TIDMKAZ
RNS Number : 9051F
KAZ Minerals PLC
26 February 2015
26 February 2015
KAZ MINERALS PLC AUDITED results
for the year ENDED 31 december 2014
-- Restructuring completed 31 October 2014
- Disposal Assets transferred to Cuprum Holding
- Company re-named KAZ Minerals PLC
- Repositioned as a low cost, high growth copper miner
-- Operational highlights - continuing operations
- Copper cathode production +9% to 83.5 kt, upper end of guidance (2013: 76.8 kt)
- Silver and zinc by-products in line or ahead of guidance
- First shipment of concentrate from Bozymchak copper-gold project
-- Financial highlights - continuing operations
- EBITDA from continuing operations (excluding special items)
$355 million (2013: $359 million), with cost measures offsetting
lower revenues
- H2 2014 net cash cost of 107 USc/lb benefiting from the tenge
devaluation, strong cost management and zinc by-product credits
-- Balance sheet
- Received $1.25 billion proceeds from sale of stake in Ekibastuz GRES-1
- Refinanced PXF facility, fully drawn at $349 million
- Year end net debt $962 million
- Undrawn facilities of $798 million and gross funds of $2,130 million as at 31 December 2014
-- Major growth projects on track
- Bozshakol expected to commence commissioning with limited
production in the fourth quarter of 2015
- Capital expenditure in 2014 $0.5 billion, remaining $0.9 billion to be spent in 2015
- Aktogay oxide on course for production in the fourth quarter of 2015, sulphide in 2017
- Capital expenditure $0.4 billion in 2014, expenditure in 2015
expected to be $0.5-$0.7 billion
- Acquired Koksay, our third major growth project for total
consideration of $260 million including $35 million deferred to
2015
-- 2015 outlook
- 2015 copper cathode production guidance for East Region and Bozymchak 80-85 kt
- By-product grades expected to be temporarily lower in East Region
- 2015 gross cash cost guidance of 280-300 USc/lb for operating mines
$ million (unless otherwise stated) 2014 2013
---------------------------------------- ------ ------
Continuing operations
Revenues 846 931
EBITDA (excluding special items) 355 359
Underlying Profit 86 102
EPS - based on Underlying Profit(1) ($) 0.19 0.20
Gross cash cost(2,4) (USc/lb) 257 278
Net cash cost(3,4) (USc/lb) 85 87
Discontinued operations
EBITDA (excluding special items)(5) 201 790
EPS - based on Underlying Profit(1) ($) (0.18) 0.17
Group
EBITDA (excluding special items)(6) 556 1,149
Free Cash Flow(7) (31) (171)
EPS - basic and diluted(8) ($) (5.28) (3.96)
EPS - based on Underlying Profit(1) ($) 0.01 0.37
---------------------------------------- ------ ------
(1) Reconciliation of EPS based on Underlying Profit is found in note 11(b).
(2) Continuing operations cash operating costs excluding mineral
extraction tax, divided by copper cathode sales volumes.
(3) Continuing operations cash operating costs excluding mineral
extraction tax less by-product revenues, divided by copper cathode
sales volumes.
(4) The East Region's full year unit cash costs as reported
include the operations prior to their economic separation, a period
in which only directly attributable costs are accounted for. In the
second half of 2014, the most representative period of the
performance of the East Region as a stand-alone business, gross
cash costs for continuing operations were 277 USc/lb and net cash
costs were 107 USc/lb.
(5) EBITDA (excluding special items) from discontinued
operations comprises Disposal Assets only in 2014 and in 2013
comprises EBITDA from Disposal Assets of $363 million, MKM EBITDA
loss of $2 million, Ekibastuz GRES-1 EBITDA of $153 million, and
share of EBITDA from ENRC of $276 million.
(6) Group EBITDA (excluding special items) comprises EBITDA
(excluding special items) from continuing operations and EBITDA
(excluding special items) from discontinued operations.
(7) Net cash flow from operating activities before capital
expenditure and non-current VAT associated with expansionary and
new projects, less sustaining capital expenditure on tangible and
intangible assets.
(8) Group basic and diluted EPS includes net loss on divestment
of the Disposal Assets ($2.3 billion) and profit on disposal of
Ekibastuz GRES-1 ($0.2 billion).
Oleg Novachuk, CEO said: "2014 was a year of transformational
change for the Group. We successfully completed our Restructuring
in October 2014 and this has repositioned KAZ Minerals on the
global cost curve, retaining a portfolio of first and second
quartile operating and development assets. We are excited to be
entering the final stages of the construction of Bozshakol, the
first of our major growth projects, and continuing the development
of Aktogay. We anticipate the copper market will return to deficit
as we ramp up output from our major growth projects."
For further information please contact:
KAZ Minerals
PLC
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Chris Bucknall Investor Relations, Tel: +44 20 7901
London 7882
Corporate Communications, Tel: +44 20 7901
Maria Babkina London 7849
Tel: +44 20 7901
Irene Burton Financial Analyst, London 7814
Maksut Zhapabayev Corporate Communications, Tel: +7 727 244
Almaty 03 53
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Instinctif Partners
==================== ============================ =================
Tel: +44 20 7457
David Simonson 2020
Tel: +44 20 7457
Anca Spiridon 2020
==================== ============================ =================
Hill & Knowlton
Hong Kong
====================== ========================== =================
Tel: +852 2894
K W Lam 6321
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REGISTERED OFFICE
6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL,
United Kingdom.
NOTES TO EDITORS
KAZ Minerals PLC ("KAZ Minerals") is a high growth copper
company focused on large scale, low cost, open-pit mining in
Kazakhstan. It is a leading copper producer in Kazakhstan with five
operating mines and four concentrators. In 2014, total copper
cathode output from continuing operations was 84 kt. The Group's
continuing operations also produced 121 kt of zinc in concentrate,
3,435 koz of silver and 35 koz of gold in 2014.
The Group has two major copper projects under construction,
Bozshakol and Aktogay, and a third, Koksay, at scoping stage. These
projects 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.
KAZ Minerals PLC is listed on the London Stock Exchange, the
Kazakhstan Stock Exchange and the Hong Kong Stock Exchange and
employs around 10,000 people, principally in Kazakhstan.
FORWARD-LOOKING STATEMENTs
Certain statements included in these results contain
forward-looking information concerning KAZ Minerals' strategy,
business, operations, financial performance or condition, outlook,
growth opportunities or circumstances in the countries, sectors or
markets in which KAZ Minerals operates. By their nature,
forward-looking statements involve uncertainty because they depend
on future circumstances and relate to events, not all of which are
within KAZ Minerals' control or can be predicted by KAZ
Minerals.
Although KAZ Minerals believes that the expectations reflected
in such forward-looking statements are reasonable, no assurance can
be given that such expectations will prove to have been correct.
Actual results could differ materially from those set out in the
forward-looking statements.
No part of these results constitutes, 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 Rules of the UK Listing Authority and applicable
law, KAZ Minerals undertakes no obligation to update or revise any
forward-looking statements whether as a result of new information,
future events or otherwise.
ANNUAL GENERAL MEETING
The 2015 Annual General Meeting will be held at 12.15pm on
Thursday 7 May 2015 at The Lincoln Centre, 18 Lincoln's Inn Fields,
London WC2A 3ED, United Kingdom.
The 2014 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 early April 2015.
Chairman's Statement
Continuing our transformation
In 2014 we successfully completed a major restructuring of our
operations which has accelerated the transformation of our business
into a high growth miner focused on large scale, low cost, open-pit
copper extraction in Kazakhstan. Following the disposal of non-core
assets of ENRC PLC and MKM in 2013, the sale of our 50% holding in
Ekibastuz GRES-1 and the Restructuring in 2014, KAZ Minerals has
retained a portfolio of highly competitive assets and is well
positioned to deliver one of the highest growth profiles in the
industry.
Restructuring
Over the past few years, a combination of declining grades, cost
inflation and lower commodity prices had put significant pressure
on the Group's profitability and cash generation. An optimisation
programme and asset review was undertaken in response to these
pressures which achieved cost savings and reductions in sustaining
capital expenditure. However, it became clear that a number of the
Group's mature assets in the Zhezkazgan and Central Regions would
struggle to meet their own ongoing investment needs and return to
making a positive overall contribution to Group cash flow. These
mature assets required significant further investment to extend
their operational lives. Such investment was incompatible with the
Group's existing spending commitments on the major growth
projects.
A restructuring proposal was developed with the objective of
achieving sustainable positive cash flow from existing operations
whilst supporting the development of the major growth projects.
Under the proposal, the Zhezkazgan and Central Region assets, which
included relatively mature underground mines, concentrators, power
plants and copper smelters, would be separated from the Group and
divested to Cuprum Holding, a vehicle owned by the Company's major
shareholder and non-executive Director, Vladimir Kim and the
Company's then executive Director Eduard Ogay. Vladimir Kim and
Eduard Ogay's knowledge of the assets, understanding of the
operating environment and standing in Kazakhstan made a disposal to
Cuprum Holding the most attractive and feasible route for the Group
to exit from these operations.
The restructuring proposal was put to shareholders in a circular
dated 23 July 2014, with a unanimous recommendation from the
independent Directors of the Company who had received a fairness
opinion from two investment banks. The Restructuring was
overwhelmingly approved on 15 August 2014 by independent
shareholders and under the terms of the Restructuring the Disposal
Assets were economically separated from the continuing operations
from 1 August 2014.
In light of the past performance and future outlook of the
Disposal Assets, the Restructuring included a cash payment from the
Group to Cuprum Holding to cover the working capital requirements
of the Disposal Assets. On 31 October 2014, the Disposal Assets
left the Group with net funds of $188 million.
A transaction of this scale, separating a previously integrated
business, has been complex, however we were able to complete the
Restructuring ahead of our expectations. I am very grateful for the
hard work and commitment of staff involved on both sides of the
transaction which made this possible. The Company has been renamed
"KAZ Minerals PLC" and the assets transferred to Cuprum Holding
will continue to operate under the trading name of "Kazakhmys".
A key objective of the Restructuring was to create two separate,
independent businesses with no shared management. However, there
are certain services which Cuprum Holding will continue to provide
where it is in the interests of KAZ Minerals. These services, which
are subject to the UK Listing Authority regulations on related
party transactions, are provided on an arm's length basis and were
approved by independent shareholders on 15 August 2014. The most
significant service is for Cuprum Holding to smelt and refine
concentrate from the mines in the East Region and Bozymchak at the
Balkhash smelter under a tolling agreement.
The Disposal Assets are now under an ownership structure which
is better positioned to address the specific challenges that they
face. We wish Vladimir Kim, Eduard Ogay and all of our former
colleagues every success in the future.
Following the Restructuring, KAZ Minerals retains four mines and
associated concentrators in the East Region, the Bozymchak copper
and gold mine and concentrator in Kyrgyzstan and the major growth
projects of Bozshakol, Aktogay and Koksay.
Board changes
There have been two changes to the Board of Directors of the
Company in 2014. At the end of October 2014, Eduard Ogay, the Chief
Executive Officer of Kazakhmys Corporation LLC and a Director of
Kazakhmys PLC, left the Company to assume a new position at Cuprum
Holding managing the Disposal Assets, and is no longer an employee
or Director of KAZ Minerals PLC. The Group's Chief Financial
Officer, Andrew Southam, joined the Board of Directors on 1
November 2014. I would like to take the opportunity to wish both of
them the very best of luck in their new roles and to thank Eduard
for his contribution over his 13 years of service including eight
years as Chief Executive Officer of Kazakhmys Corporation LLC. The
Board continues to be compliant with the UK Corporate Governance
Code's independence recommendations with a total of nine directors,
of whom five are independent.
Lord Renwick of Clifton has indicated his intention to step down
as a Director of the Group with effect from the Annual General
Meeting on 7 May 2015. I would like to thank Robin on behalf of the
Board and all of our colleagues in KAZ Minerals for the immense
contribution he has made to the Group since 2005. Robin was one of
the first independent non-executive Directors to join the Board and
was instrumental to the Group's Listing in 2005. His trusted
counsel in the fields of diplomacy, mining and capital markets has
been invaluable to the Group, coupled with his understanding of the
economic and cultural aspects of operating in Kazakhstan. He will
be greatly missed.
I am also pleased to report the appointment of John MacKenzie,
who will be joining the Board as a non-executive Director with
effect from 1 March 2015. As the former CEO of Copper for Anglo
American, John brings extensive experience of the copper mining
industry and we look forward to him joining us.
Health, safety and environment
We continue to be committed to improving our health and safety
performance, both in our producing assets and at the major growth
projects. It is with deep regret that I must report a total of 13
fatalities across the Group in the year to 31 December 2014. Seven
of these fatalities occurred at the Disposal Assets between 1
January and 31 October, whilst six occurred at the continuing
operations in the 12 months to 31 December 2014. The number of
fatalities has fallen significantly over the past few years,
however, we view every fatality as avoidable and unacceptable and
the Board continues to work towards our target of zero fatalities.
The reduction in scale of the Group's operating assets following
the Restructuring and the start-up of the major growth projects
provides the opportunity for more rapid improvements to our safety
culture and working practices.
Following the Restructuring, we no longer own or operate
smelting or power generation assets, which reduces the Group's
direct CO(2) emissions and other harmful emissions to air. Energy
consumption, water usage and waste generation have also reduced as
a result of the Restructuring, but will continue to be high
priority areas for our East Region environmental programme. There
are a number of ongoing initiatives to address water usage and
tailings management. We are committed to managing our direct
environmental impacts carefully and continue to seek to ensure our
operations and those of our partners minimise harm to the
environment and the communities around us. The Corporate
Responsibility section of this report and our website contain more
details on our approach and performance.
Operational and financial performance in 2014
Copper prices during the year came under pressure due to markets
anticipating a global supply surplus in 2014 and the near-term,
although a consensus is emerging that the market may return to
deficit from 2017 as mines mature and average grades reduce across
the industry.
The continuing operations produced 83.5 kt of copper cathode in
2014, generating revenues of $846 million and EBITDA (excluding
special items) of $355 million.
As a result of the completion of the Restructuring, the Group
recognised an accounting charge of $2.3 billion in 2014 in respect
of the Disposal Assets, which includes $0.7 billion for the
recycling of historic foreign exchange losses.
Major growth projects
I am pleased to report continued progress at Bozshakol, the
first of our major growth projects, and that it is on schedule to
commence commissioning in the fourth quarter of 2015. We began
training production personnel, as planned, in December 2014 in
advance of pre-production mining commencing in the first half of
2015. The final phase of construction and equipment installation
works can now be accelerated as we emerge from the winter
period.
Our second project, Aktogay, is also in the construction phase
and works are proceeding on schedule. Production from the oxide ore
at Aktogay is expected in the fourth quarter of 2015 and output
from the main sulphide ore body will begin in 2017.
In 2014 we added a third project to our portfolio with the
acquisition of Koksay for a total consideration of $260 million, of
which $35 million is deferred to 2015 dependent on drilling
results. Koksay has the potential to be another large scale, low
cost, open-pit copper mine in Kazakhstan, similar to the Bozshakol
and Aktogay projects, providing additional growth in the
longer-term.
Dividends
Our 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 recommend a suitable
dividend. This maintains flexibility which is appropriate given the
underlying cyclicality of a commodity business. Given the financing
requirements of the major growth projects during their
construction, the Board does not recommend a dividend at this time.
It is however the Board's intention that the Group resumes dividend
payments in the future. The Group has a strong record of payments
to shareholders with returns of $2,095 million in ordinary
dividends, buybacks and special dividends since its Listing in
2005.
Outlook
2015 will be an important year for KAZ Minerals as we will
commence the commissioning of Bozshakol, the first of our major
growth projects, in the fourth quarter. By 2018, we expect to be
producing around 300 kt of copper in concentrate, with 80% of Group
production coming from new, large scale, low cost, open-pit mines.
I look forward to updating shareholders as we continue the
transformation of the Group.
chief executive's review
Restructured operations
The Group underwent significant change in 2014. We announced in
February 2014 that we were assessing the feasibility of separating
the Zhezkazgan and Central Region assets with a view to a potential
disposal, a transaction we successfully completed in October 2014.
The transfer of the relatively mature Zhezkazgan and Central Region
to Cuprum Holding has repositioned KAZ Minerals on the cost curve
as we have retained a portfolio of first and second quartile
operating and development assets. The reduction in operating mines
from 16 to five, the disposal of four concentrators, the captive
power stations and smelting operations leaves KAZ Minerals a more
cash generative and leaner business with a workforce of less than
10,000, a reduction from 53,000 at the start of 2014.
Restructuring
The financial implications of the separation for KAZ Minerals
are substantial. The producing assets we have retained in the East
Region accounted for over half of the Group's EBITDA prior to the
Restructuring, but less than one third of the Group's copper
production. The average copper grade mined by the continuing
operations in 2014 was 2.35% compared to 0.83% in the Disposal
Assets, with much lower sustaining capital expenditure
requirements.
The separation of a vertically integrated business was complex
and involved the appointment of a new management team to oversee
the East Region assets, changes to business processes, the
establishment of standalone IT systems as well as extensive legal
and regulatory work. Throughout this period, great importance was
placed on maintaining effective communication with key stakeholders
including our employees and the Government of Kazakhstan. I am
pleased to report that the teams on both sides of the transaction
were able to work efficiently and diligently to complete the
transaction on 31 October 2014, ahead of our initial expectation. I
extend my personal thanks for their response to this challenge.
Health and safety
Health and safety performance remained an absolute priority for
management throughout the year. Regretfully, we reported 13
fatalities at our operations, seven of which were at assets
subsequently disposed of in the Restructuring. No fatality is ever
acceptable and we still require significant progress in this
critical area. I will continue to work closely with our site
management to deliver on our zero fatality commitment.
As the construction of Bozshakol intensifies, a particular
challenge is ensuring that contractors operate in accordance with
the safety standards required by KAZ Minerals at its sites.
Unfortunately, two contractor fatalities occurred at the project
early in 2014. However, the project subsequently completed three
million man hours, over 176 days, without a lost-time injury.
We have a number of health and safety initiatives underway in
the East Region including a comprehensive external review of our
underground mining operations. The hiring, training and operating
procedures at the major growth projects have been designed to
ensure that a strong health and safety culture is present from the
start. We intend for the major growth projects to be safety
ambassadors within the Group and they will share best practice with
East Region and Bozymchak management.
Review of operations - continuing operations
We produced 83.5 kt of copper cathode from continuing operations
in 2014, an increase of 9% year on year and at the upper range of
our guidance of 80-85 kt. Copper in concentrate production was 4%
higher compared to 2013, supported by a modernisation programme at
the Nikolayevsky concentrator which has increased recovery rates.
Bozymchak, our new copper-gold project in Kyrgyzstan, made its
first shipment of concentrate in December 2014.
Following the Restructuring, copper concentrate is smelted under
a tolling arrangement with Cuprum Holding at the Balkhash smelter.
Balkhash remains the most attractive option for the smelting of
concentrate from the East Region and Bozymchak mining
operations.
By-product output from continuing operations declined in 2014
with zinc, silver and gold production falling due to lower metal
grades in the East Region. In 2015 we expect by-product output in
the East Region to reduce further as mining temporarily moves to
lower by-product grade areas.
Copper cathode production guidance for the East Region and
Bozymchak in 2015 is 80-85 kt. Zinc in concentrate output will
decline to 90-95 kt and silver output is expected to be between
2,250-2,500 koz. Gold output is anticipated to increase to 42-47
koz in 2015, assisted by the ramp up of Bozymchak.
Review of operations - Disposal Assets
The Group owned and operated the Disposal Assets for the first
10 months of the year before completion of the Restructuring on 31
October 2014. In the 10 months to 31 October 2014, the Disposal
Assets produced 171 kt of copper cathode equivalent. Further
details of the Disposal Assets' performance until the date of
disposal can be found in the Operating Review.
Financial performance
KAZ Minerals' revenues from continuing operations declined from
$931 million in 2013 to $846 million in 2014, as a result of lower
metals pricing and metals sales in 2014. Copper cathode sales
volumes of 78.2 kt were below production volumes of 83.5 kt due to
movements in finished goods inventory.
The cash costs of the Group have been significantly reduced as a
result of the divestment of the higher cost Disposal Assets. The
East Region's full year unit cash costs as reported include the
operations prior to their separation, a period in which only
directly attributable costs are accounted for. In the second half
of 2014, the most representative period of the performance of the
East Region as a stand-alone business, gross cash costs for
continuing operations were 277 USc/lb and net cash costs were 107
USc/lb. The second half net cash cost compares favourably with the
guidance of 120-140 USc/lb for the East Region as a stand-alone
business, as management were successful in mitigating inflationary
pressures and due to strong zinc by-product credits. In 2015, gross
cash costs are expected to be between 280 and 300 USc/lb for
operating mines.
EBITDA (excluding special items) from continuing operations was
broadly unchanged at $355 million in 2014 as lower costs offset the
9% fall in revenues.
Sustaining capital expenditure for continuing operations was $53
million in 2014, slightly below the anticipated spend as some
investments have been carried forward into 2015. Sustaining capital
expenditure in 2015 for the East Region is expected to be $80-$100
million. The Bozymchak mine is forecast to require around $25
million of capital expenditure in 2015 and the Group may invest up
to $20 million to develop a new section of the Artemyevsky
mine.
The Group has recognised a loss on disposal on completion of the
Restructuring of $2.3 billion, which includes $0.7 billion from the
recycling of foreign exchange reserves and a net gain of $207
million following the completion of the sale of Ekibastuz
GRES-1.
Bozshakol
Bozshakol will be the first of our major growth projects to
enter production. In 2014, we completed the construction of the
main concentrator building which was enclosed for internal
equipment installation to continue during the winter period. The
permanent camp was completed and is now housing workers. The
primary crusher structural works have been completed and the
conveyor steelwork has been assembled. A rail link to the national
Kazakhstan network is in place and mining equipment has been
delivered to the site and is assembled for use. Capital expenditure
in 2014 was $0.5 billion, taking the total capital expenditure on
the project as at 31 December 2014 to $1.3 billion.
The project is scheduled to commence commissioning in the fourth
quarter of 2015. Training for mining operational teams commenced in
December 2014 and will continue in 2015, with pre-production mining
scheduled to start in the first half of 2015. We expect limited
production from Bozshakol in the fourth quarter with ramp-up
occurring in 2016. In 2015, we will invest the remaining $0.9
billion of the $2.2 billion capital expenditure budget for the
project.
Aktogay
The Aktogay project is proceeding to plan and will be the second
of our major growth projects to commence production. In 2014,
excavations and earthworks were undertaken on the site of the main
sulphide concentrator building and leach pads were prepared for the
oxide phase of the production. Construction commenced on two SX/EW
buildings which will process the leached ore. Non Ferrous China was
appointed as the lead contractor for the construction of the
sulphide processing plant and more than 25 smaller local
contractors were appointed to conduct other works. Following the
award of the largest construction contract to Non Ferrous China,
the capital cost of the Aktogay project was confirmed at $2.3
billion. Capital expenditure in 2014 amounted to $0.4 billion,
taking total spend on the project as at 31 December 2014 to $0.9
billion. Capital expenditure in 2015 is expected to be $0.5-$0.7
billion.
In 2015 pre-stripping of the oxide ore cap will continue and the
first production from oxide ore is expected to commence in the
fourth quarter. Output from oxide is expected to be around 15 kt
per annum. Earthworks and construction of the oxide and sulphide
processing buildings will continue in 2015. Production from the
main sulphide ore body is scheduled to commence in 2017.
Koksay
In 2014, we acquired the licence for a third major growth
project at Koksay and a confirmatory drilling programme was
undertaken to gather more information on the ore body. Further
drilling and studies will be performed in 2015. Capital expenditure
at Koksay in 2014 was $4 million and in 2015 is not expected to
exceed $15 million.
Financial position
As at 31 December 2014 the Group's net debt position was $962
million, consisting of $2,130 million of gross funds and $3,092
million of borrowings. Undrawn debt facilities of $798 million were
available as at 31 December 2014. The major growth projects are
securely funded by our long-term debt facilities and funds on
hand.
Outlook
Looking forward, we are excited to be entering the final stages
of the construction of Bozshakol and continuing the development of
Aktogay. We are confident in the outlook for copper and expect the
market to return to deficit as we ramp up output from our major
growth projects.
operating review
REVIEW OF MINING OPERATIONS
Following the completion of the Restructuring, the Group has
disposed of 12 copper mines, four concentrators, two smelters and
two coal mines based in the Zhezkazgan and Central Regions. The
operational and financial performance of these mining Disposal
Assets was previously reported within the Mining Division. As the
Disposal Assets have been treated as a discontinued operation in
the Group's financial statements, the operational and financial
performance of the mining Disposal Assets have been reported
separately from the continuing operations.
The continuing operations incorporate the Group's mining,
concentrating and auxiliary operations in the East Region, the
Bozymchak mine, the major growth projects, and the sales operation
in the United Kingdom.
East Region and Bozymchak Production Summary
Copper
kt (unless otherwise stated) 2014 2013
----------------------------- ----- -----
Ore output(1) 4,628 4,350
Copper grade (%) 2.35 2.41
Copper in ore mined 108.7 104.7
Copper in concentrate(1) 89.9 86.8
Copper cathode production(1) 83.5 76.8
----------------------------- ----- -----
(1) Includes output from the commissioning of Bozymchak in 2014.
Ore extraction from the East Region and Bozymchak increased to
4,628 kt in 2014, 6% above the prior year. The increase was
primarily due to additional output from the commissioning of
Bozymchak during 2014. Ore production from the mature
Yubileyno-Snegirikhinsky mine was lower in 2014 with the mine
expected to cease operation within the next two years. Ore output
from the Orlovsky and Artemyevsky mines was consistent with the
prior year and they produced 74% of the continuing operations'
copper in ore in 2014.
The average copper grade of 2.35% was below the prior year,
reflecting the additional output from Bozymchak at a grade of 1.00%
and the declining grades at Yubileyno-Snegirikhinsky as the mine
matures. Copper in ore output benefited from the mining of copper
rich sections at Orlovsky in the first half of 2014 with grades
exceeding 3.80% before reducing to just above 3% by the end of the
year. The average copper grade at Artemyevsky was also higher at an
average of 1.78% compared to 1.68% in the prior year.
The continuing operations extracted 108.7 kt of copper in ore in
2014 which was 4% above the prior year with the additional output
from Bozymchak and the higher copper grades at Orlovsky and
Artemyevsky.
The volume of copper in ore processed at the concentrators of
102.1 kt in 2014 was similar to the prior year despite the 4 kt
increase in copper in ore extracted. This was due to the build up
in ore stockpiles at the Bozymchak concentrator during its
commissioning and the modernisation works at the Nikolayevsky
concentrator which restricted the capacity of the processing plant
during the first half of 2014. Compared to the prior year, the
volume of ore processed at the Nikolayevsky concentrator increased
in 2014 with a reduction in ore processed externally.
kt 2014 2013
--------------------------------- ---- ----
Orlovsky concentrator 50.7 47.6
Nikolayevsky concentrator 27.8 14.5
Other(1) 10.7 24.7
Bozymchak concentrator 0.7 -
Copper in concentrate production 89.9 86.8
--------------------------------- ---- ----
(1) Includes third party processing.
Copper in concentrate production in 2014 was 3.1 kt above the
prior year reflecting the improvement in recovery rates at the
Nikolayevsky concentrator as a result of modernisation work and
initial output from Bozymchak of 0.7 kt.
Copper cathode production increased by 6.7 kt to 83.5 kt in 2014
with the additional copper in concentrate output of 3.1 kt and as
cathode production in the prior year was also negatively impacted
by the build up of work in progress.
