailed review of
occupational health hazards in the East Region. We are trialling an
innovative pay scheme at Aktogay aimed at incentivising safe
behaviours and promoting engagement on safety issues between
supervisors and their teams.
At Bozshakol, Aktogay and Bozymchak a total of over 10 million
operational man-hours have been completed in the period from the
commencement of copper production through to the end of 2016.
During this time there have been no fatalities in the production
teams at these facilities. This reflects the culture and procedures
we are seeking to establish in our new assets, as well as the
inherently safer nature of the work undertaken compared to
underground mining. The health and safety risk profile of the Group
is expected to improve as we continue our transition to becoming a
business dominated by large scale, open pit operations.
Review of operations
By the end of the year the Group's major growth projects were
both operational, with Bozshakol well progressed in its ramp up and
testing of the Aktogay sulphide concentrator underway.
After commencing production in February, the Bozshakol plant
successfully ramped up during the year and was declared commercial
in October 2016, having operated at over 60% of design capacity for
three consecutive months. In September, we began commissioning of
the separate clay plant which will ramp up during 2017.
Bozshakol contributed 45 kt of copper cathode equivalent in
2016, in line with guidance. The contribution from Bozshakol was
the key driver behind the 73% increase in Group copper cathode
equivalent production, from 81 kt in 2015 to 140 kt in 2016.
At Aktogay we completed construction of the main sulphide
concentrator and commenced commissioning works in December 2016,
followed by the production of copper concentrate from sulphide ore
in February 2017. The oxide facilities at Aktogay completed their
first full year of operations and produced 18 kt of copper cathode
at a cash cost of 114 USc/lb. The capital budget for Aktogay was
reduced by a total of $200 million in 2016 to $2,100 million, due
to a combination of the early delivery of the project, partial
release of contingency, efficiency gains from lessons learnt during
the construction of Bozshakol and a local supplier strategy, which
delivered lower expenditure in dollar terms following the
devaluation of the tenge in the second half of 2015.
Our operations in the East Region and Bozymchak achieved or
exceeded production guidance across all metals at a net cash cost
of 68 USc/lb, benefiting from higher by-product prices compared to
the prior year, the weaker tenge and cost saving measures
implemented by management.
Production outlook
With the two new mines in ramp up accounting for the majority of
the Group's output in 2017 it is prudent to give a wide range for
copper production guidance as we enter the new financial year.
In 2017, work on the flotation process at Bozshakol will be
conducted to optimise recoveries and raise output to design levels.
The mine is expected to achieve its full capacity in the second
half of the year and to produce 95-110 kt of payable copper in
concentrate in 2017.
The ramp up of the sulphide concentrator at Aktogay should
benefit from the experience gained at Bozshakol and production from
Aktogay sulphide during 2017 is therefore expected to be 45-65 kt
of payable copper in concentrate. We aim to achieve commercial
levels of production at the Aktogay sulphide plant in the second
half of 2017. The oxide facilities at Aktogay are now fully ramped
up and are expected to deliver increased output of around 20 kt of
copper cathode in 2017.
The East Region and Bozymchak are guided to contribute around 65
kt of copper cathode to Group production, as the
Yubileyno-Snegirikhinsky mine ceased operations in December 2016
and the largest mine in the East Region, Orlovsky, will operate on
a six-day week to accommodate maintenance works throughout 2017.
Group copper production guidance(1) for 2017 is therefore set at
225-260 kt.
Gold production is expected to be 85-110 koz of payable gold in
concentrate at Bozshakol and together with 50-60 koz of gold bar
from the East Region and Bozymchak, Group gold production(1)
guidance for 2017 is set at 135-170 koz. Silver production(1) is
expected to be between 2,750-3,000 koz, with approximately 500 koz
of payable silver in concentrate from Bozshakol and 2,250-2,500 koz
of silver bar from the East Region and Bozymchak. Zinc in
concentrate production guidance for the East Region is set at 70-75
kt as the full year effect of the six-day week at Orlovsky will
result in lower output compared to 2016.
__________ (1) Copper, gold and silver production used for the
2017 guidance is payable metal in concentrate produced plus
finished metal production.
Financial performance
In 2016, the Group generated revenues of $766 million, excluding
sales from Bozshakol and the Aktogay oxide project during the
pre-commercial stages of their ramp up, representing an increase of
15% compared to 2015. Gross Revenue in 2016 was $969 million,
including $203 million of pre-commercial sales from the new
projects, an increase of 43% compared to 2015. The increase in
revenues was driven by higher sales volumes of copper and gold and
increased prices for zinc, gold and silver, offset by a 12%
reduction in the average market price of copper and a 20% decrease
in zinc output in 2016 compared to the prior year.
In response to low commodity prices the Group sought additional
efficiencies and for the third consecutive year we have reported
lower operating costs, with a first quartile Group net cash cost in
2016 of 59 USc/lb. Costs have reduced as we transition to large
scale, open pit mining and due to the devaluation of the tenge
which occurred in the second half of 2015. Cost and efficiency
measures previously implemented in the East Region have had a full
year effect in 2016 and net cash costs benefited from increased
prices for our by-products of zinc, gold and silver during the
year. Our portfolio of assets has positioned KAZ Minerals amongst
the lowest cost pure-play copper producers globally.
Our major growth projects delivered a strong cost performance in
2016, with Aktogay oxide recording a gross cash cost of 114 USc/lb
and Bozshakol a temporarily low 106 USc/lb, significantly below
guidance of 140-160 USc/lb. Assisted by strong gold bar equivalent
output of 60 koz and an average gold price of $1,251/oz in 2016,
the net cash cost of copper at Bozshakol was 27 USc/lb. Bozshakol
has benefited from high ore grades, low maintenance costs on new
equipment and a number of other supporting factors in its first
ramp up year. Low operating costs enabled the Group to generate
EBITDA (excluding special items) of $351 million and Gross EBITDA
(including pre-commercial EBITDA from Bozshakol and Aktogay oxide)
of $492 million in 2016.
We have sought to reduce or defer sustaining and expansionary
capital expenditure where possible. Sustaining capital expenditure
in the East Region and Bozymchak in 2016 amounted to $50 million
against guidance at the start of the year of $80-90 million.
Expansionary capital expenditure across all assets in 2016 totalled
$273 million against initial guidance of $575 million, with over
half of the reduction resulting from previously announced revisions
to the capital budget and phasing of payments for the construction
of the Aktogay project.
Financial guidance
Expansionary capital expenditure in 2017 is expected to be
approximately $415 million consisting of $265 million for Aktogay,
$100 million of final payments at Bozshakol, $30 million for works
on the Artemyevsky II mine extension and $20 million on other
projects including further studies at Koksay and on a potential new
smelter in Kazakhstan. For the smelter project we are assessing
non-recourse financing options and the potential for
partnering.
Sustaining capital expenditure at the East Region and Bozymchak
is expected to be approximately $70 million whilst Bozshakol will
require in the region of $30 million in 2017. Aktogay is expected
to require $20 million of sustaining capital expenditure.
The devaluation of the tenge in 2015 has resulted in
inflationary pressures on costs in the second half of 2016 and
these are expected to continue in 2017. At Bozshakol, the factors
driving low operating costs in the first year of ramp up are not
expected to continue in the coming year and gross cash costs are
expected to rise to 125-145 USc/lb in 2017. At Aktogay, the
combined oxide and sulphide facilities are expected to deliver a
gross cash cost of 125-145 USc/lb. The East Region and Bozymchak
will experience higher unit costs as a result of lower production
levels, with gross cash costs estimated at between 230 and 250
USc/lb in 2017.
Outlook
In 2016 we have established KAZ Minerals as a high growth and
low cost copper producer. The key operational priorities in 2017
are to achieve full design capacity at Bozshakol and for the
Aktogay sulphide plant to reach commercial levels of production in
the second half of the year. Looking forward, our production growth
is set to continue as we complete the ramp up of Bozshakol and
Aktogay and progress towards our medium-term copper production
target of 300 kt in 2018.
operating review
The Group's operations in 2016 included four mines and three
concentrators in the East Region of Kazakhstan, the Bozymchak
copper-gold mine in Kyrgyzstan, the Bozshakol open pit copper mine
in the Pavlodar region of Kazakhstan and the Aktogay open pit
copper mine in the eastern region of Kazakhstan.
Group finished products
kt (unless otherwise stated) 2016 2015
------------------------------------- ----- -----
Copper cathode equivalent production 140.3 81.1
Bozshakol 44.8 -
Aktogay 18.1 0.4
East Region and Bozymchak 77.4 80.7
Zinc in concentrate 75.4 94.3
Gold bar equivalent (koz) 119.7 34.6
Silver bar equivalent (koz) 3,103 3,135
------------------------------------- ----- -----
Group copper cathode equivalent production in 2016 of 140.3 kt
was in line with market guidance and a 73% increase from the prior
year as the new projects Bozshakol and Aktogay contributed 62.9 kt
of production. Bozshakol commenced production in February 2016
contributing 44.8 kt of copper cathode equivalent as the sulphide
operations ramped up and were declared commercial on 27 October
2016. Aktogay oxide operations ramped up successfully during 2016
with copper cathode production of 18.1 kt. The East Region and
Bozymchak operations produced 77.4 kt of copper cathode equivalent
for the year, above guidance but below the prior year as higher
output from the optimised Bozymchak mine only partially offset
lower volumes from the East Region. By-product output was ahead of
guidance for all metals with the large increase in gold output due
to the commencement of production at Bozshakol and increased output
from Bozymchak.
Group financial summary
$ million (unless otherwise stated) 2016 2015
------------------------------------------ ----- -----
Sales volumes(1)
Copper cathode equivalent (kt) 141 84
Gold bar equivalent (koz) 120 35
Silver bar equivalent (koz) 3,026 3,048
Zinc in concentrate (kt) 75 96
Gross Revenues(1) 969 677
Gross EBITDA (excluding special items)(1) 492 208
EBITDA (excluding special items) 351 202
Gross cash costs (USc/lb)(1) 156 230
Net cash costs (USc/lb)(1) 59 109
------------------------------------------ ----- -----
(1) Includes all operations for the full year, including during
the period of pre-commercial production.
Gross Revenues increased by 43% to $969 million from the prior
year, driven by the volume growth from Bozshakol and Aktogay. This
more than offset the 12% reduction in the average LME copper price.
Gross EBITDA increased by 137% benefitting from the higher Gross
Revenues as well as a reduction in cash costs at East Region and
low cash costs at Bozshakol during the first year of operations.
The Group recorded a gross and net cash cost of 156 USc/lb and 59
USc/lb for the year, placing the Group's operations competitively
amongst pure-play copper producers.
BOZSHAKOL
The Bozshakol mine and on-site processing facilities in the
north of Kazakhstan is one of the Group's two major growth
projects. Bozshakol has an annual ore processing capacity of 30
million tonnes and a mine life of 40 years at a copper grade of
0.36%.
2016 was a landmark year for the project as the first production
and sale of copper in concentrate was achieved from sulphide
operations in the first quarter. The ramp up of the sulphide
concentrator progressed well during the year, averaging over 75% of
design throughput in the fourth quarter of 2016. Full capacity is
expected to be achieved during 2017. The separate clay plant, which
has a processing capacity of 5 million tonnes, was completed during
the year and commissioning works began on the 29 September 2016.
Construction activities at Bozshakol are now largely complete with
management focused on raising output to design levels.
Production summary
Mining
kt (unless otherwise stated) 2016 2015
----------------------------- ------ -----
Ore output 28,272 7,099
Copper grade (%) 0.58 0.69
Sulphide ore grade 0.57 0.52
Clay ore grade 0.60 0.70
Copper in ore mined 164.6 48.7
Gold grade (g/t) 0.30 0.31
Gold in ore mined (koz) 270.1 70.0
Silver grade (g/t) 1.5 2.1
Silver in ore mined (koz) 1,361 469
----------------------------- ------ -----
Mining at Bozshakol began in the second half of 2015 and
increased significantly during 2016 to support the sulphide
concentrator. By the end of 2016, the pace of mining activity
approached the level required to supply the ore processing capacity
of 30 million tonnes per annum. The 28,272 kt of ore extracted in
2016 included 13,386 kt of sulphide ore and 14,886 kt of clay ore.
The clay ore has been stockpiled for processing at the now
commissioned clay plant. At 31 December 2016, 21,266 kt of clay
material has been stockpiled with an average copper grade of
0.63%.
The copper grade averaged 0.58% from sulphide and clay ore
during the year and was above the life of mine grade as operations
in the initial years are focused on the higher copper grade zones
of the deposit. The deposit also contains gold, silver and
molybdenum. The gold grade in 2016 averaged 0.30 g/t and is
expected to reduce somewhat in 2017 although, like copper, the
grade is above the life of mine average during the initial years of
operations.
Processing
kt (unless otherwise stated) 2016 2015
------------------------------- ----- ----
Copper in concentrate 50.3 -
Copper cathode equivalent(1) 44.8 -
Gold in concentrate (koz) 68.0 -
Gold bar equivalent (koz)(1) 59.6 -
Silver in concentrate (koz) 338.0 -
Silver bar equivalent (koz)(1) 285.8 -
------------------------------- ----- ----
(1) Includes finished metal equivalent of concentrate sold in the period.
Bozshakol began production of copper in concentrate from
sulphide operations in February 2016. Ore throughput has increased
during the year with no major issues encountered during
commissioning. Following three consecutive months of operations at
or above 60% of design ore throughput levels, sulphide operations
were declared commercial on 27 October 2016. Ore throughput in the
fourth quarter averaged above 75% of design, with higher levels
achieved in October followed by reduced throughput in November due
to shutdowns for planned commissioning activities. The focus for
2017 is to increase ore throughput to design capacity and maximise
metal recoveries.
Bozshakol recorded copper cathode equivalent of 44.8 kt and gold
bar equivalent of 59.6 koz for the year, calculated as the payable
metal equivalent of the concentrate sold. In addition, the silver
in concentrate achieved in flotation was at a commercially payable
level from the start of operations, resulting in silver bar
equivalent production of 285.8 koz. Copper cathode equivalent
production was in line with market guidance of 45-55 kt and
production of gold and silver bar equivalent was at the top end of
market guidance of 50-60 koz and 250 koz respectively.
Commissioning works at the clay plant began on 29 September
2016. Only a limited amount of copper in concentrate production was
produced in 2016 with the first saleable material expected in the
first quarter of 2017.
Copper production (payable metal in concentrate produced) is
expected to be between 95 kt and 110 kt in 2017 as output ramps up.
By-products from gold production and silver production of between
85-110 koz and around 500 koz respectively (payable metal in
concentrate production) are expected in 2017. Molybdenum production
at Bozshakol has not yet commenced and the commissioning of the
circuit will depend on progress in stabilising copper recoveries
and the market price of molybdenum.
Financial summary
$ million (unless otherwise stated) 2016 2015
-------------------------------------------------- ----- ----
Gross Revenues(1) 280 -
Copper 202 -
Gold 73 -
Silver 5 -
Revenues 93 -
Sales volumes(1)
Copper cathode equivalent (kt) 45 -
Gold bar equivalent (koz) 60 -
Silver bar equivalent granule (koz) 286 -
Realised price of copper sales ($/t)(1,2) 4,519 n/a
Gross EBITDA (excluding special items)(1) 204 (10)
Capitalised EBITDA (137) -
EBITDA (excluding special items) 67 (10)
Gross cash costs (USc/lb)(1) 106 n/a
Net cash costs (USc/lb)(1) 27 n/a
Expansionary capital expenditure (direct project) 168 527
Expansionary capital expenditure (pre-commercial) (64) -
-------------------------------------------------- ----- ----
(1) Includes sulphide operations for the full year 2016
including the pre-commercial production period to 27 October
2016.
(2) Realised price of payable metal in copper concentrate, after deduction for TC/RC.
Prior to the achievement of commercial production on 27 October
2016 all revenues and operating costs were capitalised and not
recognised in the income statement. To report the performance of
Bozshakol for the full year 2016, Gross Revenues and Gross EBITDA
have been shown which include the pre-commercial production period.
Gross Revenues of $280 million were recorded during 2016, of which
$187 million was prior to commercial production. The first shipment
of copper concentrate was dispatched to China in March, with total
shipments of 44.8 kt of copper cathode equivalent in the year,
after adjustment for the copper payable. Gross copper revenues in
2016 were $202 million at an average realised price of $4,519/t of
copper in concentrate, which is determined by reference to the LME
price minus a deduction for TC/RCs. By-product revenues from the
sale of concentrate were $73 million and $5 million from the sale
of 59.6 koz and 285.8 koz of gold and silver respectively.
Revenues recognised in the income statement were $93 million,
generated from the sale of 13.7 kt of copper cathode equivalent and
16.7 koz and 98.0 koz of gold and silver respectively, after the
achievement of commercial production on 27 October 2016. As the
final price for concentrate sales is typically set by reference to
the LME price two months after shipment, the increase in copper
price in the final two months of the year above the copper forward
curve as at 27 October 2016 resulted in price adjustments of $9
million being recognised in the period following commercial
production relating to pre-commercial sales.
Bozshakol generated a Gross EBITDA of $204 million at a gross
cash cost of 106 USc/lb. The gross cash cost is expressed on a unit
of cathode sold basis, after adjustment for the copper payable and
TC/RC terms. The cash cost in 2016 has benefited from a number of
factors, including limited maintenance expenditure in the first
year of operations due to the new equipment, the processing of
higher grade, softer material with short haulage routes and a
sustained weaker tenge with limited levels of tariff inflation.
After deducting the by-product credits from gold and silver sales,
the net cash cost of Bozshakol was 27 cents in 2016. The gross cash
cost of copper sold in 2017 is expected to be between 125-145
USc/lb, which places Bozshakol competitively on the global cost
curve.
The reported EBITDA of $67 million relates to the final two
months of the year. As noted above, EBITDA for the period after 27
October 2016 benefited from an increase in the forward copper price
in November and December 2016.
In 2016 the direct capital expenditure on Bozshakol, excluding
capitalised interest on debt facilities, was $168 million. The
majority of the expenditure related to the completion of the clay
plant. Expenditure was also incurred on the completion and
commissioning of the sulphide operations, including the pebble
crusher, high pressure grinding roller, bagging plant and the
molybdenum circuit. Retention payments expected to be made in 2016
have been carried forward into 2017. Direct project expenditure
includes $52 million in respect of the stockpiling of clay material
to provide access to sulphide material. The direct capital
expenditure was partially offset by an inflow of $64 million from
operations during the period prior to commercial production and
includes capitalised revenues, costs and working capital.
