TIDMKAZ
RNS Number : 5854F
KAZ Minerals PLC
22 February 2018
KAZ MINERALS PLC
6(TH) FLOOR
CARDINAL PLACE
100 VICTORIA STREET
LONDON SW1E 5JL
Tel: +44 (0) 20
7901 7800
======================
22 February 2018
KAZ MINERALS PLC AUDITED RESULTS
FOR THE YEARED 31 DECEMBER 2017
FINANCIAL HIGHLIGHTS
-- Gross Revenues double to $1,938 million (2016: $969 million)
as the Group delivers production growth into stronger commodity
markets
- 2017 full year copper sales volumes of 256 kt (2016: 141 kt)
- Revenues in income statement of $1,663 million (2016: $766
million), excluding $275 million of pre-commercial revenues
-- Gross EBITDA of $1,235 million (2016: $492 million) driven by low cost volume growth
- Gross EBITDA margin of 64% (2016: 51%)
- EBITDA of $1,038 million (2016: $351 million), excludes $197
million of pre-commercial earnings
- Operating profit increased by over three times to $715 million (2016: $218 million)
-- Highly competitive net cash cost of 66 USc/lb (2016: 59
USc/lb), all operations in the first quartile of the cost curve in
FY 2017
- Bozshakol gross cash cost of 121 USc/lb (2016: 106 USc/lb) at
lower end of guidance range of 115-135 USc/lb and competitive net
cash cost of 54 USc/lb (2016: 27 USc/lb), supported by strong gold
production(3)
- Aktogay net cash cost of 98 USc/lb (2016: 114 USc/lb). Gross
cash cost of 100 USc/lb (2016: 114 USc/lb) was below guidance of
110-130 USc/lb due to higher average copper grade, lower
maintenance expenditure and muted inflationary pressure
- East Region and Bozymchak net cash cost of 42 USc/lb (2016: 68
USc/lb), due to gross cash costs of 208 USc/lb (2016: 191 USc/lb)
at bottom of guidance range (205-225 USc/lb) and higher by-product
credits
-- Free Cash Flow of $452 million (2016: $(60) million)
- Driven by growth in operating cash flows and low sustaining
capital expenditure requirements
- Cash flow from operations of $752 million (2016: $(98) million)
OPERATIONAL HIGHLIGHTS
-- Copper production(2) increased by 80% and gold production(3)
40% higher compared to prior year
- Bozshakol and Aktogay contribute 192 kt of the Group's copper
production(2) of 259 kt in 2017 as sulphide concentrators ramp
up
- 179 koz of gold production(3) was at upper end of the Group's
increased guidance range of 160-180 koz
2018 GROWTH OUTLOOK
-- Group copper production(2) guidance set at 270-300 kt, as
higher throughput is expected to be offset by slightly lower
average copper grades in FY 2018
- Bozshakol expected to produce 95-105 kt with an average
sulphide ore processed grade of 0.44%
- Aktogay sulphide to ramp up to 90-105 kt and oxide 20-25 kt
- East Region and Bozymchak copper production(2) expected to
remain stable in 2018 at around 65 kt
- Gross cash cost guidance of 130-150 USc/lb at Bozshakol and
110-130 USc/lb at Aktogay, due to expected reduction in grades and
as normal maintenance schedules are established
- East Region and Bozymchak gross cash cost guidance of 230-250
USc/lb, reflecting lower sales volumes and local inflation, with
by-product credits expected to deliver a first quartile net cash
cost.
$ million (unless otherwise stated) 2017 2016
------------------------------------------ ------ ------
Gross Revenues(1,4) 1,938 969
Gross EBITDA(1,5,8) 1,235 492
Revenues 1,663 766
EBITDA (excluding special items)(1,8) 1,038 351
Operating profit 715 218
Profit before taxation 580 220
Underlying Profit(1) 476 180
EPS - basic and diluted ($) 1.00 0.40
EPS - based on Underlying Profit ($)(1,6) 1.07 0.40
Cash flow from operations 752 (98)
Free Cash Flow(1,7) 452 (60)
Gross cash cost (USc/lb)(1) 138 156
Net cash cost (USc/lb)(1) 66 59
Net debt(1) 2,056 2,669
------------------------------------------ ------ ------
1 Definitions of non-IFRS financial metrics used throughout the
press release are included in the Glossary.