Copper cathode production from the East Region and Bozymchak is
anticipated to be between 80 kt and 85 kt in 2015. Ore extraction
and grades at Orlovsky and Yubileyno-Snegirikhinsky are expected to
be below the level in 2014 but this will be offset by higher copper
output from Bozymchak.
Zinc
kt (unless otherwise stated) 2014 2013
----------------------------- ----- -----
Zinc bearing ore mined 4,202 4,350
Zinc grade (%) 4.07 4.16
Zinc in ore mined 171.1 180.7
Zinc in concentrate 121.4 133.8
----------------------------- ----- -----
The East Region extracted 171.1 kt of zinc in ore in 2014, a
decrease of 9.6 kt when compared to the prior year. The decline in
the zinc in ore mined was driven by the lower volume of ore
extracted along with the decline in zinc grades at all the mines,
except Orlovsky where zinc rich zones were exploited in 2014.
Zinc in concentrate production of 121.4 kt in 2014 was 12.4 kt
below the prior year reflecting the lower volume of zinc in ore
mined and the stockpiling of ore while modernisation works took
place at the Nikolayevsky concentrator.
Zinc in concentrate production from the East Region is expected
to be between 90 kt and 95 kt in 2015, as zinc grades at
Artemyevsky and Orlovsky decrease from the level achieved in 2014
as production temporarily moves to lower grade areas.
Silver
koz (unless otherwise stated) 2014 2013
------------------------------ ----- -----
Silver bearing ore mined (kt) 4,628 4,350
Silver grade (g/t) 54.54 63.87
Silver in ore mined 8,117 8,933
Silver in concentrate 3,862 5,164
Silver granule 3,435 4,685
------------------------------ ----- -----
The continuing operations mined 8,117 koz of silver in ore in
2014. This was 816 koz below the prior year with the fall in silver
grades at Artemyevsky which more than offset the higher grades at
Orlovsky. The average silver grade of 54.54 g/t was also below the
prior year as a result of the additional ore output from Bozymchak
at a below average silver grade of 10.07 g/t.
The continuing operations produced 3,435 koz of silver granule
in 2014 which was 1,250 koz below the prior year due to the lower
volume of silver in ore mined and a decrease in recovery rates at
the concentrators with the processing of lower grade material.
Silver granule production from the East Region and Bozymchak is
expected to be between 2,250 koz and 2,500 koz in 2015. The decline
in silver production is principally due to the anticipated fall in
grades at Orlovsky and Artemyevsky where mining is temporarily
moving to lower grade zones.
Gold
koz (unless otherwise stated) 2014 2013
------------------------------ ----- -----
Gold bearing ore mined (kt) 4,628 4,350
Gold grade (g/t) 0.91 0.86
Gold in ore mined 135.4 120.5
Gold in concentrate 39.5 46.9
Gold bar 34.6 48.6
------------------------------ ----- -----
The continuing operations produced 135.4 koz of gold in ore in
2014. The gold in ore extracted was 14.9 koz above the prior year
as the 25 koz of additional gold output from Bozymchak was
partially offset by a decrease in gold grades at Artemyevsky and
declining ore output from Yubileyno-Snegirikhinsky.
Gold bar production of 34.6 koz in 2014 was 14.0 koz below the
prior year as the higher volume of gold in ore extracted was offset
by the build up of ore stockpiled at Bozymchak during the
commissioning of the concentrator in 2014. Gold bar production in
2013 also benefited from the release of gold work in progress at
processing facilities.
Gold bar production for the East Region and Bozymchak is
expected to be between 42 koz and 47 koz in 2015. This is above the
levels in 2014 as higher production from Bozymchak offsets the
decline in grades at Orlovsky and Artemyevsky.
East Region Financial Summary
$ million (unless otherwise stated) 2014 2013
----------------------------------------------- ----- -----
Sales revenues: 846 931
Copper cathode 550 589
Zinc concentrate 144 143
Silver granule 78 106
Gold bar 44 63
Other 30 30
Average realised price of copper cathode ($/t) 7,040 7,231
EBITDA (excluding special items) 403 432
Gross cash costs (USc/lb) 257 278
Net cash costs (USc/lb) 85 87
Capital expenditure 55 75
Sustaining 53 72
Expansionary 2 3
----------------------------------------------- ----- -----
Revenues
The revenues generated by the East Region decreased by 9% or $85
million in 2014 to $846 million. The 9% fall in revenues primarily
reflected the weaker pricing environment on the LME and LBMA
markets for copper, gold and silver products and lower copper
cathode and precious metal sales volumes in 2014.
Revenue from copper cathode sales fell by 7% to $550 million in
2014, driven by a 3% decrease in realised prices and a 4% decline
in sales volumes. The average realised price for copper cathode
sales reduced to $7,040 per tonne with the lower average LME copper
price during 2014. The realised copper cathode price was above the
average LME copper price of $6,862 per tonne in 2014 mainly due to
the timing of the sales and the premium received on the sale of
copper cathode to reflect the terms of trade.
The East Region sold 78.2 kt of copper cathode in 2014 which was
4% below the levels in the prior year and 5.3 kt less than the
volume produced in 2014. Sales volumes in 2014 were negatively
impacted by the build-up of finished goods due to the low inventory
levels at the start of 2014 and delays to shipments across the
Chinese border at the end of the year.
Revenue from the sale of zinc concentrate was consistent with
the prior year as higher prices offset the decline in sales
volumes. The realised price for zinc concentrate sales rose by 13%
to $1,185 per tonne of contained zinc content in 2014, mirroring
the rise in the average LME zinc price to $2,164 per tonne. Zinc
concentrate sales are priced by reference to the LME zinc price
less processing charges. Zinc concentrate sales fell by 11% to
121.9 kt, mainly due to the 9% decline in production in 2014.
Silver granule revenues fell by $28 million to $78 million in
2014 principally due to the 23% reduction in the average realised
price for silver in 2014. Sales of silver granule were 4% below the
prior year at 4,224 koz with the 27% decline in production offset
by the release of inventory in 2014.
Gold bar revenues of $44 million in 2014 were negatively
impacted by both lower sales volumes and prices. Gold bar sales of
35.7 koz were 13.3 koz below the prior year with the reduction in
production in 2014. The realised price for gold bar declined by 5%
to $1,226 per ounce due to the weaker LBMA prices in the year.
Other revenue includes income from the sale of lead by-products
along with sulphuric acid. The East Region acquires sulphuric acid
as a by-product of the smelting of copper in concentrate at the
Balkhash smelter. Other revenue also included non-recurring income
of $10 million from the sale of by-product stock during 2014.
EBITDA (excluding special items)
EBITDA was $29 million below the prior year as the $85 million
decline in revenues was partially offset by a reduction in total
cash operating costs.
Total cash operating costs reduced by 11% principally due to the
devaluation of the tenge in February 2014 and the cost control
measures undertaken. The reduction in total cash operating costs
improved the EBITDA margin to 48% in 2014 compared to 46% in the
prior year.
Total cash operating costs benefited from the devaluation of the
tenge, which traded at an average rate of 179.19 KZT/$ in 2014,
compared to 152.13 KZT/$ in the prior year. The 18% decline in the
average value of the tenge against the US dollar reduced tenge
denominated costs such as salaries, ore transportation, repair
services, and electricity charges when stated in US dollars. Tenge
denominated costs are estimated to have made up around 55% of the
East Region's cash operating costs during the year.
The devaluation did have an inflationary impact on cash
operating costs in the second half of 2014 with suppliers
renegotiating tariffs for external services such as transportation
and repair services, although management ensured that the increases
were limited. Pay awards of 10% were made to operational employees
in April 2014 to provide some compensation for the tenge
devaluation. Employee costs increased due to the introduction of a
5% compulsory pension contribution on salaries at the start of
2014.
The cost of electricity supplied fell in US dollar terms as the
tenge devaluation offset the 8% rise in electricity tariffs, from
5.10 KZT/kWh in the prior year to 5.50 KZT/kWh in 2014. The ceiling
tariff applicable to the power stations which supply electricity to
the East Region in 2014 increased to 6.00 KZT/kWh in 2015.
The cost of external ore processing services reduced from the
prior year as the volume of ore processed by a third party in the
East Region fell significantly in 2014 due to the increased
capacity of the Nikolayevsky concentrator in the second half of the
year. In 2015, the ore extracted in the East Region is expected to
be processed internally at the three concentrators in the
region.
From the date of the economic separation of the East Region from
the mining Disposal Assets the copper concentrate produced from the
East Region in 2014 was processed at the Balkhash smelter under the
terms of the contract with Cuprum Holding. Under the agreement, a
copper treatment and refining charge of $124 per tonne and 12
USc/lb respectively has been applied. This contributed to an
increase in operating costs in the second half of 2014 as prior to
the economic separation smelting charges were incurred at cost.
A number of cost control measures introduced by management
benefited cash operating costs during 2014. The measures included
the suspension of the Berezovsky concentrator at the end of 2013 to
raise the utilisation of the three remaining concentrators and
reduce costs within the business. Overhead costs were reduced with
the combination of the administration departments at the
Yubileyno-Snegirikhinsky and the Artemyevsky mines.
The East Region's administration function has been strengthened
in the second half of 2014 following the region's separation from
the mining Disposal Assets to incorporate the services previously
performed centrally for the Mining Division. Social responsibility
costs were consistent with the prior year as the Group continued to
support the local communities in which it operates.
Cash costs
The gross and net cash cost of copper cathode sold is a measure
of the cost efficiency of the East Region's operations. The gross
cash cost declined by 8% or 21 USc/lb to 257 USc/lb in 2014,
reflecting the beneficial impact of the tenge devaluation and the
cost control measures undertaken in the East Region. These factors
offset the 4% reduction in copper cathode sales volumes which
negatively affected cash costs on a per unit basis compared to the
prior year.
The net cash cost decreased by 2% or 2 USc/lb to 85 USc/lb in
2014 with the fall in gross cash costs offset by the reduction in
by-product credits, due to the lower commodity prices for gold and
silver and a decline in by-product sales volumes.
The gross cash cost for 2014 includes only the operational cash
costs directly attributable to the East Region prior to their
economic separation from the mining Disposal Assets on 1 August
2014. The East Region's operating cash costs in the period before
the economic separation therefore do not fully reflect the cost of
services which were provided centrally for the Mining Division and
does not include the costs of services such as smelting and
maintenance services on the terms agreed with Cuprum Holding. The
second half gross cash cost of 277 USc/lb on copper cathode sales
of 39 kt is therefore considered more representative of the
performance of the East Region as a stand-alone business. The net
cash cost in the second half of 2014 was 107 USc/lb.
The East Region and Bozymchak's gross cash cost of copper sold
is expected to be between 280 USc/lb and 300 USc/lb in 2015. Gross
cash costs are forecast to be slightly above the level in the
second half of 2014 with muted inflation anticipated, particularly
with the decline in commodity prices and as the smelting and
refining charges at the Balkhash smelter will remain at 2014
levels. The gross cash cost guidance includes the full year effect
of the separation of the business and the Bozymchak mine which will
be ramping up operations in 2015. Bozymchak will have a gross cash
cost that is above the East Region operations, although the mine's
net cash costs will benefit from strong gold by-products. The net
cash cost in 2015 is expected to rise mainly due to the lower
by-product production volumes with the decline in metal grades at
Orlovsky and Artemyevsky.
Capital expenditure
Sustaining
Sustaining capital expenditure totalled $53 million in 2014,
which was $19 million below the prior year mainly due to the
additional spend in 2013 on infrastructure and the modernisation of
the Nikolayevsky concentrator.
During 2014, capital expenditure covered the replacement of
mining equipment along with spend to maintain output at mines and
concentrators. Funding was allocated for shafting and development
works at a number of mines to provide access to new sections and
improve ventilation systems. The East Region also maintains
transportation, heating and electricity infrastructure for its
operations and the local community which required investment during
the year.
A number of projects were implemented to improve the efficiency
of the operations. These projects have included the upgrade of
information systems at mines to reduce downtime and operating costs
and spend to improve the logistics arrangements.
The modernisation work to increase the capacity and recovery
rates achieved at the Nikolayevsky concentrator advanced during
2014. The majority of the modernisation project has now completed
with improvements to the grinding, flotation and reagent sections
delivered. This has resulted in a 38% increase in the volume of ore
processed in the second half of 2014 at the concentrator when
compared to the first half of the year and a significant
improvement in recovery rates above the levels in the prior year.
The final stages of the project which include the upgrade of the
thickening and filtration sections are planned to be completed by
the middle of 2015.
In 2015, the East Region's sustaining capital expenditure
requirements are expected to be between $80 million and $100
million. The sustaining capital expenditure in 2015 will include
around $25 million on work to optimise the transportation of ore
between Artemyevsky and the Nikolayevsky concentrator along with
final spend on the modernisation of the Nikolayevsky
concentrator.
Expansionary
The study work on the extension of the operational life of the
existing Artemyevsky mine continued during 2014. The project is
currently at the feasibility stage which is expected to complete in
the second half of 2015. The mine extension at Artemyevsky is
anticipated to commence output in 2017 and operate for 12 years at
an eventual capacity of 1.5 MT of ore per annum. The average copper
grade at the mine is expected to be around 1.50% with strong
by-products of zinc, gold and silver.
The mine will utilise the existing infrastructure and ore will
continue to be processed at the Nikolayevsky concentrator. During
2015, a further $20 million is expected to be invested in the
project to complete the feasibility study and, subject to
confirmation of the study results, some initial development of
shafts at the mine in late 2015.
Bozymchak Financial Summary
$ million 2014 2013
----------------------------------- ---- ----
EBITDA (excluding special items) (4) (3)
Capital expenditure (expansionary) 37 75
----------------------------------- ---- ----
The Bozymchak copper-gold mine and concentrator is located in
Kyrgyzstan. During 2014, the key components of the project were
completed with the permanent shift camp, auxiliary support
facilities, concentrator and tailing dams now operational.
Ore output of 426 kt was produced from the open-pit mine in 2014
and the concentrator is progressing through the commissioning
phase. During commissioning, the concentrator produced 0.7 kt of
copper in concentrate and 4.0 koz of gold in concentrate. Output
from the concentrator will ramp up in 2015 and, following further
optimisation, is expected to reach design capacity during 2016.
The negative EBITDA reported in 2013 and 2014 represents the
operational readiness costs incurred in preparing the project for
commercial production.
The expansionary capital expenditure of $37 million in 2014
includes production costs of $3 million which have been capitalised
while Bozymchak ramps up to commercial production levels. The mine
is expected to reach commercial production levels during the first
half of 2015, with net revenues set off against capital expenditure
until this is achieved.
Copper concentrate produced from Bozymchak is processed with
concentrate from the East Region at the Balkhash smelter into
copper cathode and gold bar for sale to third parties. The mine is
expected to produce average annual output of 6 kt of copper cathode
and 28 koz of gold bar over the 18 year operational life of the
deposit.
The project is forecast to require capital expenditure excluding
capitalised revenues and operating expenditure of around $25
million in 2015. The capital expenditure will include the
completion of commissioning works, ongoing mine stripping costs and
maintenance expenditure.
Mining Projects Financial Summary
The Mining Projects segment includes the Group's project
companies, whose responsibility is the development of Bozshakol,
Aktogay and Koksay.
The negative EBITDA from Mining Projects in 2013 and 2014
represents the overhead costs incurred in preparing the major
growth projects for commercial production. These costs were
previously included within the Mining Division.
$ million 2014 2013
----------------------------------- ----- ----
EBITDA (excluding special items) (14) (11)
Capital expenditure (expansionary) 1,096 660
----------------------------------- ----- ----
Bozshakol
The Bozshakol sulphide ore deposit is located in the north of
Kazakhstan. The deposit has a JORC resource of 1,170 MT of ore with
4.2 MT of contained copper at a grade of 0.36%. The Bozshakol mine
and concentrator will have a production life of over 40 years,
including the processing of stockpiled ore for four years. The
deposit also contains by-products of gold, silver and molybdenumand
has an estimated life of mine strip ratio of 0.7:1.
Significant progress has been made on the project during 2014
with a number of key milestones completed. During 2014, capital
expenditure on the project, excluding capitalised interest on debt
facilities, was $0.5 billion with around $1.3 billion having been
spent in total on the fully funded project.
The mining equipment to develop the open-pit mine is on site and
has been assembled with pre-production mining planned to commence
in the first half of 2015. The recruitment of operational personnel
has commenced and the permanent camp, which will house around 1,200
workers, was commissioned at the end of 2014. The training of the
operational workers will include an extensive three month induction
course focusing on safe operations. Overall, once operational,
Bozshakol is anticipated to employ around 1,500 workers.
Work has progressed on the 220 kV transmission line from
Ekibastuz GRES-1 to the site, the on-site 6.6 kV distribution
system and the associated control systems which will support mining
and processing activities. The mine and concentrator are expected
to require 214 MW of electricity and the transmission line has been
connected ahead of the commencement of pre-production mining.
The concrete and structural steel works have been completed for
the primary crusher which has a processing capacity of 25 MT of ore
per annum. The gyratory crusher is on site and the mechanical and
electrical works required for the operation of the crusher have
commenced. The processing of ore at the primary crusher is expected
to commence in the second half of 2015.
The concrete work for the 3.8 km long conveyor system which was
designed and supplied by FLSmidth has been completed. The conveyor
will deliver ore from the primary crusher to the concentrator. The
structural steel, mechanical and electrical works on the conveyor
system will be finished during 2015.
The sulphide ore extracted from the open-pit mine will be
processed by a 25 MT of ore per annum concentrator, producing 84 kt
of copper in concentrate per annum for the first 10 years with
gold, silver and molybdenum as by-products. The building housing
the concentrator has been erected and insulated. The focus of the
contractors is now on the installation of the SAG mill and two ball
mills along with the fit out of the floatation and copper
concentrate thickening sections of the concentrator.
A 5 MT per annum clay plant will also operate in addition to the
sulphide concentrator, contributing a further 16 kt of copper in
concentrate per annum in the initial years of its operation. The
clay plant will be converted to process sulphide ore once the clay
sections are exhausted after 15 years of operation. Construction
works are progressing on the clay plant which is expected to start
operation in the first half of 2016.
The limited copper concentrate expected from Bozshakol in the
fourth quarter of 2015 will be exported to China using the existing
national rail link. The revenue derived from the sale of copper
concentrate will be determined after the deduction of the smelting
and refining charges. The mine is expected to have an average
copper cathode equivalent output of 100 kt and a net cash cost for
copper cathode equivalent sales of 80 USc/lb to 100 USc/lb (in 2014
terms) for the first 10 years after the concentrator has been
commissioned.
Final development capital spend of around $0.9 billion is
anticipated in 2015 which will bring the total cost of the
development of the mine, concentrator and infrastructure to $2.2
billion. In addition to the capital expenditure in 2015, there will
be some build-up of working capital related to the stockpiling of
ore and the purchase of materials for the operation of the mine and
concentrator. Revenues and operating costs will be set off against
capital expenditure until commercial production levels are
achieved.
Aktogay
The Aktogay project is located in the East of Kazakhstan and
comprises a measured and indicated oxide ore resource of 121 MT
with a copper grade of 0.37%, and a sulphide ore resource of 1,597
MT at a copper grade of 0.33%. The deposit also contains some
molybdenum by-product. The project will include an open-pit mine
and concentrator and has a production life of over 50 years.
During 2014 capital expenditure on the project, excluding
capitalised interest on debt facilities, was $364 million. This
spend included funding of site preparation works, with bulk earth
works commencing and the development of infrastructure at the site,
including electricity and water supply.
The Aktogay project will initially develop the deposit's oxide
resource which is located above the sulphide ore body. The assembly
of mining equipment has commenced to enable mining works to build
up oxide ore stockpiles in 2015 for placement on the leaching
pads.
The solution containing copper from the leaching pads will be
processed at the SX/EW plant which will comprise two SX buildings
and one EW building. The detailed engineering on the SX/EW plant
has been completed and steelworks have commenced. Copper cathode
output from the oxide deposit which is expected to operate for 11
years will average around 15 kt per annum.
The sulphide resource extracted from the Aktogay mine will be
processed by a 25 MT of ore per annum concentrator based on the
engineering used at Bozshakol. As previously announced, a number of
contractors have been appointed to focus on separate aspects of the
project. Non Ferrous China have been awarded the contract for the
construction of the sulphide concentrator.
The first output from the sulphide processing plant is planned
for 2017. Copper cathode equivalent production from sulphide ore
will average 90 kt in the first 10 years of the concentrator's
operation. Aktogay is expected to have a net cash cost for copper
cathode equivalent sales of 110 USc/lb to 130 USc/lb (in 2014
terms) in the first 10 years after the commencement of the sulphide
concentrator.
As at 31 December 2014, approximately $850 million of capital
expenditure had been spent over the life of the project. The total
capital cost for the Aktogay project is expected to be in the
region of $2.3 billion with the development being primarily funded
by a $1.5 billion project specific financing facility signed with
CDB.
The project is forecast to require capital expenditure of
between $0.5 billion and $0.7 billion in 2015. Limited copper
cathode output is expected during the commissioning of the oxide
operations in the fourth quarter of 2015. The SX/EW plant is
anticipated to reach commercial production levels during the first
half of 2016, with net revenues set off against capital expenditure
until this is achieved.
Koksay
In June 2014, KAZ Minerals acquired a third major growth
project, Koksay, for a purchase price of $260 million. The Koksay
deposit is located in south eastern Kazakhstan around 230 km from
Almaty and is well supported by existing transportation
infrastructure.
Capital expenditure on the project totalled $229 million with
payments made for the acquisition of the licence in 2014 and spend
on exploratory drilling to verify the previous drilling results and
to provide initial geological, geotechnical and hydrogeological
data on the deposit.
The project is estimated to have a production 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. The deposit has a measured and indicated mineral
resource of 701 MT as at 31 December 2014 with a copper grade of
0.44%.
The project is forecast to require capital expenditure of up to
$15 million in 2015 to complete initial exploration works and
commence basic mine and concentrator design works. Final deferred
consideration for the purchase of the licence of $35 million is
also payable on 31 July 2015, subject to the confirmation of
reserves. The timing of future capital expenditure on the project
will be assessed based on the financial position of the Group.
REVIEW OF MINING DISPOSAL ASSETS
The mining Disposal Assets include the copper mines, processing
facilities and auxiliary operations that are predominantly based in
the Zhezkazgan and Central Regions. The operational and financial
results for the mining Disposal Assets in 2014 cover the 10 month
period to the completion of the Restructuring on 31 October 2014
and are classified as a discontinued operation in the Group's
financial statements.
Mining Disposal Assets Production Summary
Copper
kt (unless otherwise stated) 2014 2013
---------------------------------------- ------ ------
Ore output 27,119 34,841
Copper grade (%) 0.83 0.81
Copper in ore mined 224.5 281.9
Copper in concentrate 186.6 227.8
Copper cathode equivalent production(1) 171.3 217.2
Cathode 89.5 185.7
Concentrate(2) 81.8 31.5
Copper rod production 9.0 12.1
---------------------------------------- ------ ------
(1) Includes cathode converted into rod.
(2) Copper cathode equivalent of copper in concentrate sold.
Ore output from the Disposal Assets' operating mines in the 10
months to 31 October 2014 totalled 27,119 kt. Ore extraction was 7%
below the comparative 10 month period in 2013 with reduced mining
at some high cost areas in the Zhezkazgan Region and with stripping
work limiting production at the North mine. Ore output in the
Central Region was also restricted due to equipment downtimes at
Sayak and the suspension of output at the open-pit Abyz mine.
The average copper grade of 0.83% was marginally above the prior
year, due to the mining of copper rich sections at Akbastau and
Nurkazgan West while grades in the Zhezkazgan Region were
consistent with the prior year.
The mining Disposal Assets produced 224.5 kt of copper in ore in
the first 10 months of 2014 which was 4% below the comparative
period in 2013. The decline in copper in ore output was driven by
the 7% decrease in ore extraction, partially offset by higher
grades in the Central Region.
Copper in concentrate production of 186.6 kt in the first 10
months of 2014 was 3% below output in the comparative period in
2013 with the fall in copper in ore output partially offset by
higher concentrator recovery rates.
Copper cathode equivalent production of 171.3 kt was 6% below
the comparable 10 month period in 2013, mainly due to the decline
in copper in concentrate output and 21% below the prior year due to
the shorter operational period reported in 2014.
Silver and Gold
koz (unless otherwise stated) 2014 2013
---------------------------------------------------- ----- -----
Silver grade (g/t) 8.87 9.56
Silver granule equivalent production 6,039 9,663
Silver granule(1) 2,431 8,272
Silver granule equivalent in copper concentrate
sold 3,608 1,391
Gold grade (g/t) 0.42 0.48
Gold bar(1) 53.5 58.9
---------------------------------------------------- ----- -----
(1) Includes slimes from purchased concentrate and output from
the former Kazakhmys Gold's mines.
Silver in ore mined in the first 10 months of 2014 was 12% below
the comparative period in 2013 at 7,730 koz due to the decline in
ore output and silver grade in the Zhezkazgan Region.
Silver granule equivalent production of 6,039 koz was 17% below
the comparative 10 month period in 2013. The decline in production
was due to the lower volume of silver in ore extracted and the
release of work in progress at the Balkhash processing facilities
in the first 10 months of 2013.
The gold in ore extracted in the first 10 months of 2014 of 83.9
koz was 6% below the comparative period in 2013 with the suspension
of operations at the gold rich Abyz mine pending a study on the
potential development of an underground mine. Gold production of
53.5 koz was 7% above the comparative 10 month period in 2013
mainly due to the processing of stockpiled ore in 2014.
Mining Disposal Assets Financial Summary
$ million 2014 2013
--------------------------------- ----- -----
Sales revenues 1,455 2,055
EBITDA (excluding special items) 159 315
Capital expenditure 234 369
Sustaining 232 350
Expansionary 2 19
--------------------------------- ----- -----
Revenues
The mining Disposal Assets' revenues totalled $1,455 million in
the first 10 months of 2014, a decline on the comparative 10 month
period in 2013 due to the lower copper product sales volumes and
the lower realised prices for copper, gold and silver. Revenues
were also below the $2,055 million for the full year in 2013 due to
the fewer number of operational months included in 2014.
EBITDA (excluding special items)
The mining Disposal Assets' EBITDA was $159 million in the first
10 months of 2014. The EBITDA margin of 11% was below the 15%
achieved in the prior year as the decline in revenues was only
partially offset by relatively lower cash operating costs.
The cash operating costs at the mining Disposal Assets benefited
from the devaluation of the tenge. The 18% decline in the average
value of the tenge against the US dollar reduced tenge denominated
costs such as salaries, ore transportation, repair services, and
utility charges when stated in US dollars.
Salary costs were lower due to the tenge devaluation and the
initiatives introduced to increase labour productivity within the
business. The reduction in salary costs achieved by the above
measures were partially offset by the 10% increase in salaries for
operational staff in Kazakhstan from April 2014 in order to protect
workers from some of the impact of the devaluation and the
introduction of a 5% compulsory pension contribution on
salaries.
Management also took a number of cost control measures in the
first 10 months of 2014 which included the reduction in mining
volumes at higher cost extraction zones in the Zhezkazgan Region.
The suspension of operations at the Satpayev concentrator has also
improved utilisation levels and reduced operating costs.
Capital expenditure
The mining Disposal Assets' capital expenditure totalled $234
million in the first 10 months of 2014. Spend in the period covered
the replacement of mining equipment and works to maintain output at
concentrators, smelters, auxiliary workshops and the transport
network. Capital expenditure was postponed during the first 10
months of 2014 to improve the cash flows of the Disposal Assets.
Capital expenditure on mine and concentrator upgrade projects was
also below the levels seen in the prior year.
REVIEW OF POWER DISPOSAL ASSETS
The Disposal Assets include the three captive heat and power
stations that are located in Karaganda, Balkhash and Zhezkazgan.