At the end of 2016, $2,050 million had been invested in
Bozshakol. The total cost of the project is expected to be in the
region of $2,150 million. In 2017, expenditure in the region of
$100 million is expected to be incurred for the release of
contractual retention payments, commissioning works at the clay
plant, the acquisition of further spares and a subsoil payment in
respect of the reserves. In addition, sustaining capital of around
$30 million will be required in 2017, mainly in relation to the
maintenance and overhaul of mining equipment.
AKTOGAY
The Aktogay project is a large scale, open pit development
similar to Bozshakol, with a mine life of more than 50 years and
average copper grades of 0.37% (oxide) and 0.33% (sulphide).
Aktogay commenced production of copper cathode from oxide ore in
December 2015, and the production of copper in concentrate from
sulphide ore is expected during the first quarter of 2017. The
sulphide concentrator will have an annual ore processing capacity
of 25 million tonnes when fully ramped up.
Significant progress was made at Aktogay during 2016. The SX/EW
plant was successfully ramped up with production levels exceeding
expectations. Following a period of steady output, the oxide
operations achieved commercial levels of production from 1 July
2016. Construction of the sulphide concentrator was completed and
testing and commissioning activities commenced in December 2016.
During 2016 the Aktogay project budget was reduced by $200 million
to $2,100 million.
Production summary
kt (unless otherwise stated) 2016 2015
----------------------------- ------ -----
Ore output 16,086 3,003
Copper grade (%) 0.41 0.37
Copper in ore mined 65.7 11.0
Copper cathode production 18.1 0.4
----------------------------- ------ -----
Mining operations at Aktogay commenced in the second quarter of
2015 and have ramped up significantly during 2016 to supply
additional oxide ore to the heap leach cells and prepare for
sulphide extraction. The copper grade of 0.41% was above the life
of mine copper grade as operations in the initial years are focused
on the higher copper grade zones of the deposit. Areas of sulphide
ore have been exposed in readiness to supply the sulphide
concentrator ramp up, but only limited volumes of sulphide ore were
mined during the year.
The SX/EW facility produced its first copper cathode during
December 2015 and has ramped up successfully, achieving production
levels above the design capacity of the plant during 2016. The
plant achieved output of 6.1 kt during the final quarter, slightly
below quarter three output of 6.6 kt, as production reduced due to
lower winter temperatures, as expected.
The Aktogay sulphide concentrator commenced commissioning on 6
December 2016 and is currently undergoing testing. The first
production of saleable copper concentrate is expected in the first
quarter of 2017.
Copper production of between 65 kt and 85 kt is expected from
Aktogay during 2017, including around 20 kt of cathode from oxide
operations and 45 kt and 65 kt payable metal in concentrate from
the sulphide concentrator. Commissioning of the molybdenum circuit
at Aktogay has not yet commenced and will depend on the progress in
ramping up copper production and the market price of
molybdenum.
Financial summary
$ million (unless otherwise stated) 2016 2015
-------------------------------------------------- ----- ----
Gross Revenues(1) 68 -
Revenues 52 -
Copper cathode sales (kt)(1) 14 -
Realised price of copper sales ($/t)(1) 4,889 n/a
Gross EBITDA (excluding special items)(1) 33 (3)
Capitalised EBITDA (4) -
EBITDA (excluding special items) 29 (3)
Gross cash costs (USc/lb)(1) 114 n/a
Expansionary capital expenditure (direct project) 144 470
Expansionary capital expenditure (pre-commercial) 12 -
-------------------------------------------------- ----- ----
(1) Includes oxide operations for the full year 2016 including
the pre-commercial production period to 1 July 2016.
The oxide operations achieved commercial levels of production
from 1 July 2016. During the first half of 2016 all revenues and
operating costs were capitalised.
Following the first production of copper cathode in December
2015, the first sale of material was recorded in January 2016.
Gross Revenues of $68 million were recorded for the year, from
sales of 13.9 kt of copper cathode at an average realised price of
$4,889/t. At the end of the year there was a build-up of copper
cathode inventory as material was directed to the European market
to benefit from favourable sales terms. This material in transit
has not been recognised as revenue during 2016, however cash was
received in advance for this material.
The gross cash cost from the oxide plant was 114 USc/lb, in line
with market guidance of 110-130 USc/lb. This reduced from 156
USc/lb recorded in the first half of the year due to the successful
ramp up of production, increased efficiencies and the automation of
cathode stripping. The gross cash cost for Aktogay in 2017 is
expected to be 125-145 USc/lb, including pre-commercial production
from sulphide operations and oxide output.
Gross EBITDA for the full year was $33 million, the majority of
which was generated in the second half of the year during
commercial production. EBITDA from commercial production of $29
million was generated from copper cathode sales of 10.5 kt and
benefited from a higher copper price in the second half of the year
and the lower unit costs.
In 2016 project capital expenditure, excluding capitalised
interest on debt facilities, was $144 million. This included the
completion and commissioning of the oxide SX/EW plant as well as
the substantial completion and commissioning of the sulphide
concentrator, non-process buildings and the tailings storage
facility. The capital expenditure does not reflect the progress on
the project as $300 million of payments to the principal
construction contractor have been deferred to 2018. At 31 December
2016, the amount payable under this agreement was $284 million and
is included within other non-current liabilities. In addition to
direct project costs, expansionary capital expenditure includes
capitalised pre-commercial cash flows and working capital of $12
million.
The Aktogay project budget was reviewed during the year and
reduced by a total of $200 million to $2,100 million. The savings
were achieved through faster than anticipated progress in
construction, from a sustained weaker tenge and the benefit of a
local supplier strategy and a partial release of contingency. The
total invested in Aktogay from the project budget to date was
approximately $1,465 million. The timing of the remaining capital
investment has been updated, with certain payments previously
expected in late 2016 now anticipated in early 2017 and $70 million
relating to the expansion of oxide ore heap leach cells deferred to
2018. The resulting capital expenditure profile for the project is
expected to be approximately $265 million in 2017 and $370 million
in 2018. The expenditure in 2017 will include final payments for
construction, commissioning works, first fill items, critical
spares and the acquisition of rolling stock. In addition,
sustaining capital of around $20 million will be required in 2017,
mainly in relation to the
maintenance and overhaul of mining equipment.
EAST REGION AND BOZYMCHAK
Production summary
Copper
kt (unless otherwise stated) 2016 2015
---------------------------------------- ----- -----
Ore output 4,664 4,435
Copper grade (%) 2.01 2.27
Copper in ore mined 93.9 100.6
Copper in concentrate 81.0 89.4
Orlovsky concentrator 41.7 47.2
Nikolayevsky concentrator 22.5 29.0
Belousovsky concentrator 8.6 10.1
Bozymchak concentrator 8.2 3.1
Copper cathode equivalent production(1) 77.4 80.7
---------------------------------------- ----- -----
(1) Includes finished metals produced and the finished metal
equivalent of concentrate sold in the period.
Ore output from the East Region and Bozymchak totalled 4,664 kt
in 2016, which was 229 kt or 5% above the volume extracted in the
prior year. This reflected increased volumes from Bozymchak, which
following optimisation works completed during the fourth quarter of
2015, operated at design capacity throughout 2016. This more than
offset lower ore volumes from the East Region's Orlovsky and
Yubileyno-Snegirikhinsky mines. The Orlovsky mine implemented a
six-day working week from the start of the second half of the year
to allow maintenance to be carried out on a ventilation shaft,
which will continue for approximately two years. Ore output at
Yubileyno-Snegirikhinsky reduced as the mine reached the end of its
operational life in December 2016 with all mineral reserves fully
exploited after 15 years. Ore stockpiled at the site will be
processed in early 2017. 188 employees have either been redeployed
within the Group or accepted redundancy, whilst 40 employees will
remain on site to supervise the process of decommissioning and
rehabilitation.
As expected, the copper grade was below the prior year at 2.01%.
Average grades were impacted by higher volumes and lower grades
from the Bozymchak mine, as well as lower grades across most of the
East Region mines, including Artemyevsky where mining occurred in a
transitional area between two ore bodies. The 11% decrease in
copper grade more than offset the increase in ore output and
resulted in a 7% reduction in copper in ore mined.
Copper in concentrate output of 81.0 kt was 8.4 kt or 9% below
the prior year as lower production from all East Region
concentrators was partly offset by higher output from the optimised
Bozymchak mine. East Region copper in concentrate production
reduced by 16%, reflecting the expected lower output from Orlovsky
as well as road repairs which restricted ore deliveries from the
Yubileyno-Snegirikhinsky mine to the Nikolayevsky concentrator. The
average recovery rate was in line with the prior year, despite the
lower grade material processed.
The copper concentrate produced by the East Region and Bozymchak
is processed into cathode on a tolling basis at the Balkhash
smelter. Copper cathode equivalent production decreased by 3.3 kt
to 77.4 kt, mainly due to the lower copper in concentrate output.
Maintenance work at the Balkhash smelter in the final two months of
the year resulted in some work in progress being carried forward
into 2017. Full year copper cathode equivalent production of 77.4
kt includes 0.9 kt recognised from the sale of copper concentrate
produced at Bozymchak in 2015 to a third-party processor and 1.7 kt
of material sold as copper concentrate from the East Region.
Limited volumes of East Region concentrate may continue to be sold
to China in 2017.
Copper production for the East Region and Bozymchak is
anticipated to reduce to around 65 kt in 2017 as output declines
following the closure of Yubileyno-Snegirikhinsky and the full year
impact of the six-day rota and lower grades at Orlovsky.
By products
koz (unless otherwise stated) 2016 2015
------------------------------ ----- -----
Zinc grade (%) 2.98 3.23
Zinc in ore mined (kt) 111.3 128.9
Zinc in concentrate (kt) 75.4 94.3
Gold grade (g/t) 0.74 0.75
Gold in ore mined 111.2 106.6
Gold in concentrate 67.6 42.1
Gold bar equivalent(1) 60.1 34.6
Silver grade (g/t) 37.8 43.3
Silver in ore mined 5,660 6,168
Silver in concentrate 3,224 3,229
Silver bar equivalent(1) 2,817 3,135
------------------------------ ----- -----
(1) Includes finished metals produced and the finished metal
equivalent of concentrate sold in the period.
Zinc in concentrate production of 75.4 kt slightly exceeded the
external guidance for 2016 but compared to the prior year fell by
20%. This reflected a 17.6 kt or 14% decrease in zinc in ore mined
due to a reduction in by-product grades and lower ore output at
Orlovsky, the largest zinc producing mine and where operations have
been reduced to a six-day week. The reduction in grade is in line
with expectations and primarily a result of lower zinc grades at
Artemyevsky where mining is moving through a transitional zone
between two ore bodies. Concentrate production was also restricted
by the temporary disruption to ore transport from the
Yubileyno-Snegirikhinsky mine.
Higher production at Bozymchak resulted in a 74% increase in
gold bar equivalent production, more than offsetting the East
Region's lower ore volumes and grades. Bozymchak operated at 100%
of design capacity throughout the year and contributed gold bar
equivalent of 38.3 koz, a 206% increase from 2015. Lower output
from East Region was primarily the result of lower volumes and
grades at Orlovsky.
Silver in concentrate production was in line with the prior year
as output from Bozymchak offset a lower contribution from the East
Region. East Region silver in concentrate production was affected
by the lower volumes and grades at Orlovsky, as well as lower
grades at Irtyshsky. Silver grades were expected to fall in the
East Region mines but were stronger than expected at Artemyevsky
and Irtyshsky which also assisted concentrator recovery rates.
Silver bar production of 2,817 koz was 10% below the prior year,
but exceeded market guidance of 2,250-2,500 koz.
East Region and Bozymchak are expected to produce 70 kt to 75 kt
of zinc in concentrate, 50 koz to 60 koz of gold (payable metal in
concentrate) and 2,250 koz to 2,500 koz of silver (payable metal in
concentrate) in 2017.
Financial Summary
$ million (unless otherwise stated) 2016 2015
------------------------------------------ ----- -----
Gross Revenues(1) 621 677
Copper 399 465
Zinc 95 102
Silver 46 46
Gold 75 41
Other 6 23
Revenues 621 665
Sales volumes(1)
Copper cathode equivalent (kt) 82 84
Zinc in concentrate (kt) 75 96
Silver bar equivalent (koz) 2,740 3,048
Gold bar equivalent (koz) 60 35
Realised price of copper sales ($/t)(1) 4,859 5,524
Gross EBITDA (excluding special items)(1) 279 246
Capitalised EBITDA - (6)
EBITDA (excluding special items) 279 240
Gross cash costs (USc/lb)(1) 191 230
Net cash costs (USc/lb)(1) 68 109
Capital expenditure 62 74
Sustaining 50 67
Expansionary 12 7
------------------------------------------ ----- -----
(1) Includes Bozymchak operations for the full year 2015
including the pre-commercial production period to 1 July 2015.
Gross Revenues
Gross Revenues in the prior year include sale volumes from
Bozymchak during the period of pre-commercial production prior to 1
July 2015 which comprise $6 million from the sale of copper cathode
and $6 million from the sale of gold bar. Gross Revenues generated
by the East Region and Bozymchak decreased by 8% to $621 million in
2016, reflecting lower pricing for copper and a decrease in zinc
sales volumes, which was partially offset by increased gold volumes
from Bozymchak.
Copper revenues fell by 14% to $399 million as a result of a
lower realised copper price. The average LME copper price decreased
by 12% to $4,860/t versus $5,495/t during 2015. Copper cathode is
sold to customers in China or Europe based on the LME price plus a
premium to reflect the terms of trade. Copper cathode equivalent
sales volumes in 2016 include 2.6 kt of payable metal from the sale
of copper in concentrate, which is sold based on the LME price
minus a deduction for TC/RCs. Copper sales volumes in 2015 includes
5 kt of cathode which was purchased externally to compensate for
variances in monthly cathode output, mainly because of maintenance
at the Balkhash smelter. The sale of the externally purchased
cathode contributed revenue of $28 million at a small margin.
Excluding externally purchased material, the prior year copper
cathode equivalent volumes were 79 kt.
Gross Revenues from by-products increased by $10 million or 5%
due largely to the increase in gold production from the optimised
Bozymchak operation. Gold sales volumes more than doubled and
benefited from an 8% increase in the average market LBMA price for
gold. Zinc concentrate sales were 22% below the prior year due to
lower production and grades but this was partially offset by a 9%
increase in the market price for zinc versus the prior year. Silver
revenues were consistent with the prior year, as lower volumes were
offset by an increase in price. Other revenues in the prior year
included the sale of sulphuric acid which is now supplied to
Aktogay for heap leach operations.
Gross EBITDA (excluding special items)
Gross EBITDA improved by $33 million compared to the prior year
as lower revenues were more than offset by a reduction in cash
operating costs. Cash operating costs of $342 million fell by 15%
compared to 2015 (excluding the $28 million cost of acquiring
third-party cathode) despite a $19 million increase in costs at
Bozymchak resulting from a full year of capacity output.
The reduction in operating costs was largely the result of
foreign exchange. A significant portion of the East Region's
operating costs are denominated in tenge. Following a free float in
August 2015, the tenge traded at an average of 342 KZT/$ during
2016 compared to an average of 222 KZT/$ in 2015. Management has
taken a robust position in the renegotiation of contracts following
the devaluation and where possible, has delayed tariff increases.
The full impact of tariff increases resulting from the devaluation
is expected to feed into costs from 2017. In addition, there has
been a continued focus on cost control and optimisation initiatives
which, combined with a fall in the cost of key input prices such as
smelting charges, fuel and transportation charges, has reduced
costs.
The gross cash cost of 191 USc/lb was 17% below the 230 USc/lb
recorded in the prior year due to the lower cash operating costs
noted above. This was at the lower end of guidance of 190-210
USc/lb. The fall in net cash costs from 109 USc/lb to 68 USc/lb is
due to the reduction in gross cash cost, the increase in gold
volumes from Bozymchak and higher market prices for all
by-products, partially offset by lower zinc volumes.
The gross cash cost of copper sold for East Region and Bozymchak
is expected to increase by around 20% to 230-250 USc/lb in 2017.
This is largely attributable to the expected reduction in copper
volumes due to the closure of the Yubileyno-Snegirikhinsky mine at
the end of the year and lower volumes and grades from the Orlovsky
mine which will operate a six-day week throughout 2017. This is
expected to result in a reduction in copper production of around
20% from 2016 levels which will put upward pressure on unit costs.
In addition, costs will reflect the full impact of inflation
following the devaluation while in Kyrgyzstan new legislation will
increase salaries. The 2017 cash cost guidance is set assuming the
tenge continues to trade in the mid-300s.
Capital expenditure
Sustaining
Sustaining capital expenditure totalled $50 million in 2016,
which was $17 million below the prior year and below the guidance
of $70-80 million. Management has deferred capital expenditure
where possible with optimisation and less critical maintenance
moved into 2017. Expenditure in 2016 includes mine development
works, the purchase of mine equipment, expansion of tailings
facilities and ventilation shaft maintenance at Orlovsky.
In 2017 sustaining capital requirements for the East Region and
Bozymchak are expected to be around $70 million including
approximately $15 million on optimisation projects deferred from
2016. Optimisation projects include the construction of a railway
line between Artemyevsky and the Nikolayevsky concentrator.
Expansionary
Expansionary capital in 2016 of $12 million related to the
initial mine development works for the extension of the existing
Artemyevsky mine and was incurred to develop a ventilation tunnel.
The majority of the expenditure for the project will occur from
2019, with expenditure estimated at around $30 million in 2017 and
2018 for long-lead items such as shaft development.
OTHER PROJECTS
The Group expects to make available up to $20 million during
2017 for other projects, including further studies at Koksay and to
study the feasibility of construction of a copper smelter in
Kazakhstan. The smelter would process copper concentrate from
Bozshakol and Aktogay. Any decision to proceed with construction
will be subject to additional technical and economic evaluation and
the availability of suitable financing. The Group acquired Koksay,
a third major growth project, in 2014 which is located in south
eastern Kazakhstan. The project is estimated to have a life of over
20 years with average annual production of around 80 kt of copper
cathode equivalent along with gold, silver and molybdenum
by-products. In 2016 expenditure of $1 million was incurred on the
project to continue scoping study works.
Financial REVIEW
Basis of preparation
The financial information has been prepared in accordance with
IFRSs, as adopted by the EU, using accounting policies consistent
with those adopted in the consolidated financial statements for the
year ended 31 December 2016. In preparing the consolidated
financial statements, the Group did not apply or adopt any
standards, interpretations or amendments that were issued but not
yet effective.