2 Payable metal in concentrate and copper cathode from Aktogay
oxide ore.
3 Payable metal in concentrate.
4 Includes revenues from pre-commercial operations.
5 Includes EBITDA from pre-commercial operations.
6 Reconciliation of EPS based on Underlying Profit is found in
note 9 in the financial information.
7 Net cash flow from operating activities before capital
expenditure and non-current VAT associated with expansionary and
new projects, less sustaining capital expenditure.
8 Reconciliation to operating profit provided in note 4(a)(i) in
the financial information.
Andrew Southam, Chief Executive Officer, said: "The Group has
delivered high production growth and low operating costs in 2017.
Following the successful ramp up to date of Bozshakol and Aktogay
our asset base is now dominated by large scale, low cost, modern
copper mines which are set to generate significant cash flows in
the future. We have established a strong platform to deliver
further growth in 2018 and from the expansion of Aktogay, which
leaves us well positioned to benefit from the expected tightness in
the copper market, as declining global supply coincides with
continued growth in demand."
For further information please contact:
KAZ Minerals
PLC
==================== =========================== =================
Chris Bucknall Investor Relations, London Tel: +44 20 7901
7882
Tel: +44 20 7901
Anna Mallere Investor Relations, London 7814
Maksut Zhapabayev Corporate Communications, Tel: +7 727 244
Almaty 03 53
==================== =========================== =================
Instinctif Partners
==================== =========================== =================
Tel: +44 20 7457
David Simonson 2020
==================== =========================== =================
REGISTERED OFFICE
6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL,
United Kingdom.
NOTES TO EDITORS
KAZ Minerals PLC ("KAZ Minerals" or "the Group") is a high
growth copper company focused on large scale, low cost, open pit
mining in Kazakhstan. It operates the Bozshakol and Aktogay open
pit copper mines in the Pavlodar and East Region of Kazakhstan,
three underground mines and associated concentrators in the East
Region of Kazakhstan and the Bozymchak copper-gold mine in
Kyrgyzstan. In 2017, total copper production was 259 kt with
by-products of 58 kt of zinc in concentrate, 179 koz of gold and
3,506 koz of silver.
The Group's new operations at Bozshakol and Aktogay have
delivered one of the highest growth rates in the industry and
transformed KAZ Minerals into a company dominated by world class,
open pit copper mines.
Bozshakol is a first quartile asset on the global cost curve
with an annual ore processing capacity of 30 million tonnes and a
remaining mine life of 39 years at an average copper grade of
0.35%. The mine and processing facilities will produce an average
of 100 kt of copper cathode equivalent and 120 koz of gold in
concentrate per year over the first 10 years of operations.
Aktogay is a large scale, open pit mine similar to Bozshakol,
with a remaining mine life of 28 years at an average copper grade
of 0.36% (oxide) and 0.33% (sulphide). Aktogay commenced production
of copper cathode from oxide ore in December 2015 and copper in
concentrate from sulphide ore in February 2017. The operating
sulphide concentrator has an annual ore processing capacity of 25
million tonnes and the sulphide processing capacity will be doubled
to 50 million tonnes with the addition of a second concentrator by
the end of 2021. Aktogay is competitively positioned on the global
cost curve and will produce an average of 90 kt of copper per year
from sulphide ore until 2021, increasing to 170 kt per year from
2022 to 2027, after the second concentrator commences operations.
Copper production from oxide ore will be in the region of 20 kt per
annum until 2025.
KAZ Minerals is listed on the London Stock Exchange, the
Kazakhstan Stock Exchange and the Hong Kong Stock Exchange and
employs around 13,000 people, principally in Kazakhstan.