The operational and financial results for the captive heat and
power stations in 2014 cover the 10 month period to the completion
of the Restructuring on 31 October 2014 and are classified as a
discontinued operation in the Group's financial statements.
Production Summary
2014 2013
-------------------------------- ----- -----
Net power generated (GWh)(1) 4,129 5,723
Net dependable capacity (MW)(2) 832 843
-------------------------------- ----- -----
(1) Electricity generated and sold to customers less internal
consumption and transformer losses in power stations.
(2) The net dependable capacity is the maximum capacity a unit
can sustain over a specified period of time modified for seasonal
limitations and reduced by the capacity required for the station's
operation.
The captive heat and power stations' net power generation
totalled 4,129 GWh in the 10 months to 31 October 2014, a 12%
decline from the 4,717 GWh of power produced in the comparative 10
month period in 2013. The lower generation in 2014 was mainly
driven by a reduction in internal demand for electricity with the
suspension of the Zhezkazgan smelter in the second half of 2013 and
also a decrease in sales volumes to third parties with increased
competition for customers in the market.
The average net dependable capacity of the captive power
stations decreased by 1% to 832 MW in 2014 due to the
decommissioning of ageing turbines at the Balkhash and Zhezkazgan
heat and power stations.
Financial Summary
$ million 2014 2013
--------------------------------- ---- ----
Sales revenues 154 223
EBITDA (excluding special items) 42 48
Capital expenditure (sustaining) 16 65
--------------------------------- ---- ----
Revenues
The captive power stations' revenues in the 10 months to 31
October 2014 were $154 million which was below the comparative 10
month period in 2013. The decline in revenues in 2014 was due to a
12% decrease in sales volumes with lower demand and the reduction
in the realised electricity tariffs in US dollar terms due to the
devaluation of the tenge in February 2014. The underlying
electricity tariffs rose by 8% in tenge terms from 5.10 KZT/kWh to
5.50 KZT/kWh due to the higher ceiling tariffs applicable in
2014.
EBITDA (excluding special items)
The captive power stations reported an EBITDA of $42 million in
the 10 months to 31 October 2014, which was below the comparative
10 month period in 2013 and $6 million below the contribution for
the full year in 2013.
The relative decline in EBITDA reflects the fall in revenues
partially offset by the lower cash operating costs in 2014. The
devaluation of the tenge against the US dollar reduced tenge
denominated costs such as coal, salaries and repair services when
stated in US dollars. Operating cash costs were also lower with the
reduction in generation volumes and the introduction of efficiency
improvements to reduce the usage of input materials.
The average cash cost for electricity generation from the
captive power stations rose by 6% to 3.80 KZT/kWh compared to 3.57
KZT/kWh in 2013. The rise in the average cost of electricity
generation was driven by cost inflation in tenge terms for key
inputs in the generation process such as coal and fuel, along with
employee costs. The average cash cost also rose as fixed costs were
allocated over lower generation volumes in 2014.
Capital expenditure
Investments at the captive power stations were made to improve
their operational efficiency and for the replacement of obsolete
equipment.
OTHER BUSINESSES
REVIEW OF EKIBASTUZ GRES-1
On 1 April 2014, KAZ Minerals disposed of its 50% interest in
Ekibastuz GRES-1 to Samruk-Energo and received net funds of $1.25
billion. The Group ceased equity accounting of Ekibastuz GRES-1's
earnings following the agreement to sell the Group's 50% interest
in the power station to Samruk-Energo in December 2013. The
financial results of Ekibastuz GRES-1 have therefore not been
reported in 2014.
$ million 2014 2013
------------------------------------ ---- ----
EBITDA (excluding special items)(1) - 153
------------------------------------ ---- ----
(1) Represents KAZ Minerals' 50% share of Ekibastuz GRES-1's
results for the period until 5 December 2013.
In the period to 5 December 2013, Ekibastuz GRES-1's net power
generation volumes totalled 12,785 GWh with output limited by the
increased competition in the domestic electricity market during the
year.
The power station contributed EBITDA (excluding special items)
of $153 million in 2013 with the results negatively affected by the
challenging trading environment. Revenues of $248 million were
impacted by the lower generation volumes and operating costs rose
on the back of strong domestic inflation in the electricity
industry. In the period until its divestment in April 2014,
Ekibastuz GRES-1 reported net power generation volumes of 3,072
GWh.
REVIEW OF MKM
The Group disposed of its 100% holding in MKM, which is based in
Germany and produces copper and copper alloy semi-finished
products, on 28 May 2013. The consideration received for the
disposal of MKM totalled EUR42 million, including EUR12 million on
a deferred basis. Before the divestment of the Group's holding, MKM
paid a dividend of EUR10 million in April 2013. In December 2014
KAZ Minerals received the deferred consideration of EUR12
million.
$ million 2014 2013
------------------------------------ ---- ----
EBITDA (excluding special items)(1) - (2)
Capital expenditure (sustaining)(1) - 9
------------------------------------ ---- ----
(1) The results for MKM in 2013 are shown for the period until
the date of MKM's disposal on 28 May 2013.
MKM is treated as a discontinued operation in the Group's
financial statements in 2013. EBITDA was negative $2 million for
the five month period to 28 May 2013. Due to the copper price
movements in the five month period the EBITDA was negatively
impacted by an IFRS inventory adjustment. Capital expenditure in
the period to 28 May 2013 totalled $9 million as MKM invested
mainly to maintain production equipment.
REVIEW OF ENRC
The Group disposed of its 26% interest in ENRC, a diversified
natural resources group, on 8 November 2013. As consideration for
its holding in ENRC, the Group received net cash proceeds of $875
million and approximately 77 million shares in the Company which
were subsequently cancelled.
$ million 2014 2013
------------------------------------ ---- ----
EBITDA (excluding special items)(1) - 276
------------------------------------ ---- ----
(1) KAZ Minerals' share of EBITDA (excluding special items) of
ENRC is for the period to 24 June 2013.
ENRC is treated as a discontinued operation in the Group's
financial statements in 2013. In the period to 24 June 2013, KAZ
Minerals' share of ENRC's EBITDA (excluding special items) was $276
million.
ENRC's revenues in the six month period to 24 June 2013 were
impacted by the lower realised prices obtained for key products
such as ferroalloys, partially offset by higher sales volumes
across most of the divisions, including the Iron Ore Division.
CORPORATE RESPONSIBILITY
Responsible behaviour supports our business strategy by helping
us to manage reputational and regulatory risks.
The Restructuring has changed some of our Corporate
Responsibility (CR) impacts. Where data is presented for the Group,
this includes data for the Disposal Assets up to the date of
completion of the Restructuring, as well as first quarter data for
Ekibastuz GRES-1 power station, in which the Group held a 50% stake
until its disposal on 1 April 2014. Where appropriate, we have
presented performance data for the continuing operations only to
provide a better context for the Group CR impacts going
forward.
Health and safety
Safety remains our absolute priority and we report with deep
regret that nine employees and four contractors died at our
operations in 2014; of those, three employees and three contractors
died at sites which remain part of KAZ Minerals' continuing
operations. This compares to 15 employees and three contractor
fatalities at the Group's operations in 2013. Whilst the number of
fatalities has reduced, we still view this performance as
unacceptable and recognise only one goal in this area - zero
work-related fatalities.
In future, as our major growth projects ramp up, KAZ Minerals'
overall safety risk profile will improve and we will continue to
focus on changing the existing safety culture at our producing
assets, where we currently face some historical challenges.
Lost-time injury frequency rate (LTIFR) for the Group was 1.36,
while the LTIFR for the continuing operations was 1.91 (both
excluding contractors).
There were 100 lost-time injuries across our operations in 2014,
including 24 at the continuing operations. This compares to 172
injuries amongst our employees last year. The reduction was in part
driven by the completion of the Restructuring in October 2014,
which resulted in the divestment of 12 of the 16 mines and four of
the eight concentrators within the Group's portfolio. Further
improvements were also attributable to stricter controls and safety
compliance checks at sites, which helped raise risk awareness at
some of the most challenging sites at the Disposal Assets thus
improving overall safety performance.
We monitor injury statistics of our contractors where possible.
In 2014, we received reports of 26 lost-time injuries from our
contractors, including 18 injuries at the Disposal Assets prior to
completion of the Restructuring on 31 October, and eight injuries
at our continuing operations during the 12 months of 2014.
We continue to develop our internal reporting systems, to ensure
all incidents are captured. This will require additional effort to
address under-reporting amongst both our employees and contractors.
In 2015, we will introduce a new incident reporting system to
record and report a Total Recordable Injury Frequency Rate as the
Group moves to the ICMM guidelines for health and safety
reporting.
Further details on the measures we are taking to address this
critical area will be provided in our Annual Report and Accounts as
well as on the corporate website after its publication.
Environment
Environmental management remains a key priority for KAZ
Minerals. The Restructuring saw the disposal of the smelting and
power generating facilities, along with a number of mature mines
and concentrators, resulting in a change to our environmental
impact. CO(2) and air emissions are lower at the continuing
operations than at the Disposal Assets, but our overall impact on
the environment will continue to be significant given the nature of
our operations. Our main focus and priorities going forward will
shift to waste, including tailings management, as well as water and
energy use from copper mining and processing.
Energy use
In 2014, our Group-wide energy use was 3,962 GWh, 32% lower than
in 2013. Of this total, continuing operations' energy use was 716
GWh. The lower electricity and heat consumption in 2014 is
attributable to the closure of the Zhezkazgan smelter, Satpayev
concentrator and Berezovsky concentrator in 2013, the disposal of
the Ekibastuz GRES-1 power station on 1 April 2014 and divestment
of 12 mines, four concentrators and two smelters as part of the
Restructuring completed in October 2014. Reduced output in the
Power Division prior to completion of the Restructuring has also
led to lower energy use. Further reductions are attributable to
energy-saving initiatives conducted across our operations.
Greenhouse gas emissions
In 2014 the Group's carbon dioxide equivalent output (CO(2) e)
totalled 12.1 million tonnes, 53% less than in 2013. Of this,
328,000 tonnes is attributable to the continuing operations. The
reduction in carbon emissions is largely driven by closure of the
Zhezkazgan smelter in 2013, the disposal of power generating
facilities as part of the Restructuring, as well as the disposal of
the Ekibastuz GRES-1 power station, which alone accounted for over
50% of total Group carbon output in 2013. Additional carbon
reductions were achieved as a result of the modernisation programme
at the captive power plants, which included installation of battery
emulsifiers.
We were previously unable to normalise our CO(2) e emissions to
copper output due to the very different nature of the Mining and
Power Divisions. The Group is now a focused copper producer and the
CO(2) e intensity at the continuing operations in 2014 was 3.93
tonnes of CO(2) e per tonne of copper cathode equivalent.
Emissions to air
Prior to the Restructuring, the Group's operations produced a
substantial amount of sulphur dioxide (SO(2) ), nitrogen oxides
(NO(x) ), ash, and low levels of airborne dust, which contained
traces of arsenic. These emissions were largely derived from the
smelting operations and the power division, and impacted the local
communities surrounding those operations. The disposal of the power
generating and smelting facilities significantly reduced KAZ
Minerals' emissions.
SO(2) emissions for the Group totalled 127,688 tonnes, compared
with 214,123 tonnes in 2013. Smelting and power assets are the main
sources of SO(2) emissions. We disposed of all power and smelting
facilities as part of the Restructuring in October 2014. Prior to
that, we also disposed of our 50% stake in the Ekibastuz GRES-1
power station, which significantly reduced the Group SO(2) output.
Further reductions are attributable to the reduced power generation
at the captive power stations. At 69,118 tonnes, SO2 output of the
Disposal Assets' Mining Division during the 10 months of 2014 was
higher than during the comparative period in the prior year due to
greater sulphur content in the ore processed in 2014, as well as
repair works at sections of the Balkhash sulphuric acid plant.
Going forward SO(2) emissions will no longer be a material issue
for the Group as we no longer own or operate power generation or
smelting facilities. The Group continues to use the smelter in
Balkhash to process its concentrate on a tolling basis. The smelter
maintains low levels of SO(2) emissions by capturing emissions and
transforming them into sulphuric acid.
NO(x) emissions for the Group decreased by 63% from 53,931
tonnes in 2013 to 20,188 tonnes in 2014. Total ash emissions fell
to 38,537 tonnes in 2014, a reduction of 54% from the previous
year. NO(x) and ash emissions decreased largely due to the closure
of smelting and processing assets mentioned above as well as the
Restructuring. The Power Division also achieved reductions due to
the on-going modernisation programme and the installation of two
battery emulsifiers.
Emission levels at the continuing operations are low compared to
the levels achieved at the Group prior to the Restructuring: NO(x)
emissions in 2014 amounted to 300 tonnes, ash emissions to 0.017
tonnes.
Water
Copper processing requires careful management of water
withdrawal and discharge, and our operations recycle approximately
two thirds of withdrawn water. We seek to ensure that our
operational use does not affect communal water supplies and we use
different water sources for production purposes to those used by
local communities.
The Group's total water consumption decreased from 3.3 million
megalitres in 2013 to 1.5 million megalitres in 2014. Of this total
consumption, 0.8 million megalitres was recycled water. A further
0.6 million megalitres was surface water that we draw directly from
lakes, rivers and reservoirs. The reduction in water consumption
between 2013 and 2014 is largely due to the structural changes
within the Group, including the disposal of Ekibastuz GRES-1 power
station, which previously accounted for over 50% of total Group
water use, as well as the captive power stations as part of the
Restructuring. 24,250 megalitres of water was consumed by the
continuing operations in 2014, 77% of which was recycled process
water, which is captured and reused multiple times.
Waste
In 2014, the Group produced 72.8 million tonnes of waste, 42%
less than in 2013. 4.2 million tonnes was attributable to
continuing operations. The majority of our waste volume is
represented by overburden and total Group waste volumes are
therefore largely driven by mining activities. The closure of the
Zhezkazgan smelter, Satpayev and Berezovsky concentrators, as well
as the decreased electricity output from the captive power plants
have also contributed to waste reduction.
31.1 million tonnes (43%) of the Group's total waste production
was reused or recycled, an increase of 8% from the previous year.
This includes overburden which is used to backfill completed mining
sections. At the continuing operations, the recycling and re-use
rate was 33% in 2014.
Tailings management is a major focus in waste management and
presents a significant environmental risk. Tailings are regulated
by the Government's sub-soil use law and the Environmental Code.
The Group currently operates four tailings facilities for each of
its operational concentrators. The facilities are subject to
rigorous internal monitoring and risk assessment as well as regular
inspections by the regulatory authorities. Tailings volumes are
forecast as part of annual production planning with specific
capital expenditure provisions for repairs, maintenance and
extensions. In 2014, the Group produced 29 million tonnes of
tailings, with 2.8 million tonnes attributable to the continuing
operations.
Employees and Communities
Provision of stable employment and social security in the remote
and economically un-diverse regions where our Disposal Assets are
located was one of the key considerations during the execution of
the Restructuring. As a result, the Restructuring proceeded without
causing any significant reductions in employee numbers at either
the Disposal Assets or continuing operations. Prior to the
Restructuring, the Group employed 53,000 people, KAZ Minerals now
employs less than 10,000 people.
Our producing assets are located in economically more diverse
regions and our employee turnover is therefore likely to increase
following the Restructuring. We aim to address the challenge of
attracting and retaining skilled staff by offering safe working
conditions with fair remuneration and social benefits packages for
employees and their families.
Our goal is to employ a skilled workforce that reflects the
demographic of the regions in which we operate. We aim to develop
the expertise required for our operations from our existing
workforce, recruiting locally where possible. Our operations are
located in Kazakhstan and Kyrgyzstan and in 2014, 99% of the Group
employees were Kazakh or Kyrgyz nationals.
Gender balance at our operations is relatively strong compared
to the global mining industry. Women represent 31% of the entire
workforce, with 29% at senior management level and 11% at Board
level (one Board member).
In 2014, social investment for the Group amounted $60 million,
this included sponsorship, support and donations for community
projects in the primary regions of our operations as well as
projects on a national level prior to and following the
Restructuring. We expect this commitment to reduce as the number of
our assets and the size of our workforce has decreased as a result
of the Restructuring. We will continue to work with the regional
authorities in identifying projects that are relevant to our
business while benefiting the communities to the greatest possible
extent in the long term. Our main focus areas include healthcare,
infrastructure development, childcare, education and sport.
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 2013, except for the first-time adoption of:
IFRS 10 'Consolidated Financial Statements'; IFRS 11 'Joint
Arrangements': and IFRS 12 'Disclosure of Interests in Other
Entities', with effect from 1 January 2014. These standards have
not had a material impact on the financial position or performance
of the Group. Consequently, no adjustment has been made to the
comparative financial information as at 31 December 2013.
The independent shareholders approved the divestment of certain
of the Group's subsidiaries owning relatively mature mining and
power operations, primarily located in the Zhezkazgan and Central
Regions (the "Disposal Assets") on 15 August 2014. Following
shareholder approval, the Disposal Assets were classified as assets
held for sale and treated as a discontinued operation in the
financial statements from the beginning of the year until their
disposal on 31 October 2014. Given the reclassification of the
Disposal Assets as a discontinued operation, the comparative
financial information has been restated in accordance with the
requirements of IFRS 5 'Non-current Assets Held for Sale and
Discontinued Operations'. The Group's investment in the Ekibastuz
GRES-1 joint venture, which represented a separate business line of
the Group has also been treated as a discontinued operation for the
period up to its disposal on 1 April 2014.
The consolidated income statement and the related notes for the
prior year have been restated to conform with this presentation for
all businesses that met the asset held for sale criteria during
2014.
The following businesses were treated as discontinued operations
for the year ended 31 December 2013: MKM, to the date of its
disposal on 28 May 2013; the joint venture investment in Ekibastuz
GRES-1, to the date the Group accepted an offer for its sale on 5
December 2013; and the investment in ENRC, to the date the Group
accepted an offer for its sale on 24 June 2013.
The Restructuring undertaken in 2014 resulted in a change to the
Group's operating segments. As the Disposal Assets were classified
as a discontinued operation at 15 August 2014, with the
comparatives restated to conform with this presentation, the
operating segment disclosures for the year ended 31 December 2013
have also been restated to reflect the new operating segments which
are:
East Region operations, which comprises the Group's main
operating entity, Vostoktsvetmet LLC ('VCM'), whose principal
activity is the mining and processing of copper and other metals
which are produced as by-products; and the Group's UK trading
function, KAZ Minerals Sales Limited, which is responsible for the
purchase of exported products from VCM and subsequently applies an
appropriate mark-up prior to onward sale to third parties.
The Bozymchak copper-gold deposit, which is located in
Kyrgyzstan, is in the commissioning phase.
Mining Projects which comprises the Group's project companies,
whose responsibility is the development of the major growth
projects (Aktogay, Bozshakol and Koksay).
Corporate Services which comprises the Group's head office
costs.
Income statement
An analysis of the consolidated income statement is shown
below:
$ million (unless otherwise stated) 2014 2013
------------------------------------------------------ -------- --------
Continuing operations
Revenues 846 931
Operating costs (excluding non-cash component
of the disability benefits obligation, depreciation,
depletion, amortisation, MET and special items) (491) (572)
------------------------------------------------------ -------- --------
EBITDA (excluding special items) from continuing
operations 355 359
Special items:
Less: additional disability benefits obligation
related to previously insured employees - (3)
Less: impairment charges (132) (13)
Less: MET (86) (94)
Less: non-cash component of the disability
benefits obligation (1) (1)
Less: depreciation, depletion and amortisation (42) (57)
------------------------------------------------------ -------- --------
Operating profit 94 191
Net finance costs (excluding net foreign exchange
loss from the devaluation of the tenge) (82) (53)
Net foreign exchange loss arising on the devaluation
of the tenge (181) -
------------------------------------------------------ -------- --------
(Loss)/profit before taxation (169) 138
Income tax expense (65) (48)
------------------------------------------------------ -------- --------
(Loss)/profit for the year from continuing
operations (234) 90
------------------------------------------------------ -------- --------
Discontinued operations
Loss for the year from discontinued operations (2,128) (2,122)
------------------------------------------------------ -------- --------
Loss for the year (2,362) (2,032)
Non-controlling interests - 2
------------------------------------------------------ -------- --------
Loss attributable to equity holders of the
Company (2,362) (2,030)
------------------------------------------------------ -------- --------
EPS - basic and diluted ($)
From continuing operations (0.52) 0.18
From discontinued operations (4.76) (4.14)
------------------------------------------------------ -------- --------
(5.28) (3.96)
------------------------------------------------------ -------- --------
EPS based on Underlying Profit ($)
From continuing operations 0.19 0.20
From discontinued operations (0.18) 0.17
------------------------------------------------------ -------- --------
0.01 0.37
------------------------------------------------------ -------- --------
Revenues
The Group's revenues from continuing operations decreased by 9%
from $931 million in 2013 to $846 million, principally as a result
of lower commodity prices. Copper revenues were $550 million in
2014, 7% below 2013 as sales volumes fell by 4% and the average
realised price for copper decreased by 3% to $7,040 per tonne
compared to $7,231 per tonne in 2013. Revenues from by-products
were $296 million, $46 million lower than in 2013. Zinc revenues
remained unchanged compared to 2013, as lower sales volumes were
offset by a higher realised price while gold and silver revenues
declined by 30% and 26% respectively, as a result of a fall in both
commodity prices and sales volumes in 2014.
EBITDA (excluding special items) by operating segment
EBITDA (excluding special items) has been chosen as the key
measure in assessing the underlying trading performance of the
Group. This performance measure removes the non-cash component of
the disability benefits obligation, depreciation, depletion,
amortisation, MET and those items which are non-recurring or
variable in nature and which do not impact the underlying trading
performance of the Group. The Directors believe that the exclusion
of MET provides a more informed measure of the operational
profitability of the Group given the nature of the tax as further
explained in the 'Taxation' section.
As EBITDA is considered to be a proxy for cash earnings from the
Group's trading performance the actuarial income statement charge
in respect of the Group's disability benefits obligation has been
excluded from EBITDA and instead, the actual disability benefits
payments disbursed during the year have been deducted in arriving
at EBITDA.
A reconciliation of Group EBITDA (excluding special items) by
operating segment and the EBITDA (excluding special items)
attributed to the discontinued operations is shown below:
$ million 2014 2013
--------------------------------------- ----- ------
Continuing operations
East Region operations 403 432
Bozymchak (4) (3)
Mining Projects (14) (11)
Corporate Services(1) (30) (59)
--------------------------------------- ----- ------
Total continuing operations 355 359
--------------------------------------- ----- ------
Discontinued operations
Disposal Assets(2) 201 363
MKM - (2)
Share of EBITDA of joint venture - 153
Share of EBITDA of ENRC - 276
Total discontinued operations 201 790
--------------------------------------- ----- ------
Group EBITDA (excluding special items) 556 1,149
--------------------------------------- ----- ------
(1) Following the restatement of the Group's 2013 income
statement to reflect the Disposal Assets as discontinued
operations, inter-segment rechargeable costs of $30 million were
reallocated from the previous Kazakhmys Mining segment within the
Disposal Assets, to Corporate Services within the continuing
operations.
(2) The Disposal Assets comprise the Zhezkazgan and Central
Region operations which were previously reported within Kazakhmys
Mining and the captive power stations which were previously
reported within Kazakhmys Power in the prior year.
EBITDA (excluding special items) from continuing operations of
$355 million was consistent with 2013, as cost reductions offset
the lower revenues.
The East Region's EBITDA of $403 million was 7% lower than the
prior year, as the impact of lower pricing on revenues was largely
offset by reduced costs due to the Group's optimisation programme
and the favourable impact of the devaluation of the tenge. The
impact of the tenge devaluation was partly reduced by the
inflationary pressures in Kazakhstan, including a 10% increase in
wages in April 2014.
The negative EBITDA from Mining Projects and Bozymchak of $18
million represents costs incurred in preparing the Group's major
growth projects for commercial production which are not considered
directly attributable to the construction of the assets and
therefore expensed. These costs were previously included within the
Kazakhmys Mining segment.
Corporate costs of $30 million were in line with the prior year
of $29 million, when adjusted to exclude the intersegment costs
reflected within the continuing operations as noted in the table
footnote.
EBITDA (excluding special items) from discontinued operations
represents the results of the Disposal Assets up to 31 October
2014. In the prior year, EBITDA (excluding special items) from
discontinued items included the results of ENRC, Ekibastuz GRES-1,
and MKM for the period until their respective disposals. Refer to
the discontinued operations section for more detail.
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 from continuing
operations:
2014
Impairment charges
The Bozymchak copper and gold development project has been
subject to an impairment review following the identification of
impairment indicators. The indicators identified were lower assumed
copper prices for 2015, ongoing optimisation work to be performed
during 2015 thereby delaying the ramp up of the concentrator and
changes to the mine plan. As a result, the Group has recognised a
total impairment of $128 million. The impairment charge has been
recognised as $107 million against property, plant and equipment,
$18 million against mining assets and $3 million against other
non-current assets of the Bozymchak project. The impairment charge
reduces the carrying value of the Bozymchak project to its
recoverable amount of $100 million, determined as its value-in-use
on a discounted cash flow basis, as at 31 December 2014. The cash
flow forecasts were discounted at a post-tax discount rate of 11%
(pre-tax rate of 12%).
Impairment charges were also recognised within East Region
operations against property, plant and equipment of $4 million,
principally relating to unusable items.
2013
Disability benefits obligation
In accordance with Kazakhstan law, the Group obtained insurance
cover from 2005 for the disability payments to employees for
illness and disability sustained at the Group's continuing
operations. During 2013, as a result of financial difficulties, the
insurance companies ceased making their obligated payments to the
employees covered by insurance contracts. The Group assumed the
liability for future disability benefit payments to these employees
and the related $3 million charge in respect of the East Region
operations was treated as a special item in the income
statement.
Impairment charges
Impairment charges of $8 million were recognised principally
from the impairment of Berezovsky concentrator in the East Region
following its suspension in the second half of 2013. Other
impairment charges of $5 million related to assets no longer in
use.
Other items outside of EBITDA (excluding special items) from
continuing operations
Depreciation, depletion and amortisation
The Group's depreciation, depletion and amortisation charge from
continuing operations for 2014 of $42 million is $15 million below
the charge in the prior year, principally due to the impact of the
tenge devaluation.
MET
The MET charge for the East Region operations of $86 million for
2014 was below the $94 million recognised in 2013, principally
reflecting lower commodity prices.
Net finance costs
Net finance costs, which include finance costs incurred on
borrowings, net foreign exchange losses and interest on the
employee benefits obligation, have increased significantly from $53
million in 2013 to $263 million in 2014, principally due to the
impact of the tenge devaluation.
On 11 February 2014, the National Bank of Kazakhstan announced
it would seek to support the tenge at around 185 KZT to the US
dollar, with the tenge swiftly devaluing to trade at this level.
The KZT/$ exchange rate at 31 December 2014 was KZT 182.35 compared
to KZT 153.61 at 31 December 2013, a 19% devaluation. The average
KZT/$ exchange rate for 2014 was KZT 179.19 compared to KZT 152.13
in 2013, a change of 18%.
The net exchange losses of $235 million were higher than the $7
million in 2013 largely as a result of the tenge devaluation.
Exchange losses of $361 million arose mainly from the translation
of tenge-denominated intercompany monetary assets and liabilities,
while US dollar denominated monetary assets and liabilities in
Kazakhstan, principally accounts receivable and cash balances, gave
rise to exchange gains of $126 million. Of this net exchange loss,
$181 million arising from the devaluation at 11 February 2014 is
treated as a special item and is excluded from Underlying Profit
from continuing operations. The remaining net exchange losses arose
largely from the depreciation of the Kyrgyz som on the translation
of intercompany monetary liabilities relating to the financing of
the Bozymchak project. These losses are largely offset by
corresponding translation gains on consolidation, which are
recognised directly in equity.