The Bozshakol sulphide and Aktogay oxide plants commenced sales
during 2016 and were in pre-commercial production until they were
declared commercial on 27 October 2016 and 1 July 2016
respectively. During the pre-commercial production phase, revenues
and operating costs were capitalised within property, plant and
equipment as part of the cost of construction and are not included
in the income statement. The Financial Review and the condensed
consolidated financial statements (note 4(a)(i)) include the
non-IFRS measures Gross Revenues and Gross EBITDA, which
incorporate the results of the Bozshakol sulphide and Aktogay oxide
plants before capitalisation to provide a measure of their
performance for the full year.
For the year ended 31 December 2015, Gross Revenues and Gross
EBITDA include Bozymchak's pre-commercial production activities.
Bozymchak achieved commercial production on 1 July 2015 and from
that date its revenues and related costs were recognised in the
income statement.
Income statement
An analysis of the consolidated income statement is shown
below:
$ million (unless otherwise stated) 2016 2015
----------------------------------------------- ------ -------
Gross Revenues 969 677
Gross EBITDA (excluding special items) 492 208
----------------------------------------------- ------ -------
Revenues 766 665
Cash operating costs (415) (463)
----------------------------------------------- ------ -------
EBITDA (excluding special items) 351 202
Special items:
Less: write-offs and impairment charges (3) (12)
Less: loss on disposal of assets - (2)
Add: NFC deferral benefit - 16
Less: MET and royalties (70) (62)
Less: depreciation, depletion and amortisation (60) (52)
----------------------------------------------- ------ -------
Operating profit 218 90
Net finance income/(costs) 2 (78)
----------------------------------------------- ------ -------
Profit before taxation 220 12
Income tax expense (43) (24)
----------------------------------------------- ------ -------
Profit/(loss) for the year 177 (12)
Non-controlling interests - -
----------------------------------------------- ------ -------
Profit/(loss) attributable to equity holders
of the Company 177 (12)
----------------------------------------------- ------ -------
Earnings per share attributable to equity
shareholders of the Company
EPS - basic and diluted ($) 0.40 (0.03)
EPS based on Underlying Profit/(Loss) ($) 0.40 (0.02)
----------------------------------------------- ------ -------
Gross Revenues and revenues
Gross Revenues for 2016 were $969 million, an increase of 43%
from the prior year due to the contributions from Bozshakol and
Aktogay of $280 million and $68 million respectively. Gross
Revenues at the East Region and Bozymchak reduced by $56 million to
$621 million as the increase in sales volumes from the optimised
Bozymchak operations was more than offset by lower copper prices
and a reduction in zinc volumes.
Revenues recognised in the income statement increased by 15% to
$766 million, reflecting the commercial revenues generated by
Bozshakol and Aktogay of $93 million and $52 million respectively
and a full year of design capacity output from Bozymchak. The
growth in revenues was volume driven, offsetting the impact of
lower copper prices. Revenues recognised in the income statement
exclude sales from the pre-commercial production period during
which revenues of $187 million and $16 million from Bozshakol and
Aktogay were capitalised in 2016. In 2015 pre-commercial revenues
of $12 million arose from Bozymchak.
Further information on Gross Revenues and revenues by operating
segment is found in the Operating Review.
Operating profit
Operating profit for 2016 was $218 million compared to $90
million in 2015, reflecting improved profitability across all the
segments. Volume growth at Bozshakol and Bozymchak led to increases
of $59 million and $39 million respectively. The East Region's
operating profit rose by $24 million due to the favourable impact
on costs of the 2015 tenge devaluation and lower impairments in
2016.
EBITDA (excluding special items)
EBITDA (excluding special items) is a key non-IFRS measure that
the Directors use internally to assess the performance of the
Group's segments and is viewed as relevant to capital intensive
industries with long life assets. This performance measure removes
depreciation, depletion, amortisation, MET, royalties and those
items which are non-recurring or variable in nature and which do
not impact the underlying trading performance. The Directors
believe that the exclusion of MET and royalties provides an
informed measure of the operational profitability given the nature
of the tax as further explained in the 'Taxation' section. The
Directors also believe that this measure closely reflects the
operating cash generative capacity and therefore the trading
performance of the business as a whole. Special items are excluded
to enhance the comparability of EBITDA (excluding special items)
from period to period. A reconciliation of this measure to
operating profit can be found in note 4(a)(i) of the condensed
consolidated financial statements.
Gross EBITDA (excluding special items) includes the EBITDA
(excluding special items) earned by the Group's development assets
in the period prior to commercial production, which is capitalised
to property, plant and equipment.
A reconciliation of EBITDA (excluding special items) by
operating segment is shown below:
$ million 2016 2015
-------------------------------------------- ------ -----
East Region operations 227 235
Bozymchak 52 11
Bozshakol 204 (10)
Aktogay 33 (3)
Corporate services (24) (25)
-------------------------------------------- ------ -----
Gross EBITDA 492 208
Less: capitalised pre-commercial production
EBITDA (141) (6)
-------------------------------------------- ------ -----
Bozymchak - (6)
Bozshakol (137) -
Aktogay (4) -
-------------------------------------------- ------ -----
EBITDA (excluding special items) 351 202
-------------------------------------------- ------ -----
Gross EBITDA (excluding special items) for the Group rose by
137% from $208 million to $492 million due to the contribution from
the Bozshakol sulphide and Aktogay oxide plants which commenced
sales activities during the first quarter of 2016 and from
increased sales volumes from Bozymchak. The Gross EBITDA (excluding
special items) margin for the Group improved from 31% in 2015 to
51% in 2016 due to Bozshakol's low cash operating costs and the
tenge devaluation benefiting the East Region operations.
At Bozshakol, Gross EBITDA (excluding special items) improved
from a loss of $10 million in 2015 to a contribution of $204
million due to the commencement of sales in the first quarter of
2016. The Bozshakol sulphide plant reached commercial levels of
production on 27 October 2016, from when revenues and operating
costs were recognised in the income statement.
Aktogay's Gross EBITDA (excluding special items) was $33 million
following the commencement of sales of cathode from the oxide plant
in early 2016, partly offset by higher levels of operational
readiness activities for the sulphide plant. The Aktogay oxide
plant achieved commercial levels of production from 1 July 2016
from when revenues and operating costs were recognised in the
income statement.
The East Region's Gross EBITDA (excluding special items) of $227
million was $8 million lower than in 2015 as lower cash operating
costs partially offset a reduction in revenue. Cash operating costs
in 2016 of $306 million were $80 million below the prior year,
excluding a $28 million cost of cathodes purchased to fulfil
customer obligations, reflecting the significant impact of the
August 2015 tenge devaluation on the cost base and continued cost
control measures.
Bozymchak's Gross EBITDA (excluding special items) of $52
million was higher than the $11 million reported in 2015 due to
increased production and sales volumes. During the pre-commercial
production phase in the first half of 2015, EBITDA of $6 million
was capitalised to property, plant and equipment resulting in an
EBITDA of $5 million in 2015.
Corporate costs of $24 million were broadly unchanged from
2015.
The increase in EBITDA (excluding special items) from $202
million to $351 million in 2016 is mainly attributed to the $77
million increased contribution from Bozshakol and $32 million
increase from Aktogay oxide following their achievement of
commercial production and the increased contribution from the
Bozymchak operation of $47 million.
Please refer to the Operating Review for a detailed analysis of
the Group's EBITDA (excluding special items) by operating
segment.
Special items
Special items are non-recurring or variable in nature and do not
impact the underlying trading of the Group.
Special items within operating profit:
2016
Impairment charges
During 2016, an impairment of $3 million at the East Region
operations has been recognised against property, plant and
equipment which is no longer expected to be utilised.
2015
Impairment charges
During 2015, the following impairment charges were
recognised:
-- Property, plant and equipment - a charge of $8 million primarily related to the impairment of administrative land and buildings in Kazakhstan, retained in the Restructuring, which were not in use.
-- Mining assets - a charge of $4 million against mine
development works which were not expected to be utilised.
Loss on disposal of assets
During 2015, a loss on the disposal of mining assets of $2
million was recognised relating to assets that the Group no longer
intends to develop.
NFC deferral benefit
In November 2015, the Group signed an agreement with NFC under
which $300 million of Aktogay construction costs, which were
scheduled to be paid in 2016 and 2017, will be settled in the first
half of 2018 with no change to the overall amount payable to NFC.
The agreement to defer payments gave rise to a non-cash gain of $16
million representing the estimated benefit to the Group.
Impact of fire at Bozshakol
A fire occurred in August 2015 in the grinding area of the
Bozshakol concentrator which caused $7 million of damage to
equipment and was covered by construction insurance. The damaged
equipment was written off to other operating expenses with the
insurance payment recognised in other operating income with a net
effect of nil.
Other items excluded from EBITDA (excluding special items)
MET and royalties
MET and royalties charge in the income statement rose from $62
million in 2015 to $70 million in 2016, reflecting the increase in
metal in ore mined during commercial production from the Bozshakol
and Aktogay operations and royalties incurred on higher Bozymchak
sales volumes.
At Bozshakol, the total MET incurred for the year was $65
million (2015: $17 million), of which $25 million (2015: $17
million) was incurred prior to commercial production and
capitalised to property, plant and equipment while $33 million
(2015: $11 million) was in respect of stockpiled clay ore and
included in the cost of non-current inventory on the balance sheet.
At Aktogay, the total MET charge for the year was $17 million, $9
million of which related to pre-commercial production. Neither
Bozshakol or Aktogay charged any MET to the income statement in
2015.
The MET charge for the East Region of $50 million for 2016 was
below the $61 million charge in the prior year reflecting lower
metal in ore extracted and a fall in LME copper prices. Bozymchak
incurred $5 million of royalties and social development tax
compared to $1 million incurred in 2015 after the achievement of
commercial production.
Depreciation, depletion and amortisation
Depreciation, depletion and amortisation for 2016 of $60 million
is $8 million higher than the $52 million charge in 2015 as
depreciation of the Bozshakol and Aktogay assets began on
achievement of commercial production, increasing the charge by $17
million. At Bozymchak, depreciation increased by $4 million
reflecting a full year of production. The depreciation charge in
the East Region operations was $13 million lower compared to 2015
due to the tenge devaluation in the second half of the prior
year.
Net finance income/(costs)
Net finance income/(costs) includes:
$ million 2016 2015
----------------------------------------------- ------ ------
Interest income 9 9
----------------------------------------------- ------ ------
Interest on borrowings (197) (155)
Unwinding of discount on NFC deferral (8) -
----------------------------------------------- ------ ------
Total interest cost (205) (155)
Interest capitalised 163 132
----------------------------------------------- ------ ------
Interest expense (42) (23)
Interest on employee obligations and unwinding
of discounts (3) (4)
Net foreign exchange gains/(loss) 38 (60)
----------------------------------------------- ------ ------
Net finance income/(costs) 2 (78)
----------------------------------------------- ------ ------
Overall, net finance income was $2 million compared to a cost of
$78 million in 2015.
The total interest cost on borrowings amounted to $197 million
and was $42 million higher than the $155 million incurred in the
prior year. The increase is attributed to higher LIBOR rates in
2016 affecting the Group's interest cost. The unwinding of the
discount on the NFC deferral of $8 million, being the implied
interest cost on the $300 million deferral agreed in 2015, is
capitalised to the cost of the Aktogay sulphide plant until it
reaches commercial production.
The interest expense of $42 million (2015: $23 million) is after
the capitalisation of interest relating to the construction of new
mines and increased due to the expensing of borrowing costs
associated with the Bozshakol sulphide and Aktogay oxide plants
after they achieved commercial production in 2016.
The $38 million net foreign exchange gain in 2016 was
principally driven by a 9% appreciation of the Kyrgyz som and from
the 18% depreciation in the UK pound sterling against the US
dollar. The appreciation of the som resulted in net exchange gains
of $20 million on Bozymchak's US dollar denominated intercompany
debt, while the depreciation of the UK pound sterling from June
2016 against the US dollar gave rise to a $16 million gain on
intercompany British pound liabilities. These gains were largely
offset by translation losses recognised within equity.
The net exchange loss of $60 million in 2015 was largely
attributed to the depreciation of the Kyrgyz som giving rise to net
exchange losses on Bozymchak's US dollar denominated intercompany
net debt of $52 million and net exchange losses of $7 million
across the Kazakhstan operations following the August 2015 tenge
devaluation.
Taxation
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 MET and removes the effect of special items on the Group's tax
charge.
$ million (unless otherwise stated) 2016 2015
-------------------------------------------- ----- -----
Profit before taxation 220 12
Add: MET and royalties 70 62
Add: special items within operating profit 3 (2)
-------------------------------------------- ----- -----
Adjusted profit before taxation 293 72
-------------------------------------------- ----- -----
Income tax expense 43 24
Add: MET and royalties 70 62
Less: recognition of deferred tax liability
on special items - (4)
Adjusted tax expense 113 82
-------------------------------------------- ----- -----
Effective tax rate (%) 20 200
-------------------------------------------- ----- -----
All-in effective tax rate(1) (%) 39 114
-------------------------------------------- ----- -----
(1) The all-in effective tax rate is calculated as the income
tax expense plus MET and royalties less the tax effect of special
items and other non-recurring items, divided by profit before
taxation which is adjusted for MET and royalties and special items.
The all-in effective tax rate is considered to be a representative
tax rate on the recurring profits of the Group.
Effective tax rate
The effective tax rate was 20%, considerably below the prior
year when the Group recorded a much lower profit before tax. The
higher level of profitability in 2016 reduced the impact of
non-deductible items within the Group's Kazakhstan operations. The
effective tax rate was also supported by the utilisation of
historic tax losses at the Bozymchak operations. The effective tax
rate in 2015 of 200% arose as a tax charge of $24 million was
realised on a profit before taxation of $12 million and reflects
unrecognised tax losses from the Bozymchak operations and the
Group's UK financing entity and higher non-deductible expenses
incurred principally at the East Region.
All-in effective tax rate
The all-in effective tax rate decreased to 39% from 114% in 2015
as the adjusted profit before taxation increased by $221 million
following the higher profitability across the operations and the
utilisation of historic tax losses at Bozymchak. MET and royalties
increased by $8 million following commercial production at
Bozshakol and Aktogay oxide and increased sales volumes at
Bozymchak, partially offset by lower metal in ore mined from the
East Region operations and lower copper prices. The higher all-in
effective rate in 2015 was negatively impacted by unrecognised tax
losses at Bozymchak and by MET representing a greater proportion of
the adjusted profit before taxation. As MET is determined
independently of the profitability of operations, in periods of
lower profitability the all-in effective tax rate increases, as the
impact of MET and royalties is elevated due to their revenue based
nature. Conversely, during periods of higher profitability, the MET
and royalties' impact on the all-in effective tax rate
decreases.
Taxation related special items:
2015
The taxation special items relate to the tax effects on the $16
million NFC deferral benefit and certain other impairment
charges.
Future tax rates
Future tax rates are materially affected by the application of
corporate income tax ('CIT') and MET. The CIT rate in Kazakhstan is
20% and 10% in Kyrgyzstan on assessable profits whilst MET is
revenue-based and dependent on commodity prices.
Underlying Profit/(Loss)
Underlying Profit/(Loss) is a non-IFRS measure and is the
profit/(loss) for the year 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 non-controlling interest effects. The reconciliation of
Underlying Profit/(Loss) from profit/(loss) attributable to equity
holders of the Company is set out below:
$ million (unless otherwise stated) 2016 2015
------------------------------------------------- ----- -------
Net profit/(loss) attributable to equity holders
of the Company 177 (12)
Special items:
Write-offs and impairment charges 3 12
Loss on disposal of assets - 2
NFC deferral benefit - (16)
Taxation effect of special items:
Recognition of deferred tax liability on special
items - 4
Underlying Profit/(Loss) 180 (10)
------------------------------------------------- ----- -------
Weighted average number of shares in issue
(million) 447 446
------------------------------------------------- ----- -------
Ordinary EPS - basic and diluted ($) 0.40 (0.03)
EPS based on Underlying Profit/(Loss) - basic
and diluted ($) 0.40 (0.02)
------------------------------------------------- ----- -------
The Group's net profit attributable to equity holders of the
Company was $177 million in 2016 compared to a loss of $12 million
for the year ended 31 December 2015.
The Underlying Profit for the year was $180 million compared to
a loss of $10 million in the prior year, primarily due to increased
operating profit across all the Group's operations and from the
impact of exchange gains compared to exchange losses in the prior
year.
Earnings per share
Basic earnings per share of $0.40 increased from the $0.03 loss
per share in 2015, whilst earnings per share based on Underlying
Profit rose to $0.40 from a loss of $0.02, reflecting the Group's
improved profitability.
Dividends
The policy established at the time of Listing was for the
Company to maintain a dividend policy which took into account the
profitability of the business and underlying growth in earnings of
the Group, as well as its cash flows and growth requirements. The
Directors would also ensure that dividend cover is prudently
maintained.
Taking into consideration the Group's increase in net debt
during the construction and ramp up phase of two of the major
growth projects, the Directors did not declare an interim dividend
and will not recommend a final dividend for 2016. The Board will
continue to assess the Group's financial position, its cash flows
and growth requirements in determining when to resume dividend
payments in the future.
Cash flows
The summary of cash flows shown below, is prepared on a basis
consistent with internal management reporting with the key non-IFRS
measure of Free Cash Flow which is defined as the net cash flow
from operating activities before capital expenditure and
non-current VAT associated with major projects less sustaining
capital expenditure.
$ million 2016 2015
----------------------------------------------------- ------ --------
EBITDA (excluding special items)(1) 351 202
Change in inventories(2) (19) (23)
Change in prepayments and other current assets(2) (14) (29)
Change in trade and other receivables(2) (38) 74
Change in trade and other payables and provisions(2) (2) (59)
Interest paid (179) (147)
MET and royalties paid(2) (73) (54)
Income tax paid (39) (40)
Foreign exchange and other movements 4 (1)
----------------------------------------------------- ------ --------
Net cash flows from operating activities before
capital expenditure and non-current VAT associated
with major projects(4) (9) (77)
Sustaining capital expenditure (51) (68)
----------------------------------------------------- ------ --------
Free Cash Flow (60) (145)
Expansionary and new project capital expenditure(3) (273) (1,012)
Acquisition of mining licences - (46)
Non-current VAT associated with major projects (89) (105)
Interest received 9 7
Proceeds from disposal of property, plant
and equipment 1 7
Other movements (3) (2)
----------------------------------------------------- ------ --------
Cash flow movement in net debt (415) (1,296)
----------------------------------------------------- ------ --------
(1) EBITDA (excluding special items) is defined as profit before
interest, taxation, depreciation, depletion, amortisation, MET and
royalties. Please refer to note 4(a)(i) of the consolidated
financial statements.
(2) Excludes working capital and MET movements arising from
pre-commercial production activities at the Bozshakol and Aktogay
operations in 2016 and Bozymchak in 2015.