FORWARD-LOOKING STATEMENTs
These results include forward-looking statements with respect to
the business, strategy and plans of KAZ Minerals and its current
goals, assumptions and expectations relating to its future
financial condition, performance and results. Although KAZ Minerals
believes that the expectations reflected in such forward-looking
statements are reasonable and are made by the Directors in good
faith, based on current plans, estimates and projections no
assurance can be given that such expectations will prove to be
correct. By their nature, forward-looking statements involve known
and unknown risks, assumptions and uncertainties and other factors
which are unpredictable as they relate to events and depend on
circumstances that will occur in the future which may cause actual
results, performance or achievements of KAZ Minerals to be
materially different from those expressed or implied in these
forward-looking statements. Principal risk factors that could cause
KAZ Minerals' actual results, performance or achievements to differ
materially from those in the forward-looking statements include
(without limitation) health and safety, community and labour
relations, employees, environmental
compliance, business interruption, new projects and
commissioning, reserves and resources, political risk, legal and
regulatory compliance, commodity prices, foreign exchange and
inflation, exposure to China, acquisitions and divestment,
liquidity and such other risk factors disclosed in KAZ Minerals'
most recent Annual Report and Accounts. Forward-looking statements
should therefore be construed in light of such risk factors. These
forward-looking statements should not be construed as a profit
forecast.
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 Listing Rules and applicable law, KAZ Minerals does
not undertake any obligation to update or change any
forward-looking statements to reflect events occurring after the
date of these results.
ANNUAL GENERAL MEETING
The 2018 Annual General Meeting will be held at 12.15pm on
Thursday 3 May 2018 at Linklaters LLP, One Silk Street, London EC2Y
8HQ, United Kingdom.
The 2017 Annual Report and Accounts and details of the business
to be conducted at the Annual General Meeting will be mailed to
shareholders and posted on the Company's website
(www.kazminerals.com) in late March 2018.
Chair's Statement
In 2017, the Group delivered against the key strategic goals we
set out in 2014, completing our transformation into a pure-play
copper company focused on large scale, low cost open pit mining in
Kazakhstan. Copper production has more than tripled from 85 kt in
2015 to 259 kt in 2017. Our growth was delivered over a period in
which the outlook for copper has improved significantly.
The Group recorded amongst the lowest cash costs of any
pure-play copper miner globally in 2017, at 66 USc/lb. Having
successfully ramped up production at our new operations, Bozshakol
and Aktogay, we have also demonstrated our ability to deliver large
scale capital projects which we will apply in the recently
announced Aktogay expansion.
Health and safety
Improving the Group's health and safety performance remains our
highest priority and I am disappointed to report that four
fatalities occurred during the year. No fatality is acceptable to
us and we continue to work towards our target of zero fatalities.
We are committed to making additional investments, adopting
international best practice and driving cultural change in this
critical area of the business. In 2017, we approved a new three
year strategy for improving our health and safety performance.
Delivering high growth and low costs
Over the past six years the Group has successfully executed the
construction of two major growth projects, Bozshakol and Aktogay
and we enter 2018 with both mines in the final stages of ramping up
production to design capacity. With our project development
capability now proven we are considering investment in further
growth opportunities, although suitable projects are highly sought
after in the current market environment given the positive outlook
for copper. I am therefore pleased to have announced the launch of
the Aktogay expansion in December 2017, a low risk project to
construct a duplicate of the sulphide processing facilities we have
previously commissioned at Bozshakol and Aktogay. The expansion
will deliver meaningful production growth from 2022 and a strong
return on investment.
Our contribution to Kazakhstan
KAZ Minerals is the largest copper producer in Kazakhstan. We
are a major contributor to the national economy, having invested
approximately $4 billion into the Bozshakol and Aktogay projects
since 2011. Both mines are now generating economic growth, export
earnings and tax contributions. The Group made a total tax
contribution of $365 million in Kazakhstan in 2017.
Our investment in Kazakhstan will continue with the $1.2 billion
expansion of the Aktogay project. The impact of the growth projects
in Kazakhstan has been far more than purely financial as we have
created employment opportunities, invested in the training and
development of thousands of local personnel and prioritised the use
of local contractors where possible. We are bringing new skills,
technology and expertise into the country, helping to maximise the
potential of its natural resources.
The Group's largely Kazakhstan based workforce has one of the
highest levels of female representation of any major global mining
company, at 24% of total employees and 23% of senior managers. We
are proud to offer equality of opportunity to all current and
potential future employees, regardless of ethnicity, gender or
background.