The interest costs incurred on borrowings decreased to $35
million from $51 million in 2013, principally due to lower interest
charges in the year arising from a reduced weighted average
interest rate and a lower average level of borrowings during 2014,
being partially offset by $10 million of pre-export finance
facility unamortised fees being expensed following the Group's
amendment to the pre-export finance facility in October 2014.
Interest charges capitalised to the Bozshakol, Aktogay and
Bozymchak projects amounted to $124 million (2013: $126
million).
Other finance costs included $2 million (2013: $2 million) and
$1 million (2013: $2 million) of unwinding of the discount on the
Group's employee benefit obligations and long-term provisions,
respectively.
In addition, the Group earned $10 million of interest income on
cash deposits compared to $9 million in 2013.
Taxation
The table below shows the Group's effective tax rate from
continuing operations as well as the all-in effective tax rate
which takes into account the impact of MET and removes the effect
of special items and non-recurring items on the Group's tax
charge.
$ million (unless otherwise stated) 2014 2013
--------------------------------------------------- ------ -----
(Loss)/profit before taxation from continuing
operations (169) 138
Add: MET 86 94
Add: special items within operating profit 132 16
Add: net foreign exchange loss arising on
the devaluation of the tenge 181 -
--------------------------------------------------- ------ -----
Adjusted profit before taxation from continuing
operations 230 248
--------------------------------------------------- ------ -----
Income tax expense 65 48
Add: MET 86 94
Add: deferred tax asset on additional disability
benefits obligation related to previously
insured employees - 1
Add: recognition of a deferred tax asset resulting
from impairment charges 1 3
Less: tax effect on foreign exchange gain
arising on the devaluation of the tenge (8) -
--------------------------------------------------- ------ -----
Adjusted tax expense from continuing operations 144 146
--------------------------------------------------- ------ -----
Effective tax rate (%) (38) 35
--------------------------------------------------- ------ -----
All-in effective tax rate(1) (%) 63 59
--------------------------------------------------- ------ -----
(1) The all-in effective tax rate is calculated as the income
tax expense plus MET less the tax effect of special items and other
non-recurring items, divided by profit before taxation which is
adjusted for MET, special items and other non-recurring items. The
all-in effective tax rate is considered to be a more representative
tax rate on the recurring profits of the Group.
Effective tax rate
Despite making a loss before taxation from continuing operations
of $169 million, the Group has incurred a tax charge of $65
million, principally as a result of the net foreign exchange losses
arising from the tenge devaluation in February 2014 of $181
million, which includes $223 million of foreign exchange losses not
deductible for tax purposes. The tax impact of the non-deductible
exchange loss amounted to $48 million. In addition, the tax impact
of the Bozymchak impairments of $13 million also had upward
pressure on the effective tax rate.
As a result, the effective tax rate from continuing operations
was (38)% compared to 35% in 2013. The restatement of the Group's
income statement following the reclassification of the Disposal
Assets as a discontinued operation has led to a restatement of the
effective tax rate for 2013. Prior to this reclassification the
prior year effective tax rate was (19)%.
All-in effective tax rate
The all-in effective tax rate increased from 59% in 2013 to 63%
in 2014 as the adjusted tax expense remained constant while the
adjusted profit decreased in 2014. MET, which is revenue-based and
independent of the profitability of the operations, was 9% lower
than in 2013, following lower prices. In both years MET represented
more than 100% of the income expense, whilst the non-deductible
items in 2014 were higher and therefore placed upward pressure on
the all-in effective tax rate.
Non-deductible items
The tax impact of non-deductible items was $84 million in 2014
(2013: $21 million), mainly relating to the non-deductibility of
unrealised exchange losses which arose from the tenge devaluation
of $48 million, with $36 million relating principally to the
Bozymchak impairment and ongoing non-deductible business
expenses.
Unrecognised tax losses
In 2013, the Group incurred tax losses during the year,
primarily related to certain subsoil use contracts, which were not
expected to generate sufficient taxable profits for these losses to
be utilised in the foreseeable future. As a result, deferred tax
assets of $8 million in respect of these losses were not
recognised.
Taxation related special items:
2014
In 2014, the principal taxation related special items related to
the deferred tax asset that arose on the impairment of assets at
the East Region operations ($1 million) and the current tax charge
on the exchange gains on US dollar denominated monetary assets in
Kazakhstan arising from the tenge devaluation of $8 million.
2013
The taxation related special items in 2013 related to deferred
tax assets recognised in respect of certain impairment charges,
treated as special items, where future tax benefits are expected.
The resulting tax credits were treated as a taxation related
special item. The additional disability benefits obligation special
item of $3 million was deductible against taxable profits in the
future when the disability payments are made. As a result, a
deferred tax asset was recognised during the year in respect of the
obligation, with $1 million in respect of the $3 million charge
treated as a taxation related special item.
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% on assessable profits whilst MET is revenue-based and dependent
on commodity prices.
Discontinued operations
$ million 2014 2013
-------------------------------------------------- -------- --------
Disposal Assets
Revenues 1,534 2,168
-------------------------------------------------- -------- --------
EBITDA (excluding special items) 201 363
Less: special items, non-cash items and MET (267) (1,156)
-------------------------------------------------- -------- --------
Operating loss (66) (793)
Net finance costs - (26)
Taxation credit/(charge) 4 (79)
-------------------------------------------------- -------- --------
Loss for the year (62) (898)
Loss on disposal (2,273) -
-------------------------------------------------- -------- --------
Total loss (2,335) (898)
-------------------------------------------------- -------- --------
Ekibastuz GRES-1
Share of profits from joint venture - 89
Gain on disposal 207 -
-------------------------------------------------- -------- --------
Profit for the year 207 89
-------------------------------------------------- -------- --------
MKM
Revenues - 595
-------------------------------------------------- -------- --------
EBITDA (excluding special items) - (2)
Less: special items - (22)
-------------------------------------------------- -------- --------
Operating loss - (24)
Net finance costs - (1)
Taxation charge - (1)
-------------------------------------------------- -------- --------
Loss for the year - (26)
Loss on disposal - (1)
-------------------------------------------------- -------- --------
Total loss - (27)
-------------------------------------------------- -------- --------
ENRC
Share of profits from associate - 65
Impairment charge against investment in associate - (823)
Loss on disposal - (528)
-------------------------------------------------- -------- --------
Loss for the year - (1,286)
-------------------------------------------------- -------- --------
Loss for the year from discontinued operations (2,128) (2,122)
-------------------------------------------------- -------- --------
Disposal Assets
On 31 October 2014, the Disposal Assets, which include a number
of the Group's relatively mature assets, primarily located in the
Zhezkazgan and Central Regions within the Kazakhmys Mining and
Kazakhmys Power operating segments, were sold to Cuprum Holding (a
company owned by Vladimir Kim, a Director of the Company, and
Eduard Ogay, a former Director of the Company). The Disposal Assets
were classified as a discontinued operation for the years ended 31
December 2014 (until the date of their disposal on 31 October 2014)
and 31 December 2013.
Performance
Revenues from the Disposal Assets for the 10 month period ended
31 October 2014 were impacted by the decline in commodity prices as
well as lower sales volumes during 2014 as the current period
includes 10 months of operations, compared to 12 months in the
prior year. Copper revenues of $1,260 million were 25% below the
$1,679 million in 2013 resulting from a reduction in the realised
price and a 27% fall in sales volumes, principally from the shorter
period in 2014. The by-product revenues from gold, silver and other
products fell by 44% to $274 million in 2014. Gold revenues of $70
million, down from $89 million, were impacted by lower sales
volumes as the current period includes 10 months of operations and
lower realised prices, whilst silver revenues were down $147
million at $58 million impacted by lower prices and reduced sales
volumes due to the shorter period.
The Disposal Assets EBITDA contribution fell from $363 million
in 2013 to $201 million, principally as a result of the shortened
period of inclusion in the Group's results and the fall in
commodity prices, partly offset by cost control initiatives and the
favourable impact of the tenge devaluation on the cost base.
Within the Disposal Assets, the following special items and
other items are excluded from EBITDA (excluding special items).
Impairment charges
2014
A charge of $15 million was recognised in the year against
property, plant and equipment and mining assets which were no
longer in use.
2013
The impairment charges arose principally from the write down of
the carrying value of the Zhezkazgan Region, a separate cash
generating unit ('CGU') of the Group, which forms part of the
Disposal Assets. The carrying value of the CGU was fully impaired.
The impairment charge consisted of $477 million against total
assets in the Region, comprising $325 million against property,
plant and equipment, $139 million against mining assets and $13
million against long-term advances.
The asset review programme undertaken in 2013, also resulted in
certain production assets and medium-sized projects being suspended
or subject to a change in intended use. The additional impairments
against specific assets were: $119 million against assets in the
Zhezkazgan Region, comprising $115 million against property, plant
and equipment, primarily relating to the Satpayev concentrator and
the Zhezkazgan smelter, which were suspended during the year and $4
million against specialised consumables. In addition a $61 million
charge was recognised against medium-sized projects which were
suspended.
Loss on disposal of assets
During 2013, the Group disposed of various assets for proceeds
of $38 million, on which a loss of $14 million was realised.
Disability benefits obligation
In accordance with Kazakhstan law, the Group obtained insurance
cover from 2005 for the disability payments to employees for
illness and disability sustained at the Group's operations. During
2013, as a result of financial difficulties, the insurance
companies ceased making their obligated payments to the employees
covered by insurance contracts. The Group assumed the liability for
future disability benefit payments to these claimants and the
related $81 million charge in respect of the Disposal Assets was
treated as a special item in the income statement for the year
ended 31 December 2013.
The non-cash component of the disability benefits obligation
increased from $25 million in 2013 to $92 million in 2014 following
a change in actuarial assumptions, with the new claimants in 2013
receiving payments for the 10 months in 2014 and the 10% increase
in salaries being partially offset by the tenge devaluation. The
actual payments (included within EBITDA) made in 2014 of $45
million were lower than the $65 million in the prior year with only
10 months of payments made in 2014.
MET
On 17 June 2014, the Government of Kazakhstan agreed to reduce
the MET rates at some of the Disposal Assets incorporating certain
deposits in the Zhezkazgan Region and the Konyrat mine. As a result
of the lower MET rates, which were effective retrospectively from 1
January 2014, lower commodity prices and the shortened 10 months of
operations led to the $83 million reduction in the MET charge from
$148 million in 2013 to $65 million in 2014.
Loss on disposal
The Disposal Assets were classified as assets held for sale and
shown within discontinued operations with effect from 15 August
2014, the date that the independent shareholders of the Group
approved the sale. On reclassification, the Group recognised a
charge of $1.6 billion from the remeasurement of these assets to
fair value less costs to sell of nil (net of $12 million
transaction costs). Upon completion, a charge of $690 million was
recognised arising from the recycling to the income statement of
the cumulative foreign exchange losses previously recognised in
equity along with a credit of $42 million relating to the recycling
of other reserves in equity. Consequently, on completion the total
loss on disposal recognised on the divestment was $2.3 billion.
Other special items in respect of the Disposal Assets are as
follows:
Following a favourable court ruling in Kazakhstan, the Group
released a historic provision for corporate income tax of $7
million (treated as a taxation related special item) and other
taxes, fines and penalties of $15 million.
Taxation related special items
As described above, $7 million of historic tax claims were
reversed in 2014 and deferred tax assets of $3 million were
recognised in respect of impairment charges. In addition, a $5
million current tax charge was recognised on the exchange gains
from the tenge devaluation.
In 2013, the principal taxation related special items related to
the impairment of previously recognised deferred tax assets in the
Zhezkazgan Region of $98 million and the $16 million deferred tax
assets recognised on the additional disability benefits obligation
special item of $81 million.
Ekibastuz GRES-1
The investment in the Ekibastuz GRES-1 joint venture, which had
a carrying value of $1,018 million at 31 December 2013, was sold on
1 April 2014 for net proceeds of $1,249 million. The Group realised
a profit of $207 million after recycling of the foreign currency
translation differences within equity of $24 million.
With the loss on divestment of the Disposal Assets of $2,273
million and the gain on the sale of Ekibastuz GRES-1 of $207
million, the total loss on disposal of subsidiaries and investments
for the year was $2,066 million.
MKM
MKM was sold on 28 May 2013, for a consideration of EUR42
million ($55 million), comprising EUR30 million ($39 million) in
cash and EUR12 million ($16 million) which was deferred. The
results from MKM included its loss for the period until its
disposal of $4 million, an impairment charge of $22 million to
write MKM down to the net sales proceeds and a $1 million loss on
its disposal. The loss on disposal of MKM arose from the recycling
of the foreign currency translation losses recognised in the
Group's equity on consolidation of MKM of $2 million. In the second
half of 2014, the deferred consideration was settled and the Group
received cash proceeds of $16 million.
ENRC
On 24 June 2013, the Group accepted the proposed offer from
Eurasian Resources Group B.V. ('Eurasian Resources') for its 26%
investment in ENRC, comprising $2.65 in cash plus approximately
0.23 Company shares per ENRC share, amounting in total to $1,194
million net of expenses. An impairment charge of $823 million was
recognised to write the investment down to this value in the first
half of 2013. On 8 November 2013, the transaction completed and the
Group received the net proceeds of $1,194 million, comprising $875
million in cash and 77 million Company shares valued at $319
million. The Group recognised a loss on disposal of $528 million,
mainly representing the recycling of the Group's share of ENRC's
reserves which arose principally from the translation reserve. As
well as the impairment charge of $823 million recognised to write
ENRC down to its fair value less costs to sell and the loss on
disposal, the Group's share of post-tax results of ENRC of $65
million up to 24 June 2013, the date on which equity accounting
ceased, has been included in the 2013 consolidated income
statement.
Underlying Profit
The reconciliation of Underlying Profit from (loss)/profit
attributable to equity holders of the Company is set out below:
$ million 2014 2013
--------------------------------------------------------- -------- --------
Net (loss)/profit attributable to equity shareholders
of the Company from continuing operations (234) 90
Special items within operating profit:
Additional disability benefits obligation
related to previously insured employees - 3
Impairment charges 132 13
Net foreign exchange loss arising on the devaluation
of the tenge 181 -
Taxation related special items:
Recognition of a deferred tax asset on additional
disability benefits obligation
related to previously insured employees - (1)
Net foreign exchange gain arising on the devaluation
of the tenge 8 -
Recognition of a deferred tax asset resulting
from impairment charges (1) (3)
--------------------------------------------------------- -------- --------
Underlying Profit from continuing operations 86 102
--------------------------------------------------------- -------- --------
Net loss attributable to equity shareholders
of the Company from discontinued operations (2,128) (2,120)
Special items within operating loss:
Additional disability benefits obligation
related to previously insured employees - 81
Provisions released against historic tax claims (15) -
Impairment charges 15 679
Loss on disposal of property, plant and equipment - 14
Special items within loss before finance items
and taxation:
Impairment charge recognised on remeasurement
of the ENRC investment - 823
Share of special items in the equity accounted
investment in ENRC - 30
Net loss on disposal of subsidiaries and investments 2,066 529
Net foreign exchange gain arising on the devaluation
of the tenge (24) -
Taxation effect of special items:
Provisions released against historic tax claims (7) -
Recognition of deferred tax assets resulting
from impairment charges and other special
items (3) (20)
Net foreign exchange gain arising on the devaluation
of the tenge 5 -
Tax accruals arising from Kazakhstan legal
demerger of Kazakhmys LLC 10 -
Recognition of a deferred tax asset on additional
disability benefits obligation
related to previously insured employees - (16)
Impairment of deferred tax assets recognised
in the Disposal Assets - 98
Release of deferred tax liabilities resulting
from the remeasurement of MKM - 4
Recognition of deferred tax assets on impairment
charges recognised by ENRC - (14)
--------------------------------------------------------- -------- --------
Underlying (Loss)/Profit from discontinued
operations (81) 88
--------------------------------------------------------- -------- --------
Total Underlying Profit 5 190
--------------------------------------------------------- -------- --------
The Group's net loss attributable to equity holders of the
Company from continuing operations was $234 million for the year
ended 31 December 2014, down from a profit of $90 million in the
prior year. The fall in profits in 2014 arises principally from
foreign exchange losses resulting from the devaluation of the
tenge, the impairment recognised at Bozymchak and lower revenues
partly offset by the benefits gained from the optimisation
programme and the favourable impact of the tenge devaluation on
operational costs. The depreciation of the Kyrgyz som gave rise to
net foreign exchange losses at Bozymchak, reducing the Underlying
Profit.
Underlying Profit from continuing operations for the year of $86
million was below the $102 million in the prior year, primarily due
to lower revenues, partially offset by reduced costs arising from
the optimisation programme and the favourable impact of the tenge
devaluation on costs.
The Underlying Loss from discontinued operations in 2014 was $81
million compared to a profit of $88 million in 2013. This decline
reflects the absence of the contributions to earnings from
Ekibastuz GRES-1, sold in 2014, of $89 million and ENRC, sold in
2013, of $81 million in the 2014 results. In addition to the loss
of earnings from these investments, the Disposal Assets' loss for
the 10 months to 31 October 2014 was $1 million lower than the full
year in 2013.
As a result of the above, total Underlying Profit for the year
fell by $185 million to $5 million in 2014.
Earnings per share
$ million (unless otherwise stated) 2014 2013
------------------------------------------- ------- -------
Weighted average number of shares in issue
(million) 447 513
------------------------------------------- ------- -------
EPS - basic and diluted ($)
From continuing operations (0.52) 0.18
From discontinued operations (4.76) (4.14)
------------------------------------------- ------- -------
(5.28) (3.96)
------------------------------------------- ------- -------
EPS based on Underlying Profit ($)
From continuing operations 0.19 0.20
From discontinued operations (0.18) 0.17
------------------------------------------- ------- -------
0.01 0.37
------------------------------------------- ------- -------
Basic earnings per share from continuing and discontinued
operations was a loss of $5.28 per share, compared to a loss of
$3.96 in the prior year principally from the loss realised on
divestment of the Disposal Assets partly offset by the reduction in
the weighted average number of shares in issue in 2013 arising from
the 77 million Company shares received as part of the consideration
for the ENRC disposal, which were subsequently cancelled on 8
November 2013.
Key financial indicators
The definitions of our key financial indicators are shown in the
Glossary and these measures, on a total Group basis including
continuing and discontinued operations, unless otherwise stated,
are set out below:
2014 2013
----------------------------------------------------------------------- ----- ------
Group EBITDA (excluding special items) ($ million) 556 1,149
EPS based on Underlying Profit ($) 0.01 0.37
Free Cash Flow ($ million) (31) (171)
Net cash cost of copper after by-product credits (USc/lb) - continuing
operations only 85 87
----------------------------------------------------------------------- ----- ------
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. In previous years, share buy-backs and special
dividends have been used in addition to the ordinary dividend to
return surplus funds to shareholders.
The Company paid dividends of 8.0 US cents per share ($42
million) during the first half of 2013, representing the final
dividend from 2012. Taking into consideration the Group's
anticipated increase in net debt during the construction phase of
two of the major growth projects, the Directors did not declare an
interim dividend and will not recommend a final dividend for 2014.
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
A summary of cash flows from continuing and discontinued
operations is shown below:
$ million 2014 2013
-------------------------------------------------- ------ ------
EBITDA (excluding special items) 556 720
Provisions released against historic tax claims 15 -
Working capital movements(1) 21 69
Interest paid (150) (156)
MET paid (102) (259)
Income tax paid (55) (67)
Foreign exchange and other movements (15) 18
-------------------------------------------------- ------ ------
Net cash flows from operating activities before
other expenditure associated with major projects 270 325
Sustaining capital expenditure (301) (496)
-------------------------------------------------- ------ ------
Free Cash Flow (31) (171)
Expansionary and new project capital expenditure (912) (757)
Acquisition of Koksay licence (225) -
Non-current VAT receivable associated with
major projects (68) (44)
Major social projects - (32)
Interest received 12 12
Proceeds from disposal of property, plant
and equipment 7 38
Proceeds from disposal of associate - 875
Proceeds from disposal of joint venture 1,249 -
Proceeds from disposal of long-term investments 16 -
Proceeds from disposal of subsidiaries, net
of cash disposed(2) (170) 27
Dividends paid - (42)
Other movements (6) (9)
-------------------------------------------------- ------ ------
Cash flow movement in net debt (128) (103)
-------------------------------------------------- ------ ------
(1) Working capital movements exclude any accruals relating to
MET and the movement in non-current VAT receivable incurred on
capital expenditure relating to the major growth projects.
(2) In addition to $158 million of cash, the Group also
transferred $30 million of short-term investments to the Disposal
Assets bringing the total cash given up at 31 October 2014 to $188
million. In the above cash flow statement, the $170 million
reflects $12 million of costs incurred on the transaction by the
Group. The $30 million short-term investments movement is reflected
outside of the cash flow movement in net debt.
Summary of the year
Net cash flows from operating activities decreased as lower
profitability from Group operations were only partly offset by
lower MET and income tax payments and a lower positive working
capital movement. The Group received $1,249 million from the sale
of Ekibastuz GRES-1 in April 2014 and also disposed of $158 million
of cash with the Disposal Assets in October 2014 and paid
transaction costs of $12 million.
Working capital
The working capital movements resulting in the $21 million
inflow in 2014 are explained below:
-- inventory levels increased by $10 million, mainly as a result of increased copper cathode goods-in-transit;
-- receivables decreased by $87 million due to the timing of
cash receipts and lower sales volumes following the divestment of
the Disposal Assets;
-- prepayments and other current assets rose by $84 million as
the Group's operating companies continued to accrue VAT in excess
of refunds over the course of the year; and
-- trade and other payables and provisions increased by $28
million in 2014, primarily driven by a rise in accruals for
services across the Group.
In the prior year there was a working capital inflow of $69
million. Overall inventory levels fell by $145 million primarily
resulting from the release of goods-in-transit and the impact of
the optimisation programme on inventory management. MKM's reduction
in inventory levels reflects the impact of lower commodity prices
on their copper inventory. Receivables increased by $185 million
due to the timing of cash receipts and changes in product mix.
Copper concentrate sales, which commenced following the suspension
of the Zhezkazgan smelter, are only settled in full following
confirmation of content and quality. In addition, when comparing
December 2013 with December 2012, a greater proportion of cathode
sales were to China where payment terms under letters of credit are
longer than for sales to Europe. Both these factors have
contributed to the higher receivables balance at 31 December 2013.
Prepayments and other current assets decreased by $31 million
largely due to VAT refunds in the first half of the year. Trade and
other payables and provisions increased by $78 million principally
due to amounts owed to contractors in respect of the major growth
projects.
Interest cash flows
Interest paid during the year was $150 million, comparable with
the $156 million paid in the prior year. The marginal fall reflects
the decreased level of debt outstanding during the year and a lower
average effective interest rate on debt of 4.84% compared to 5.07%
in 2013. Interest payments are made bi-annually in January and July
under the CDB/Samruk-Kazyna facilities and monthly under the
pre-export finance facility.
Income taxes and mineral extraction tax
Income tax payments of $55 million were lower than the $67
million in the prior year, reflecting the fall in the Group's
profitability, principally relating to the Disposal Assets. At 31
December 2014 the Group's income tax payable was $20 million.
MET payments fell from $259 million to $102 million as a result
of the lower MET rates granted to the Disposal Assets by the
Government and the fall in commodity prices. At 31 December 2014,
the Group's MET payable was $10 million.
Free Cash Flow
The Group's Free Cash Flow, which includes $150 million (2013:
$156 million) of interest payments on borrowings specifically for
the funding of capital expenditure at the major growth projects,
was an outflow of $31 million compared to a $171 million outflow in
2013, as lower sustaining capital expenditure, MET and income tax
payments were partially offset by a smaller working capital
contribution.
Capital expenditure
Sustaining capital expenditure was reduced to $301 million from
$496 million, and expansionary expenditure rose by $155 million as
the Group invested in the Bozshakol, Aktogay and Bozymchak
projects. Total capital expenditure in the year was $1,213 million,
compared to $1,253 million for the year ended 31 December 2013.
Major social projects
In 2013, the Group spent $32 million as part of the Group's
social development programme on major projects in Kazakhstan.
Other investing and financing cash flows
Investing cash flows in 2014 include $225 million for the
purchase of the Koksay licence and the cash proceeds received from
the sale of Ekibastuz GRES-1. In respect of the Disposal Assets,
the Group transferred $158 million of cash and cash equivalents and
$30 million in short-term investments and incurred $12 million of
transaction costs.
In 2013, investing cash flows related to the proceeds received
from the sale of the investment in ENRC of $875 million, the net
cash proceeds from the disposal of MKM of $27 million, proceeds
from the disposal of various other assets of $38 million and the
payment of the Group's final dividend for 2012 of $42 million.
Balance sheet
The Group's capital employed position at 31 December 2014 is
shown below:
$ million 2014 2013
--------------------------------------------- ------ ------
Equity attributable to owners of the Company 2,101 4,217
Non-controlling interests 3 4
Borrowings 3,092 3,111
--------------------------------------------- ------ ------
Capital employed 5,196 7,332
--------------------------------------------- ------ ------
Summary of movements
The Group's attributable loss for the year, largely related to
the loss on disposal of the Disposal Assets and a non-cash loss of
$430 million arising on the tenge devaluation, mainly recognised in
the foreign currency translation reserve during the year, led to a
$2,116 million decrease in equity attributable to holders of the
Company to $2,101 million at 31 December 2014. The significant
non-cash foreign currency loss arises from the weakening of the
tenge against the US dollar on the Kazakhstan entities' tenge
denominated net assets. The tenge devaluation also reduced the
carrying values of the tenge denominated assets and liabilities,
including property, plant and equipment, mining assets and the
disability benefits obligations in the Group's Kazakhstan entities
when presented in US dollars.
Disability benefits obligation
The Group's disability benefits obligation, which is the largest
portion of the overall employee benefits obligation, has grown
substantially following changes in the legislation of Kazakhstan
which significantly increased the level of disability payments to
be made by companies to disabled employees.
The disability benefits obligation fell from $530 million at 31
December 2013 to $24 million at 31 December 2014 following the
divestment of the Disposal Assets at 31 October 2014. On a
continuing basis, the obligation of $26 million at 31 December 2013
is consistent with the obligation at 31 December 2014, with changes
in the actuarial valuation assumptions, lower discount rate and
higher near term inflation, being offset by the tenge devaluation.
The cash payments made under the obligation were $3 million for the
year ended 31 December 2014, compared to $4 million in the prior
year.
Ekibastuz GRES-1
The investment in the Ekibastuz GRES-1 joint venture, which had
a carrying value of $1,018 million at 31 December 2013, was sold on
1 April 2014 for net proceeds of $1,249 million. The Group realised
a profit of $207 million after recycling of the foreign currency
translation difference within equity of $24 million.
Net debt
Net debt consists of cash and cash equivalents, current
investments and borrowings. A summary of the net debt position of
continuing operations is shown below:
$ million 2014 2013
-------------------------- -------- --------
Cash and cash equivalents 1,730 1,715
Current investments 400 625
Borrowings (3,092) (3,111)
-------------------------- -------- --------
Net debt (962) (771)
-------------------------- -------- --------
Cash and cash equivalents and current investments of the Group's
continuing businesses as at 31 December 2014 were $2,130 million.
Of the cash and cash equivalents and current investments,
approximately $2 million relates to the CDB/Samruk-Kazyna financing
facilities and $252 million relates to the CDB Aktogay finance
facility. These facilities are intended to be used for the
development of the Group's projects under the terms of the
individual facility agreements. Current investments are cash
deposits with a three to six month maturity profile.