(3) Capital expenditure includes the capitalisation of $64
million cash inflow and $12 million cash outflow relating to
pre-commercial production activities at Bozshakol and Aktogay
respectively (2015: $2 million from Bozymchak). At Bozshakol $52
million was spent on the stockpiled clay ore and included within
new project capital expenditure.
(4) The difference between 'net cash flow from operating
activities before capital expenditure and non-current VAT
associated with major projects' and net cash used in operating
activities' as reflected on the Group cash flow statement, is the
VAT paid on the construction of the major projects.
Summary of the year
Net cash flows from operating activities before other
expenditure associated with major projects improved following
higher profitability and lower sustaining capital expenditure,
partly offset by higher interest payments on borrowings, increased
MET payments from Bozshakol and Aktogay following commercial
production and higher working capital requirements, notably
accounts receivable in December 2016.
Working capital
The working capital movements in the table above exclude the
period of pre-commercial production at Bozshakol and Aktogay which
are included within expansionary and new project capital
expenditure.
-- inventory levels have risen by $19 million following an
increase in raw materials requirements at the Bozshakol and Aktogay
operations and a small increase in East Region and Bozymchak work
in progress at the Balkhash smelter. The $47 million increase in
inventory as reflected in the IFRS based cash flow statement (see
note 13) includes MET and depreciation, both production costs which
are excluded from the cash flow above as MET is reflected
separately and EBITDA (excluding special items) is stated before
depreciation and amortisation;
-- prepayments and other current assets increased by $14 million
primarily due to a build-up of VAT receivable at the East Region
and Bozymchak operations and advances paid for goods and services
at the Aktogay oxide operations. The East Region operations
received $30 million in VAT refunds during 2016;
-- trade and other receivables increased by $38 million mainly
due to higher volumes and prices of Bozshakol concentrate sales
over the last two months of the year; and
-- creditors and provisions decreased by $2 million as creditor
reductions from the East Region, Bozymchak and Corporate segments
were partly offset by increased trade payables at the Bozshakol and
Aktogay operations. The $9 million accounts payable and provision
inflow reflected in the IFRS based cash flow statement (see note
13) includes the accruals relating to MET and royalties. The cash
flow shown above shows MET and royalty payments separately.
Working capital movements at Bozshakol and Aktogay incurred
during pre-commercial production (financed in part by the project
budgets) are reflected within expansionary capital expenditure in
the cash flow above and are not included in the Free Cash Flow. The
pre-commercial working capital movements include a $39 million
outflow for consumables and raw materials, a $40 million increase
in trade and other receivables and a $3 million increase in
prepayments, partly offset by a $45 million increase in trade
creditors, including MET payable during this period.
In 2015, inventory levels increased by $23 million following a
build-up of work in progress at the Balkhash smelter. Trade and
other receivables decreased by $74 million mainly due to the
winding down of trading relationships with the Disposal Assets.
Prepayments increased by $29 million from a build-up of VAT in
excess of refunds over the course of the year. Trade and other
payables and provisions decreased by $59 million in 2015,
reflecting the settlement of amounts due to the Disposal Assets in
respect of sales arrangements which ended in late 2014.
Interest cash flows
Interest paid during the year was $179 million, compared with
the $147 million paid in the prior year. The increased payment is
consistent with the higher borrowings cost for the year at $197
million compared to $155 million in the prior year. Interest
payments are made semi-annually under the CDB Bozshakol/Bozymchak
and CDB Aktogay US dollar facilities, quarterly under the CDB
Aktogay RMB facility and monthly under the pre-export finance
facility.
Income taxes and Mineral Extraction Tax
Income tax payments of $39 million were slightly below the
income tax charge which includes deferred tax. At 31 December 2016,
the Group's net income tax payable was $4 million, compared to $11
million in 2015.
MET and royalty payments increased to $73 million reflecting the
payments made by Bozshakol and Aktogay following the achievement of
commercial production and higher royalty payments at Bozymchak. The
total MET paid on ore mined at Bozshakol and Aktogay in 2016 was
$46 million and $19 million, with $40 million and $5 million
respectively included within expansionary capital expenditure.
Subsequent to achieving commercial production at the Bozshakol
sulphide and the Aktogay oxide plant, MET of $6 million and $14
million was paid respectively. At 31 December 2016, MET and
royalties payable was $49 million compared to $25 million at 31
December 2015, attributed largely to increased mining activity
compared to the prior year at Bozshakol and Aktogay and higher
copper prices at the end of year increasing the MET and royalties
payable.
Free Cash Flow
The Group's Free Cash Flow before interest payments on
borrowings was $119 million compared to $2 million in 2015 due to
the increase in operational cash flows from Bozshakol, Aktogay and
Bozymchak as well as reduced sustaining capital expenditure at the
East Region operations. After interest payments, Free Cash Flow was
an outflow of $60 million compared to an outflow of $145 million in
the prior year.
Capital expenditure
Sustaining capital expenditure relates primarily to East Region
and Bozymchak and reduced by $17 million to $51 million as
management continue to defer expenditures where possible.
Expansionary and new project expenditure of $273 million was below
the $1,012 million invested in 2015. The decrease in expansionary
expenditure is due to Bozshakol and Aktogay nearing completion and
due to the agreement to defer $300 million of the Aktogay principal
contractor costs to 2018. Total Bozshakol and Aktogay capital
expenditure for 2016 was $104 million and $156 million
respectively, including $52 million of operating cash inflows
capitalised ahead of pre-commercial production and $52 million
outflow relating to the investment in stockpiled clay ore. Total
Group capital expenditure incurred in 2016 was $324 million, $756
million below the $1,080 million invested in the prior year. Please
refer to the Operating Review for an analysis of the Group's
capital expenditure by operating segment.
Non-current VAT
The non-current VAT cash flow includes a substantial portion of
VAT relating to the $300 million NFC deferral paid at the end of
the year and also includes the timing of payments associated with
expansionary capital.
Other investing and financing cash flows
In 2016, other investing cash flows relate to interest received
on cash and cash equivalents and deposits of $9 million.
In 2015, other investing cash flows principally related to the
$35 million final instalment for the Koksay licence along with
transaction taxes, interest received of $7 million and the sale of
various items of property, plant and equipment within the Group for
proceeds of $7 million.
Balance sheet
The Group's capital employed position at 31 December 2016 is
shown below:
$ million 2016 2015
--------------------------------------------- ------ ------
Equity attributable to owners of the Company 533 319
Non-controlling interests 3 3
Borrowings 3,777 3,504
--------------------------------------------- ------ ------
Capital employed 4,313 3,826
--------------------------------------------- ------ ------
Summary of movements
The Group's attributable profit for the year of $177 million led
to the increase in the equity attributable to owners of the Company
and a marginal appreciation of the tenge increased the US dollar
value of the Group's foreign currency operations by $35
million.
In 2015, there was a significant reduction in net equity due to
the 86% fall in value of the tenge from 31 December 2014 to 31
December 2015. The Group's mining assets are largely held within
Kazakhstan based entities which have tenge functional currencies.
At period ends, these non-monetary assets are consolidated and
reported in US dollars at the closing exchange rate with the change
in value arising from movements in the tenge exchange rate
reflected in equity and not through the income statement. Whilst
the consolidated net asset value of the Group's Kazakhstan based
entities reduced for reporting purposes in 2015, the weaker tenge
had a positive effect on their underlying economic value as it
reduced their local operating costs in 2016, with revenues largely
US dollar based. The Group's external liabilities, principally its
bank debt, are largely US dollar denominated and therefore its
value is unaffected by movements in the KZT/USD exchange rate.
Net debt
Net debt consists of cash and cash equivalents, current
investments and borrowings. A summary of the Group's net debt
position is shown below:
$ million 2016 2015
-------------------------- -------- --------
Cash and cash equivalents 1,108 851
Current investments - 400
Borrowings (3,777) (3,504)
-------------------------- -------- --------
Net debt (2,669) (2,253)
-------------------------- -------- --------
Cash and cash equivalents and current investments at 31 December
2016 totalled $1,108 million and was lower than the $1,251 million
at 31 December 2015 as the $594 million in facility draw downs
during 2016 were more than offset by the repayment of debt of $321
million, expansionary capital expenditure and a negative Free Cash
Flow after interest payments. In 2016, the Group reclassified its
current investments to cash and cash equivalents to reflect the
expected cash flows of the Group over the next 12 months.
In December 2016, the Group entered into a $300 million credit
facility agreement with the DBK. The facility bears interest at
LIBOR plus 4.5% and is repayable in semi-annual instalments from
June 2018 with the final repayment in June 2025. The borrowing was
fully drawn by KAZ Minerals Aktogay LLC, the company operating the
Aktogay operations and is guaranteed by KAZ Minerals PLC.
The Group announced that an increased commitment of $50 million
to the PXF facility had been agreed in December 2016 and was drawn
before the end of the year. The Group also received a waiver of the
net debt to EBITDA covenant under the PXF and CAT facilities which
was to be tested at 31 December 2016. The covenant is next due to
be tested on 30 June 2017. See going concern section for further
information.
In order to manage counterparty and liquidity risk, surplus
funds within the Group are held predominantly in the UK and funds
remaining in Kazakhstan are utilised mainly for working capital
purposes. The funds within the UK are held primarily with major
European and US financial institutions and triple-'A' rated
liquidity funds. At 31 December 2016, $784 million of cash and
short-term deposits were held in the UK and Europe and $324
million, including the December 2016 proceeds from the $300 million
DBK facility, in Kazakhstan and Kyrgyzstan. The proceeds from the
$300 million DBK facility were transferred to the UK in January
2017.
At 31 December 2016, borrowings (net of amortised fees) were
$3,777 million, an increase of $273 million from the prior year
reflecting a $250 million draw down, net of fees paid, under the
CDB Aktogay US dollar finance facility and draw downs of $300
million and $50 million under the DBK and PXF facilities. This
increase was partly offset by principal repayments of $321 million
including $183 million under the CDB Bozshakol/Bozymchak finance
facility, $116 million under the PXF facility, $12 million under
the CDB Aktogay RMB finance facility, and $10 million under the CAT
facility. The borrowings (net of amortised fees) consisted of
$1,703 million under the CDB Bozshakol/Bozymchak facilities, $1,456
million under the CDB Aktogay finance facilities, $297 million
under the DBK facility, $281 million under the pre-export debt
facility and $40 million under the CAT facility.
Full details of the terms of the Group's borrowings are included
in note 11 of the condensed consolidated financial statements.
Other significant matters
East Region closure provision
In 2016, the Group has updated its estimate of asset closure
costs which resulted in a $43 million increase to the provision in
the East Region operations. In accordance with accounting
standards, the provision has been calculated assuming none of the
assets are sold, which management believe may be achieved for
certain assets.
NFC deferral contract agreement
On 17 November 2015, the Group signed an agreement with its
principal construction contractor, NFC, to defer payment of $300
million relating to the Group's Aktogay project. Under the revised
terms, $300 million of construction costs, which were scheduled to
be paid in 2016 and 2017, will be settled in 2018. There was no
change to the overall amount payable to NFC. The Group has
recognised this liability as the cost of the services were
delivered during 2016. Given the deferral, the Group has measured
the liability using the effective interest method and applied a
cost of borrowing of LIBOR plus 4.2%, being the interest rate on
the US dollar CDB Aktogay loan. The discount arising from the
effective interest method will be unwound over the repayment
period. At 31 December 2016, $284 million was recognised as a
liability on the balance sheet, with $250 million due in January
2018 and the remaining $50 million due in July 2018.
Going concern
The Group intends to enter discussions with the banks to achieve
a refinancing of the PXF facility in the first half of 2017 with a
view to amending the financial covenants to ensure a breach is not
triggered and to increase available liquidity by extending the
facility amount and the duration of the facility. Based on
discussions with lenders, the Board is confident that the banks
will view such a refinancing favourably provided the Group's debt
service obligations continue to be maintained, which forecasts
indicate will be the case. This conclusion is further supported by
the short-term nature of the anticipated covenant breach and the
high quality of the Group's assets, in particular, the Bozshakol
and Aktogay mines which have long operational lives and provide
large scale output at first quartile cash costs. The waiver
obtained to the 31 December 2016 covenant testing and the
additional $50 million in commitments made available and drawn in
December 2016 are further evidence of the support of the Group by
its banks.
In the event of a sustained fall in commodity prices or a
sustained fall in commodity prices coupled with lower than expected
production from the ramp up of Bozshakol and Aktogay, other
mitigating actions would be required to secure liquidity over the
going concern period, with a relatively modest additional liquidity
requirement in the first quarter of 2018. As a result the condensed
consolidated financial statements have been prepared on a going
concern basis. See note 2(a) of the condensed consolidated
financial statements.
PRINCIPAL RISKS
Managing our risks
The Group's principal risks are set out below, along with
mitigating actions. There may be other risks, unknown or currently
considered immaterial, which might become material. The risks set
out below are not in order of likelihood of occurrence or
materiality and should be viewed, as with any forward looking
statements in this document, with regard to the cautionary
statement.
Health & safety
Impact
Mining is a hazardous industry. Health and safety incidents
could result in harm to people, as well as production disruption,
financial loss and reputational damage.
Mitigation
The Group's goal is for zero fatalities and to minimise health
and safety incidents. Policies and procedures are designed to
identify and monitor risks and to provide a clear framework for
conducting business. This is supported by regular training and
awareness campaigns for employees and contractors. Significant
investment is being made into health and safety practices.
Bozshakol and Aktogay are open pit mines which are inherently safer
operating environments.
Business interruption
Impact
Operations are subject to a number of risks not wholly within
the Group's control, including: geological and technological
challenges; weather and other natural phenomena; damage to or
failure of equipment and infrastructure; loss or interruption to
key inputs such as electricity and water and the availability of
key supplies and services, including the Balkhash smelter.
Any disruption could impact production, may require the Group to
incur unplanned expenditure and negatively impact cash flows.
Mitigation
In-house and third-party specialists are utilised to identify
and manage operational risks and to identify improvements.
Equipment and facilities are maintained appropriately and regularly
inspected. Property damage and business interruption insurance
programmes provide some protection from major incidents.
Should an outage occur at the Balkhash smelter the Group
believes it could sell concentrate directly to customers.
Political
Impact
The Group could be affected by political instability or social
and economic changes in the countries in which it operates. This
could include the granting and renewal of permits and changes to
foreign trade or legislation that could affect the business
environment and negatively impact the Group's business, financial
performance and licence to operate.
Mitigation
A proactive dialogue is maintained with the Governments of
Kazakhstan and Kyrgyzstan across a range of issues. Developments
are monitored closely and lobbying is conducted where appropriate.
Kazakhstan is one of the most politically stable and economically
developed countries in Central Asia and the Board continues to view
the political, social and economic environment within Kazakhstan
favourably and remains optimistic about the conditions for business
in the region.
New project construction and commissioning
Impact
Projects may fail to achieve the desired economic returns due to
an inability to recover mineral resources, design or construction
deficiencies, a failure to achieve expected operating parameters or
because of capital or operating costs being higher than expected.
Failure to effectively manage new projects or a lack of available
financing may prevent or delay completion of projects.
These risks will continue in 2017 during the ramp up of the
Aktogay sulphide and Bozshakol clay plant. The speed of ramp up is
dependent on the successful start-up and operation of equipment and
the performance of suppliers and the workforce. These factors could
result in delays which could impact cash flows, liquidity and
financial results.
Mitigation
The Bozshakol and Aktogay major growth projects have been
designed using modern, proven equipment and have experienced
management teams. New projects are subject to rigorous assessment
prior to approval including feasibility or technical studies and
capital appraisal. Specialists are utilised throughout the life
cycle of projects. Project management and capital expenditure
planning and monitoring procedures are in place to review
performance against milestones and budgets. This includes the
Operations Ramp Up Assurance Committee which reports to the
Board.
Further details regarding the major growth projects are included
in the Operating Review.
Community and labour relations
Impact
The Group operates in areas where it is a major employer, where
employees are represented by labour unions and where it may provide
support to the local community. This may impose restrictions on the
Group's flexibility in taking certain operating decisions. Failure
to identify and manage the concerns and expectations of local
communities and the labour force could affect the Group's
reputation and social licence to operate, and result in production
disruptions and increases in operating costs. Wage negotiations
could be impacted by higher commodity prices, higher domestic
inflation or the continued weakness of the tenge.
Mitigation
The Group engages with community representatives, unions and
employees and aims to address concerns raised by different
stakeholders. Through responsible behaviour, acting transparently,
promoting dialogue and complying with commitments the Group
minimises potentially negative impacts. The Group has a social
programme for employees and their dependants and works closely with
authorities on social matters. Bozshakol and Aktogay are in remote
locations where community relations risk is reduced.
Employees
Impact
The Group is dependent on its ability to attract and retain
highly skilled personnel. Failure to do so could have a negative
impact on operations or the successful implementation of growth
projects and result in higher operating costs to recruit required
staff. The remote location of some operations increases this
challenge.
Mitigation
The Group actively monitors the labour market to remain
competitive in the hiring of staff and provides remuneration
structures and development opportunities to attract and retain key
employees. The Bozshakol and Aktogay operations teams have a
detailed recruitment and training plan and includes international
workers with appropriate expertise during the initial operational
years to assist the successful ramp up of the operations.
Reserves and resources
Impact
The Group's ore reserves are largely based on an estimation
method established by the former Soviet Union. There are numerous
uncertainties inherent in estimating ore reserves, which if
changed, could require the need to restate ore reserves and impact
the economic viability of affected operations and development
projects.
Mitigation
The Group's ore reserves and mineral resources are published
annually in accordance with the criteria of the JORC Code and
reviewed by an independent technical expert. This includes mine
site visits where considered appropriate and the conversion from
the former Soviet Union estimation to that prescribed by the JORC
Code. Drilling and exploration programmes are conducted to enhance
the understanding of geological information.
Legal and regulatory compliance
Impact
In Kazakhstan and Kyrgyzstan all subsoil reserves belong to the
State and subsoil usage rights must be renewed. Legislation,
including subsoil use laws and taxation have been in force for a
relatively short period of time and may be subject to change and
uncertainty of interpretation, application and enforcement.
Non-compliance with legislation could result in regulatory
challenges, fines, litigation and ultimately the loss of operating
licences. Substantial payments of tax could arise for the Group, or
tax receivable balances may not be recovered as expected.
Mitigation
Management engages with the relevant regulatory authorities and
seeks appropriate advice to ensure compliance with all relevant
legislation and subsoil use contracts. A specialist department is
tasked with monitoring compliance with the terms of subsoil use
contracts. Management works closely with the tax authorities in the
review of proposed amendments to legislation. Further details of
the Group's tax strategy and risk management are set out in the
Financial Review. Appropriate monitoring and disclosure procedures
are in place for related party transactions.