Governance changes
Following consultation with its major shareholders, the Group
announced a number of Board and management changes on 27 April 2017
which took effect from the start of 2018. Simon Heale decided to
stand down from the Board having served eleven years as a Director
including the past five as Chair. I would like to thank Simon for
his valuable contribution over a period which included significant
change, including the Restructuring in 2014 and the completion of
our major growth projects. His advice and leadership will be
greatly missed.
The Board considered the most appropriate leadership and
governance structure to meet the challenges of the next stage of
the Group's development. The result of the review conducted by the
Board was that I should take on the role of Chair, including
responsibility for leadership on strategy, government relations and
business development. Andrew Southam has become Chief Executive
Officer and is responsible for the day to day executive management
of the Group. Andrew has a deep understanding of the business, its
culture and stakeholders and was one of the key architects of the
October 2014 Restructuring which created KAZ Minerals.
In the second half of 2017 we appointed a new Chief Financial
Officer designate, John Hadfield, and an additional independent
non-executive Director, Alison Baker. Both John and Alison bring
extensive experience to the Group and will make an important
contribution as we enter the next stage of our development.
In recognition of the need to maintain the Group's existing high
standards of corporate governance the Board appointed Michael
Lynch-Bell, Senior Independent Director, to the additional role of
Deputy Chair. As Deputy Chair, Michael has responsibility for
matters related to Board governance including the annual review of
Board effectiveness, the leadership of the Nomination Committee and
acting as an intermediary between non-executive Directors and the
Chair.
Dividends
The Group's dividend policy, established at the time of Listing,
is for the Board to consider the cash generation and financing
requirements of the business and then to recommend a suitable
dividend. This maintains flexibility which is appropriate given the
underlying cyclicality of a commodity business.
The Group has a strong record of payments to shareholders, with
returns of $2,095 million in ordinary dividends, buy-backs and
special dividends since its Listing in 2005. Dividend payments were
suspended from 2013 during the capital intensive stages of the
development of the Bozshakol and Aktogay projects. This has
supported the pursuit of a counter-cyclical growth strategy through
a period of low commodity prices and helped to deliver value for
shareholders.
Whilst the outlook for the Group's financial position is
positive given the ramp up of Bozshakol and Aktogay and the
improved copper market, the Group has invested heavily in these
projects and it is our near-term priority to continue to reduce our
gearing metrics. Accordingly, the Board does not recommend a
dividend in respect of the 2017 financial year. The Board will
continue to assess the Group's financial position, cash flows and
growth requirements in determining when to resume dividends in the
future.
Outlook
The outlook for the global copper market is improving, as supply
from existing mines continues to decline and additional output from
new projects has been delayed. There is also potential for supply
disruption in the short term which could affect a market that is
tightly balanced. In the medium term, economic growth is expected
to drive demand from traditional sources, combined with the
potential development of new markets for copper such as the
increased adoption of clean energy generation and electric
vehicles.
The cash flow generated by our low cost assets in 2017 has
materially strengthened the Group's financial position and we are
investing in a low risk project to deliver further growth through
the expansion of Aktogay. I am proud to take on the role of Chair
of the Group at this time and I look forward to meeting the
challenges ahead as we continue with the next stage of our
development.
chief executive OFFICER's review
KAZ Minerals has continued the ramp up of production at the new
Bozshakol and Aktogay mines in 2017, resulting in an 80% increase
in copper output and 40% higher gold production. This is the ninth
consecutive year in which the Group has achieved its guided copper
production target and our third year as a first quartile producer
on the global copper cash cost curve, with a net cash cost of 66
USc/lb.
Health and safety
I am disappointed to report that four fatalities occurred during
2017 in the Group's underground mines in the East Region of
Kazakhstan. Two incidents resulted from electrical safety failures,
one from rock fall and one from contact with moving machinery. The
causes of these incidents have already been identified as key
fatality risks and are the subject of ongoing programmes aimed at
improving safety standards in our underground operations. No
fatality is acceptable to us and we continue to work towards our
goal of zero fatalities.
The number and frequency rate of fatalities in 2017 have reduced
compared to the prior year and this is a continuation of a long
term trend of improvement in our overall health and safety
performance. We have operated our open pit facilities at Bozshakol,
Aktogay and Bozymchak without any fatal incidents since each of
these mines commenced production, for a combined total of 25
million man hours.