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 2014, $2,090 million of cash and
short-term deposits were held in the UK and $40 million in
Kazakhstan.
Borrowings under the CDB/Samruk-Kazyna financing facilities were
$2,568 million (net of fees) at 31 December 2013, compared to
$2,056 million at 31 December 2014. Funds drawn under these
facilities can only be used for development costs of the projects
to which they relate. In January 2014, the Group repaid early $400
million under the CDB/Samruk-Kazyna financing facilities relating
to the Akbastau-Kosmurun and Zhomart projects as development of
these projects were not expected to commence in the near
future.
Gross borrowings of the Group's continuing operations decreased
from $3,111 million at 31 December 2013 to $3,092 million at 31
December 2014 reflecting the $507 million repayments under the
CDB/Samruk-Kazyna financing facilities and the $166 million
repayment under the PXF facility on the date that the terms were
re-negotiated, offset by the draw down of $590 million under the
CDB Aktogay US dollar facility, the $57 million draw down under the
CDB Aktogay RMB facility and the $15 million draw down under the
amended PXF terms.
On 30 December 2014, the Group announced an amendment to the
CDB/Samruk-Kazyna financing facilities, which resulted in the
facilities becoming bilateral between KAZ Minerals and CDB and a
lowering of the interest rate from US$ 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% is payable in January 2016.
Repayment of the previous facilities with CDB and Samruk-Kazyna and
drawing of the new facilities directly from CDB is expected to
occur during the first quarter of 2015. All other material terms of
the facilities, including the final maturity of 2025, remain
unchanged.
The CDB Aktogay finance facility consists of two separate
agreements: the US dollar agreement for up to $1.3 billion and the
RMB1.0 billion agreement (approximately $161 million equivalent at
the RMB/$ exchange rate as at 31 December 2014). The US dollar
agreement (which was drawn down for the first time in 2014)
attracts interest at US$ LIBOR plus 4.2% and the RMB agreement
attracts interest at the applicable benchmark lending rate
published by the People's Bank of China. At 31 December 2014, the
Group had drawn down $692 million (2013: $57 million), net of fees,
under the CDB Aktogay facilities.
On 29 October 2014, the Group signed an amendment to the PXF
debt facility. The amended facility restates the existing
pre-export finance facility signed in December 2012 which contained
certain disposal and other restrictions, meaning the facility could
not continue after completion of the Restructuring. At signing,
commitments from the existing syndicate of lending banks totalled
$334 million and a net repayment of $166 million was paid to the
exiting banks. The amended facility contains an accordion feature
which will enable existing lenders to increase their commitments,
or new lenders to join, up to a maximum total facility amount of
$500 million. On 5 December 2014, the facility was increased to
$349 million (2013: $500 million), which was fully drawn at 31
December 2014. Arrangement fees with an amortised cost as at 31
December 2014 of $5 million (2013: $14 million), (gross cost before
amortisation of $5 million (2013: $18 million)), have been netted
off against these borrowings in accordance with IAS 39. Following
the amendment signed in October 2014, $10 million of previously
unamortised costs were expensed in full.
As at 31 December 2013, the Group had a $100 million revolving
credit facility available for standby liquidity and general
corporate purposes. This facility was cancelled in October
2014.
PRINCIPAL RISKS
Managing our risks
The significant risks identified by KAZ Minerals are those that
could materially affect the Group's financial condition,
performance, strategy and prospects. There may be other risks
unknown, or currently believed immaterial by the Group, which might
become material. The Group's risk profile has changed following the
completion of the Restructuring which is reflected in the
commentary on the risks. 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.
Operational risks
Health and safety
Description
Mining is a hazardous industry with inherent risks and the
failure to adopt and embed health and safety management systems
could result in harm to the Group's employees, contractors or local
communities. Fatality levels within the Group are higher than at
comparable internationally listed mining companies with 13
fatalities, including four contractors recorded for 2014 (2013: 18,
including three contractors).
Impact
Health and safety incidents could lead to a number of adverse
consequences, including harm to people, as well as production
disruption, financial loss and reputational damage. Reputational
damage could negatively impact the Group's ability to attract and
retain employees, affect the Group's standing in the local
community, relations with the Government, reduce the Group's access
to finance and the attractiveness of the Group to investors.
Action
KAZ Minerals recognises that the highest standards of health and
safety practices are vital to its success and are a key
responsibility of all employees. The Group's goal is for zero
fatalities and to minimise the number of incidents. The Group's
policies and procedures in these areas are designed to identify
relevant risks and opportunities and provide a clear framework for
conducting business. With the completion of the Restructuring, the
reduced scale of the continuing operations creates the opportunity
to increase the pace at which new practices and standards are
introduced by the Group. The open-pit mines and modern processing
facilities that the Group is developing at Bozshakol and Aktogay
will also provide inherently safer operating environments for
employees.
Further details on the measures being taken to improve health
and safety practices, including the work of the Group's HSE
function, are set out in the Corporate Responsibility Report.
Business interruption
Description
The Group's mining and processing operations are resource
intensive and could be subject to a number of risks, including, but
not limited to: geological and technological challenges; weather
and other natural phenomena such as floods and earthquakes; fires;
explosions; equipment failures; delays in supplies or services; and
loss of key inputs including electricity and water, which could
cause prolonged shutdowns or periods of reduced production from the
Group's mines and concentrators.
Impact
Any disruption to operational activities could have a negative
impact on the Group's profitability and cash flows, may require the
Group to incur unplanned capital expenditure, may result in harm to
people and may cause environmental damage. In addition to the
aforementioned consequences, business interruption could result in
a loss of customers and reputational damage.
Action
Work is being undertaken across the Group, with the support of
appropriate in-house and third-party specialists, to address
operational risks. With the completion of the Restructuring, the
Group is more reliant on a smaller number of operating assets, in
particular the Orlovsky and Artemyevsky mines, increasing the
relative impact of business disruption. The continuing operations'
mines and concentrators are, however, geographically diversified,
which potentially mitigates a single incident causing widespread
disruption across the operations.
A combined property damage and business interruption
catastrophic insurance programme is in place which can provide
protection from some of the financial loss arising from a major
incident at the Group's concentrating facilities or an incident at
a facility of a key external supplier. Should a major outage occur
at the Balkhash smelter where the Group's concentrate is currently
processed into copper cathode, gold bar and silver granule, the
Group believes it could sell concentrate directly to customers.
Political risk
Description
The Group's mining operations and development projects are all
based in Kazakhstan, except the Bozymchak mine, which is located in
Kyrgyzstan. The Group's operational and financial performance is
impacted by the social, political, economic, legal and fiscal
conditions prevailing in both countries.
Impact
Changes to foreign trade (export and import), foreign
investments, property, tax, environmental and subsoil use regimes,
social responsibility expectations or other changes that affect the
business environment in Kazakhstan and Kyrgyzstan could negatively
affect the Group's business, financial position and performance and
decisions on future investments. The changes may also lead to
reputational damage, in particular with investors, and potentially
the loss of licences to operate assets within the Group.
Action
KAZ Minerals maintains a proactive dialogue with the Governments
of both Kazakhstan and Kyrgyzstan across a range of issues,
including subsoil use regulations, taxation, the environment and
social responsibility and community relations. The Government of
Kazakhstan has actively pursued a programme of economic reform,
helping to make it one of the most politically stable and
economically developed countries in Central Asia. Political, legal
and regulatory developments affecting the Group's operations and
development projects are monitored closely. The Board continues to
view the political, social and economic environment within
Kazakhstan favourably and looking forward remains optimistic about
the conditions for business in the region.
New projects
Description
The development of new projects involves many risks including
geological, engineering, procurement, staffing, financing and
regulatory risks. If the Group fails to adopt an appropriate
procurement and project management strategy it may experience
delays to project schedules and an increase in development costs.
Regulatory risks include failures to obtain and maintain applicable
permits, licences or approvals from the relevant authorities to
perform certain development work.
Impact
Projects may fail to achieve the desired economic returns due to
an inability to recover mineral resources as planned and where the
capital and operating costs of the projects are higher than
expected. Projects may also fail to complete or suffer delays which
may reduce future production volumes affecting the Group's
liquidity and financial performance. A reduction in future
production volumes would also increase the cash cost on a per unit
basis. A lack of available funding may also prevent or delay the
completion of projects.
Action
Prior to an investment decision being made, certain evaluation
activities are performed including, where appropriate, feasibility
and other technical studies. Significant projects are subject to
the Group's capital appraisal process, including Board review and
approval as they progress. There are also a number of planning and
monitoring procedures in place addressing the management of capital
expenditure within the Group. The Group ensures that sufficient
expertise, from both in-house and third-party specialists, is
utilised on projects throughout their life cycle.
For the development of the major growth projects the Group is
utilising the services of Non Ferrous China to provide additional
resources primarily for the construction and commissioning of the
Bozshakol sulphide and clay processing plants. Non Ferrous China
are also constructing and commissioning the sulphide processing
plant at Aktogay with the other sections of the project divided
between several smaller contractors. The Projects Assurance
Committee regularly assesses the operational and financial status
of the projects to identify any material risks to their successful
commissioning and start-up. In respect of project funding,
committed financing is in place for Bozshakol and Aktogay. Details
on the current status of the major growth projects is included in
the Operating Review.
Change management
Description
The Group completed the Restructuring in 2014, which included
the disposal of the mining, processing and captive power operations
in the Zhezkazgan and Central Regions. As a result, KAZ Minerals
has undergone significant changes to its operations, management
structure, business processes and systems.
Impact
The significant changes arising from the Restructuring may
adversely affect the operating and financial performance of the
continuing operations, the implementation of other initiatives as
well as labour, community and Government relations.
Action
The Restructuring, which was overseen by the Board, was managed
by a cross-functional project team within the Group and supported
by external advisers. KAZ Minerals will continue to evolve with the
potential appointment of new service providers, the pursuit of
operational efficiencies and the enhancement of existing systems.
The Group engages with key stakeholders, including representatives
of the workforce and the local and national Government on relevant
major changes.
Employees
Description
The Group's future development will be partly dependent on its
ability to attract and retain highly skilled and qualified
personnel. KAZ Minerals competes against local and international
mining and industrial companies to attract skilled personnel into
the business. The remote location of some of the Group's operations
also makes the attraction and retention of skilled staff at these
sites more challenging. The hiring of skilled personnel will be
essential for the successful operation of the Bozshakol and Aktogay
projects.
Impact
Labour productivity, skill levels, efficiency and turnover may
have direct influence on the Group's ability to provide a safe and
efficient working environment, fulfil its production plans and its
financial performance. The ability to attract, train and retain the
skilled staff for the Bozshakol and Aktogay operations team may
directly affect the financial and operating performance of the
development projects. A shortage of skilled employees could
increase the Group's operating costs as wages are increased to
recruit the required staff.
Action
The Group actively monitors the market to remain competitive in
the hiring of staff. KAZ Minerals has an extensive social benefits
programme for its employees and their dependants and invests in
training facilities and staff development to raise skill levels.
Providing employees with a safe working environment is also a
fundamental priority. The Bozshakol and Aktogay operations teams
have a detailed recruitment and training plan which is currently
being implemented.
Suppliers and contractors
Description
The Group's reliance on services and materials provided by
external suppliers and contractors has increased following the
completion of the Restructuring as the Group is no longer a
vertically integrated producer of copper. Smelting, electricity
supply, shaft sinking, auxiliary construction and maintenance
services may be provided from the Disposal Assets, now owned by
Cuprum Holding, a related party. As these suppliers are not owned
by KAZ Minerals, there can be no guarantee that these services or
other services sourced externally will be provided, or will be
provided to the standards required by the Group or will not be
subject to delay, interruption or periods of non-availability.
In periods of increased demand, supplies may not always be
readily available which can result in an increase in lead times and
cost inflation for raw materials and items such as mining
equipment. The Group is reliant on the services of specialist
contractors for the development of the major growth projects. KAZ
Minerals is also reliant on transportation and logistics providers
to move people, production materials and finished goods.
Impact
If there is any interruption to the supply of: mining equipment;
materials; smelting; electricity supply and transmission; shaft
sinking and auxiliary construction; transportation; and maintenance
services then this may have a negative effect on the Group's
financial position and ability to operate effectively. Inflation on
services, mining equipment and supplies will increase operating and
capital costs which will affect the Group's financial performance,
and these factors together may impact the economic viability of
certain mines and projects. Failing to properly manage related
party transactions could result in litigation, regulatory censure
and reputational damage for KAZ Minerals. The actions of suppliers
and contractors could give rise to reputational damage and
potential liabilities for KAZ Minerals.
Action
The performance of the Balkhash smelter is closely monitored and
whilst it is not as financially attractive, the concentrate from
the East Region could be shipped to China for processing should a
significant outage occur at the smelter. The Group is investigating
the option of using alternative suppliers for a number of services
currently provided by Cuprum Holding. The Group also actively
monitors the market for mining equipment and supplies to remain
competitive in the procurement of mining equipment and supplies.
The Group ensures that the appropriate monitoring and disclosure
procedures are in place for related party transactions.
Labour and community relations
Description
Many of the Group's employees are represented by labour unions
under various collective labour agreements. Negotiations of wages
may become more difficult in times of higher commodity prices as
labour unions may seek wage increases and other forms of additional
compensation. In addition, the Group's employees may seek wage
increases outside the collective labour agreements and labour
agreements may not prevent a strike or work stoppage. Labour unions
may resist measures to raise labour efficiency.
The Group currently operates in the East Region and at Bozymchak
where it is a major employer and may also provide targeted support
to the local community. Community expectations are typically
complex with the potential for multiple inconsistent stakeholder
views that may be difficult to resolve. Industrial accidents,
health and safety and environmental incidents may negatively affect
the Group's community relationships.
Impact
Poor employee relations influenced by internal and external
factors could result in an unstable workforce that disrupts
operations or seeks wage increases and other forms of compensation,
having a material adverse effect on the Group's financial
performance. The Group's exposure to labour costs has decreased due
to the Restructuring with a reduction in the workforce from 53,000
at the start of the year to under 10,000 at 31 December 2014. The
major growth projects of Bozshakol and Aktogay are only expected to
employ 1,500 workers at each site.
The dependence of certain communities on the Group for
employment and the provision of services may impose restrictions on
the Group's flexibility in taking certain operating decisions and
could have a material adverse effect on the Group's financial
position. Failure to manage relationships with local communities,
government and non-governmental organisations may disrupt
operations and negatively affect the Group's reputation as well as
its ability to bring projects into operation. Support provided to
communities may adversely impact the Group's cash flows.
Action
A full engagement strategy with community representatives,
unions and employees operates within the Group which aims to
address concerns raised by different stakeholders. The Group also
has a social programme for its employees and their dependants. The
Group works closely with the local authorities on social matters.
The number of employees within the Group has decreased as a result
of the Restructuring along with the number of local communities
which are dependent on the Group's operations, the regions where
Group operations are now located are also more economically
diverse. Further details of the Group's social programme are set
out in the Corporate Responsibility Report.
Reserves and resources
Description
KAZ Minerals' ore reserves for operating mines and development
projects are largely based on the estimation method for reserves
and resources established by the former Soviet Union. There are
numerous uncertainties inherent in estimating ore reserves and
geological, technical and economic assumptions that were valid at
the time of estimation may change significantly when new
information becomes available.
Impact
Changes in ore reserves and mineral resources could adversely
impact mine plans and the economic viability of development
projects resulting in economic losses, negatively impacting the
Group's financial position and performance. After the completion of
the Restructuring, the Group is now dependent on production from a
smaller number of mines and the confirmation of reserves at each
mine is therefore more critical to future production levels.
Action
The Group's ore reserves and mineral resources are published in
accordance with the criteria of the JORC Code. KAZ Minerals engages
the services of independent technical experts annually to convert
reserve and resource calculations for operating mines and
development projects from the estimation method established by the
former Soviet Union to the method prescribed by the JORC Code. The
Group's ore reserves and mineral resources were last audited in
2010 by an independent technical expert. Drilling and exploration
programmes are conducted by the Group to enhance the understanding
of geological information at the deposits.
Compliance risks
Subsoil use rights
Description
In Kazakhstan and Kyrgyzstan all subsoil reserves belong to the
State. Subsoil use rights are not granted in perpetuity and any
renewal must be agreed before the expiration of the relevant
contract or licence. Rights may be terminated if the Group does not
satisfy its licensing or contractual obligations, which may include
financial commitments to State authorities and the satisfaction of
mining, development, environmental, social, health and safety
requirements. In recent years, legislation relating to subsoil use
rights has increased licence obligations, technical documentation,
work programmes and the level of goods and services sourced from
Kazakhstan. The authorities have also increased their monitoring of
compliance with legislation and subsoil use contract
requirements.
Impact
As many of Kazakhstan's subsoil use laws have been adopted
relatively recently and remain untested in the country's judicial
system, the legal consequences of a given breach may not be
predictable. However, non-compliance with the requirements of
subsoil use contracts could potentially lead to regulatory
challenges and subsequently to fines, litigation and ultimately to
the loss of operating licences. The loss of any of the Group's
subsoil use rights could have a material adverse effect on its
mining operations.
Action
The Group's management makes every effort to engage with the
relevant regulatory authorities and ensure compliance with all
relevant legislation and subsoil use contracts. The Group's
procedures to ensure compliance with the terms of subsoil contracts
have been updated to reflect the requirements of legislation,
including more active procurement of goods and services from
Kazakhstan. In 2014, over half of the goods and services used by
the continuing operations were sourced from Kazakhstan. A
specialist department is also tasked with monitoring compliance
with the terms of the subsoil use contracts.
Environmental compliance
Description
The Group operates in an industry that is subject to numerous
environmental laws and regulations. As regulatory standards and
requirements continually develop, the Group may be exposed to
increased compliance costs and environmental emission charges.
Policies and measures at a national and international level to
tackle climate change will increasingly affect the business,
thereby presenting greater environmental and regulatory risks.
Impact
A violation of environmental laws, or failure to comply with the
instructions of the relevant authorities, could lead to the
suspension of operating licences, challenges to subsoil use mining
rights, fines and penalties, the imposition of costly compliance
procedures, reputational damage and financial loss. New or amended
environmental legislation or regulations may result in increased
operating costs, additional capital investment or, in the event of
the Group's non-compliance, the possibility of fines, penalties or
other actions which may adversely affect the Group's financial
performance and reputation. Emissions charges in Kazakhstan have
been increasing over recent years and the authorities are adopting
an increasingly robust stance on compliance with environmental
standards.
Action
The Group has policies and procedures in place which set out the
required operating standards for all employees and monitors its
emissions. The Group liaises with the relevant governmental bodies
on environmental matters, including the development of new
legislation. The completion of the Restructuring has changed the
Group's asset base with the disposal of mining, concentrating,
power and smelting facilities reducing KAZ Minerals' environmental
footprint. Energy consumption, water usage and waste generation
have fallen as a result of the Restructuring, but will continue to
be high priority areas for our East Region environmental programme.
Further details of the environmental measures being taken by the
Group are set out in the Corporate Responsibility Report.
Financial risks
Commodity prices
Description
The Group's policy is to sell its products under contract at
prices determined by reference to prevailing market prices on
international global metal exchanges. The Group's financial results
are strongly influenced by commodity prices, in particular copper
and the major by-products, gold, silver and zinc. At the start of
2015, the LME copper price has traded below $5,500 per tonne,
compared to an average of $6,862 per tonne in 2014. The prices for
these metals are dependent on a number of factors, including world
supply and demand and investor sentiment. In particular, KAZ
Minerals is exposed to demand from China as described below, a
major consumer of the metals which the Group produces. Due to these
factors, commodity prices may be subject to significant
fluctuations, which could have a positive or negative impact on the
Group's financial results.
Impact
Commodity prices can fluctuate widely and could have a material
impact on the Group's asset values, revenues, earnings, cash flows
and growth prospects.
Action
The Group regularly reviews its sensitivity to fluctuations in
commodity prices. The Group does not as a matter of course hedge
commodity prices, but may enter into a hedge programme for certain
commodities where the Board determines it is in the Group's
interest 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. The Restructuring of the Group has led to a reduction in
copper cathode and by-product output in the near term reducing the
financial impact of commodity price movements on the Group's
financial position prior to the ramp up in output from the major
growth projects.
Exposure to China
Description
In addition to the impact of Chinese demand on the pricing of
KAZ Minerals' major products, as noted under the 'Commodity prices'
risk above, the Group makes significant physical sales to a limited
number of customers in China. In 2014, sales to China accounted for
a significant portion of the continuing operations' revenues. Sales
to China are likely to increase further when production commences
from the major growth projects. In addition, the Group uses
contractors, services and materials from China. China is also an
important source of financing to the Group with long-term debt
facilities secured which provide access to funding of $3.6 billion
at 31 December 2014, primarily for the development of Bozshakol and
Aktogay.
Impact
Changes to China's fiscal or regulatory regimes or lower Chinese
copper consumption could reduce demand in China for the Group's
major products, leading the Group to direct a greater volume of
sales to its other major market, Europe. Changes to Chinese
government policy on credit or cross border lending may affect the
availability of financing from Chinese banks to the Group.
Action
The Group has historically sold a significant volume of its
copper cathode production into Europe, as well as into China,
thereby taking advantage of its geographic position which provides
access to both major markets. In the event that demand reduced in
China for the Group's finished products, KAZ Minerals would
allocate its sales between the two markets to improve the
commercial terms obtained. The financing line for Bozshakol has
been drawn and the Aktogay loan agreement is a committed loan
facility, thereby providing greater certainty over the funding of
the Group's growth projects. KAZ Minerals also maintains
relationships with a number of international lending banks, having
the PXF facility in place, and has the flexibility to consider
other sources of capital such as the bond or equity markets, if so
required.
Acquisitions and divestments
Description
In the course of delivering its strategy, the Group may acquire
or dispose of assets or businesses. Corporate transactions may,
however, fail to achieve the expected benefit or value to the
Group. All business combinations or acquisitions entail a number of
risks including the cost of effectively integrating acquisitions to
realise synergies, significant write-offs or restructuring charges,
unanticipated costs and liabilities and loss of key personnel. 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 which
could give rise to liabilities for KAZ Minerals.
Impact
Changing market conditions, incorrect assumptions or
deficiencies in due diligence processes could result in
acquisitions failing to deliver the expected benefit or value to
the Group, leading to adverse financial performance and failure to
meet expectations. Acquisitions could also lead to the Group
assuming liability for the past acts of acquired businesses,
without recourse to other parties. The disposal of assets or
businesses may not achieve the expected proceeds due to changing
market conditions, reductions in value, delays in the sale or
deficiencies in the sales process.
Action
Specialised staff are assigned to manage corporate transactions,
supported where appropriate by external advisers. Due diligence
processes are undertaken on acquisitions 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. For the
Restructuring, the Group engaged external advisors to support the
transaction.
Liquidity risk
Description
The Group is exposed to liquidity risks, including the risk that
borrowing facilities are not available to meet cash requirements,
and the risk that financial assets cannot readily be converted to
cash without significant loss of value.
Impact
Failure to manage financing risks could have a material impact
on the Group's cash flows, earnings and financial position as well
as reducing the funds available to the Group for working capital,
capital expenditure, acquisitions, dividends and other general
corporate purposes.
Action
The Group manages liquidity risk by maintaining adequate
committed borrowing facilities and working capital funds. Surplus
funds within the Group are held predominantly in the UK in order to
manage counterparty and liquidity risk. 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. KAZ Minerals adopts a prudent approach in
managing its liquidity risk, reflecting the volatility in commodity
prices. The completion of the Restructuring resulted in the
disposal of a number of assets which were expected to generate
negative cash flows under the existing organisational structure,
which has improved the liquidity outlook for the Group during the
construction of the major growth projects.
The Group has secured committed funding for the development of
Bozshakol and Aktogay. In October 2014, KAZ Minerals announced the
signing of an amendment to its existing PXF facility. The
commitments from the existing syndicate of lending banks at 31
December 2014 totalled $349 million, with existing or new lenders
able to increase the facility up to $500 million prior to 31
December 2015. The facility also contains amendments to the
covenant package including the suspension of the net debt to EBITDA
ratio covenant until 1 July 2016. Further details are set out in
the Financial Review.
Taxation
Description
As the tax legislation in Kazakhstan and Kyrgyzstan has been in
force for a relatively short period of time, the tax risks in these
countries are substantially greater than typically found in
countries with more established tax systems. Tax law is evolving
and is subject to different and changing interpretations, as well
as inconsistent enforcement. Tax regulation and compliance is
subject to review and investigation by the authorities who may
impose severe fines, penalties and interest charges.
Impact
The uncertainty of interpretation, application and the evolution
of tax laws creates a risk that additional and substantial payments
of tax could arise for the Group, which could have a material
adverse effect on the Group's cash flows, financial performance and
position. Failure to comply with tax laws could also impact the
Group's reputation in the countries in which it operates.