Environmental compliance
Impact
Mining operations involve the use of toxic substances and
requires the storage of large volumes of waste materials in
tailings dams, which could result in spillages and significant
environmental damage. The Group is subject to environmental laws
and regulations which are continually developing, including those
to tackle climate change. Failure to comply with applicable laws
could lead to the suspension of operating licences, the imposition
of financial penalties or costly compliance costs and reputational
damage.
Increased levels of production from Bozshakol and Aktogay will
increase the Group's environmental footprint and energy and water
consumption.
Mitigation
Policies and procedures are in place to set out required
operating standards and to monitor environmental impacts. The Group
liaises with relevant governmental bodies on environmental matters,
including legislation changes.
Bozshakol and Aktogay utilise modern technology which will
improve the Group's environmental efficiency compared to historic
operations.
Commodity price
Impact
The Group's results are heavily dependent on the commodity price
for copper and to a lesser extent, the prices of gold, silver and
zinc. Commodity prices can fluctuate significantly and are
dependent on several factors, including world supply and demand and
investor sentiment. The financial impact of commodity price
movements on the Group's financial position will increase with the
ramp up in output from Bozshakol and Aktogay.
Mitigation
The Group regularly reviews its sensitivity to fluctuations in
commodity prices. The Group does not normally hedge commodity
prices, but may enter into a hedge programme where the Board
determines it is appropriate to provide greater certainty over
future cash flows. The Group adopts a prudent approach in its
financial planning and investment appraisal, reflecting the
volatility in commodity prices.
Foreign exchange and inflation
Impact
Fluctuations in rates of exchange or inflation in the
jurisdictions to which the Group is exposed could result in future
increased costs. As the functional currency of the Group's
operations is the local currency, fluctuations in exchange rates
can give rise to exchange gains and losses in the income statement
and volatility in the level of net assets recorded on the Group's
balance sheet.
Mitigation
Where possible the Group conducts its business and maintains its
financial assets and liabilities in US dollars. The Group generally
does not hedge its exposure to foreign currency risk in respect of
operating expenses.
Exposure to China
Impact
Sales are made to a limited number of customers in China, with
Chinese sales to increase further as copper concentrate output
increases in 2017. Treatment and refining charges are dependent
upon Chinese smelting capacity and the level of copper concentrate
supply in the region.
China is an important source of financing to the Group with
long-term debt facilities of $3.2 billion at 31 December 2016. In
addition, the Group uses contractors, services and materials from
China.
Mitigation
Bozshakol and Aktogay produce a copper concentrate that is
attractive to Chinese smelters, being 'clean' and high in sulphur
content. The Group has established good relationships with
strategic customers in China and has negotiated sales contracts for
its 2017 production. The Group also intends to process a small
portion of Bozshakol and Aktogay copper concentrate under a tolling
arrangement with the Balkhash smelter.
The Group maintains relationships with a number of international
lending banks, having the PXF facility and DBK facility in place
and has the flexibility to consider other sources of capital if
required.
Acquisitions and divestments
Impact
The Group may acquire or dispose of assets and businesses which
fail to achieve the expected benefit or value to the Group.
Changing market conditions, incorrect assumptions or deficiencies
in due diligence could result in the wrong decisions being made and
in acquisitions or disposals failing to deliver expected benefits.
The Restructuring was effected under the laws and regulations of
Kazakhstan which are subject to change and open to interpretation,
including the legal and tax aspects of the Restructuring in 2014,
which could give rise to liabilities for KAZ Minerals.
Mitigation
A rigorous assessment process is undertaken to assess all
potential acquisitions and divestments by specialist staff,
supported by external advisers where appropriate. Due diligence
processes are undertaken and material transactions are subject to
Board review and approval, including ensuring the transaction is
aligned with the Group's strategy, consideration of the key
assumptions being applied and the risks identified.
Liquidity
Impact
The Group is exposed to liquidity risk if it is unable to meet
payment obligations as they fall due or is unable to access
acceptable sources of finance. Non-compliance with financial
covenants could result in borrowing facilities becoming uncommitted
and repayable.
The debt financing of the Bozshakol and Aktogay projects has
resulted in an elevated net debt level. The level of net debt is
expected to peak during 2017 and reduce as Bozshakol and Aktogay
ramp up to full capacity.
Failure to manage liquidity risk could have a material impact on
the Group's cash flows, earnings and financial position.
Mitigation
Forecast cash flows are closely monitored and the financing
strategy is set by the Board. Adequate levels of committed funds
are maintained with USD 1,108 million cash and committed facilities
at 31 December 2016.
The Group has a successful track record of raising financing.
During 2016 a $300 million credit facility was agreed with DBK and
the existing PXF facility was increased by $50 million. The Group
intends to resume discussions with the PXF banks over a longer-term
refinancing of the facility, including renegotiation of covenants,
following the waiver obtained earlier in the year related to the
period ended 31 December 2016.
Further details regarding going concern and viability are
included in note 2 to the financial statements.
Consolidated statement of total comprehensive income
Year ended 31 December 2016
$ million (unless otherwise stated) Notes 2016 2015
-------------------------------------------- ----- ------ --------
Revenues 4(b) 766 665
Cost of sales (413) (429)
-------------------------------------------- ----- ------ --------
Gross profit 353 236
Selling and distribution expenses (32) (27)
Administrative expenses (104) (126)
Net other operating income 4 22
Impairment losses (3) (15)
-------------------------------------------- ----- ------ --------
Operating profit 218 90
-------------------------------------------- ----- ------ --------
Analysed as:
Operating profit (excluding special items) 221 88
Special items 5 (3) 2
-------------------------------------------- ----- ------ --------
Finance income 6 116 192
Finance costs 6 (114) (270)
-------------------------------------------- ----- ------ --------
Profit before taxation 220 12
-------------------------------------------- ----- ------ --------
Income tax expense 7 (43) (24)
-------------------------------------------- ----- ------ --------
Profit/(loss) for the year 177 (12)
-------------------------------------------- ----- ------ --------
Analysed as:
Underlying Profit 180 (10)
Special items 5 (3) (2)
-------------------------------------------- ----- ------ --------
Attributable to:
Equity holders of the Company 177 (12)
Non-controlling interests - -
-------------------------------------------- ----- ------ --------
177 (12)
-------------------------------------------- ----- ------ --------
Other comprehensive income/(expense) for
the year after tax:
Items that may be reclassified subsequently
to the income statement:
Exchange differences on retranslation
of foreign operations 2(e) 35 (1,773)
-------------------------------------------- ----- ------ --------
Other comprehensive income/(expense) for
the year 35 (1,773)
-------------------------------------------- ----- ------ --------
Total comprehensive income/(expense) for
the year 212 (1,785)
-------------------------------------------- ----- ------ --------
Attributable to:
Equity holders of the Company 212 (1,785)
Non-controlling interests - -
-------------------------------------------- ----- ------ --------
212 (1,785)
-------------------------------------------- ----- ------ --------
Earnings per share attributable to equity
shareholders of the Company
Ordinary EPS - basic and diluted ($) 8(a) 0.40 (0.03)
EPS based on Underlying Profit - basic
and diluted ($) 8(b) 0.40 (0.02)
-------------------------------------------- ----- ------ --------
Consolidated balance sheet
At 31 December 2016
$ million Notes 2016 2015
-------------------------------------- ----- -------- --------
Assets
Non-current assets
Intangible assets 8 7
Property, plant and equipment 2,670 2,019
Mining assets 422 374
Other non-current assets 9 364 256
Deferred tax asset 72 59
-------------------------------------- ----- -------- --------
3,536 2,715
-------------------------------------- ----- -------- --------
Current assets
Inventories 247 113
Prepayments and other current assets 54 55
Income taxes receivable 7 1
Trade and other receivables 105 23
Investments 13(c) - 400
Cash and cash equivalents 13(b) 1,108 851
-------------------------------------- ----- -------- --------
1,521 1,443
-------------------------------------- ----- -------- --------
Total assets 5,057 4,158
-------------------------------------- ----- -------- --------
Equity and liabilities
Equity
Share capital 10(a) 171 171
Share premium 2,650 2,650
Capital reserves 10(c) (2,037) (2,072)
Retained earnings (251) (430)
-------------------------------------- ----- -------- --------
Attributable to equity holders of the
Company 533 319
Non-controlling interests 3 3
-------------------------------------- ----- -------- --------
Total equity 536 322
-------------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 11 3,446 3,201
Deferred tax liability 56 31
Employee benefits 15 13
Provisions 57 9
Other non-current liabilities 12 292 9
-------------------------------------- ----- -------- --------
3,866 3,263
-------------------------------------- ----- -------- --------
Current liabilities
Trade and other payables 309 254
Borrowings 11 331 303
Income taxes payable 11 12
Employee benefits 2 2
Other current liabilities 12 2 2
-------------------------------------- ----- -------- --------
655 573
-------------------------------------- ----- -------- --------
Total liabilities 4,521 3,836
-------------------------------------- ----- -------- --------
Total equity and liabilities 5,057 4,158
-------------------------------------- ----- -------- --------
Consolidated statement of cash flows
Year ended 31 December 2016
$ million Notes 2016 2015
-------------------------------------------- ----- ------ --------
Cash flows from operating activities
Cash flow from operations before interest
and income taxes 13(a) 120 5
Interest paid (179) (147)
Income taxes paid (39) (40)
-------------------------------------------- ----- ------ --------
Net cash flows used in operating activities (98) (182)
-------------------------------------------- ----- ------ --------
Cash flows from investing activities
Interest received 9 7
Proceeds from disposal of property, plant
and equipment and mining assets 1 7
Purchase of intangible assets (3) (4)
Purchase of property, plant and equipment (269) (1,026)
Investments in mining assets, including
licences (52) (96)
Licence payments for subsoil contracts (2) (1)
Acquisition of non-current investments (1) (1)
Movement in short-term bank deposits 13(c) 400 -
-------------------------------------------- ----- ------ --------
Net cash flows from/(used in) investing
activities 83 (1,114)
-------------------------------------------- ----- ------ --------
Cash flows from financing activities
Proceeds from borrowings 594 590
Repayment of borrowings (321) (181)
-------------------------------------------- ----- ------ --------
Net cash flows from financing activities 13(c) 273 409
-------------------------------------------- ----- ------ --------
Net increase/(decrease) in cash and cash
equivalents 13(c) 258 (887)
Cash and cash equivalents at the beginning
of the year 851 1,730
Effect of exchange rate changes on cash
and cash equivalents 13(c) (1) 8
-------------------------------------------- ----- ------ --------
Cash and cash equivalents at the end of
the year 13(b) 1,108 851
-------------------------------------------- ----- ------ --------
Consolidated statement of changes in equity
Year ended 31 December 2016
Attributable to equity
holders of the Company
----------------------------------------------------- ------------ --------
Non-
Share Share Capital Retained controlling Total
$ million Notes capital premium reserves(1) earnings Total interests equity
---------------------- ----- -------- -------- ------------ --------- -------- ------------ --------
At 1 January 2015 171 2,650 (299) (421) 2,101 3 2,104
Loss for the year - - - (12) (12) - (12)
Exchange differences
on retranslation of
foreign operations 2(e) - - (1,773) - (1,773) - (1,773)
---------------------- ----- -------- -------- ------------ --------- -------- ------------ --------
Total comprehensive
expense for the year - - (1,773) (12) (1,785) - (1,785)
Share-based payments - - - 3 3 - 3
---------------------- ----- -------- -------- ------------ --------- -------- ------------ --------
At 31 December 2015 171 2,650 (2,072) (430) 319 3 322
Profit for the year - - - 177 177 - 177
Exchange differences
on retranslation of
foreign operations 2(e) - - 35 - 35 - 35
---------------------- ----- -------- -------- ------------ --------- -------- ------------ --------
Total comprehensive
income for the year - - 35 177 212 - 212
Share-based payments - - - 2 2 - 2
---------------------- ----- -------- -------- ------------ --------- -------- ------------ --------
At 31 December 2016 171 2,650 (2,037) (251) 533 3 536
---------------------- ----- -------- -------- ------------ --------- -------- ------------ --------
(1) Refer to note 10(c) for an analysis of 'Capital reserves'.
Notes to the consolidated financial information
Year ended 31 December 2016
1. Corporate information
KAZ Minerals PLC (the 'Company') is a public limited company
incorporated in England and Wales. The Company's 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 consists of the
East Region operations, Bozymchak, Bozshakol, Aktogay and Mining
Projects including Koksay.
2. Basis of preparation
The financial information for the year ended 31 December 2016
does not constitute statutory accounts as defined in Sections
435(1) and (2) of the Companies Act 2006. Statutory accounts for
the year ended 31 December 2015 have been delivered to the
Registrar of Companies and those for 2016 will be delivered
following the Company's Annual General Meeting convened for 27
April 2017. The auditor has reported on these accounts; their
reports were unqualified, did not include a reference to any
matters to which the auditor drew attention by way of emphasis of
matter and did not contain a statement under Sections 498(2) or (3)
of the Companies Act 2006.
(a) Going concern
The Group's business activities, together with the factors
likely to impact its future growth and operating performance, are
set out in the Operating Review. The financial performance and
position of the Group, its cash flows and available debt facilities
are described in the Financial Review. In addition, the Group's
objectives, policies and processes for managing its capital
structure, liquidity position and financial risks arising from
exposures to commodity prices, interest rates, foreign exchange and
counterparties are set out in the Notes to the Financial Statements
in the Annual Report and Accounts.
The Group manages liquidity risk by maintaining adequate
committed borrowing facilities and working capital funds. The Board
monitors the net debt level of the Group taking into consideration
the expected outlook of the Group's financial position, cash flows
and future capital commitments.
At 31 December 2016, the Group's net debt was $2,669 million
with total debt of $3,777 million and gross liquid funds of $1,108
million.
At 31 December 2016, the gross debt consisted of:
-- $1,703 million of the CDB-Bozshakol and Bozymchak facilities
which amortises over the period to 2025;
-- $1,456 million of the $1.5 billion loan facility with CDB,
which amortises over the period to 2029;
-- $297 million of the DBK facility, which amortises during the
period from June 2018 to June 2025;
-- $281 million for the amended PXF facility, whose principal
repayments amortise over a three-year period until final maturity
in December 2018; and
-- $40 million under the revolving credit facility provided by
Caterpillar Financial Services (UK) Limited ('CAT').
This consolidated financial information has been prepared on a
going concern basis. In making the assessment that the Group is a
going concern the Board have considered the Group's cash flow
forecasts for the period to 31 March 2018, the outlook for
commodity prices and the assumed ramp up of production from
Bozshakol and Aktogay.
As previously announced, the Group intends to enter discussions
with the banks to achieve a refinancing of the PXF facility in the
first half of 2017 with a view to amending the financial covenants
to ensure a breach is not triggered and to increase available
liquidity by extending the facility amount and the duration of the
facility. Based on discussions with lenders, the Board is confident
that the banks will view such a refinancing favourably provided the
Group's debt service obligations continue to be maintained, which
forecasts indicate will be the case. This conclusion is further
supported by the short-term nature of the anticipated covenant
breach and the high quality of the Group's assets, in particular,
the Bozshakol and Aktogay mines which have long operational lives
and provide large scale output at first quartile cash costs. The
waiver obtained to the 31 December 2016 covenant testing and the
additional $50 million in commitments made available and drawn in
December 2016 are further evidence of the support of the Group by
its banks.
The Board is therefore confident that a refinancing of the PXF
is achievable on terms that are satisfactory to the Group which
would provide adequate liquidity throughout the going concern
period to 31 March 2018, even in the event of a sustained reduction
in commodity prices and a reasonably possible delay in the expected
ramp up at Bozshakol and Aktogay (and should allow the Group to
make the principal repayments due under its debt facilities in the
remainder of 2018).
In the unlikely event that the Group is not successful in
increasing the available liquidity through a refinancing of the PXF
as expected, the Board is confident that an amendment or waiver to
the financial covenants would be achieved such that the PXF
facility continues to be available until its final maturity at the
end of 2018. This conclusion is supported by discussions with
lenders and the approval obtained in respect of the waiver of the
December 2016 covenant testing.
Under the Group's base case assumptions such a scenario would
result in the Group having adequate liquidity throughout the going
concern period to 31 March 2018. However, in the event of a
sustained fall in commodity prices or a sustained fall in commodity
prices coupled with lower than expected production from the ramp up
of Bozshakol and Aktogay, other mitigating actions would be
required to secure liquidity over the going concern period, with a
relatively modest additional liquidity requirement in the first
quarter of 2018.
In addition, in such a severe downside scenario, a moderate
further amount of liquidity would be required to allow the Group to
make the principal repayments due under its debt facilities in the
remainder of 2018.
The Board believes that the additional liquidity which might be
required in the foreseeable future in the event of reasonably
possible downside scenarios occurring could be achieved through a
combination of new sources of finance and/or a refinance of
existing debt facilities and deferral of uncommitted capital costs.
Accordingly, the Board is satisfied that it is appropriate to adopt
the going concern basis of accounting in the preparation of these
consolidated financial statements.
(b) Basis of accounting
The consolidated financial information has been prepared on a
historical cost basis, except for derivative financial instruments
which have been measured at fair value. The consolidated financial
statements are presented in US dollars ($) and all financial
information has been rounded to the nearest million dollars ($
million) except where otherwise indicated.
(c) Basis of consolidation
The consolidated financial information set out the Group's
financial position as at 31 December 2016 and the Group's financial
performance for the year ended 31 December 2016.
Subsidiaries are those enterprises controlled by the Group.
Control exists when the Group has the power, directly or
indirectly, to direct those activities of an enterprise that most
significantly affect the returns the Group earns from its
involvement with the enterprise. Subsidiaries are consolidated from
the date on which control is transferred to the Group and cease to
be consolidated from the date on which control is transferred out
of the Group. When the Group ceases to have control, any retained
interest in the entity is remeasured to its fair value, with the
change in carrying amount recognised in the income statement. The
fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate,
joint venture or financial asset. In addition, any amounts
previously recognised in other comprehensive income in respect of
that entity are accounted for as if the Group had directly disposed
of the related assets or liabilities. This treatment may mean that
amounts previously recognised in other comprehensive income are
recycled through the income statement.
The financial statements of subsidiaries are prepared for the
same reporting year as the Company, using consistent accounting
policies. All intercompany balances and transactions, including
unrealised profits arising from intragroup transactions, have been
eliminated in full. Unrealised losses are eliminated in the same
way as unrealised gains except that they are only eliminated to the
extent that there is no evidence of impairment.