Looking ahead to 2018, we will be investing in improvements to
our emergency response capabilities and increasing direct
supervision of working practices at mine sites. We will also
continue with a newly established programme of workshops and other
communication initiatives aimed at sharing best practice across the
Group. In the coming year these events will focus on improving
leadership, culture and behaviour and applying lessons learned from
incident investigations and near-misses.
Our people
The Group employs approximately 11,800 staff in Kazakhstan and
1,200 at its Bozymchak operation in Kyrgyzstan. Around 5,000
contractor employees are also active on our sites. We are committed
to ensuring that employees receive fair remuneration, are provided
with a safe working environment and continue their professional
development. The Group takes a long-term view of building
capability amongst its staff, recognising their critical role in
our successes to date and in meeting future challenges. I would
like to thank all my colleagues for their contributions in 2017 and
for their ongoing commitment to our future success.
Review of operations
The ramp up of our new mines proceeded in line with management
expectations in 2017, with the 25 million tonne per annum Bozshakol
sulphide concentrator achieving 100% of design capacity in August.
The smaller 5 million tonne clay processing plant at Bozshakol
ramped up to 82% of capacity in the fourth quarter of 2017, after
commencing production at the end of 2016. Total copper production
at Bozshakol in 2017 was 101 kt, an increase of 111% compared to
2016.
The Aktogay sulphide concentrator started production in February
2017 and ramped up ahead of schedule. Combined sulphide and oxide
copper production was 90 kt against initial guidance of 65-85 kt,
five times higher than the 18 kt produced in 2016 from the oxide
plant. The sulphide concentrator achieved commercial levels of
production at the end of September in line with guidance and
remains on track to achieve 100% of design capacity during
2018.
At the East Region and Bozymchak, copper production of 67 kt
exceeded the target for the year of around 65 kt and gold
production of 59 koz was at the upper end of guidance. Works to
extend the life of the Artemyevsky mine continued according to the
project plan.
The Group produced 259 kt of copper in 2017, at the upper end of
the original guidance range of 225-260 kt given at the start of the
year and in line with the revised guidance range of 250-270 kt set
in the second half, following good progress with the ramp up at
Aktogay. Gold production of 179 koz was at the upper end of
expectations, supported by high gold grades at Bozshakol and strong
output from Bozymchak. Silver production was in line with guidance
at 3,506 koz, with lower silver grades in the East Region in the
fourth quarter offset by the contribution from both Bozshakol and
Aktogay. Zinc in concentrate production of 58 kt was below guidance
of 60-65 kt, as access to high zinc grade areas in the East Region
mines was deferred.
Production outlook
With Bozshakol entering 2018 at close to full capacity and
Aktogay scheduled to ramp up to 100% of mill throughput during the
year, guidance for copper production in 2018 is set at 270-300
kt.
Bozshakol will benefit from a full year of production at or near
design levels in both the main sulphide concentrator and the clay
plant, although this will be offset by a decline in copper grade
from the 0.53% processed in 2017. Copper production at Bozshakol is
guided at 95-105 kt for 2018. At Aktogay, copper guidance is set at
110-130 kt, consisting of 20-25 kt of copper cathode from oxide ore
and 90-105 kt from sulphide ore. Copper production in the East
Region and Bozymchak is expected to remain stable at around 65
kt.
Zinc in concentrate production is guided to be in the region of
60 kt in 2018. Gold production in 2018 is expected to be slightly
lower at 160-175 koz, as gold grades at Bozshakol and Bozymchak
reduce from the elevated levels processed in 2017. Silver output is
anticipated to be approximately 3,000 koz.
Financial performance
The Group generated $1,663 million of revenues in 2017,
excluding pre-commercial sales from the Aktogay sulphide
concentrator and the Bozshakol clay plant. Gross Revenues,
including $275 million of pre-commercial sales, were $1,938
million. 75% of the increase in Gross Revenues was a result of
higher production volumes compared to the prior year as Bozshakol
and Aktogay ramped up and the remaining 25% of the increase
resulted from stronger commodity prices. The average LME copper
price in 2017 of $6,163/t was 27% above the 2016 average of
$4,860/t, reaching a four year high of approximately $7,250/t in
the fourth quarter.