Action
The Group makes every effort to comply with existing tax
legislation, and works closely with the Government and tax
authorities in the review of proposed amendments to tax legislation
and regulation. Further details of the Group's tax strategy and
risk management are set out in the Financial Review.
directors' Responsibility statement
Each Director confirms to the best of his knowledge that:
-- the Group and Parent Company accounts, prepared in accordance
with IFRS as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and
-- the Strategic Report and Directors' Report include a fair
review of the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
Consolidated income statement
Year ended 31 December 2014
$ million (unless otherwise stated) Notes 2014 2013
----------------------------------------------- ----- -------- --------
Continuing operations
Revenues 4(b) 846 931
Cost of sales (456) (548)
----------------------------------------------- ----- -------- --------
Gross profit 390 383
Selling and distribution expenses (25) (22)
Administrative expenses (139) (153)
Net other operating income/(expenses) 5 (4)
Impairment losses 6 (137) (13)
----------------------------------------------- ----- -------- --------
Operating profit 94 191
----------------------------------------------- ----- -------- --------
Analysed as:
Operating profit (excluding special items) 226 207
Special items 5 (132) (16)
----------------------------------------------- ----- -------- --------
Finance income 7 136 23
Finance costs 7 (399) (76)
----------------------------------------------- ----- -------- --------
(Loss)/profit before taxation (169) 138
----------------------------------------------- ----- -------- --------
Analysed as:
Profit before taxation (excluding special
items) 144 154
Special items 5 (313) (16)
----------------------------------------------- ----- -------- --------
Income tax expense 8 (65) (48)
----------------------------------------------- ----- -------- --------
(Loss)/profit for the year from continuing
operations (234) 90
----------------------------------------------- ----- -------- --------
Discontinued operations
Loss for the year from discontinued operations 10(e) (2,128) (2,122)
----------------------------------------------- ----- -------- --------
Loss for the year (2,362) (2,032)
----------------------------------------------- ----- -------- --------
Attributable to:
Equity holders of the Company (2,362) (2,030)
Non-controlling interests - (2)
----------------------------------------------- ----- -------- --------
(2,362) (2,032)
----------------------------------------------- ----- -------- --------
Earnings per share attributable to equity
holders of the Company - basic and diluted
From continuing operations ($) 11(a) (0.52) 0.18
From discontinued operations ($) 11(a) (4.76) (4.14)
----------------------------------------------- ----- -------- --------
(5.28) (3.96)
----------------------------------------------- ----- -------- --------
EPS based on Underlying Profit - basic
and diluted
From continuing operations ($) 11(b) 0.19 0.20
From discontinued operations ($) 11(b) (0.18) 0.17
----------------------------------------------- ----- -------- --------
0.01 0.37
----------------------------------------------- ----- -------- --------
Consolidated statement of other comprehensive income
Year ended 31 December 2014
$ million Notes 2014 2013
------------------------------------------------------ ----- -------- --------
Loss for the year (2,362) (2,032)
Other comprehensive income for the year
after tax:
Items that will never be reclassified
to the income statement:
Actuarial losses on employee benefits,
net of tax (1) (22)
------------------------------------------------------ ----- -------- --------
(1) (22)
------------------------------------------------------ ----- -------- --------
Items that are or may be reclassified
subsequently to the income statement:
Exchange differences on retranslation
of foreign operations (430) (60)
Recycling of capital reserves and non-controlling
interests on disposal of subsidiaries 647 2
Recycling of exchange differences on disposal
of joint venture 9 24 -
Recycling of capital reserves on disposal
of associate 9 - 511
Share of other comprehensive losses of
joint venture - (12)
Share of other comprehensive losses of
associate - (75)
------------------------------------------------------ ----- -------- --------
241 366
------------------------------------------------------ ----- -------- --------
Other comprehensive income for the year 240 344
------------------------------------------------------ ----- -------- --------
Total comprehensive expense for the year (2,122) (1,688)
------------------------------------------------------ ----- -------- --------
Attributable to:
Equity holders of the Company (2,121) (1,686)
Non-controlling interests (1) (2)
------------------------------------------------------ ----- -------- --------
(2,122) (1,688)
------------------------------------------------------ ----- -------- --------
Total comprehensive expense attributable
to equity holders of the Company arising
from:
Continuing operations (413) 71
Discontinued operations (1,708) (1,757)
------------------------------------------------------ ----- -------- --------
(2,121) (1,686)
------------------------------------------------------ ----- -------- --------
Consolidated balance sheet
At 31 December 2014
$ million Notes 2014 2013
-------------------------------------- ----- ------ ------
Assets
Non-current assets
Intangible assets 11 26
Property, plant and equipment 2,264 2,754
Mining assets 476 584
Other non-current assets 429 647
Deferred tax asset 42 21
-------------------------------------- ----- ------ ------
3,222 4,032
-------------------------------------- ----- ------ ------
Current assets
Inventories 147 610
Prepayments and other current assets 49 325
Income taxes receivable 2 59
Trade and other receivables 168 235
Investments 400 625
Cash and cash equivalents 1,730 1,715
-------------------------------------- ----- ------ ------
2,496 3,569
Assets classified as held for sale - 1,018
-------------------------------------- ----- ------ ------
2,496 4,587
-------------------------------------- ----- ------ ------
Total assets 5,718 8,619
-------------------------------------- ----- ------ ------
Equity and liabilities
Equity
Share capital 13(a) 171 171
Share premium 2,650 2,650
Capital reserves 13(c) (299) (541)
Retained earnings (421) 1,937
-------------------------------------- ----- ------ ------
Attributable to equity holders of the
Company 2,101 4,217
Non-controlling interests 3 4
-------------------------------------- ----- ------ ------
Total equity 2,104 4,221
-------------------------------------- ----- ------ ------
Non-current liabilities
Borrowings 14 2,911 2,608
Deferred tax liability 17 14
Employee benefits 15 22 477
Provisions 26 98
-------------------------------------- ----- ------ ------
2,976 3,197
-------------------------------------- ----- ------ ------
Current liabilities
Trade and other payables 435 631
Borrowings 14 181 503
Income taxes payable 20 9
Employee benefits 15 2 53
Provisions - 5
-------------------------------------- ----- ------ ------
638 1,201
-------------------------------------- ----- ------ ------
Total liabilities 3,614 4,398
-------------------------------------- ----- ------ ------
Total equity and liabilities 5,718 8,619
-------------------------------------- ----- ------ ------
Consolidated statement of cash flows
Year ended 31 December 2014
$ million Notes 2014 2013
---------------------------------------------------- ----- -------- --------
Cash flows from operating activities
Cash flow from operations before interest
and income taxes 407 504
Interest paid (150) (156)
Income taxes paid (55) (67)
---------------------------------------------------- ----- -------- --------
Net cash flows from operating activities 202 281
---------------------------------------------------- ----- -------- --------
Cash flows from investing activities
Interest received 12 12
Proceeds from disposal of property, plant
and equipment and mining assets 7 38
Purchase of Koksay license (225) -
Purchase of intangible assets (10) (14)
Purchase of property, plant and equipment (1,062) (1,120)
Investments in mining assets (141) (151)
Licence payments for subsoil contracts (3) (6)
Acquisition of non-current investments (3) (3)
Proceeds from disposal of long-term investments 16 -
Movement in short-term bank deposits 16 195 (110)
Proceeds from disposal of associate 9 - 875
Proceeds from disposal of joint venture 9 1,249 -
Disposal of subsidiaries, net of cash
disposed 9 (170) 27
---------------------------------------------------- ----- -------- --------
Net cash flows used in investing activities (135) (452)
---------------------------------------------------- ----- -------- --------
Cash flows from financing activities
Proceeds from borrowings - net of arrangement
fees paid of $15 million (2013: $22 million) 647 790
Repayment of borrowings (673) (107)
Dividends paid by the Company 12 - (42)
---------------------------------------------------- ----- -------- --------
Net cash flows (used in)/from financing
activities (26) 641
---------------------------------------------------- ----- -------- --------
Net increase in cash and cash equivalents 16 41 470
Cash and cash equivalents at the beginning
of the year 1,715 1,250
Effect of exchange rate changes on cash
and cash equivalents 16 (26) (5)
---------------------------------------------------- ----- -------- --------
Cash and cash equivalents at the end of
the year 1,730 1,715
---------------------------------------------------- ----- -------- --------
The consolidated statement of cash flows includes cash flows
from both continuing and discontinued operations (see note 10).
Consolidated statement of changes in equity
Year ended 31 December 2014
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 2013 200 2,650 (932) 4,341 6,259 6 6,265
Loss for the year - - - (2,030) (2,030) (2) (2,032)
Exchange differences
on retranslation
of foreign operations - - (60) - (60) - (60)
Recycling of exchange
differences
on disposal of subsidiary 9 - - 2 - 2 - 2
Recycling of capital
reserves
on disposal of associate 9 - - 511 - 511 - 511
Share of losses of
joint venture recognised
in other comprehensive
income - - (12) - (12) - (12)
Net share of losses
of associate recognised
in other comprehensive
income - - (75) - (75) - (75)
Actuarial losses
on employee benefits,
net of $5 million
tax 15 - - - (22) (22) - (22)
----------------------------- ---------- ----- ------ ------ -------- -------- ---- --------
Total comprehensive
income/(expense)
for the year - - 366 (2,052) (1,686) (2) (1,688)
Share-based payments - - - 5 5 - 5
Purchase of Company's
share capital
on disposal of associate 13(a),(c) (29) - 25 (315) (319) - (319)
Dividends paid by
the Company 12 - - - (42) (42) - (42)
----------------------------- ---------- ----- ------ ------ -------- -------- ---- --------
At 31 December 2013 171 2,650 (541) 1,937 4,217 4 4,221
----------------------------- ---------- ----- ------ ------ -------- -------- ---- --------
Loss for the year - - - (2,362) (2,362) - (2,362)
Exchange differences
on retranslation
of foreign operations - - (430) - (430) - (430)
Recycling of capital
reserves
and non-controlling
interests
on disposal of subsidiaries 9 - - 648 - 648 (1) 647
Recycling of capital
reserves
on disposal of joint
venture 9 - - 24 - 24 - 24
Actuarial losses
on employee benefits,
net of tax 15 - - - (1) (1) - (1)
----------------------------- ---------- ----- ------ ------ -------- -------- ---- --------
Total comprehensive
expense for the year - - 242 (2,363) (2,121) (1) (2,122)
Share-based payments - - - 5 5 - 5
----------------------------- ---------- ----- ------ ------ -------- -------- ---- --------
At 31 December 2014 171 2,650 (299) (421) 2,101 3 2,104
----------------------------- ---------- ----- ------ ------ -------- -------- ---- --------
(1) Refer to note 13(c) for an analysis of 'Capital reserves'.
Notes to the consolidated financial information
Year ended 31 December 2014
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 subsidiaries as set out in note 3. The Restructuring
which resulted in the sale of a number of the Group's relatively
mature mining and power operations, primarily located in the
Zhezkazgan and Central Regions (the 'Disposal Assets') completed in
October 2014. As a result of this transaction, the Company which
was previously known as Kazakhmys PLC changed its name to KAZ
Minerals PLC. Following the Restructuring, the Group consists of
the East Region operations, Bozymchak and the major growth
projects.
From 15 August 2014, the date the independent shareholders
approved the Restructuring, the Disposal Assets were classified as
assets held for sale and have been treated as a discontinued
operation in these financial statements (see note 9(a)).
2. Basis of preparation
The financial information for the year ended 31 December 2014
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 2013 have been delivered to the
Registrar of Companies and those for 2014 will be delivered
following the Company's Annual General Meeting convened for 7 May
2015. 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 section of these audited results.
The financial performance and position of the Group, its cash
flows, financial risk management policies and available debt
facilities are described in the Financial Review section of these
audited results. 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.
At 31 December 2014, the Group's net debt was $962 million with
total undrawn committed facilities of $798 million.
At 31 December 2014, $692 million of the $1.5 billion loan
facility with CDB, to be used for the development of the major
copper project at Aktogay was drawn. The funds are available to
draw down over a three and a half year period commencing from 31
December 2012 and mature 15 years from the date of the first draw
down.
On 29 October 2014, the Group amended the $500 million PXF
facility that was signed in December 2012. The amended facility is
available for general corporate purposes and provides additional
liquidity during the period of the development of the major growth
projects at Bozshakol and Aktogay and for general corporate
purposes. At 31 December 2014, the amended PXF facility was fully
drawn at $349 million, with $151 million of the original facility
having been repaid. The principal repayments will amortise over a
three year period commencing in January 2016 until final maturity
in December 2018.
At 31 December 2014, the Group had gross liquid funds of $2.1
billion and an additional $798 million available only for the
development of the Aktogay copper project.
The Directors have considered the Group's financial position,
the available borrowing facilities, the planned capital expenditure
programme and the outlook for the Group's products and major growth
projects, and believe there is sufficient funding available to meet
the Group's anticipated cash flow requirements. The Board is
mindful of the Group's exposure to a single commodity and to the
successful delivery of the Group's major growth projects in the
medium term. A severe downturn in the copper price or material
adverse developments on the major growth projects would impact
future funding requirements.
After making appropriate enquiries, the Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future (which
is for this purpose a period of at least 12 months from the date of
approval of these financial statements). Accordingly, they continue
to adopt the going concern basis of accounting in preparing the
consolidated financial statements.
(b) Basis of accounting
The consolidated financial statements have been prepared on a
historical cost basis, except for derivative financial instruments
which have been measured at fair value. The consolidated financial
statements are presented in US dollars ($) and all financial
information has been rounded to the nearest million dollars ($
million) except where otherwise indicated.
(c) Basis of consolidation
The consolidated financial statements set out the Group's
financial position as at 31 December 2014 and the Group's financial
performance for the year ended 31 December 2014.
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 intra-group 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.
Prior to the completion of the Group's Restructuring, Kazakhmys
LLC underwent a demerger which created Vostoktsvetmet LLC, which
holds the East Region operating assets. As a result of the
demerger, the non-controlling interests in the East Region assets,
which were previously within Kazakhmys LLC, remain with
Vostoktsvetmet LLC. The Company treats transactions with
non-controlling interests as transactions with equity owners of the
Company. For purchases from non-controlling interests, the
difference between any consideration paid and the relevant share of
the carrying value of net assets of the subsidiary acquired is
recorded in equity. Gains or losses on disposals to non-controlling
interests are also recorded in equity.
(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) Comparative information
Where a change in the presentation format of the consolidated
financial statements has been made during the year, comparative
figures have been restated accordingly.
The sale of a number of the Group's relatively mature mining and
power operations, primarily located in the Zhezkazgan and Central
Regions (the 'Disposal Assets') was approved by the independent
shareholders on 15 August 2014. As a result these operations were
reclassified as assets held for sale and as a discontinued
operation from that date. The consolidated income statement for the
year ended 31 December 2013 has been restated to conform to this
presentation. The sale completed in October 2014.
(f) Devaluation of the tenge
On 11 February 2014, the National Bank of Kazakhstan announced
it would seek to support the tenge at around 185 KZT to the US
dollar, resulting in a devaluation of approximately 19%. The impact
of the devaluation in the condensed consolidated financial
statements is as follows:
-- net finance costs of $263 million includes net foreign
exchange losses of $181 million from continuing operations which
primarily arose from the retranslation of tenge denominated
monetary assets and liabilities, particularly on intercompany
loans, within the Group's UK subsidiaries which have a US dollar
functional currency. The foreign exchange losses arising on the
devaluation of the tenge are non-operational and have been treated
as a special item;
-- the loss for the year from discontinued operations includes a
net foreign exchange gain of $24 million; and
-- non-cash foreign exchange loss of $430 million recognised within equity, primarily due to the retranslation on consolidation of the Group's Kazakhstan based subsidiaries whose functional currency is the tenge, which mainly arose at the time of the devaluation, of which $180 million relates to continuing operations and $250 million to discontinued operations.
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.
(a) Critical accounting judgments
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately below),
which the Directors believe are likely to have the most significant
effect on the amounts recognised in the consolidated financial
statements.
Assets held for sale and discontinued operations
On 15 August 2014, the Group's independent shareholders approved
the sale of the Disposal Assets, within the previous Kazakhmys
Mining and Kazakhmys Power segments. The Directors believed it was
highly probable that the disposal would complete within 12 months
following independent shareholder approval. As a result, the
Disposal Assets were classified as assets held for sale at 15
August 2014, and reflected as a discontinued operation in the
consolidated income statement for the period ended 31 October 2014,
when the sale completed. On the date of classification, the
Disposal Assets were remeasured to the fair value less costs to
sell of nil, resulting in a charge of $1.6 billion being
recognised.
On 5 December 2013, the Board of Directors accepted an offer
from Samruk-Energo, an investment vehicle of the Government of
Kazakhstan, for the sale of the Group's 50% joint venture in
Ekibastuz GRES-1 and the Group's investment in Kazhydrotechenergo
LLP ('Kaz Hydro') for $1,249 million, after transaction costs of $2
million and the additional $49 million, being the cost of acquiring
the remaining shares held in Kaz Hydro. After considering the
status of the sales process, the Directors believed that it was
highly probable a sale would complete within 12 months. As a
result, the Group's investments in Ekibastuz GRES-1 and Kaz Hydro
were classified as assets held for sale at 31 December 2013, with
Ekibastuz GRES-1 being classified as a discontinued operation in
the consolidated income statement for the period ended 5 December
2013. The sale completed on 1 April 2014.
Determination of excess profits taxation ('EPT') - Discontinued
operations
In 2011, the Supreme Court of Kazakhstan ruled that Kazakhmys
LLC should not have been an EPT payer in the periods up to and
including 2008. Kazakhmys LLC subsequently submitted a claim for
$108 million to the Ministry of Finance. During 2012, $60 million
had been reimbursed by set-off against the 2012 tax year income tax
and mineral extraction tax liabilities and was recognised in the
consolidated financial statements as a special item. The remaining
$48 million of the $108 million claim was challenged by the
Ministry of Finance, who believed that this amount related to
periods beyond the Kazakhstan statute of limitations.
In 2013, the Ministry of Finance continued its legal action over
the $48 million claim, with their appeal reaching the Supreme
Court. In October 2013, the Supreme Court ruled in favour of
Kazakhmys LLC confirming Kazakhmys LLC's right to receive the $48
million ($39 million at year end exchange rate) of the past EPT
payments. Due to the ongoing uncertainty following a legal appeal
by the tax authorities against the Supreme Court's decision, no
credit was recognised for the year ended 31 December 2013.
Due to actions taken by the tax authorities during 2014,
management continued to believe that sufficient uncertainty
remained over the recoverability of this amount such that no credit
was recognised in the Disposal Assets financial statements as at 31
October 2014, the date of disposal.
(b) Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
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, sales 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
net realisable value and value in use, which is determined on the
basis of discounted future cash flows.
This involves management estimates of commodity prices, market
demand and supply, the development of 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 above
mentioned factors could impact the carrying value of the
assets.
Bozymchak
During the year ended 31 December 2014, Bozymchak recognised a
$128 million impairment charge following the identification of a
number of impairment indicators. In determining the value-in-use of
the Bozymchak project, the Directors made estimates of the future
cash flows to be generated by this project with the key variables
being copper and gold price assumptions, the mine economics such as
copper grades, capital expenditure to complete the project and its
commissioning date for commercial production.
The Zhezkazgan Region within the Disposal Assets and
discontinued operations
The asset review performed in 2013 considered the results of the
optimisation programme and the potential for future savings, when
assessing the future economic outlook for assets. The prospects for
the Zhezkazgan Region, a cash generating unit ('CGU') previously
within Kazakhmys Mining, were considered challenging. The
recoverable amount of the Zhezkazgan Region CGU was believed by
management to be significantly lower than its carrying value such
that an impairment charge of $575 million was recognised at 31
December 2013 (see note 9).
The calculation of the fair value less costs to sell of the
Group's CGUs for the impairment review at 31 December 2013 provided
a range of outcomes which were particularly sensitive to changes in
commodity prices, operating cost inflation, capital expenditure and
the discount rate used. Any changes to the assumptions adopted in
the calculation of the fair value less costs to sell, individually
or in aggregate, would result in a different valuation being
determined.
The Directors note that following the impairments recognised in
2013, the deficit between the Group's net asset value and its
market capitalisation remained significant at 31 December 2013.
This deficit was largely due to the fact that under accounting
standards, the carrying value of the assets could not be negative,
whilst the valuation of the same assets on a discounted cash flow
basis could result in values below zero. In particular, whilst the
Zhezkazgan Region CGU was written down to nil, the forecast
discounted cash flows resulted in a significant negative amount
which could not be recognised at 31 December 2013. The Directors
considered this and other circumstances that contributed to the
difference between the Group's net asset value and market
capitalisation and believed that despite this difference there were
no further impairments necessary in respect of the Group's other
cash generating units.
The Zhezkazgan Region CGUs' assets formed part of the Disposal
Assets that were divested by the Group on 31 October 2014.
Determination of ore reserves and useful lives of property,
plant and equipment
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 by competent persons as defined in
accordance with the JORC code. A review of the Group's reserves and
resources is undertaken on an annual basis by an independent
competent person.
In assessing the life of a mine for accounting purposes, mineral
reserves are only taken into account where there is a high degree
of confidence of economic extraction (proven and probable mineral
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 carrying values may be affected due to changes in estimated future cash flows;
-- 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.
Employee benefits
The expected costs of providing long-term employment benefits
under defined benefit arrangements relating to employee service
during the period are determined based on financial and actuarial
assumptions. Assumptions in respect of the expected costs are set
in consultation with an independent actuary.
Kazakh legislation requires that the amounts payable for death
and disability benefits are linked to future salary increases. As a
result, future salary increases within the business have to be
estimated. Other key assumptions include the selection of discount
and mortality rates. The discount rate used was determined by
reference to the 10-year Kazakhstan Government euro-dollar bonds
issued in 2014 adjusted for currency conversion to KZT. The 10-year
bond rate approximates to the average maturity profile of the
Group's benefit obligations. Mortality rates are based on the
official mortality table of Kazakhstan published by the
Government.
While the Directors believe the assumptions used are
appropriate, a change in the assumptions used would impact the
employee benefit obligation recognised on the balance sheet and
hence the financial performance of the Group. This obligation
predominantly arises within the Disposal Assets, which were
disposed of in October 2014. The obligation that remains with the
continuing operations is significantly smaller and therefore any
changes in the above assumptions are unlikely to have a material
impact on the Group's balance sheet.
Income taxes
In determining the level of accruals and provisions to be
recognised in respect of any potential exposures for various tax
liabilities, the Directors make estimates in relation to the level
of taxes payable, particularly in relation to transfer pricing,
non-deductible items and outcomes of tax disputes. The tax
obligations, upon audit by the tax authorities at a future date,
may differ as a result of differing interpretations. These
differences may also impact the level of accruals and provisions
recognised.
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 three 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 Restructuring undertaken by the Group in 2014 has resulted
in a change in the Group's operating segments. As the Disposal
Assets were classified as a discontinued operation at 15 August
2014 with the comparatives restated to conform to this
presentation, the operating segment disclosures for the year ended
31 December 2013 have also been restated to reflect this
classification. The Group's updated operating segments following
the Restructuring are:
East Region operations
The East Region operations business is managed as one operating
segment and comprises:
-- the Group's main operating entity, Vostoktsvetmet LLC, whose
principal activity is the mining and processing of copper and other
metals which are produced as by-products; and
-- the Group's UK trading function, KAZ Minerals Sales Limited,
which is responsible for the purchase of exported products from
Vostoktsvetmet LLC and subsequently applies an appropriate mark-up
prior to onward sale to third parties. The UK entity is a sales
function on behalf of the East Region operations business and
consequently the assets and liabilities related to those trading
operations, i.e. trade payables and trade receivables, are included
within the East Region operations operating segment.
Mining Projects
The Group's project companies, whose responsibility is the
development of the Group's major growth projects (Aktogay,
Bozshakol and Koksay).
Bozymchak
The Bozymchak gold-copper deposit, which is located in
Kyrgyzstan, is at the commissioning phase, is managed and reported
on as a separate operating segment.
Managing and measuring operating segments
The key performance measure of the operating segments is EBITDA
(excluding special items), which is defined as operating profit
adjusted to remove depreciation, depletion, amortisation, the
non-cash component of the disability benefits obligation, MET and
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 notes 5 and
10).
The Group's Treasury department monitors finance income and
finance costs at the Group level on a net basis rather than on a
gross basis at an operating segment level.
(a) Operating segments - Income statement information
Year ended 31 December 2014
----------------------------------------------------------------------------------
Mining Projects
--------- ----------- --------- ------------------ --------- ----------- --------------
East
Region Corporate Continuing Discontinued
$ million operations Bozymchak Aktogay Bozshakol Services operations operations(1)
--------- ----------- --------- ------- --------- --------- ----------- --------------
Revenues
Segment sales 846 - - - - 846 1,609
Inter-segment sales - - - - - - (75)
---------------------------- ----- ------ ---- ---- ----- ------ --------
Sales to external customers 846 - - - - 846 1,534
---------------------------- ----- ------ ---- ---- ----- ------ --------
EBITDA (excluding special
items) 403 (4) (6) (8) (30) 355 201
Special items - notes
5 and 10:
Less: provisions released
against historic
tax claims - - - - - - 15
Less: impairment charges (4) (128) - - - (132) (15)
Less: loss on disposal
of assets(2) - - - - - - (2,066)
---------------------------- ----- ------ ---- ---- ----- ------ --------
EBITDA 399 (132) (6) (8) (30) 223 (1,865)
Less: non-cash component
of the disability
benefits obligation(3) (1) - - - - (1) (92)
Less: depreciation,
depletion and amortisation (39) (2) - - (1) (42) (110)
Less: mineral extraction
tax(4) (86) - - - - (86) (65)
---------------------------- ----- ------ ---- ---- ----- ------ --------
Operating profit/(loss) 273 (134) (6) (8) (31) 94 (2,132)
Net finance costs (263) -
Income tax (expense)/credit (65) 4
---------------------------- ----- ------ ---- ---- ----- ------ --------
Profit/(loss) for the
year (234) (2,128)
---------------------------- ----- ------ ---- ---- ----- ------ --------
Year ended 31 December 2013
-------------------------------------------------------------------------------------
Mining Projects
--------- ----------- --------- ------------------ ------------ ----------- --------------
East
Region Corporate Continuing Discontinued
$ million operations Bozymchak Aktogay Bozshakol Services(5) operations operations(1)
--------- ----------- --------- ------- --------- ------------ ----------- --------------
Revenues
Segment sales 931 - - - - 931 2,873
Inter-segment sales - - - - - - (110)
------------------------------ ----- ---- ---- ---- ----- ----- --------
Sales to external customers 931 - - - - 931 2,763
------------------------------ ----- ---- ---- ---- ----- ----- --------
EBITDA (excluding special
items) 432 (3) (2) (9) (59) 359 361
Special items - notes
5 and 10:
Less: additional disability
benefits obligation charge (3) - - - - (3) (81)
Less: impairment charges (12) - - - (1) (13) (679)
Less: loss on disposal
of assets(6) - - - - - - (543)
------------------------------ ----- ---- ---- ---- ----- ----- --------
EBITDA 417 (3) (2) (9) (60) 343 (942)
Less: non-cash component
of the disability benefits
obligation(3) (1) - - - - (1) (25)
Less: depreciation, depletion
and amortisation (53) (3) - - (1) (57) (231)
Less: mineral extraction
tax(4) (94) - - - - (94) (148)
------------------------------ ----- ---- ---- ---- ----- ----- --------
Operating profit/(loss) 269 (6) (2) (9) (61) 191 (1,346)
Share of profits from
joint venture(7) - 89
Share of losses from
associate(7) - (758)
Net finance costs (53) (27)
Income tax expense (48) (80)
------------------------------ ----- ---- ---- ---- ----- ----- --------
Profit/(loss) for the
year 90 (2,122)
------------------------------ ----- ---- ---- ---- ----- ----- --------
(1) For the year ended 31 December 2014, discontinued operations
comprise the results of the Disposal Assets for the period up to 31
October 2014, the date on which they were sold and the gain on
disposal of the Group's investment in Ekibastuz GRES-1. For the
year ended 31 December 2013, discontinued operations comprised the
results of Disposal Assets, the results of MKM for the period up to
28 May 2013, the date on which it was sold, the share of post-tax
results from the Group's investment in Ekibastuz GRES-1 up to 5
December 2013 and the share of post-tax results from the Group's
investment in ENRC up to 24 June 2013.
(2) On 31 October 2014 the Group sold the Disposal Assets
recognising a loss on disposal of $2,273 million (see note 9(a)).
In addition, on 1 April 2014 the Group completed the sale of the
Group's investment in Ekibastuz GRES-1 joint venture and Kaz Hydro
recognising a gain on disposal of $207 million (see note 9(b)).
(3) The non-cash component of the Group's disability benefits
obligation has been excluded from EBITDA a key financial indicator,
as EBITDA is a proxy for cash earnings from current trading
performance. The non-cash component of the disability benefits
obligation is determined as the actuarial remeasurement charge
recognised in the income statement less the actual cash payments
disbursed during the year in respect of the disability benefits
obligation.
(4) MET has been excluded from the key financial indicator of
EBITDA. The Directors believe that MET is a substitute for a tax on
profits, hence its exclusion provides a more informed measure of
the operational performance of the Group.
(5) Following the restatement of the Group's 2013 income
statement to reflect the Disposal Assets as discontinued
operations, inter-segment rechargeable costs of $30 million were
reallocated from the previous Kazakhmys Mining segment within the
Disposal Assets, to Corporate Services within the continuing
operations
(6) On 28 May 2013 the Group sold its German subsidiary, MKM,
recognising a loss on disposal of $1 million (see note 9(c)). In
addition, on 8 November 2013 the Group completed the sale of the
Group's investment in ENRC recognising a loss on disposal of $528
million (see note 9(d)). Loss on disposal of assets includes $14
million relating to the disposal of property, plant and equipment
(see note 10(h)).
(7) Shown net of taxes. For the year ended 31 December 2013,
following the reclassification of ENRC as a discontinued operation
the results for the period from the associate include an impairment
charge of $823 million recognised to write the investment down to
fair value less costs to sell.