(d) Statement of compliance
The consolidated financial statements of the Company and all its
subsidiaries have been prepared in accordance with IFRSs as 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 (EU), and in accordance with the provisions of the
Companies Act 2006.
(e) Devaluation of tenge
In 2016, the appreciation of the tenge resulted in non-cash
foreign exchange gain of $35 million due to the translation on
consolidation of the Group's Kazakhstan based subsidiaries whose
functional currency is the tenge.
In 2015, the National Bank of Kazakhstan announced that the
tenge would no longer be subject to management within a stated
range. Following the announcement, the tenge ended 2015 at 339.47
tenge per US dollar which had resulted in the recognition of
exchange gains and losses through the income statement, arising
mostly on US dollar denominated monetary assets and liabilities
held by the Group's Kazakhstan based subsidiaries whose functional
currency is the tenge. These exchange gains and losses were not
recognised as special items as following the free float of the
currency, tenge exchange movements are no longer considered one-off
in nature.
The fall in value of the tenge in 2015 resulted in a non-cash
foreign exchange loss of $1,773 million recognised within equity,
primarily due to the translation on consolidation of the Group's
Kazakhstan based subsidiaries whose functional currency is the
tenge.
3. Significant accounting judgements and key sources of estimation uncertainty
In the course of preparing these financial statements, the
Directors make necessary judgements, estimates and assumptions
about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. Judgements are based on the
Directors' best knowledge of the relevant facts and circumstances
having regard to prior experience, but actual results may differ
from the amounts included in the consolidated financial
statements.
Estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates. The estimates and
underlying assumptions applied are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods, if the
revision affects both current and future periods.
The following are the critical judgements and the key
assumptions and sources of estimation uncertainty concerning the
future which the Directors believe are likely to have the most
significant effect on the amounts recognised in the consolidated
financial statements.
Achievement of commercial production
Once a concentrator reaches the operating level intended by
management and regarded to be 'commercial', capitalisation of
development costs including borrowing costs ceases and the
depreciation of capitalised costs begins with the revenues and
operational costs being recorded in the income statement and not
capitalised to the balance sheet. Significant judgement is required
to determine when the Group's assets achieve commercial production,
including completion of a reasonable period of commissioning;
consistent achievement of operational results at a pre-determined
level of expected capacity and indications exist that this level
will continue; mineral recoveries are at or approaching expected
levels; and the transfer of the project from the development
personnel to operational personnel.
For the Bozshakol operation, commercial production of the
sulphide plant was judged to have been achieved on 27 October 2016.
In making this assessment, the Directors considered the performance
of the plant of at least 60% of its design capacity for a three
month period, which is broadly consistent with industry practice.
Revenues, production costs and interest incurred on borrowings to
finance the project were recognised in the income statement and
depreciation of its asset base commenced from that date.
The Aktogay oxide plant achieved commercial production from 1
July 2016 after consistent production of at least 60% of its design
capacity over a three month period. Revenues, production costs and
interest incurred on borrowings to finance the project were
recognised in the income statement with the commencement of
depreciation of its assets from that date. For the Bozymchak
operation, commercial production was reached on 1 July 2015. In
making this assessment, the Directors considered the available
capacity of the plant ahead of its planned November 2015
optimisation works and the consistent throughput of ore and plant
recovery rates over a period demonstrating its ability to operate
within the available parameters. Revenues and production costs and
interest incurred on borrowings to finance this project were
recognised in the income statement and depreciation of its asset
base commenced from that date.
Impairment of assets
The Directors review the carrying value of the Group's assets to
determine whether there are any indicators of impairment such that
the carrying values of the assets may not be recoverable. The
assessment of whether an indicator of impairment has arisen
requires considerable judgement, taking account of future
operational and financial plans, commodity prices, market demand
and the competitive environment. Where such indicators exist, the
carrying value of the assets of a cash generating unit is compared
with the recoverable amount of those assets, that is, the higher of
its fair value less costs to sell and value in use, which is
determined on the basis of discounted future cash flows.
The preparation of discounted future cash flows includes
management estimates of commodity prices, market demand and supply,
future operating costs, economic and regulatory climates, capital
expenditure requirements, long-term mine plans and other
factors.
Any subsequent changes to cash flows due to changes in the
factors listed above could impact the recoverable amount of the
assets.
An assessment of the key external and internal factors,
including short to long-term commodity prices, exchange rates, cash
costs and production expectations affecting the Group and its cash
generating units ('CGUs') at 31 December 2016 did not identify any
indicators of impairment.
An impairment review was performed across the Group's principal
CGUs at 31 December 2015 as a result of the lower short and
medium-term commodity prices which were deemed to be indicators of
impairment. Following the assessment, no impairments were
recognised against any of the Group's CGU's.
Non-current inventories
Mining activities that may result in the stockpiling of ore
which is not expected to be processed within 12 months of the
balance sheet date, is considered to fall outside of the normal
operating cycle of the operation and the ore is therefore
classified as a non-current asset. The classification of stockpiled
ore between non-current and current assets is based on judgements
as to the expected timing of processing and on future production
plans. The stockpiled ore is reflected at the lower of cost or net
realisable value, with net realisable value subject to estimates of
further processing and delivery costs and future commodity
prices.
Determination of ore reserves and useful lives of property,
plant and equipment
Ore reserves are estimates of the amount of product that can be
economically and legally extracted from the Group's mining
properties. In order to estimate reserves, assumptions are required
about a range of geological, technical and economic factors,
including quantities, grades, production techniques, recovery
rates, production costs, transport costs, commodity demand,
commodity prices and exchange rates. The Group estimates its ore
reserves and mineral resources based on information compiled and
reviewed by independent competent persons as defined in accordance
with the JORC Code.
In assessing the life of a mine for accounting purposes, ore
reserves are taken into account where there is a high degree of
confidence of economic extraction (proven and probable ore
reserves). Since the economic assumptions used to estimate reserves
change from period to period, and as additional geological data is
generated during the course of operations, estimates of reserves
may change from period to period. Changes in reported reserves may
affect the Group's financial results and financial position in a
number of ways, including the following:
-- asset recoverable amounts may be affected due to changes in estimated future cash flows;
-- deferral of stripping costs which are determined using a waste to ore stripping ratio;
-- depreciation, depletion and amortisation charged in the
income statement may change where such charges are determined by
the unit of production basis, or where the useful economic lives of
assets change;
-- decommissioning, site restoration and environmental
provisions may change where changes in estimated reserves affect
expectations about the timing or cost of these activities; and
-- the carrying value of deferred tax assets may change due to
changes in estimates of the likely recovery of tax benefits.
There are numerous uncertainties inherent in estimating ore
reserves, and assumptions that are valid at the time of estimation
may change significantly when new information becomes available.
Changes in the forecast prices of commodities, exchange rates,
production costs or recovery rates may change the economic status
of reserves and may ultimately result in reserves being
revised.
For property, plant and equipment depreciated on a straight line
basis over its useful economic life, the appropriateness of the
asset's useful economic life is reviewed at least annually and any
changes could affect prospective depreciation rates and asset
carrying values.
Decommissioning and site restoration costs
The Directors use judgement and experience to provide for and
amortise these costs over the life of the mines. The ultimate cost
of decommissioning and rehabilitation is uncertain and cost
estimates can vary in response to many factors including changes to
relevant legal requirements, emergence of new restoration
techniques and costs of materials and labour. The expected timing
and extent of expenditure can also change in response to changes in
ore reserve estimates, processing levels and even commodity prices.
In estimating these costs, judgement is made on the expected timing
of closure while future costs are discounted using expected
discount rates. As such, there could be significant adjustments to
the current provisions which would affect the future financial
performance of the Group.
Taxes
The Directors make estimates and judgements in relation to the
measurement and recognition of various taxes levied on the Group,
which are both payable and recoverable. The estimation and
judgement applies particularly to corporate income taxes, transfer
pricing, VAT, royalties, non-deductible items and outcomes of tax
disputes that would affect recognition of tax liabilities and
deferred tax assets. Estimation and judgement over measurement and
recognition also applies to taxes which are recoverable by the
Group, principally VAT paid, in assessing future recoverability and
the timing of such recovery. The tax obligations and receivables,
upon audit by the tax authorities at a future date, may differ as a
result of differing interpretations. These interpretations may
impact estimates over the expected timing and quantum of taxes
payable and recoverable.
4. Segment information
Information provided to the Group's Board of Directors for the
purposes of resource allocation and the assessment of segmental
performance is prepared in accordance with the management and
operational structure of the Group. For management and operational
purposes, the Group is organised into five separate businesses as
shown below, according to the nature of their operations,
end-products and services rendered. Each of these business units
represents an operating segment in accordance with IFRS 8
'Operating segments'.
The Group's operating segments are:
East Region
The East Region is managed as one operating segment which
contains the entity Vostoktsvetmet LLC ('VCM'), whose principal
activity is the mining and processing of copper and other metals
which are produced as by-products from four underground mines and
three concentrators located in the eastern region of Kazakhstan;
and the associated international sales and marketing activities
managed out of the UK. The East Region mines and concentrators are
considered as one business segment given their relative operational
similarity, use of common infrastructure, similar mining and
concentrator methodologies, product profile and central management
team.
Bozymchak
The Bozymchak copper-gold open pit mine and concentrator located
in Kyrgyzstan and the associated international sales and marketing
activities managed out of the UK. The Bozymchak operation achieved
commercial production on 1 July 2015 with its revenues and costs
being recorded in the income statement from that date.
Bozshakol
The Bozshakol open pit, sulphide concentrator and clay plant
located in the Pavlodar region of Kazakhstan and the associated
international sales and marketing activities managed out of the UK.
The sulphide operation, which sells copper concentrate with gold
content as a by-product, was commissioned in February 2016 and has
been managed separately from the Mining Projects. The Bozshakol
sulphide concentrator achieved commercial production on 27 October
2016 with its revenues and costs being recorded in the income
statement from that date. The clay plant is currently in
commissioning and is included in the Bozshakol operating segment
due to sharing of infrastructure and mining pit, its relative small
size and to reflect the Group's management structure. For the year
ended 31 December 2015, Bozshakol was included in the Mining
Projects segment.
Aktogay
The Aktogay open pit, sulphide concentrator and oxide plant
located in the East of Kazakhstan and the associated international
sales and marketing activities managed out of the UK. The sulphide
concentrator commenced commissioning in the last quarter of 2016
and is in pre-commercial production. With the commissioning of the
sulphide plant, Aktogay is reflected as a separate segment. The
oxide operation, which sells copper cathode reached commercial
production on 1 July 2016 having achieved consistent production of
at least 60% above its design capacity for a period of over three
months. Its revenues and production costs were recognised in the
income statement with the commencement of depreciation of its
assets from that date. The oxide plant is included in the Aktogay
operating segment due to sharing of infrastructure, its relative
small size and to reflect the Group's management structure. For the
year ended 31 December 2015, Aktogay was included in the Mining
Projects segment.
Mining Projects
The Group's project companies, whose responsibility was the
development of the Group's major growth projects until the
respective concentrators are commissioned. For the year ended 31
December 2016, the segment includes the Koksay mineral deposit. The
Mining Projects segment for the year ended 31 December 2015
included Bozshakol and Aktogay prior to their commissioning in
2016.
Managing and measuring operating segments
The key performance measure of the operating segments is EBITDA
(excluding special items), which is defined as profit before
interest, taxation, depreciation, depletion, amortisation, mineral
extraction tax and royalties, 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 (see note 7). EBITDA (excluding special
items) is a key non-IFRS measure that the Directors use internally
to assess the performance of the Group's segments and is viewed as
relevant to capital intensive industries with long life assets. The
Directors also believe that this measure closely reflects the
operating cash generative capacity and therefore the trading
performance of the business as a whole. Special items are excluded
to enhance comparability of EBITDA (excluding special items) from
period to period.
The Group's Treasury department manages the Group's borrowings
and 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.
(a) Operating segments
(i) Income statement information
Year ended 31 December 2016
---------------------------------------------------------
East Corporate
$ million Region Bozymchak Bozshakol Aktogay Services Total
----------------------------------- ------- --------- --------- ------- --------- ------
Revenues
Gross Revenues 533 88 280 68 - 969
Pre-commercial production
revenues capitalised to property,
plant and equipment(1) - - (187) (16) - (203)
----------------------------------- ------- --------- --------- ------- --------- ------
Revenues - income statement 533 88 93 52 - 766
----------------------------------- ------- --------- --------- ------- --------- ------
Gross EBITDA (excluding special
items) 227 52 204 33 (24) 492
Pre-commercial production
EBITDA capitalised to property,
plant and equipment(1,2) - - (137) (4) - (141)
----------------------------------- ------- --------- --------- ------- --------- ------
EBITDA (excluding special
items) 227 52 67 29 (24) 351
Special items - note 5:
Less: impairment charges (3) - - - - (3)
EBITDA 224 52 67 29 (24) 348
Less: depreciation, depletion
and amortisation(3) (35) (7) (11) (6) (1) (60)
Less: mineral extraction
tax and royalties(2,3) (50) (5) (7) (8) - (70)
----------------------------------- ------- --------- --------- ------- --------- ------
Operating profit/(loss) 139 40 49 15 (25) 218
Net finance income 2
Income tax expense (43)
----------------------------------- ------- --------- --------- ------- --------- ------
Profit for the year 177
----------------------------------- ------- --------- --------- ------- --------- ------
Year ended 31 December 2015
--------------------------------------------------------
Mining Projects
----------------------------------- ------- --------- ------------------ --------- -----
East Corporate
$ million Region Bozymchak Bozshakol Aktogay Services Total
----------------------------------- ------- --------- --------- ------- --------- -----
Revenues
Gross Revenues 649 28 - - - 677
Pre-commercial production
revenues capitalised to property,
plant and equipment(1) - (12) - - - (12)
----------------------------------- ------- --------- --------- ------- --------- -----
Revenues - income statement 649 16 - - - 665
----------------------------------- ------- --------- --------- ------- --------- -----
Gross EBITDA (excluding special
items) 235 11 (10) (3) (25) 208
Pre-commercial production
EBITDA capitalised to property,
plant and equipment(1,2) - (6) - - - (6)
----------------------------------- ------- --------- --------- ------- --------- -----
EBITDA (excluding special
items) 235 5 (10) (3) (25) 202
Special items - note 5
Less: impairment charges (12) - - - - (12)
Add: NFC deferral benefit - - - 16 - 16
Less: gain/(loss) on disposal
of assets 1 - - - (3) (2)
----------------------------------- ------- --------- --------- ------- --------- -----
EBITDA 224 5 (10) 13 (28) 204
Less: depreciation, depletion
and amortisation (48) (3) - - (1) (52)
Less: mineral extraction
tax and royalties(2) (61) (1) - - - (62)
----------------------------------- ------- --------- --------- ------- --------- -----
Operating profit/(loss) 115 1 (10) 13 (29) 90
Net finance costs (78)
Income tax expense (24)
----------------------------------- ------- --------- --------- ------- --------- -----
Loss for the year (12)
----------------------------------- ------- --------- --------- ------- --------- -----
(1) During pre-commercial production, revenues and operating
costs are capitalised to property, plant and equipment.
(2) MET and royalties have been excluded from the key financial
indicator of EBITDA. The Directors believe that MET and royalties
are a substitute for a tax on profits, hence their exclusion
provides informed measure of the operational performance of the
Group. The MET incurred at Bozshakol and Aktogay (oxide) during the
pre-commercial production stage of $25 million (2015: $17 million)
and $9 million (2015: $3 million) respectively has been capitalised
to property, plant and equipment. MET incurred on stockpiled clay
ore at Bozshakol and included within non-current inventory was $33
million (2015: $11 million).
(3) Depreciation, depletion and amortisation and MET and
royalties excludes the costs associated with inventories on the
balance sheet.
(ii) Balance sheet information
At 31 December 2016
------------------------------- ----------------------------------------------------------------------
Mining
East Projects Corporate
$ million Region Bozymchak Bozshakol Aktogay - Koksay Services Total
------------------------------- ------- --------- --------- ------- --------- --------- --------
Assets
Property, plant and equipment,
mining assets and intangible
assets(1) 247 58 1,291 1,261 241 2 3,100
Intragroup investments - - - - - 5,195 5,195
Other non-current assets(2) 8 21 214 120 1 - 364
Operating assets(3) 147 51 140 82 - 346 766
Inter-segment loans - - - - - 1,914 1,914
Cash and cash equivalents 35 6 33 293 1 740 1,108
------------------------------- ------- --------- --------- ------- --------- --------- --------
Segment assets 437 136 1,678 1,756 243 8,197 12,447
Deferred tax asset 72
Income taxes receivable 7
Elimination (7,469)
------------------------------- ------- --------- --------- ------- --------- --------- --------
Total assets 5,057
------------------------------- ------- --------- --------- ------- --------- --------- --------
Liabilities
Employee benefits and
provisions 64 2 6 2 - - 74
Inter-segment borrowings 16 120 1,020 758 - - 1,914
Operating liabilities(4) 67 84 291 420 3 98 963
------------------------------- ------- --------- --------- ------- --------- --------- --------
Segment liabilities 147 206 1,317 1,180 3 98 2,951
Borrowings 3,777
Deferred tax liability 56
Income taxes payable 11
Elimination (2,274)
------------------------------- ------- --------- --------- ------- --------- --------- --------
Total liabilities 4,521
------------------------------- ------- --------- --------- ------- --------- --------- --------
At 31 December 2015
-------------------------------------------------------------------
Mining Projects
------------------------------- ------- --------- -------------------------- --------- --------
East Corporate
$ million Region Bozymchak Bozshakol Aktogay Koksay Services Total
------------------------------- ------- --------- --------- ------- ------ --------- --------
Assets
Property, plant and equipment,
mining assets and intangible
assets(1) 190 47 1,166 756 239 2 2,400
Intragroup investments - - - - - 6,855 6,855
Other non-current assets(2) 6 17 158 74 1 - 256
Operating assets(3) 127 31 18 20 - 149 345
Inter-segment loans - - - - - 1,579 1,579
Current investments - - - - - 400 400
Cash and cash equivalents 22 4 6 31 - 788 851
------------------------------- ------- --------- --------- ------- ------ --------- --------
Segment assets 345 99 1,348 881 240 9,773 12,686
Deferred tax asset 59
Income taxes receivable 1
Elimination (8,588)
------------------------------- ------- --------- --------- ------- ------ --------- --------
Total assets 4,158
------------------------------- ------- --------- --------- ------- ------ --------- --------
Liabilities
Employee benefits and
provisions 17 2 3 2 - - 24
Inter-segment borrowings 16 135 860 568 - - 1,579
Operating liabilities(4) 52 74 157 48 4 84 419
------------------------------- ------- --------- --------- ------- ------ --------- --------
Segment liabilities 85 211 1,020 618 4 84 2,022
Borrowings 3,504
Deferred tax liability 31
Income taxes payable 12
Elimination (1,733)
------------------------------- ------- --------- --------- ------- ------ --------- --------
Total liabilities 3,836
------------------------------- ------- --------- --------- ------- ------ --------- --------
(1) Property, plant and equipment, mining assets and intangible
assets are located in the principal country of operations of each
operating segment. The East Region, Bozshakol, Aktogay and Mining
Projects segments operate in Kazakhstan. Bozymchak operates in
Kyrgyzstan.