All of the Group's assets recorded net cash costs in the first
quartile of the global cash cost curve and the consolidated Group
net cash costs were an industry leading 66 USc/lb. Our competitive
unit costs are based on low strip ratios, low energy, water and
transport costs, high levels of automation, strong by-product
credits and access to markets for the Group's products. Many of
these factors are structural features of our asset portfolio.
At Bozshakol, gross cash costs of 121 USc/lb were in line with
guidance of 115-135 USc/lb. Gold production for the year of 119 koz
was at the upper end of guidance, delivering a highly competitive
net cash cost of 54 USc/lb.
Aktogay's ramp up in 2017 delivered production volumes ahead of
expectations at the beginning of the year, reducing unit costs and
resulting in a combined gross cash cost from oxide and sulphide
operations of 100 USc/lb, slightly below the lower end of the
guidance range of 110-130 USc/lb. Small quantities of payable
silver delivered a net cash cost of 98 USc/lb, placing Aktogay in
the first quartile of the cost curve in its first year of
operations at the main sulphide plant.
Gross cash costs in the East Region and Bozymchak increased by
9% from 191 USc/lb in 2016 to 208 USc/lb, against 2017 guidance of
205-225 USc/lb. Strong by-product output resulted in net cash costs
of 42 USc/lb (2016: 68 USc/lb).
The Group recorded EBITDA of $1,038 million, representing an
EBITDA margin of 62%. Gross EBITDA, which includes pre-commercial
earnings of $197 million from Aktogay sulphide and the Bozshakol
clay plant, was $1,235 million. Operating profit increased by 228%
compared to the prior year, to $715 million. Underlying Profit was
$476 million and earnings per share based on Underlying Profit
increased by 168% to $1.07, from $0.40 in 2016. Free Cash Flow
increased to $452 million due to the ramp up of the new mines,
which delivered $512 million higher operating cash flows. The Group
also received $243 million of VAT refunds relating to the
construction of the major growth projects.
Net debt reduced from $2,669 million at the 2016 year end to
$2,056 million at the end of 2017, supported by strong operating
cash flow and lower than expected project-funded expansionary
capital expenditure of $196 million against guidance of $300
million. Around half of the unspent capital expenditure will be
carried over into 2018. Gross borrowings were $3,877 million at the
year end and cash and cash equivalents were $1,821 million, as the
extended $600 million PXF facility signed in June was fully drawn
down in December. The Group's gearing metrics strengthened
significantly in 2017 with the ratio of net debt to Gross EBITDA
falling to 1.7x, from 5.4x in 2016.
Financial guidance
Following two full years of operations at Bozshakol, normal
maintenance cycles are being established and a slightly lower
average copper grade is expected in the 2018 mine plan. Gross cash
costs are therefore expected to increase to 130-150 USc/lb. At
Aktogay, there will be downward pressure on unit costs as
processing volumes continue to ramp up, offset by lower grades and
higher maintenance expenses after the initial ramp up period,
resulting in gross cash cost guidance of 110-130 USc/lb for 2018.
Gross cash costs in the East Region and Bozymchak are expected to
rise in line with local inflation and reduced sales volumes, to
230-250 USc/lb.
Expansionary capital expenditures of up to $350 million will be
incurred at Aktogay in 2018 in respect of the original project, to
settle $300 million of deferred invoices outstanding with the main
construction contractor and on construction of the final stage of
heap leach cells for the oxide operation. Expenditure on the
Aktogay expansion project will commence in 2018, with $200 million
expected to be spent on purchasing long lead items and other early
project costs. At Bozshakol project capital expenditure of around
$40 million will be incurred in 2018 for final contractor retention
payments. $40 million will be invested in the East Region and
Bozymchak, mainly for the expansion of the Artemyevsky mine,
resulting in total expansionary capital expenditure guidance of
$630 million for 2018.
Sustaining capital expenditure in 2018 is expected to be in the
region of $35 million at Bozshakol, approximately $30 million at
Aktogay and around $50 million in the East Region and
Bozymchak.