(b) Segmental information in respect of revenues
Revenues by product earned by continuing operations are as
follows:
$ million 2014 2013
---------------------------- ---- ----
East Region operations
Copper cathodes 550 589
Silver 78 106
Gold 44 63
Zinc in concentrate 144 143
Other by-products 23 25
Other revenue 7 5
---------------------------- ---- ----
Total continuing operations 846 931
---------------------------- ---- ----
Revenues by destination earned by continuing operations are as
follows:
$ million 2014 2013
----------------------- ---- ----
East Region operations
Europe 36 72
China 492 545
Kazakhstan 189 213
Other 129 101
----------------------- ---- ----
846 931
----------------------- ---- ----
Year ended 31 December 2014
Four customers within the East Region operations segment, three
of which are collectively under common control, represent 28% of
total revenue from continuing operations for the 12 months. The
total revenue from these customers is $239 million. The revenue
from the three customers under common control of $147 million
represents 17% of the total revenue from continuing operations.
Revenues from the fourth major customer of $92 million represent
11% of total revenue from continuing operations.
Year ended 31 December 2013
Four customers within the East Region operations segment, three
of which are collectively under common control, represent 34% of
total revenue from continuing operations for the year. The total
revenue from these customers is $320 million. The revenue from the
three customers under common control of $213 million represents 23%
of the total revenue from continuing operations. Revenues from the
fourth major customer of $107 million represent 11% of total
revenue from continuing operations.
Information in respect of discontinued operations is included in
note 10.
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. The table below shows the special
items in respect of continuing operations, the disclosures relating
to discontinued operations is presented in note 10.
$ million 2014 2013
---------------------------------------------------------------------------- ---- ----
Special items within operating profit
Additional disability benefits obligation related to previously insured
employees - 3
Impairment charges - note 6 132 13
---------------------------------------------------------------------------- ---- ----
Impairment charges against intangible assets - 4
Impairment charges against property, plant and equipment 111 10
Impairment charges/(reversal) against mining assets 18 (1)
Provisions raised against other non-current assets 3 -
---------------------------------------------------------------------------- ---- ----
132 16
---------------------------------------------------------------------------- ---- ----
Special items within (loss)/profit before taxation
Net foreign exchange loss arising on the devaluation of the tenge 181 -
313 16
---------------------------------------------------------------------------- ---- ----
Taxation related special items
Recognition of a deferred tax asset on additional disability benefits
obligation related to previously insured employees - (1)
Net foreign exchange gain arising on the devaluation of the tenge 8 -
Recognition of a deferred tax asset resulting from impairment charges (1) (3)
---------------------------------------------------------------------------- ---- ----
Total special items 320 12
---------------------------------------------------------------------------- ---- ----
6. Impairment losses
$ million 2014 2013
------------------------------------------------------------------------ ---- ----
Impairment charges against intangible assets(1) - 4
Impairment charges against property, plant and equipment - note 6(a)(1) 111 10
Impairment charges/(reversal) against mining assets(1) 18 (1)
Provisions raised against inventories 1 -
Provisions raised against other assets 4 -
Provisions raised against other non-current assets(1) 3 -
------------------------------------------------------------------------ ---- ----
137 13
------------------------------------------------------------------------ ---- ----
(1) These impairments are considered to be special items for the
purposes of determining the Group's key financial indicator of
EBITDA (excluding special items) and Underlying Profit (see note
5). Of the total impairment charges, $128 million relates to the
impairment of Bozymchak in 2014.
The table above relates to continuing operations only.
Discontinued operations are presented in note 10.
Year ended 31 December 2014
(a) Mining Projects - impairment charges property, plant and equipment
The Bozymchak copper and gold development project has been
subject to an impairment review following the identification of
impairment indicators. The indicators identified were lower assumed
copper prices for 2015, ongoing optimisation work to be performed
during 2015 thereby delaying the ramp up of the concentrator and
changes to the mine plan. As a result, the Group has recognised a
total impairment of $128 million. The impairment charge has been
recognised as $107 million against property, plant and equipment,
$18 million against mining assets and $3 million against other
non-current assets of the Bozymchak project. The impairment charge
reduces the carrying value of the Bozymchak project to its
recoverable amount of $100 million, determined as its value-in-use
on a discounted cash flow basis, as at 31 December 2014. The cash
flow forecasts were discounted at a post-tax discount rate of 11%
(pre-tax rate of 12%).
Year ended 31 December 2013
(a) East Region operations - impairment charges property, plant and equipment
Following the suspension of the Berezovsky concentrator in the
East Region in the second half of the year an impairment charge of
$8 million was recognised.
7. Finance income and finance costs
$ million 2014 2013
------------------------------------------------------------------- ------ ------
Finance income
Interest income 10 9
Foreign exchange gains(1) 126 14
------------------------------------------------------------------- ------ ------
136 23
------------------------------------------------------------------- ------ ------
Finance costs
Interest expense (35) (51)
------------------------------------------------------------------- ------ ------
Total interest expense (159) (177)
Less: amounts capitalised to the cost of qualifying assets(2) 124 126
------------------------------------------------------------------- ------ ------
Interest on employee obligations (1) (2)
Unwinding of discount on provisions (2) (2)
------------------------------------------------------------------- ------ ------
Finance costs before foreign exchange losses (38) (55)
Foreign exchange losses(1) (361) (21)
------------------------------------------------------------------- ------ ------
(399) (76)
------------------------------------------------------------------- ------ ------
(1) Of the net foreign exchange losses, $181 million arises as a
result of the devaluation of the tenge in February 2014 (see note
2(f)).
(2) In 2014, the Group capitalised to the cost of qualifying
assets $124 million (2013: $126 million) of borrowing costs
incurred on the outstanding debt during the period on the
CDB/Samruk-Kazyna facilities at an average rate of interest (net of
interest income) of 5.15% (2013: 5.02%) and on the CDB-Aktogay US$
and RMB facilities at an average rate of interest of 4.79% (2013:
6.55%).
The table above relates to continuing operations only.
8. Income tax expense
Major components of income tax expense for continuing operations
for the years presented are:
$ million 2014 2013
------------------------------------------------------------ ----- -----
Current income tax
Corporate income tax - current period (UK)(1) (6) (14)
Corporate income tax - current period (overseas) 96 60
Corporate income tax - prior periods 1 (11)
Deferred income tax
Corporate income tax - current period temporary differences (22) 6
Corporate income tax - prior period temporary differences (4) 7
------------------------------------------------------------ ----- -----
65 48
------------------------------------------------------------ ----- -----
(1) The UK current income tax benefit of $6 million, excludes a
tax charge of $10 million relating to transactions with the
Disposal Assets undertaken during the year which is included within
the income tax expense of the discontinued operations.
A reconciliation of the income tax expense applicable to the
accounting (loss)/profit before tax at the statutory income tax
rate to the income tax expense at the effective income tax rate for
continuing operations is as follows:
$ million 2014 2013
---------------------------------------------------------------------- ------ -----
(Loss)/profit before tax from continuing operations (169) 138
At UK statutory income tax rate of 21.5% (2013: 23.25%)(1) (36) 32
Under/(over) provided in prior periods - current income tax 1 (11)
(Over)/under provided in prior periods - deferred income tax (4) 7
Tax losses - 8
Effect of domestic tax rates applicable to individual Group entities 20 (9)
Non-deductible items:
Transfer pricing - 2
Net foreign exchange loss arising on the devaluation of the tenge 48 5
Other non-deductible expenses 36 14
---------------------------------------------------------------------- ------ -----
65 48
---------------------------------------------------------------------- ------ -----
(1) For 2014, the UK statutory rate for January to March 2014
was 23.0% and for April to December 2014 was 21.0%, giving a
weighted average full year rate of 21.5%. For 2013, the UK
statutory rate for January to March 2013 was 24.0% and for April to
December 2013 was 23.0%, giving a weighted average full year rate
of 23.25%.
Corporate income tax ('CIT') is calculated at 21.5% (2013:
23.25%) of the assessable profit for the year for the Company and
its UK subsidiaries, 20.0% for the operating subsidiaries in
Kazakhstan (2013: 20.0%) and 10.0% for the Group's Kyrgyzstan based
subsidiary (2013: 10.0%).
Effective tax rate
Tax charges are affected by the mix of profits and tax
jurisdictions in which the Group operates. The lower CIT rate in
Kazakhstan will have the effect of lowering the Group's overall
effective tax rate below the current UK statutory corporate tax
rate. The impact of transfer pricing provisions and non-deductible
items, including impairment losses, will increase the Group's
overall effective tax rate.
The following factors impact the effective tax rate for
continuing operations for the year ended 31 December 2014:
Tax losses
During 2014, there was no utilisation of tax losses. In 2013,
the continuing operations incurred tax losses during the year,
primarily related to certain subsoil use contracts, which were not
expected to generate sufficient taxable profits for these losses to
be utilised in the foreseeable future. As a result, deferred tax
assets of $8 million in respect of these losses were not
recognised.
Transfer pricing
Notwithstanding recent changes to Kazakhstan's transfer pricing
legislation to closer align it with international trading
practices, inconsistencies still arise between the transfer pricing
requirements in Kazakhstan and the UK. However, these
inconsistencies have been minimised based on the current contracts,
such that no transfer pricing provision was necessary at 31
December 2014 (2013: $2 million).
Other non-deductible expenses
Includes the $13 million tax impact of the impairment charges
recognised at Bozymchak and other non-deductible expenses within
East Region operations, Mining Projects, Bozymchak and in the UK of
$23 million (2013: $14 million).
9. Disposal of subsidiaries and investments
Ekibastuz
Disposal GRES-1 and
Assets Kaz Hydro MKM ENRC
31 October 8 November
$ million 2014 1 April 2014 28 May 2013 2013
---------------------------------------------- ---------- ------------ ----------- ----------
Intangible assets 31 -
Property, plant and equipment 1,190 25
Mining assets 318 -
Other non-current assets 36 -
Deferred tax asset 30 -
Inventories 376 67
Prepayments and other current assets 309 4
Trade and other receivables 165 97
Investments 30 -
Cash and cash equivalents 158 12
Borrowings - (106)
Employee benefits and provisions (624) (6)
Income taxes payable (1) (3)
Trade and other payables (405) (36)
---------------------------------------------- ---------- ------------ ----------- ----------
Net identifiable assets 1,613 1,018 54 1,194
Recycling of foreign currency translation and
other reserves 648 24 2 511
Transaction costs 12 2 - 17
Consideration received - (1,251) (55) (1,194)
---------------------------------------------- ---------- ------------ ----------- ----------
Loss/(gain) on disposal 2,273 (207) 1 528
---------------------------------------------- ---------- ------------ ----------- ----------
Year ended 31 December 2014
(a) Disposal Assets
On 3 July 2014, the Board approved the divestment of the
Disposal Assets, which included a number of the Group's relatively
mature assets, liabilities and operations, primarily located in the
Zhezkazgan and Central Regions within the Kazakhmys Mining and
Kazakhmys Power operating segments, to Cuprum Holding (a company
owned by Vladimir Kim, a Director of the Company, and Eduard Ogay,
a former Director of the Company) under the Restructuring. The
Group's independent shareholders approved the Restructuring on 15
August 2014, with completion on 31 October 2014.
Accordingly, the Disposal Assets were classified as assets held
for sale with effect from 15 August 2014 and are treated as a
discontinued operation in these financial statements. On
reclassification, the Group recognised a charge of $1.6 billion
from the remeasurement of these assets to fair value less costs to
sell of nil. Upon completion, a further charge of $690 million was
recognised arising from the recycling to the income statement of
the cumulative foreign exchange losses previously recognised in
equity and the recycling of other reserves of $42 million. The
Group recognised a total loss on disposal of $2.3 billion for year
ended 31 December 2014.
On completion of the Restructuring, the Group transferred $158
million of cash and cash equivalents and $30 million in short term
liquid investment and incurred $12 million of transaction
costs.
(b) Ekibastuz GRES-1 joint venture and Kaz Hydro
On 5 December 2013, the Board accepted an offer from
Samruk-Energo, an investment vehicle of the Government of
Kazakhstan, for the sale of the Group's 50% joint venture in
Ekibastuz GRES-1 and the Group's investment in Kaz Hydro for $1,249
million, after transaction costs of $2 million and an additional
$49 million being the cost of acquiring the remaining shares held
in Kaz Hydro. The offer was approved by shareholders on 7 January
2014 with completion dependent on certain conditions precedent. As
a result, the Group's investments in Ekibastuz GRES-1 and Kaz Hydro
were classified as assets held for sale at 31 December 2013 with a
combined carrying value of $1,018 million, with Ekibastuz GRES-1
being classified as a discontinued operation in the consolidated
income statement. The sale completed on 1 April 2014, with the
Group recognising a profit on disposal of $207 million after the
recycling to the income statement of the cumulative foreign
exchange losses previously recognised in equity of $24 million (see
note 10(b)).
Year ended 31 December 2013
(c) MKM
On 28 May 2013, the Group completed the disposal of MKM for a
total consideration of EUR42 million ($55 million) net of expected
selling costs of EUR2 million ($2 million). At the date of disposal
MKM had net assets of EUR41 million ($54 million). The total
consideration of EUR42 million consists of EUR30 million ($39
million) which was received in May 2013 and EUR12 million ($16
million) which was deferred. The total consideration was concluded
after the receipt of a dividend from MKM of EUR10 million ($13
million) in April 2013. The loss on disposal of $1 million was
mainly attributable to the recycling of the foreign currency
translation reserve of $2 million. The deferred consideration of
$16 million was received in December 2014.
(d) ENRC
On 24 June 2013, Eurasian Resources, acting on behalf of the
ENRC Consortium comprising Mr Machkevitch, Mr Ibragimov, Mr Chodiev
and the Government of Kazakhstan, announced a firm intention to
make an offer for ENRC comprising $2.65 in cash plus approximately
0.23 Company shares per ENRC share. The share component of the
offer was fixed at the Company's share price on 21 June 2013,
resulting in an offer of approximately $1,206 million ($1,194
million net of expenses). On 8 November 2013, the transaction
completed and the Group received total proceeds of $1,194 million,
comprising $875 million in cash and 77 million Company shares
valued at $319 million. On completion, the Group recognised a loss
on disposal of its investment in ENRC of $528 million, principally
representing the recycling of the Group's share of ENRC's
transactions recognised directly in equity of $511 million.
The Company shares received by the Group were subsequently
cancelled.
10. Discontinued operations and assets held for sale
For the year ended 31 December 2014, discontinued operations
comprise the results of the Disposal Assets for the period up to 31
October 2014 (including the loss on disposal), the date on which it
was sold and the gain on the disposal of the Group's investments in
Ekibastuz GRES-1 and Kaz Hydro. For the year ended 31 December
2013, discontinued operations comprised the results of the Disposal
Assets, the results of MKM for the period up to 28 May 2013, the
date on which it was sold, the share of post-tax results from the
Group's investment in Ekibastuz GRES-1 and the share of post-tax
results from the Group's investment in ENRC up to 24 June 2013.
As at 31 December 2013, assets held for sale comprised the
Group's investments in Ekibastuz GRES-1 and Kaz Hydro.
(a) Disposal Assets
Following the independent shareholders' approval on 15 August
2014, the Board concluded that the Disposal Assets were available
for immediate sale in their present condition subject only to terms
that are usual and customary for sales of such disposal groups and
its sale was 'highly probable'. Accordingly, the Disposal Assets
were classified as assets held for sale and shown within
discontinued operations from that date. The sale completed on 31
October 2014 (see note 9(a)).
(b) Ekibastuz GRES-1
On 5 December 2013, the Board of Directors accepted an offer
from Samruk-Energo, an investment vehicle of the Government of
Kazakhstan, for the sale of the Group's 50% joint venture in
Ekibastuz GRES-1 and the Group's investment in Kaz Hydro for $1,249
million, after transaction costs of $2 million and an additional
$49 million being the cost of acquiring the remaining shares held
in Kaz Hydro. The offer was approved by shareholders on 7 January
2014 with completion dependent on certain conditions precedent.
After considering the status of the sales process, the Directors
believed that it was highly probable a sale would complete within
12 months. As a result, the Group's investments in Ekibastuz GRES-1
and Kaz Hydro were classified as assets held for sale at 31
December 2013, with Ekibastuz GRES-1 being classified as a
discontinued operation in the consolidated income statement for the
period ended 5 December 2013. The investment was stated at its last
equity accounted carrying value, which was lower than the expected
net sales proceeds (see note 9(b)).
(c) ENRC
The Group disposed of its investment in ENRC on 8 November 2013.
It was classified as a discontinued operation for the year ended 31
December 2013 (until the date of its disposal).
(d) MKM
As stated in note 9(c), the Group disposed of MKM on 28 May
2013. It was classified as a discontinued operation for the year
ended 31 December 2013 (until the date of its disposal).
(e) Financial performance of discontinued operations
The summary of results from discontinued operations as presented
in the consolidated income statement is shown below:
2013
---- -------------------------------------
Disposal Ekibastuz
$ million 2014 Assets MKM GRES-1 ENRC Total
--------- ---- -------- --- --------- ---- -----
Revenues 1,534 2,168 595 - - 2,763
Cost of sales (997) (1,562) (567) - - (2,129)
------------------------------------ -------- -------- ------ --- -------- --------
Gross profit 537 606 28 - - 634
Selling and distribution expenses (56) (51) (16) - - (67)
Administrative expenses (533) (666) (13) - - (679)
Net other operating expenses 3 (6) - - - (6)
Impairment losses (17) (676) (23) - - (699)
------------------------------------ -------- -------- ------ --- -------- --------
Operating loss (66) (793) (24) - - (817)
Share of profits from joint
venture - - - 89 - 89
Share of losses from associate - - - - (758) (758)
------------------------------------ -------- -------- ------ --- -------- --------
Loss before finance items
and taxation (66) (793) (24) 89 (758) (1,486)
Finance income 61 22 5 - - 27
Finance costs (61) (48) (6) - - (54)
------------------------------------ -------- -------- ------ --- -------- --------
Loss before tax (66) (819) (25) 89 (758) (1,513)
Income tax credit/(expense) 4 (79) (1) - - (80)
------------------------------------ -------- -------- ------ --- -------- --------
Loss for the year (62) (898) (26) 89 (758) (1,593)
Loss on disposal(1) (2,066) - (1) - (528) (529)
------------------------------------ -------- -------- ------ --- -------- --------
Loss for the year from discontinued
operations (2,128) (898) (27) 89 (1,286) (2,122)
------------------------------------ -------- -------- ------ --- -------- --------
(1) The loss on disposal of $2,066 million includes the $207
million gain on the disposal of Ekibastuz GRES-1.
(f) Revenues
Revenues by product earned by discontinued operations are as
follows:
$ million 2014 2013
----------------------------------------- ------ ------
Disposal Assets
Copper cathodes 587 1,384
Copper rods 67 85
Copper in concentrate 536 210
Silver (including silver in concentrate) 128 205
Gold 70 89
Other by-products 70 49
Electricity generation 51 79
Heating and other 12 16
Other revenue 13 51
----------------------------------------- ------ ------
1,534 2,168
MKM - 595
----------------------------------------- ------ ------
Total discontinued operations 1,534 2,763
----------------------------------------- ------ ------
Revenues by destination earned by discontinued operations are as
follows:
$ million 2014 2013
------------------------------ ------ ------
Disposal Assets
Europe 32 450
China 1,072 1,173
Kazakhstan 276 386
Other 154 159
------------------------------ ------ ------
1,534 2,168
MKM - 595
------------------------------ ------ ------
Total discontinued operations 1,534 2,763
------------------------------ ------ ------
(g) Impairment losses
Year ended 31 December 2014
Disposal Assets
During 2014, the Disposal Assets wrote off $15 million relating
to equipment which was no longer in use and impaired stripping
costs where the mine is not expected to generate any future
benefits.
Year ended 31 December 2013
Disposal Assets - Zhezkazgan Region cash generating unit ('CGU')
impairment review
In light of the lower prices of commodities produced by the
Group and inflationary pressures on operating costs, the Group
commenced an optimisation programme and asset review which resulted
in operating cost and capital expenditure savings.
The asset review considered the results of the optimisation
programme and the potential for future savings, when assessing the
future economic outlook for assets. The prospects for the
Zhezkazgan Region, a CGU within the former Kazakhmys Mining
segment, were considered challenging. The recoverable amount of the
Zhezkazgan Region CGU was believed by management to be
significantly lower than its carrying value such that an impairment
charge of $575 million was recognised, including $98 million of
deferred taxes written off. The impairment charge reduced the
carrying value of the Zhezkazgan CGU to nil.
The recoverable amount of the Zhezkazgan Region was determined
based on the 'fair value less costs to sell' calculations using the
cash flows expected to be generated from existing operations and
certain development projects, in particular Zhomart II. Cash flows
were projected for periods up to the date that mining, refining and
power generation was expected to cease based on management's
current expectations. For current operations, the completion dates
were based on recent assessments of the reserves and resources
available and annual ore extraction rates.
The key assumptions used in the recoverable amount calculations
were:
-- Recoverable amount of reserves and resources - Economically
recoverable reserves and resources were based on management's
expectations and the technical studies and exploration and
evaluation work undertaken by in-house and third party
specialists.
-- Commodity prices - Long-term commodity prices assumed fall
within the range of external market analyst consensus.
-- Operating costs - Variable operating costs were included in
the impairment test as a function of the related production
volumes. Fixed costs at the mines, concentrators and smelters were
largely constant but reflect material changes in activity
levels.
-- Discount rate - A discount rate of 16% was used in the
recoverable amount calculations, which represents the pre-tax rate
that reflected the Group's current market assessments of the time
value of money and the risks specific to the CGU.
-- Timing of capital expenditure - Management estimated the
timing of capital expenditure on the development projects based on
the Group's current and future financing plans and the results of
technical studies completed to date.
-- Inflation and exchange rates - These were based on a
combination of externally sourced forecasts and rates determined
from information available in the market after considering
long-term market expectations.
The calculation of the fair value less costs to sell of the
Group's CGUs for the impairment review at 31 December 2013 provided
a range of outcomes as the calculation was particularly sensitive
to changes in commodity prices, operating cost inflation, capital
expenditure and the discount rate used. Any changes to the
assumptions adopted in the calculation of the fair value less costs
to sell, individually or in aggregate, would have resulted in a
different valuation being determined.
Impairment charges against property plant and equipment
The impairment charges recognised against property, plant and
equipment included $325 million related to the impairment of the
Zhezkazgan Region CGU, the impairment of certain production assets
during the year, principally the Zhezkazgan smelter, Satpayev
concentrator and associated assets of $115 million and a number of
mid-sized projects that were suspended during the year of $33
million.
Impairment charges against mining assets
The Zhezkazgan Region CGU's mining assets were impaired by $139
million, and certain mid-sized projects were impaired by $5 million
as these were suspended during the year.
Inventories
An impairment charge of $4 million related to specialised
consumable inventories at the suspended Zhezkazgan smelter.
Other assets
The impairment of other assets of $32 million related mainly to
the allocation of the impairment charge recognised in respect of
the Zhezkazgan Region CGU, as discussed above, in accordance with
IAS 36 on a proportionate basis.
MKM
In 2013, MKM was impaired by $22 million to write it down to its
fair value less costs to sell. Of the total impairment charges
recognised at MKM in the year ended 31 December 2013 (for the
period until 28 May 2013 when it was disposed of), $1 million
relates to the impairment of receivables which are not treated as
special items.
(h) 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 2014 2013
---------------------------------------------------------------------------- ------ ------
Special items within operating loss
Additional disability benefits obligation related to previously insured
employees - 81
Provisions released against historic tax claims (15) -
Impairment charges 15 679
---------------------------------------------------------------------------- ------ ------
Impairment charges against intangible assets - 3
Impairment charges against property, plant and equipment 8 473
Impairment charges against mining assets 7 145
Provisions raised against inventories - 4
Provisions raised against other assets - 32
Impairment charge against property, plant and equipment - MKM - 22
---------------------------------------------------------------------------- ------ ------
Loss on disposal of property, plant and equipment - 14
---------------------------------------------------------------------------- ------ ------
- 774
---------------------------------------------------------------------------- ------ ------
Special items within loss before finance items and taxation
Impairment charge recognised on remeasurement of the ENRC investment - 823
Share of special items in the equity accounted investment in ENRC - 30
Net loss on disposal of subsidiaries and investments 2,066 529
2,066 2,156
---------------------------------------------------------------------------- ------ ------
Special items within loss for the year
Net foreign exchange gain arising on the devaluation of the tenge (24) -
Taxation related special items 5 52
---------------------------------------------------------------------------- ------ ------
Provisions released against historic tax claims (7) -
Recognition of deferred tax assets resulting from impairment charges
and other special items (3) (20)
Net foreign exchange gain arising on the devaluation of the tenge 5 -
Tax accruals arising from Kazakhstan legal demerger of Kazakhmys LLC 10 -
Recognition of a deferred tax asset on additional disability benefits
obligation
related to previously insured employees - (16)
Impairment of deferred tax assets - 98
Release of deferred tax liabilities resulting from the remeasurement
of MKM - 4
Recognition of deferred tax assets on impairment charges recognised
by ENRC - (14)
---------------------------------------------------------------------------- ------ ------
(19) 52
---------------------------------------------------------------------------- ------ ------
2,047 2,208
---------------------------------------------------------------------------- ------ ------
The loss on disposal of subsidiaries and investments in 2014
represents the loss on the sale of the Disposal Assets (see note
9(a)) and the gain on disposal of Ekibastuz GRES-1 (see note 9(b)).
(2013: includes the loss on disposal of investments in MKM and
ENRC, see note 9(c) and 9(d) respectively).
(i) Cash flows
Net cash flows from discontinued operations included within the
consolidated cash flow statement are shown below:
$ million 2014 2013
------------------------ ------ ------
Operating activities 8 17
Investing activities (228) (440)
Financing activities(1) 61 43
------------------------ ------ ------
Net cash outflow (159) (380)
------------------------ ------ ------
(1) Cash flows from financing activities within the discontinued
operations reflect intercompany financing arrangements which
eliminate on consolidation.
11. Earnings per share
(a) Basic and diluted EPS
Basic EPS is calculated by dividing the (loss)/profit for the
year attributable to owners 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 the share buy-back programme are
held in treasury and treated as own shares.
The following reflects the income and share data used in the EPS
computations:
$ million 2014 2013
--------------------------------------------------------------------- ------------ ------------
Net (loss)/profit attributable to equity shareholders of the Company
from continuing operations (234) 90
Net loss attributable to equity shareholders of the Company from
discontinued operations (2,128) (2,120)
--------------------------------------------------------------------- ------------ ------------
(2,362) (2,030)
--------------------------------------------------------------------- ------------ ------------
Number 2014 2013
--------------------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares of 20 pence each for
EPS calculation 446,838,267 512,554,049
--------------------------------------------------------------------- ------------ ------------
EPS - basic and diluted ($)
From continuing operations (0.52) 0.18
From discontinued operations (4.76) (4.14)
--------------------------------------------------------------------- ------------ ------------
(5.28) (3.96)
--------------------------------------------------------------------- ------------ ------------
(b) EPS based on Underlying Profit
The Group's Underlying Profit is the net profit for the year
excluding special items and their resultant tax and non-controlling
interest effects, as shown in the table below. EPS based on
Underlying Profit is calculated by dividing Underlying Profit by
the weighted average number of ordinary shares of 20 pence each
outstanding during the year. The Directors believe EPS based on
Underlying Profit provides a more consistent measure for comparing
the underlying trading performance of the Group.