(2) Other non-current assets include other non-current
investments, non-current VAT receivable, advances paid for
property, plant and equipment and long-term inventory.
(3) Operating assets comprise inventories, prepayments and other
current assets and trade and other receivables, including
intragroup receivables.
(4) Operating liabilities comprise trade and other payables,
including intragroup payables, other non-current and current
liabilities.
(iii) Capital expenditure(1)
Year ended 31 December 2016
----------------------------------- -------------------------------------------------------------------------
Mining
East Projects Corporate
$ million Region Bozymchak Bozshakol(2) Aktogay(2) - Koksay Services Total
----------------------------------- ------- --------- ------------ ---------- --------- --------- -----
Property, plant and equipment(2,3) 21 7 90 150 - 1 269
Mining assets(2,3) 31 2 12 6 1 - 52
Intangible assets 1 - 2 - - - 3
----------------------------------- ------- --------- ------------ ---------- --------- --------- -----
Capital expenditure 53 9 104 156 1 1 324
----------------------------------- ------- --------- ------------ ---------- --------- --------- -----
Year ended 31 December 2015
--------------------------------------------------------------------------
Mining Projects
----------------------------------- ------- ------------ -------------------------------- --------- ------
East Corporate
$ million Region Bozymchak(2) Bozshakol(2) Aktogay(2) Koksay Services Total
----------------------------------- ------- ------------ ------------ ---------- ------ --------- ------
Property, plant and equipment(2,3) 44 5 514 462 1 - 1,026
Mining assets(2,3) 21 4 12 6 53 - 96
Intangible assets - - 1 2 - 1 4
----------------------------------- ------- ------------ ------------ ---------- ------ --------- ------
Capital expenditure 65 9 527 470 54 1 1,126
----------------------------------- ------- ------------ ------------ ---------- ------ --------- ------
(1) The capital expenditure presented by operating segment
reflects cash paid and is aligned with the Group's internal capital
expenditure reporting.
(2) At Aktogay and Bozshakol, $12 million of cash outflows and
$12 million cash inflows respectively, relating to pre-commercial
production were capitalised (2015: outflows of $13 million and $21
million respectively). Of the $12 million cash inflow at Bozshakol
in 2016, $52 million was spent on the production of long-term
stockpiled clay ore. For the year ended 31 December 2015, cash
capital expenditure for Bozymchak of $9 million includes the
capitalisation of $2 million of net operating cash flows generated
in the period before the project reached commercial production.
(3) Capital expenditure includes non-current advances paid for
items of property, plant and equipment and mining assets.
(b) Segmental information in respect of revenues
Revenues by product to third parties are as follows:
Year ended 31 December
2016
----------------------------------- ----------------------------------------------
East
$ million Region Bozymchak Bozshakol Aktogay Total
----------------------------------- ------- --------- --------- ------- ------
Copper cathodes 357 32 - 68 457
Copper in concentrate 7 3 202 - 212
Zinc in concentrate 95 - - - 95
Gold 26 43 - - 69
Gold in concentrate - 6 73 - 79
Silver 42 4 - - 46
Silver in concentrate - - 5 - 5
Other revenue 6 - - - 6
----------------------------------- ------- --------- --------- ------- ------
Gross Revenues 533 88 280 68 969
Less pre-commercial production
revenues capitalised to property,
plant and equipment - - (187) (16) (203)
----------------------------------- ------- --------- --------- ------- ------
Revenues - income statement 533 88 93 52 766
----------------------------------- ------- --------- --------- ------- ------
Year ended 31 December
2015
---------------------------------------------
Mining Projects
----------------------------------- ------- --------- ------------------ -----
East
$ million Region Bozymchak Bozshakol Aktogay Total
----------------------------------- ------- --------- --------- ------- -----
Copper cathodes 452 13 - - 465
Zinc in concentrate 102 - - - 102
Gold 26 15 - - 41
Silver 46 - - - 46
Other by-products 20 - - - 20
Other revenue 3 - - - 3
----------------------------------- ------- --------- --------- ------- -----
Gross Revenues 649 28 - - 677
Less pre-commercial production
revenues capitalised to property,
plant and equipment - (12) - - (12)
----------------------------------- ------- --------- --------- ------- -----
Revenues - income statement 649 16 - - 665
----------------------------------- ------- --------- --------- ------- -----
Revenues by destination from sales to third parties are as
follows:
Year ended 31 December
2016
----------------------------------------------
East
$ million Region Bozymchak Bozshakol Aktogay Total
----------------------------------- ------- --------- --------- ------- ------
China 252 23 280 15 570
Europe 182 13 - 53 248
Kazakhstan and Central Asia 99 52 - - 151
----------------------------------- ------- --------- --------- ------- ------
Gross Revenues 533 88 280 68 969
Less pre-commercial production
revenues capitalised to property,
plant and equipment - - (187) (16) (203)
----------------------------------- ------- --------- --------- ------- ------
Revenues - income statement 533 88 93 52 766
----------------------------------- ------- --------- --------- ------- ------
Year ended 31 December
2015
---------------------------------------------
Mining Projects
----------------------------------- ------- --------- ------------------ -----
East
$ million Region Bozymchak Bozshakol Aktogay Total
----------------------------------- ------- --------- --------- ------- -----
China 339 8 - - 347
Europe 183 5 - - 188
Kazakhstan 127 15 - - 142
----------------------------------- ------- --------- --------- ------- -----
Gross Revenues 649 28 - - 677
Less pre-commercial production
revenues capitalised to property,
plant and equipment - (12) - - (12)
----------------------------------- ------- --------- --------- ------- -----
Revenues - income statement 649 16 - - 665
----------------------------------- ------- --------- --------- ------- -----
Year ended 31 December 2016
Two customers, which each represent more than 10% of Gross
Revenues, in aggregate comprise 32% or $313 million of Gross
Revenues. The largest customer, which represents 19% ($184 million)
of Gross Revenues contributes to the Bozshakol (85%) and East
Region (15%) segments. The second largest customer representing 13%
of Gross Revenues ($129 million) contributes to the Bozshakol (96%)
and East Region (4%) segments.
Year ended 31 December 2015
Five customers within the East Region segment, two of which are
collectively under common control, represent 47% of revenue. The
revenue from these customers is $311 million. The revenue from the
two customers under common control of $76 million represents 11% of
revenue. Revenues from the remaining major customers of $235
million represent 35% of revenue.
5. 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.
$ million 2016 2015
-------------------------------------------------- ---- -----
Special items within operating profit
Impairment charges 3 12
-------------------------------------------------- ---- -----
Impairment charges against property, plant
and equipment 3 8
Impairment charges against mining assets - 4
-------------------------------------------------- ---- -----
Loss on disposal of assets - 2
NFC deferral benefit(1) - (16)
-------------------------------------------------- ---- -----
3 (2)
-------------------------------------------------- ---- -----
Taxation related special items
Recognition of a deferred tax liability resulting
from impairment charges - 1
Recognition of a deferred tax liability resulting
from the NFC deferral benefit - 3
-------------------------------------------------- ---- -----
Total special items 3 2
-------------------------------------------------- ---- -----
(1) In November 2015, the Group signed an agreement with NFC
under which $300 million of Aktogay construction costs which were
scheduled to be paid in 2016 and 2017 will be settled in the first
half of 2018 with no change to the overall amount payable to NFC.
The agreement to defer payments gave rise to a non-cash gain of $16
million representing the estimated benefit to the Group.
6. Finance income and finance costs
$ million 2016 2015
----------------------------------------------------- ------ ------
Finance income
Interest income 9 9
Foreign exchange gains 107 183
----------------------------------------------------- ------ ------
116 192
----------------------------------------------------- ------ ------
Finance costs
Interest expense (42) (23)
----------------------------------------------------- ------ ------
Total interest expense(1) (205) (155)
Less: amounts capitalised to the cost of qualifying
assets(2,3) 163 132
----------------------------------------------------- ------ ------
Interest on employee obligations (1) (2)
Unwinding of discount on provisions and other
liabilities (2) (2)
----------------------------------------------------- ------ ------
Finance costs before foreign exchange losses (45) (27)
Foreign exchange losses (69) (243)
----------------------------------------------------- ------ ------
(114) (270)
----------------------------------------------------- ------ ------
(1) Total interest expense includes $197 million of interest
incurred on borrowings and $8 million relating to the unwinding of
the discount on the NFC deferral agreement (see note 12).
(2) In 2016, the Group capitalised to the cost of qualifying
assets $155 million (2015: $132 million) of borrowing costs
incurred on the outstanding debt during the period on the
CDB-Bozshakol and Bozymchak facilities at an average rate of
interest (net of interest income) of 5.40% (2015: 4.97%) and on the
CDB-Aktogay US$ and CNY facilities at an average rate of interest
of 5.12% and 4.33% respectively (2015: 4.64% and 3.93%). Interest
capitalised includes $8 million of unwinding of interest on the
deferred NFC payable (see note 12).
(3) Interest cost on borrowings capitalised to qualifying assets
of $155 million will be deductible for tax purposes against future
taxable income as an annual wear and tear allowance on assets or
when incurred based on country specific tax definitions. The
capitalised interest will provide tax relief at 20%, being the
currently applicable corporate income tax rate of Kazakhstan where
the assets are located.
7. Income taxes
Major components of income tax expense are:
$ million 2016 2015
------------------------------------------------- ---- -----
Current income tax
Corporate income tax - current period (UK) - -
Corporate income tax - current period (overseas) 31 38
Corporate income tax - prior periods 1 1
Deferred income tax
Corporate income tax - current period temporary
differences 14 (16)
Corporate income tax - prior periods temporary
differences (3) 1
------------------------------------------------- ---- -----
43 24
------------------------------------------------- ---- -----
A reconciliation of the income tax expense applicable to the
accounting profit before tax at the statutory income tax rate to
the income tax expense at the effective income tax rate is as
follows:
$ million 2016 2015
-------------------------------------------------- ---- ----
Profit before tax 220 12
At UK statutory income tax rate of 20.0% (2015:
20.25%)(1) 44 2
Underprovided in prior periods - current income
tax 1 1
(Over)/under provided in prior periods - deferred
income tax (3) 1
Unrecognised tax losses 3 4
Effect of domestic tax rates applicable to
individual Group entities (5) 6
Non-deductible items:
Transfer pricing 1 -
Other non-deductible expenses 2 10
-------------------------------------------------- ---- ----
43 24
-------------------------------------------------- ---- ----
(1) The UK statutory rate for 2016 was 20.0%. For 2015, the UK
statutory rate for January to March 2015 was 21.0% and for April to
December 2015 is 20.0%, giving a weighted average full year rate of
20.25%.
Corporate income tax ('CIT') is calculated at 20.0% (2015:
20.25%) of the assessable profit for the year for the Company and
its UK subsidiaries, 20.0% for the operating subsidiaries in
Kazakhstan (2015: 20.0%) and 10.0% for the Group's Kyrgyzstan based
subsidiary (2015: 10.0%).
Effective tax rate
Tax charges are affected by the mix of profits and tax
jurisdictions in which the Group operates. The lower tax rate in
Kyrgyzstan lowers the Group's overall effective tax rate below the
current UK statutory corporate tax rate. The impact of unrecognised
tax losses and non-deductible items, including impairment losses,
increases the Group's overall effective tax rate.
The following factors impact the effective tax rate for the year
ended 31 December 2016:
Unrecognised tax losses
Deferred tax assets have not been recognised on tax losses at
Bozymchak, given the five year statute of limitations and as it
remains uncertain whether it will have sufficient taxable profits
after capital allowances in the future to utilise these losses, and
in the United Kingdom, given limitations on the carry forward of
Group losses.
Other non-deductible expenses
Non-deductible items mainly comprise of supplier replaced
equipment treated as gains for tax purposes and social community
investments and contributions, which are not generally deductible,
at Bozshakol and impairment charges and provisions recognised
against various assets most notably in the East Region operations.
The 2015 non-deductible expenses mainly reflect impairment charges
and social spend.
8. Earnings per share
The following reflects the income and share data used in the EPS
computations.
$ million (unless otherwise stated) 2016 2015
--------------------------------------------------------------------- ------------ ------------
Net profit/(loss) attributable to equity shareholders of the Company 177 (12)
Special items net of taxation - note 5 3 2
--------------------------------------------------------------------- ------------ ------------
Underlying Profit 180 (10)
--------------------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares of 20 pence each for
EPS based on Underlying Profit/(Loss) calculation 446,504,093 446,261,874
--------------------------------------------------------------------- ------------ ------------
Ordinary EPS - basic and diluted ($) 0.40 (0.03)
EPS based on Underlying Profit/(Loss) - basic and diluted ($) 0.40 (0.02)
--------------------------------------------------------------------- ------------ ------------
(a) Basic and diluted EPS
Basic EPS is calculated by dividing profit/(loss) for the year
attributable to equity holders of the Company by the weighted
average number of ordinary shares of 20 pence each outstanding
during the year. Purchases of the Company's shares by the Employee
Benefit Trust and by the Company under any share buy-back
programmes are both held in treasury and treated as own shares.
(b) EPS based on Underlying Profit/(Loss)
The Group's Underlying Profit/(Loss) is the net profit/(loss)
for the year excluding special items and their resultant tax and
non-controlling interest effects, as shown in the table above. EPS
based on Underlying Profit/(Loss) is calculated by dividing
Underlying Profit/(Loss) attributable to equity holders of the
Company by the weighted average number of ordinary shares of 20
pence each outstanding during the year. EPS based on Underlying
Profit/(Loss) is a non-IFRS measure that the Directors believe
provides a consistent measure for comparing the underlying trading
performance of the Group.
9. Other non-current assets
$ million 2016 2015
------------------------------------------------ ---- ----
Advances paid for property, plant and equipment 18 83
Non-current VAT receivable(1) 264 159
Non-current inventories(2) 82 17
Long-term bank deposits(3) 2 2
------------------------------------------------ ---- ----
Gross value of other non-current assets 366 261
Provision for impairment (2) (5)
------------------------------------------------ ---- ----
364 256
------------------------------------------------ ---- ----
(1) Comprises VAT incurred during the construction phase of the
Bozshakol, Aktogay and Bozymchak projects which is subject to audit
and other administrative procedures prior to refund.
(2) Non-current inventories comprise ore stockpiles that are
expected to be processed in the medium term i.e. in excess of 12
months from the balance sheet date and relate mainly to the clay
ore from Bozshakol.
(3) Long-term bank deposits include long-term deposits placed in
escrow accounts with financial institutions in Kazakhstan as
required by the Group's site restoration obligations.
10. Share capital and reserves
(a) Allotted share capital
GBP
Number million $ million
---------------------------------------------------------- ------------ -------- ---------
Allotted and called up share capital - ordinary shares of
20 pence each
At 1 January 2015, 31 December 2015 and 2016 458,379,033 92 171
---------------------------------------------------------- ------------ -------- ---------
The issued share capital was fully paid. During the year 14,774
treasury shares were used to satisfy awards under the Company's
Save As You Earn (SAYE) schemes that matured in 2016. At 31
December 2016, the Company holds 11,687,056 (2015: 11,701,830)
ordinary shares in treasury and the issued share capital of the
Company which carries voting rights of one vote per share comprises
446,691,977 (2015: 446,677,203), ordinary shares (excluding
treasury shares).
(b) Own shares purchased under the Group's share-based payment plans
The provision of shares to the Group's share-based payment plans
is facilitated by an Employee Benefit Trust. The cost of shares
purchased by the Trust is charged against retained earnings as
treasury shares. The Employee Benefit Trust has waived the right to
receive dividends on these shares. During 2016 the Company made a
market purchase of 250,000 shares at a cost of $0.6 million through
the Trust in anticipation of satisfying future awards. 218,249
shares (2015: 330,830) were transferred out of the Trust in
settlement of share awards granted to employees that were exercised
during the period.
At 31 December 2016, the Group, through the Employee Benefit
Trust, owned 243,156 shares in the Company (2015: 211,405) with a
market value of $1.1 million and a cost of $4.6 million (2015: $0.3
million and $4.0 million respectively). The shares held by the
Trust represented 0.05% (2015: 0.05%) of the issued share capital
at
31 December 2016.
(c) Capital reserves
Currency Capital
translation redemption
$ million reserve reserve Total
-------------------------------------- ------------ ----------- --------
At 1 January 2015 (330) 31 (299)
Exchange differences on retranslation
of foreign operations (1,773) - (1,773)
-------------------------------------- ------------ ----------- --------
At 31 December 2015 (2,103) 31 (2,072)
Exchange differences on retranslation
of foreign operations 35 - 35
-------------------------------------- ------------ ----------- --------
At 31 December 2016 (2,068) 31 (2,037)
-------------------------------------- ------------ ----------- --------
(i) 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.
(ii) Capital redemption reserve
As a result of the share buy-back programme undertaken in 2008
and the repurchase of Company shares in 2013, transfers were made
from share capital to the capital redemption reserve based on the
nominal value of the shares cancelled.