Investing in growth
The growth phase associated with the delivery of Bozshakol and
the first stage of the Aktogay project is now largely complete and
the Group is preparing to embark on the next phase of its
development.
In December 2017, we announced the Board's approval of a $1.2
billion project to double sulphide ore processing capacity at
Aktogay through the construction of an additional concentrator,
identical to the facilities already successfully installed at both
Bozshakol and Aktogay. This project represents a low risk
brownfield expansion which will enable us to add approximately 80
kt to the Group's annual copper output in the period 2022-2027 and
60 kt thereafter. The mine life of Aktogay will reduce from over 50
years to 28 years as processing volumes are brought forward.
The Koksay copper deposit, situated close to Almaty in the south
east of Kazakhstan, represents a future growth option, although the
Aktogay expansion project is the immediate priority.
Outlook
The Group has delivered another year of high production growth
in 2017 as Bozshakol and Aktogay have continued to ramp up. Our
asset base now mainly consists of large scale, low cost copper
mines which are set to generate significant cash flows in the
future. We have established a strong platform and we are well
positioned to benefit from the expected tightness in the copper
market, as declining global supply coincides with continued growth
in demand.
operating review
The Group's operations in 2017 comprised the Bozshakol and
Aktogay open pit copper mines in the Pavlodar and East regions of
Kazakhstan, three underground mines in the East Region of
Kazakhstan, the Bozymchak copper-gold mine in Kyrgyzstan and their
associated concentrators.
Group production summary
kt (unless otherwise stated) 2017 2016
----------------------------- ------ ------
Copper production 258.5 143.5
Bozshakol 101.3 48.0
Aktogay 90.2 18.1
East Region and Bozymchak 67.0 77.4
Zinc in concentrate 57.6 75.4
Gold production (koz) 178.7 127.7
Silver production (koz) 3,506 3,284
----------------------------- ------ ------
Group copper production of 258.5 kt was an 80% increase from the
prior year and in line with market guidance as Bozshakol and
Aktogay ramped up. Bozshakol production more than doubled as
throughput at the primary concentrator increased and the clay plant
achieved commercial production in July 2017. At Aktogay, output
increased from 18.1 kt to 90.2 kt, driven by the commissioning of
the sulphide plant in February 2017, which recorded copper
production of 65.1 kt in its first year of operations and benefited
from elevated grades. As expected, production from East Region and
Bozymchak reduced following the closure of the
Yubileyno-Snegirikhinsky mine at the end of 2016.
Gold production of 178.7 koz was 40% above the prior year and at
the upper end of market guidance. Silver production of 3,506 koz
was in line with forecast. Zinc in concentrate output of 57.6 kt
was below the prior year and guidance due to delayed access to
higher grade zones in the East Region.
Group financial summary
$ million (unless otherwise stated) 2017 2016
----------------------------------------------- ------ ------
Sales volumes(1)
Copper sales (kt) 256 141
Gold sales (koz) 169 120
Silver sales (koz) 3,759 3,026
Zinc in concentrate (kt) 57 75
Gross Revenues(1) 1,938 969
Realised price: copper in concentrate ($/t)(1) 5,804 4,483
Realised price: copper cathode ($/t)(1) 6,233 4,898
Gross EBITDA (excluding special items)(1) 1,235 492
EBITDA (excluding special items) 1,038 351
Gross cash costs (USc/lb)(1) 138 156
Net cash costs (USc/lb)(1) 66 59
----------------------------------------------- ------ ------
1 Includes the results of operations throughout the year,
including pre-commercial production.
Gross Revenues doubled from the prior year to $1,938 million,
driven by the volume growth at Bozshakol and Aktogay and a higher
copper price. The average LME copper price increased by 27%, from
$4,860/t in the prior year to $6,163/t. With copper representing
almost 80% of Gross Revenues, this price movement had a favourable
impact of $183 million. Over half of the Group's gross copper
revenues are now derived from the sale of copper in concentrate,
whereas in the prior year the majority were derived from the sale
of cathode. Copper in concentrate is sold by reference to the LME
price minus a deduction for TC/RCs.