The following table shows the reconciliation from the reported
profit to Underlying Profit and the share data used to determine
the EPS based on Underlying Profit:
$ million 2014 2013
--------------------------------------------------------------------- ------------ ------------
Net (loss)/profit attributable to equity shareholders of the Company
from continuing operations (234) 90
Special items - note 5 320 12
--------------------------------------------------------------------- ------------ ------------
Underlying Profit from continuing operations 86 102
--------------------------------------------------------------------- ------------ ------------
Net loss attributable to equity shareholders of the Company from
discontinued operations (2,128) (2,120)
Special items - note 10(h) 2,047 2,208
--------------------------------------------------------------------- ------------ ------------
Underlying Profit from discontinued operations (81) 88
--------------------------------------------------------------------- ------------ ------------
Total Underlying Profit 5 190
--------------------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares of 20 pence each for
EPS based on Underlying Profit calculation 446,838,267 512,554,049
--------------------------------------------------------------------- ------------ ------------
EPS based on Underlying Profit - basic and diluted ($)
From continuing operations 0.19 0.20
From discontinued operations (0.18) 0.17
--------------------------------------------------------------------- ------------ ------------
0.01 0.37
--------------------------------------------------------------------- ------------ ------------
12. Dividends paid
(i) Year ended 31 December 2014
No dividends were paid in the year ended 31 December 2014.
(ii) Year ended 31 December 2013
On 21 May 2013, the Company paid the final dividend of $42
million in respect of the year ended 31 December 2012 to
shareholders on the register as at 26 April 2013.
13. 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 2013 535,420,180 107 200
Purchase of Company's issued share capital (77,041,147) (15) (29)
------------------------------------------- ------------- -------- ---------
At 31 December 2013 and 2014 458,379,033 92 171
------------------------------------------- ------------- -------- ---------
In November 2013, the Group completed the disposal of its
investment in ENRC, receiving 77 million Company shares as part of
the total consideration. These shares were subsequently
cancelled.
(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 2014, 105,980 shares
(2013: 115,579) were transferred out of the Trust in settlement of
share awards granted to employees that were exercised during the
period.
At 31 December 2014, the Group, through the Employee Benefit
Trust, owned 542,235 shares in the Company (2013: 648,215) with a
market value of $2 million and a cost of $10 million (2013: $2
million and $12 million respectively). The shares held by the Trust
represented 0.12% (2013: 0.14%) of the issued share capital at 31
December 2014.
(c) Capital reserves
Currency Capital
Reserve translation redemption Hedging
$ million fund reserve reserve reserve Total
-------------------------------------- ------- ------------ ----------- -------- ------
At 1 January 2013 42 (978) 6 (2) (932)
Exchange differences on retranslation
of foreign operations(1) - (60) - - (60)
Recycling of exchange differences
on disposal of subsidiary - 2 - - 2
Recycling of capital reserves
on disposal of associate - 509 - 2 511
Share of losses of joint venture
recognised in other comprehensive
income - (12) - - (12)
Share of losses of associate
recognised in other comprehensive
income - (75) - - (75)
Purchase of Company's issued
share capital - - 25 - 25
-------------------------------------- ------- ------------ ----------- -------- ------
At 31 December 2013 42 (614) 31 - (541)
Exchange differences on retranslation
of foreign operations(1) - (430) - - (430)
Recycling of capital reserves
on disposal of subsidiaries (42) 690 - - 648
Recycling of capital reserves
on disposal of joint venture - 24 - - 24
-------------------------------------- ------- ------------ ----------- -------- ------
At 31 December 2014 - (330) 31 - (299)
-------------------------------------- ------- ------------ ----------- -------- ------
(1) Of the $430 million (2013: $60 million) of foreign exchange
differences recognised in the currency translation reserve for the
year, $250 million (2013: $38 million) relates to discontinued
operations.
(i) Reserve fund
In accordance with legislation of the Republic of Kazakhstan,
the reserve fund comprised the prescribed transfers from retained
earnings amounting to 15% of Kazakhmys LLC's charter capital, which
was recycled through loss on disposal of discontinued operations on
the divestment of the company.
(ii) 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.
(iii) Capital redemption reserve
As a result of the share buy-back programme undertaken in 2008
and the repurchase of Company shares received from the ENRC
disposal in 2013, transfers were made from share capital to the
capital redemption reserve based on the nominal value of the shares
cancelled.
14. Borrowings
Average
interest
rate
during Currency
the of Current Non-current Total
Maturity year denomination $ million $ million $ million
------------------------------------------- --------- --------- ------------- ---------- ----------- ----------
31 December 2014
CDB/Samruk-Kazyna facility - US$ LIBOR +
4.80% 2025 5.21% US dollar 181 1,875 2,056
CDB - Aktogay facility - PBoC 5 year 2028 5.42% CNY - 112 112
CDB - Aktogay facility - US$ LIBOR + 4.20% 2029 4.53% US dollar - 580 580
Pre-export finance facility - US$ LIBOR
+ 3.00% - 2014 2018 2.98% US dollar - 344 344
------------------------------------------- --------- --------- ------------- ---------- ----------- ----------
181 2,911 3,092
----------------------------------------------------- --------- ------------- ---------- ----------- ----------
31 December 2013
CDB/Samruk-Kazyna facility - US$ LIBOR +
4.80% 2025 5.26% US dollar 503 2,065 2,568
CDB - Aktogay facility - PBoC 5 year 2028 6.55% CNY - 57 57
Pre-export finance facility - US$ LIBOR
+ 2.80% - 2012 2017 2.98% US dollar - 486 486
------------------------------------------- --------- --------- ------------- ---------- ----------- ----------
503 2,608 3,111
----------------------------------------------------- --------- ------------- ---------- ----------- ----------
Pre-export finance facility
On 20 December 2012, KAZ Minerals Finance PLC, a wholly owned
subsidiary of the Company, signed a five year PXF facility for $1.0
billion with a syndicate of banks to be used for general corporate
purposes. The funds attracted interest at US$ LIBOR plus 2.80%. The
facility had a final maturity date of December 2017 and monthly
loan repayments of principal due to commence in January 2015.
On 27 December 2013, the facility was reduced to $500 million,
being the amount drawn at the end of the availability period.
Following the amendment signed in October 2014, this facility was
fully repaid.
On 29 October 2014, the Group signed an amendment to the PXF
debt facility. The amended facility restates the existing PXF
facility signed in December 2012 which contained certain disposal
and other restrictions meaning the facility could not continue
after completion of the Restructuring.
At signing, commitments from the existing syndicate of lending
banks totalled $334 million and a net payment of $166 million paid
to exiting banks. The amended facility contains an accordion
feature which will enable existing lenders to increase their
commitments, or new lenders to join, up to a maximum total facility
amount of $500 million. On 5 December 2014, the facility was
increased to $349 million.
Under the facility, principal repayments amortise in equal
monthly instalments over a three year period commencing from
January 2016 until final maturity on 31 December 2018. The margin
payable on the amended facility is variable, ranging from 3.0% to
4.5% above US$ 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. The amended facility resulted in certain changes to
the covenant package including the suspension of the net debt to
EBITDA ratio covenant, until 1 July 2016, and changes to the
balance sheet gearing covenants to make these more aligned to the
Group's projected financial profile until completion of the
Bozshakol major growth project.
At 31 December 2014, $344 million (2013: $500 million) was drawn
under the facility agreements. Arrangement fees with an amortised
cost as at 31 December 2014 of $5 million (2013: $14 million),
(gross cost before amortisation of $5 million (2013: $18 million)),
have been netted off against these borrowings in accordance with
IAS 39. For accounting purposes the amendments, which were
considered significant, resulted in the settlement of the facility
signed on 20 December 2012, with $10 million of previously
unamortised costs being expensed in full.
China Development Bank and Samruk-Kazyna financing
facilities
On 30 December 2009, KAZ Minerals announced that it had secured
a $2.7 billion financing line with CDB and Samruk-Kazyna, allocated
from a $3.0 billion financing line agreed between CDB and
Samruk-Kazyna. Of the $2.7 billion secured for the Group, facility
agreements were signed for $2.1 billion on 30 December 2009, and
for a further $200 million on 12 January 2010, for the development
of the Group's projects at Bozshakol and Bozymchak and other
development projects, and two facility agreements for $200 million
each, allocated to the Akbastau-Kosmurun and Zhomart projects, were
signed on 11 June 2012. Samruk-Kazyna has separately signed an
agreement for $300 million of the $3.0 billion to be used elsewhere
and not for the benefit of the Group, which was subsequently repaid
to CDB by Samruk-Kazyna in January 2013. As part of this financing
package, the Company, along with a subsidiary of Samruk-Kazyna,
provided a guarantee in favour of CDB in respect of Samruk-Kazyna's
obligations under the $2.7 billion financing line.
The funds, which were fully drawn in January 2013, attract
interest semi-annually at an annualised rate of US$ LIBOR plus
4.80%. The loans have a final maturity falling between January 2022
and August 2025 and the first repayment commenced in January
2013.
In January 2014, the Group repaid $400 million under this
facility related to the Akbastau-Kosmurun and Zhomart projects as
development of these projects is not expected to commence in the
near future.
On 30 December 2014, the Group announced an amendment to these
facilities, which resulted in the facilities becoming bilateral
between KAZ Minerals and CDB and a lowering of the interest rate
from US$ 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% is payable in January 2016.
Repayment of the previous facilities with Samruk-Kazyna and
drawing of the new facilities directly from CDB is expected to
occur during the first quarter of 2015. All other material terms of
the facilities, including the final maturity, remain unchanged.
As at 31 December 2014, $2.1 billion (2013: $2.6 billion) was
drawn under the facility agreements. Arrangement fees with an
amortised cost as at 31 December 2014 of $30 million (2013: $25
million), (gross cost before amortisation of $35 million (2013: $43
million)), have been netted off against these borrowings in
accordance with IAS 39.
China Development Bank Aktogay finance facility
On 16 December 2011, the Group signed a $1.5 billion loan
facility with CDB, to be used for the development of the major
copper project at Aktogay. The loan facility consists of two
separate agreements with similar terms and conditions. The first
agreement is for up to $1.3 billion and the second agreement for up
to RMB1.0 billion ($161 million equivalent at the CNY/US$ exchange
rate on 31 December 2014). The US dollar agreement attracts
interest at US$ LIBOR plus 4.20% and the RMB agreement attracts
interest at the applicable benchmark lending rate published by the
People's Bank of China. The funds are available to draw down over a
three and a half year period commencing from 31 December 2012 and
mature 15 years from the date of the first draw down. KAZ Minerals
PLC acts as guarantor of the loan.
At 31 December 2014, the Group had drawn down CNY 697 million
($112 million) (2013: CNY 350 million ($57 million)) under the RMB
facility. Arrangement fees with an amortised cost of $1 million
(2013: $0.6 million), gross cost before amortisation of $1.2
million (2013:$0.8 million), have been netted off against these
borrowings in accordance with IAS 39. In order to protect the Group
from currency risks arising on this CNY denominated debt, the Group
has entered into a CNY/US$ cross currency swap during the year.
This derivative instrument provides a hedge against any movement in
the CNY exchange rate against the US dollar and also swaps the
interest basis from a CNY interest rate into a US$ LIBOR interest
basis. The fair value of the swap at 31 December 2014, included
within payables is $3 million.
At 31 December 2014, $580 million was drawn down under the USD
facility. Arrangement fees with an amortised cost of $10 million,
gross cost before amortisation of $11 million, have been netted off
against these borrowings in accordance with IAS 39.
Undrawn project and general and corporate purpose facilities
$ million 2014 2013
---------------------------------------------------------------------- ---- -----
CDB Aktogay finance facility (within KAZ Minerals Finance) 798 1,443
Revolving credit facilities (within KAZ Minerals Finance) - 100
Letter of credit and bank guarantee facilities (within Kazakhmys LLC) - 82
---------------------------------------------------------------------- ---- -----
798 1,625
---------------------------------------------------------------------- ---- -----
15. Employee benefits
Vostoktsvetmet LLC and Kazakhmys LLC (until its disposal on 31
October 2014) provide post-retirement benefits and other long-term
benefits in Kazakhstan which are unfunded. The largest portion of
the employee benefits provision is for other long-term benefits, of
which the most significant is for the long-term disability
allowances. The other benefits provided include one-time retirement
grants, financial aid, dental care, medical benefits, sanatorium
visits, annual financial support to pensioners and funeral aid.
The amounts recognised in the income statements are as
follows:
$ million 2014 2013
---------------------------------------------------------------- ---- ----
Employer's share of current service cost - 1
Employer's share of past service cost (1) 3
Actuarial losses recognised in the period 4 3
Interest cost on benefits obligation 1 1
---------------------------------------------------------------- ---- ----
Income statement charge attributable to continuing operations 4 8
Income statement charge attributable to discontinued operations 64 195
---------------------------------------------------------------- ---- ----
68 203
---------------------------------------------------------------- ---- ----
In accordance with Kazakhstan law, the Group obtained insurance
cover for the disability payments to employees from February 2005.
The disability payments that were covered by insurance contracts
were accounted for under IAS 19 'Employee benefits' as an insured
benefit, with no asset or liability being recognised on the Group's
balance sheet. During 2013, as a result of financial difficulties,
the insurance companies ceased making their obligated payments to
the employees covered by insurance contracts, the Group agreed to
meet these future disability payments. Consequently, at 31 December
2013 the liability for the future disability benefit payments to
the employees previously covered by the insurance contracts was
included in the disability benefits obligation. See note 10 for
information on the discontinued operations.
The expense is recognised in the following line items of the
income statements:
$ million 2014 2013
---------------------------------------------------------------- ---- ----
Administrative expenses 3 7
Finance costs 1 1
---------------------------------------------------------------- ---- ----
Income statement charge attributable to continuing operations 4 8
Income statement charge attributable to discontinued operations 64 195
---------------------------------------------------------------- ---- ----
68 203
---------------------------------------------------------------- ---- ----
The movement in the defined employee benefits obligation is as
follows:
$ million 2014 2013
---------------------------------------------------------------- ------ -----
At 1 January 543 373
Employer's share of current service cost - 1
Employer's share of past service cost (1) 3
Net actuarial losses arising in the income statement 4 3
Income statement charge attributable to discontinued operations 64 195
Net actuarial losses recognised in other comprehensive income 1 27
Interest cost on benefit obligation 1 1
Benefits paid (27) (52)
Disposal of subsidiaries (474) -
Net exchange adjustment (87) (8)
---------------------------------------------------------------- ------ -----
Defined benefit obligation at 31 December 24 543
---------------------------------------------------------------- ------ -----
The movement in the plan asset is as follows:
$ million 2014 2013
----------------------------------------- ----- -----
At 1 January 13 -
Interest income - 1
Contributions by employer 27 64
Benefits paid (27) (52)
Disposal of subsidiaries (13) -
----------------------------------------- ----- -----
Fair value of plan assets at 31 December - 13
----------------------------------------- ----- -----
The employee benefits obligation of $24 million (2013: $530
million), consists of $8 million (2013: $60 million) related to
post-employment benefits and $16 million (2013: $470 million)
related to other long-term benefits.
The net liability and expected settlement of the defined benefit
obligation is as follows:
$ million 2014 2013
---------------------------------------- ---- ----
Defined benefit obligation 24 543
Less fair value of plan assets - 13
---------------------------------------- ---- ----
Net liability recognised at 31 December 24 530
Current 2 53
Non-current 22 477
---------------------------------------- ---- ----
24 530
---------------------------------------- ---- ----
The principal actuarial assumptions used in determining the
employee benefit obligation are as follows:
2014 2013
----------------------------------------- ---- ----
Discount rate at 31 December 8.0% 8.2%
Future salary increases 3.6% 3.4%
Medical and other related cost increases 5.0% 5.0%
----------------------------------------- ---- ----
In addition, mortality rates were determined with reference to
the 2011 mortality table of Kazakhstan as published by the
Government.
16. Movement in net debt
At Attributable At
1 January to discontinued Other 31 December
$ million 2014 Cash flow operations(1) movements(2) 2014
-------------------------- ---------- --------- ---------------- ------------- ------------
Cash and cash equivalents 1,715 41 - (26) 1,730
Current investments 625 (195) (30) - 400
Borrowings (3,111) 26 - (7) (3,092)
-------------------------- ---------- --------- ---------------- ------------- ------------
Net debt (771) (128) (30) (33) (962)
-------------------------- ---------- --------- ---------------- ------------- ------------
At Attributable At
1 January to discontinued Other 31 December
$ million 2013 Cash flow operations movements(2) 2013
-------------------------- ---------- --------- ---------------- ------------- ------------
Cash and cash equivalents 1,246 470 4 (5) 1,715
Current investments 515 110 - - 625
Borrowings (2,468) (683) 56 (16) (3,111)
-------------------------- ---------- --------- ---------------- ------------- ------------
Net liquid funds/(debt) (707) (103) 60 (21) (771)
-------------------------- ---------- --------- ---------------- ------------- ------------
(1) The $30 million movement in current investments relates to
the investments disposed with the Disposal Assets on completion of
the Restructuring.
(2) Other movements comprise net foreign exchange movements,
non-cash amortisation of fees on borrowings and other non-cash
reconciling items. For the year ended 31 December 2014, the $7
million other movement on borrowings consists of $20 million of
amortisation of fees on the Group's financing facilities less $11
million of accrued fees, and $2 million of foreign exchange
differences on the CDB Aktogay RMB facility. For the year ended 31
December 2013, the $16 million other movement on borrowings
consists of $14 million of amortisation of fees on the Group's
financing facilities and $2 million of foreign exchange differences
on the CDB Aktogay RMB facility.
17. 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 period:
Sales Purchases Amounts Amounts
to from owed owed
related related by related to related
$ million parties parties parties(1) parties
--------------------------------------- -------- --------- ----------- -----------
Cuprum Holding and the Disposal Assets
2014 6 97 23 57
2013 - - - -
--------------------------------------- -------- --------- ----------- -----------
Companies under trust management
2014 10 13 - -
2013 12 6 43 6
--------------------------------------- -------- --------- ----------- -----------
Other
2014 4 11 2 6
2013 2 20 11 -
--------------------------------------- -------- --------- ----------- -----------
(1) A provision of $nil (2013: $46 million) is held set against
the amounts owed by related parties. The bad debt expense in
relation to related parties was $nil for the year (2013: $10
million).
(i) Government
Share ownership in the Company
On 24 July 2008, the Company issued 80,286,050 ordinary shares
to the State Property and Privatisation Committee of the
Government, thereby making the Government a 15% shareholder of the
Company and a related party with effect from this date.
On 4 October 2010, the Chairman at that time, Vladimir Kim, sold
58,876,793 ordinary shares, approximately 11% of KAZ Minerals'
shares in issue, to Samruk-Kazyna. As a result of the transaction,
the Government's interest in the Group increased to 139,162,843
ordinary shares, representing approximately 26% of the shares in
issue. The Government's interest was held via the State Property
and Privatisation Committee's existing 15% holding and the 11%
shareholding of Samruk-Kazyna.
Following the purchase of 11,701,830 of the Company's shares
under the share buy-back programme which completed in May 2012, the
Government's percentage of the total voting rights held increased
to 26.57% as at 31 December 2013.
On 19 June 2013, the Government transferred its entire
shareholding of 26.57% to Eurasian Resources, and was considered a
related party up until that date.
Eurasian Resources held 139,162,843 ordinary shares in KAZ
Minerals PLC following a transfer from the Government of Kazakhstan
on 19 June 2013. As part of the settlement of the consideration
under the ENRC Takeover Offer on 8 November 2013, KAZ Minerals PLC
received 77,041,147 of its ordinary shares from Eurasian Resources,
which were subsequently cancelled.
Following the ENRC Takeover, Eurasian Resources transferred KAZ
Minerals PLC shares to the shareholders of ENRC, such that Eurasian
Resources' holding in KAZ Minerals PLC at 31 December 2014 is
minimal (less than 1%).
China Development Bank and Samruk-Kazyna financing line
As explained in note 14, the Group secured a $2.7 billion
financing line with Samruk-Kazyna, a wholly owned subsidiary of the
Government of Kazakhstan, and CDB. The terms and conditions of the
financing line, including a guarantee issued by the Group over the
debt obligations of Samruk-Kazyna to CDB under the financing line,
are considered to be on an arm's length basis.
Up until 19 June 2013 when the Government transferred its
interest in the Group, Samruk-Kazyna was also considered a related
party. Subsequent to that, both the Government and CDB were no
longer considered as related parties. In addition, in December 2014
the loan was amended to a bilateral facility between CDB and KAZ
Minerals PLC.
Other transactions
In the normal course of business, the Group conducts
transactions with entities controlled by the Government. The
principal activities relate to the payment of electricity
transmission fees, use of railway infrastructure and payments to
tax authorities. In addition, the Group also constructs or pays for
the construction of community assets and projects which may be
transferred to the relevant Government department as part of the
Group's social programme in Kazakhstan. Transactions between the
Group and Government departments and agencies are considered to be
related party transactions. Disclosure of these routine
transactions is not made where all of the following criteria are
met:
-- they were done in the ordinary course of business of the
Government department and/or company;
-- there is no choice of suppliers; and
-- they have terms and conditions (including prices, privileges,
credit terms, regulations, etc.) that are consistently applied to
all entities, public or private.
The Group did not have any material or significant non-arm's
length or privileged transactions with entities controlled by the
Government (2013: $nil).
Dividend payment
No dividends were paid in 2014, the Government's share of the
final 2012 dividend paid by the Company on 21 May 2013 was $11
million.
(ii) Cuprum Holding and the Disposal Assets
Following the completion of the sale of the Disposal Assets to
Cuprum Holding (a company owned by Vladimir Kim, a Director of the
Company, and Eduard Ogay, a former Director of the Company) on 31
October 2014, Cuprum Holding and its subsidiaries are considered
related parties of the Group. The transactions mainly consist of
transitional and longer-term services provided under two Framework
Service Agreements between KAZ Minerals and Cuprum Holding. The
Framework Service Agreements cover certain functions such as
smelting and refining.
For the 10 months up to 31 October 2014, the date the Disposal
Assets were sold, the Group paid $2.4 million in remuneration to
key management personnel of the Disposal Assets. These individuals
were previously considered to be key management personnel of the
Group prior to the completion of the Restructuring.
(iii) Companies under trust management agreements
The Group operates a number of companies under trust management
agreements with local and state authorities. The activities include
heating distribution systems and road maintenance. The purpose of
these agreements is to provide public and social services without
any material financial benefit for the Group.
(iv) Other
Transactions with other companies primarily relate to the
provision of goods and services, on an arm's length basis, with
companies whose boards or shareholders include members of senior
management from the Group's subsidiaries.
(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
bcm:t
bank cubic metres excavated to recover one metric tonne of
coal
Board or Board of Directors
the Board of Directors of the Company
CAGR
compound annual growth rate
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, depreciation, depletion, amortisation, the non-cash
component of the disability benefits obligation and special
items
CDB or China Development Bank
the China Development Bank Corporation
CIS
The Commonwealth of Independent States
CIT
corporate income tax
CNY
Chinese yuan, basic unit of the renminbi
CO(2)
carbon dioxide
CO(2) e
carbon dioxide equivalent
Company or KAZ Minerals
KAZ Minerals PLC
continuing operations
the Group following completion of the Restructuring
Concert Party
the Relevant Shareholders (and their respective concert
parties)
Cuprum Holding
Cuprum Netherlands Holding B.V., a company incorporated in the
Netherlands, whose registered office is at Strawinskylann 1151,
World Trade Center, Toren C, Level 11, 1077XX, Amsterdam, the
Netherlands
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 Zhezkazgan
and Central Regions. The Disposal Assets include 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 USD
United States dollars, the currency of the United States of
America
EBITDA
earnings before interest, taxation, the non-cash component of
the disability benefits obligation, depreciation, depletion,
amortisation and mineral extraction tax
Ekibastuz GRES-1 or joint venture
Ekibastuz GRES-1 LLP
ENRC or ENRC PLC
Eurasian Natural Resources Corporation PLC
EPS
earnings per share
EPS based on Underlying Profit
profit 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
ESG
Environmental Social and Corporate Governance
Eurasian Resources
Eurasian Resources Group B.V.
EU
European Union
Euro or EUR
Euro, the currency of certain member states of the European
Union
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
GHG
greenhouse gas
g/t
grammes per metric tonne
Government or State
the Government of the Republic of Kazakhstan
the Group
KAZ Minerals PLC and its subsidiary companies
gross cash cost
mining cash operating costs divided by the volume of copper
cathode equivalent sales
Group EBITDA
earnings before interest, taxation, the non-cash component of
the disability benefits obligation, depreciation, depletion,
amortisation and mineral extraction tax adjusted for special items
and including the share of EBITDA of the joint venture and
associate
GWh
gigawatt-hour, one gigawatt-hour represents one hour of
electricity consumed at a constant rate of one gigawatt
HSE
health, safety and environment
IAS
International Accounting Standards
IASB
International Accounting Standards Board
ICMM
International Council on Mining and Metals
IFRS or IFRSs
International Financial Reporting Standard
JORC
Joint Ore Reserves Committee
KAZ Minerals
KAZ Minerals PLC
Kazakhmys Corporation LLC or Kazakhmys LLC
Kazakhmys Corporation LLC, the Group's principal operating
subsidiary in Kazakhstan prior to the Restructuring
Kazakhmys Mining
a former operating segment of the Group which comprised all
entities and functions within the Group responsible for the
exploration, evaluation, development, mining and processing of the
Group's mineral resources and sale of the Group's metal products
until completion of the Restructuring. The operating segment
excludes the Group's captive power stations, which were included
within the Kazakhmys Power operating segment
Kazakhmys Power
a former operating segment of the Group, until completion of the
Restructuring which included the Group's captive power stations and
the Ekibastuz GRES-1 coal-fired power plant joint venture, whose
principal activity was the sale of electricity to external
customers and internally to Kazakhmys Mining
Kazakhstan
the Republic of Kazakhstan
kbcm
thousand bank cubic metres
KGcal
thousand gigacalories, units of heat energy
km
kilometre
koz
thousand ounces
KPI
key performance indicator
kt
thousand metric tonnes
kWh
kilowatt hour, one kilowatt hour represents one hour of
electricity consumed at a constant rate of one kilowatt
LBMA
London Bullion Market Association
LIBOR
London Inter Bank Offer Rate
Listing
the listing of the Company's ordinary shares on the London Stock
Exchange on 12 October 2005
LME
London Metal Exchange
LTIFR
lost time injury frequency rate
major growth projects
Bozshakol, Aktogay and Koksay
megalitre
thousand cubic metres
MET
mineral extraction tax
MKM
MKM Mansfelder Kupfer und Messing GmbH, the Group's operating
subsidiary in the Federal Republic of Germany and an operating
segment of the Group (until its disposal on 28 May 2013), which
manufactures copper and copper alloy semi-finished products
MT
million metric tonnes
MW
megawatt, a unit of power equivalent to one million watts
net cash cost of copper
mining cash operating costs less by-product revenues, divided by
the volume of copper cathode equivalent sales
net dependable capacity
maximum capacity sustained by a unit in a specified period
modified for seasonal limitations and reduced by the capacity
required for the plan
Non Ferrous China or 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
Relevant Shareholders
each of Vladimir Kim, Oleg Novachuk and Eduard Ogay
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 on 15 August 2014
and completed on 31 October 2014
RMB
renminbi, the official currency of the People's Republic of
China
$/t or $/tonne
US dollars per metric tonne
Samruk-Energo
Joint Stock Company "Samruk-Energo", an entity owned and
controlled by Samruk-Kazyna and therefore the Government
Samruk-Kazyna
Joint Stock Company "National Welfare Fund "Samruk-Kazyna", an
entity owned and controlled by the Government of Kazakhstan
silver in copper concentrate sold
the silver granule equivalent of silver in copper concentrate
sold
SO(2)
sulphur dioxide
som or KGS
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.
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 paid for smelting and
refining services
tenge or KZT
the official currency of the Republic of Kazakhstan
UK
United Kingdom of Great Britain and Northern Ireland
Underlying Loss/Profit
loss/profit 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
United States/US
United States of America
USc/lb
US cents per pound
VAT
Value added tax
This information is provided by RNS
The company news service from the London Stock Exchange
END
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