11. Borrowings
Average
interest
rate
during Currency
the of Current Non-current Total
Maturity year denomination $ million $ million $ million
------------------------------- --------- --------- ------------- ---------- ----------- ----------
31 December 2016
CDB-Bozshakol and Bozymchak
- US$ LIBOR + 4.50% 2025 5.40% US dollar 183 1,520 1,703
CDB-Aktogay facility - PBoC
5 year 2028 4.33% CNY 11 120 131
CDB-Aktogay facility - US$
LIBOR + 4.20% 2029 5.12% US dollar - 1,325 1,325
Pre-export finance facility
- US$ LIBOR + 3.00% - 4.50% 2018 4.97% US dollar 137 144 281
Caterpillar revolving credit
facility - US$ LIBOR + 4.25% 2019 4.92% US dollar - 40 40
Development Bank of Kazakhstan
- US$ LIBOR + 4.50% 2025 5.79% US dollar - 297 297
------------------------------- --------- --------- ------------- ---------- ----------- ----------
331 3,446 3,777
----------------------------------------- --------- ------------- ---------- ----------- ----------
31 December 2015
CDB-Bozshakol and Bozymchak
- US$ LIBOR + 4.50% 2025 4.97% US dollar 183 1,698 1,881
CDB-Aktogay facility - PBoC
5 year 2028 3.93% CNY 13 140 153
CDB-Aktogay facility - US$
LIBOR + 4.20% 2029 4.64% US dollar - 1,075 1,075
Pre-export finance facility
- US$ LIBOR + 3.00% - 4.50% 2018 3.69% US dollar 107 238 345
Caterpillar revolving credit
facility - US$ LIBOR + 4.25% 2019 4.70% US dollar - 50 50
------------------------------- --------- --------- ------------- ---------- ----------- ----------
303 3,201 3,504
----------------------------------------- --------- ------------- ---------- ----------- ----------
CDB-Bozshakol and Bozymchak facilities
On 29 December 2014, the Group signed an amendment to the $2.7
billion CDB/Samruk-Kazyna finance facilities, which resulted in the
facilities becoming bilateral with the CDB and a lowering of the
interest rate from US$ LIBOR plus 4.80% to US$ LIBOR plus 4.50%. An
arrangement fee of 0.5% was agreed of which 60% was paid in
December 2014 and 40% was paid in January 2016. The amount
outstanding on the previous facility at the time of the amendment
was $2.1 billion. The restructuring of the facilities with
Samruk-Kazyna and the CDB completed in March 2015. All other
material terms of the facilities remained unchanged. KAZ Minerals
PLC acts as guarantor of the facilities.
At 31 December 2016, $1.7 billion (2015: $1.9 billion) was drawn
under the facility agreements. Arrangement fees with an amortised
cost of $20 million (2015: $24 million), have been netted off
against these borrowings in accordance with IAS 39. $183 million
(2015: $181 million) was repaid on the facility in 2016, with $183
million due to be paid within twelve months of the balance sheet
date.
CDB-Aktogay finance facility
The CDB-Aktogay finance facility consists of a CNY 1.0 billion
facility and a $1.3 billion US dollar facility. The funds mature 15
years from the date of the first draw down. KAZ Minerals PLC acts
as guarantor of the loans.
The CNY 1.0 billion facility was fully drawn at 31 December
2015. At 31 December 2016, the drawn down US dollar equivalent
amount was $131 million (31 December 2015: $153 million). The
facility accrues interest at the applicable benchmark lending rate
published by the People's Bank of China. During 2016, the Group
made principal payments of $12 million with $12 million due to be
paid within twelve months of the balance sheet date. In order to
protect the Group from currency risks arising on the CNY
denominated debt, the Group has entered into CNY/US$ cross currency
swaps. This derivative instrument provides a hedge against any
movement in the CNY exchange rate against the US dollar and swaps
the interest basis from a CNY interest rate into a US$ LIBOR
interest basis. The fair value of the swap at 31 December 2016,
included within payables, is $21 million (31 December 2015: $10
million).
The US dollar facility accrues interest at US$ LIBOR plus 4.20%.
At 31 December 2016, the $1.3 billion facility was fully drawn
following the receipt of $250 million during the year (31 December
2015: $1.1 billion). Arrangement fees with an amortised cost of $15
million (31 December 2015: $15 million), have been netted off
against these borrowings in accordance with IAS 39.
Pre-export finance facility ('PXF')
The PXF facility is repayable in equal monthly instalments over
a three year period commencing from January 2016 until final
maturity on 31 December 2018. The margin payable on the facility is
variable, ranging from 3.00% to 4.50% above US$ LIBOR, dependent on
the ratio of net debt to EBITDA which will be tested semi-annually.
KAZ Minerals PLC, Vostoktsvetmet LLC and KAZ Minerals Sales Limited
act as guarantors of the loan. On 28 October 2016, the PXF lenders
agreed to a waiver of the facility's net debt to EBITDA covenant,
which was to be tested at 31 December 2016, to 30 June 2017. In
December 2016, an additional $50 million was drawn under the
accordion feature of the facility.
At 31 December 2016, $281 million (31 December 2015: $345
million) was drawn under the facility. Arrangement fees with an
amortised cost of $2 million (31 December 2015: $4 million), have
been netted off against these borrowings in accordance with IAS 39.
$116 million (2015: $nil million) was repaid on the facility in
2016, with $141 million due to be paid within twelve months of the
balance sheet date.
Development Bank of Kazakhstan ('DBK')
On 14 December 2016, the Group entered into a $300 million
credit facility with the DBK which was fully drawn by the end of
the year. The facility extends for a term of eight and a half years
and bears an interest rate of US$ LIBOR plus 4.5%. The facility is
repayable in instalments with the first repayment due in June 2018,
followed by semi-annual repayments in May and November of each year
from 2019 until 2024 and a final repayment in June 2025. The
facility was drawn by KAZ Minerals Aktogay LLC, a Kazakhstan wholly
owned subsidiary. KAZ Minerals PLC acts as guarantor of the
facility.
At 31 December 2016, $297 million was drawn under the facility.
Arrangement fees with an amortised cost of $3 million have been
netted off against these borrowings in accordance with IAS 39.
Revolving credit facility
On 14 August 2015, the Group entered into a $50 million
revolving credit facility provided by Caterpillar Financial
Services (UK) Limited ('CAT'), a subsidiary of Caterpillar Inc. The
CAT facility is available for three years from the date of signing,
and is repayable in four equal quarterly instalments ending in
2019. An interest rate of US$ LIBOR plus 4.25% is payable on
amounts outstanding under the facility. The financial covenants
under this facility are identical to those applicable to the
Group's existing PXF facility. In November 2016, the lender agreed
to a waiver of the net debt to EBITDA covenant, which was to be
tested at 31 December 2016, to 30 June 2017. Certain Caterpillar
equipment used at the Bozshakol and Aktogay operations have been
pledged as collateral against the facility. During the year $10
million was repaid. At 31 December 2016, the facility was fully
drawn at $40 million (31 December 2015: $50 million). KAZ Minerals
PLC acts as guarantor of the facility.
Undrawn project and general and corporate purpose facilities
$ million 2016 2015
-------------------------------------------------- ---- ----
CDB-Aktogay finance facility (within KAZ Minerals
Finance PLC) - 250
-------------------------------------------------- ---- ----
12. Other liabilities
Payments
Payables for
$ million to NFC licences Total
---------------------- -------- --------- ------
At 1 January 2015 - 11 11
Additions - - -
Payments - (1) (1)
Unwinding of discount - 1 1
---------------------- -------- --------- ------
At 31 December 2015 - 11 11
Additions 276 - 276
Payments - (2) (2)
Unwinding of discount 8 1 9
At 31 December 2016 284 10 294
---------------------- -------- --------- ------
Current - 2 2
Non-current 284 8 292
---------------------- -------- --------- ------
At 31 December 2016 284 10 294
---------------------- -------- --------- ------
Current - 2 2
Non-current - 9 9
---------------------- -------- --------- ------
At 31 December 2015 - 11 11
---------------------- -------- --------- ------
( ) Payables to NFC
On 17 November 2015, the Group reached an agreement with its
principal construction contractor at Aktogay, NFC, to defer payment
of $300 million. Under these terms, $300 million scheduled for
payment in 2016 and 2017 was deferred for settlement in the first
half of 2018, with $250 million becoming payable shortly after 31
December 2017 and $50 million shortly after 30 June 2018. The
extended credit terms arising from the agreement were discounted
using a rate of US$ LIBOR plus 4.20% on the estimated cost of
services. The discount rate applied is in line with the CBD Aktogay
facility. The unwinding of the interest will be charged to
property, plant and equipment as a borrowing cost (see note 11)
until the date the sulphide plant has reached commercial
production, after which it will be charged to the income statement
within finance costs. At 31 December 2016, the full liability,
discounted to its present value, was recognised.
(b) Payments for licences for mining assets
In accordance with its contracts for subsoil use, the Group is
liable to repay the costs of geological information provided by the
Government of Kazakhstan for licenced deposits. Some of these
obligations are payable in tenge while others are payable in US
dollars, depending on the terms of each subsoil use contract. The
total amount payable by the Group is discounted to its present
value using a discount rate of 7.6% for tenge (2015: 8.8%) and 4.0%
(2015: 5.1%) for US dollar obligations. Under the subsoil use
agreements, the historical cost payments amortise over a ten year
period and commence with first production. In the prior period,
licence payment obligations were reflected within provisions due to
uncertainty over the timing and amount of payment. In the current
year, the level of uncertainty over the timing of payments has
decreased following the commencement of production at Bozshakol and
Aktogay and licence obligations are now reflected as other
liabilities.
13. Consolidated cash flow analysis
(a) Reconciliation of profit before taxation to net cash inflow from operating activities
$ million 2016 2015
--------------------------------------------------- ----- ------
Profit before taxation 220 12
Interest income (9) (9)
Interest expense 45 23
Share-based payments 3 3
Depreciation, amortisation and depletion 84 52
Impairment losses 3 15
Unrealised foreign exchange (gain)/loss (47) 55
Loss on disposal of assets - 2
Gain on NFC deferral - (16)
--------------------------------------------------- ----- ------
Operating cash flows before changes in working
capital and provisions 299 137
Increase in non-current VAT receivable (89) (105)
Increase in inventories (47) (23)
Increase in prepayments and other current
assets (14) (29)
(Increase)/decrease in trade and other receivables (38) 74
Increase in employee benefits 2 -
Increase in provision for closure and site
restoration 6 1
Increase/(decrease) in trade and other payables 1 (50)
--------------------------------------------------- ----- ------
Cash flow from operations before interest
and income taxes 120 5
--------------------------------------------------- ----- ------
Non-cash transactions
There were the following non-cash transactions:
-- capitalised depreciation of $19 million (2015: $20 million)
for property, plant and equipment and mining assets;
-- capitalised interest of $163 million (2015: $132 million) for
property, plant and equipment and mining assets; and
-- the reassessment of the provision for closure and site
restoration during the year has resulted in an increase of $25
million (2015: decrease of $2 million) to property, plant and
equipment and $17 million (2015: $nil) to mining assets, with a
corresponding increase (2015: decrease) in the site restoration and
clean up provisions.
(b) Cash and cash equivalents
$ million 2016 2015
---------------------------------------------------- ------ ----
Cash deposits with short term initial maturities(1) 820 550
Cash at bank(1) 288 301
---------------------------------------------------- ------ ----
1,108 851
---------------------------------------------------- ------ ----
(1) At 31 December 2016, cash and cash equivalents include
approximately $170 million of cash drawn down under the CDB-Aktogay
financing facility (2015: $224 million).
(c) Movement in net debt
At At
1 January Cash Other 31 December
$ million 2016 flow movements(1) 2016
----------------------------- ---------- ------ ------------- ------------
Cash and cash equivalents(2) 851 258 (1) 1,108
Current investments(2) 400 (400) - -
Borrowings (3,504) (273) - (3,777)
----------------------------- ---------- ------ ------------- ------------
Net debt (2,253) (415) (1) (2,669)
----------------------------- ---------- ------ ------------- ------------
At At
1 January Cash Other 31 December
$ million 2015 flow movements(1) 2015
----------------------------- ---------- -------- ------------- ------------
Cash and cash equivalents(2) 1,730 (887) 8 851
Current investments(2) 400 - - 400
Borrowings (3,092) (409) (3) (3,504)
----------------------------- ---------- -------- ------------- ------------
Net debt (962) (1,296) 5 (2,253)
----------------------------- ---------- -------- ------------- ------------
(1) Other movements comprise net foreign exchange movements,
non-cash amortisation of fees on borrowings and other non-cash
reconciling items. Other movements on cash and cash equivalents
arise primarily from currency movements on non-US dollar cash and
cash equivalents. For the year ended 31 December 2016, the $nil
other movement on borrowings consists of $9 million of amortisation
of fees on the Group's financing facilities less $9 million of
foreign exchange differences on the CDB-Aktogay RMB facility. For
the year ended 31 December 2015, the $3 million other movement on
borrowings consists of $11 million of amortisation of fees on the
Group's financing facilities less $8 million of foreign exchange
differences on the CDB-Aktogay RMB facility.
(2) Current investments at 31 December 2015 were bank term
deposits. At 31 December 2016, all of the Group's gross liquid
funds were cash and cash equivalents.
14. Related party disclosures
(a) Transactions with related parties
Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation and are not disclosed in this note. Details of
transactions between the Group and other related parties, including
Cuprum Holding, are disclosed below.
The following table provides the total amount of transactions
which have been entered into with related parties for the relevant
financial year:
Purchases Amounts Amounts
Sales from owed owed
to related related by related to related
$ million parties parties parties(1) parties
------------------------------------ ----------- --------- ----------- -----------
Cuprum Holding and related entities
2016 4 95 2 3
2015(2) 23 168 14 5
------------------------------------ ----------- --------- ----------- -----------
(1) No provision is held against the amounts owed by related
parties at 31 December 2016 and 2015. The bad debt expense in
relation to related parties was $nil for the year (2015: $1
million).
(2) Purchases from related parties include $28 million of
cathode produced by Kazakhmys LLC (part of the Disposal
Assets).
Cuprum Holding and the Disposal Assets
The majority of the related party transactions and balances are
with companies which are part of the Cuprum Holding Group (a
company owned by Vladimir Kim, a Director of the Company, and
Eduard Ogay, a former Director of the Company) and provided under
two Framework Service Agreements. These include the provision of
smelting and refining of the Group's copper concentrate,
electricity supply and certain maintenance functions.
(b) Terms and conditions of transactions with related parties
Prices for related party transactions are determined by the
parties on an ongoing basis depending on the nature of the
transaction.
GLOSSARY
Board or Board of Directors
the Board of Directors of the Company
capital employed
the aggregate of equity attributable to owners of the Company,
non-controlling interests and borrowings
cash operating costs
all costs included within profit/(loss) before finance items and
taxation, net of other operating income, excluding mineral
extraction tax, royalties, depreciation, depletion, amortisation
and special items
CAT facility
revolving credit facility provided by Caterpillar Financial
Services (UK) Limited
CDB or China Development Bank
the China Development Bank Corporation
CIT
corporate income tax
CNY
Chinese yuan, basic unit of renminbi
Code or UK Corporate Governance Code
the UK Corporate Governance Code issued by the Financial
Reporting Council
Committee or Committees
any or all of the Audit; Health, Safety and Environment;
Remuneration; Nomination; Operations Ramp Up Assurance; and
Projects Assurance Committees depending on the context in which the
reference is used
Company or KAZ Minerals
KAZ Minerals PLC
Cuprum Holding
Cuprum Netherlands Holding B.V. (now named Kazakhmys Holding
Group B.V.), the entity to which the Disposal Assets were
transferred
DBK
Development Bank of Kazakhstan
Directors
the Directors of the Company
Disposal Assets
the Disposal Assets comprised the mining, processing, auxiliary,
transportation, and heat and power assets of the Group in the
Zhezkazgan and Central Regions. The Disposal Assets included 12
copper mines, mine development opportunities, four concentrators,
two smelters, two coal mines, and three captive heat and power
stations all of which were disposed of as a result of the
Restructuring
dollar or $ or US$
United States dollars, the currency of the United States of
America
EBITDA
earnings before interest, taxation, depreciation, depletion,
amortisation, mineral extraction tax and royalties
EPS
earnings per share
EPS based on Underlying Profit/(Loss)
Profit/(loss) for the year 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 resulting
taxation and non-controlling interest impact, divided by the
weighted average number of ordinary shares in issue during the
period
EPT
excess profits tax
Free Cash Flow
net cash flow from operating activities before capital
expenditure and non-current VAT associated with expansionary and
new projects less sustaining capital expenditure
g/t
grammes per metric tonne
gross cash cost
cash operating costs, including pre-commercial production costs,
excluding purchased cathode, divided by the volume of own copper
cathode equivalent sales
Gross EBITDA
earnings, including pre-commercial earnings, before interest,
taxation, depreciation, depletion, amortisation, mineral extraction
tax and royalties
Gross Revenues
sales proceeds from all volumes sold, including pre-commercial
production volume
the Group
KAZ Minerals PLC and its subsidiary companies
IAS
International Accounting Standard
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standard
JORC
Joint Ore Reserves Committee
JORC Code
the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves, a professional code of practice
that sets minimum standards for Public Reporting of minerals
Exploration Results, Mineral Resources and Ore Reserves.
Kazakhmys Corporation LLC or Kazakhmys LLC
Kazakhmys Corporation LLC, the Group's principal operating
subsidiary in Kazakhstan prior to the Restructuring
Kazakhstan
the Republic of Kazakhstan
koz
thousand ounces
kt
thousand metric tonnes
Kyrgyzstan
the Kyrgyz Republic
lb
pound, unit of weight
LBMA
London Bullion Market Association
LIBOR
London Interbank Offered Rate
Listing
the listing of the Company's ordinary shares on the London Stock
Exchange on 12 October 2005
LME
London Metal Exchange
major growth projects
Bozshakol and Aktogay
MET
mineral extraction tax
Mt
million metric tonnes
net cash costs
cash operating costs, including pre-commercial production costs,
excluding purchased cathode, less by-product Gross Revenues,
divided by the volume of own copper cathode equivalent sales
NFC
China Non Ferrous Metal Industry's Foreign Engineering and
Construction Co., Ltd
ounce or oz
a troy ounce, which equates to 31.1035 grammes
PXF
pre-export finance debt facility
$/t or $/tonne
US dollars per metric tonne
Restructuring
the transfer, subject to certain consents and approvals, of the
Disposal Assets to Cuprum Netherlands Holding B.V. which was
approved by shareholders at the General Meeting held on 15 August
2014 and completed on 31 October 2014
RMB
Renminbi, the official currency of the People's Republic of
China
Samruk-Kazyna
Joint Stock Company National Welfare Fund 'Samruk-Kazyna', an
entity owned and controlled by the Government of Kazakhstan
som
the official currency of Kyrgyzstan
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
financial statements
SX/EW
solvent extraction and electrowinning, a two-stage metallurgy
process used for the extraction of copper
t
metric tonnes
TC/RCs
treatment charges and refining charges for smelting and refining
services
tenge or KZT
the official currency of the Republic of Kazakhstan
UK
United Kingdom
Underlying Profit/(Loss)
profit/(loss) 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 and their resultant
tax and non-controlling interest effects. Underlying Profit/(Loss)
is set out in note 8 to the consolidated financial statements
US
United States of America
USc/lb
US cents per pound
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEEFUEFWSEDE
(END) Dow Jones Newswires
February 23, 2017 02:01 ET (07:01 GMT)
Kaz Minerals (LSE:KAZ)
Historical Stock Chart
From Mar 2024 to Apr 2024
Kaz Minerals (LSE:KAZ)
Historical Stock Chart
From Apr 2023 to Apr 2024