Gross EBITDA increased by over 150% benefiting from higher Gross
Revenues and a greater proportion of output from the lower cost
operations of Bozshakol and Aktogay. EBITDA, which excludes the
results from operations during pre-commercial production, was
$1,038 million. This is significantly higher than the prior year
with 2017 benefiting from a full year of operations from Bozshakol
sulphide and Aktogay oxide, which were declared commercial in the
second half of 2016. A significant portion of the Group's costs are
based in tenge, which strengthened slightly, trading at an average
of 326 KZT/$ versus 342 KZT/$ in the prior year. Whilst this was an
upward pressure on operating costs, actions taken by management
combined with muted inflationary pressures ensured that costs were
controlled.
The Group recorded a net cash cost of 66 USc/lb which continues
to place the Group's operations competitively on the global cost
curve and amongst the lowest of pure-play copper producers. The
increase in net cash cost versus the prior year is due to a higher
proportion of Aktogay volumes which reduce the gross cash cost, but
increase the net cash cost as Aktogay has lower by-product
credits.
BOZSHAKOL
The Bozshakol mine and on-site processing facilities are located
in the north of Kazakhstan and have an annual ore processing
capacity of 30 million tonnes and a mine life of 39 years at a
copper grade of 0.35%. The main sulphide concentrator commenced
production in the first quarter of 2016 and was declared commercial
on 27 October 2016. The separate clay plant, which has a processing
capacity of 5 million tonnes, began commissioning in the fourth
quarter of 2016 with the first shipment of saleable material during
the first quarter of 2017 and commercial production was achieved on
1 July 2017.
Production summary
kt (unless otherwise stated) 2017 2016
----------------------------------- ------- -------
Ore extraction 34,612 28,272
Ore processed 24,558 11,068
Average copper grade processed (%) 0.53 0.56
Copper recovery rate (%) 81 80
Copper in concentrate 106.0 50.3
Copper production 101.3 48.0
Average gold grade processed (g/t) 0.28 0.33
Gold recovery rate (%) 58 58
Gold in concentrate (koz) 127.2 68.0
Gold production (koz) 119.0 64.2
Silver production (koz) 687 304
----------------------------------- ------- -------
Ore processed volumes more than doubled to 24.6 million tonnes
versus the prior year following the ramp up of the new processing
plants. The main sulphide concentrator saw an increase in ore
throughput from 10.9 million to 21.2 million tonnes in the year.
The plant achieved 100% of design capacity during August and 93%
for the third quarter. Throughput reduced in the fourth quarter to
80% following a 13-day shutdown for scheduled maintenance and other
repairs in November. The concentrator returned to 91% throughput in
December. Following the commissioning of the clay plant at the end
of 2016, ramp up has progressed well, with ore throughput achieving
82% of design capacity during the fourth quarter. Ore processing at
both concentrators is forecast to be close to design capacity
during 2018.
Ore extraction increased by 22% versus the prior year, to 34.6
million tonnes, to support the higher processing volumes. Of the
34.6 million tonnes extracted in the year, 19.5 million related to
sulphide ore and 15.1 million to clay material as there was a
continued build-up of stockpiled clay material to enable access to
sulphide ores. At 31 December 2017 there are approximately 33
million tonnes of stockpiled material available for processing at
the clay plant.
Copper production of 101.3 kt was 111% above the prior year and
in line with market guidance of 100-110 kt. The higher output
reflected the increase in processing volumes, partially offset by
an anticipated reduction in grades. The overall recovery rate
increased from 80% to 81% in 2017, as an improvement in recovery at
the sulphide plant was partially offset by lower recovery from the
newly commissioned clay plant. Gold production of 119.0 koz was at
the high end of market guidance of 110-120 koz and significantly
above the prior year. Silver production of 687 koz was above market
guidance of around 650 koz.
The majority of copper in concentrate production was dispatched
to customers in China, with 11.3 kt of material sent for toll
processing at the Balkhash smelter in Kazakhstan, where additional
capacity on attractive terms was available.
Copper production in 2018 is forecast to be between 95-105 kt as
the sulphide plant benefits from a full year of production close to
100% of design capacity. This will be offset by a reduction in the
expected copper grade to around 0.44%. By-products from gold and
silver of between 115-125 koz and around 500 koz respectively are
expected in 2018. Testing of the molybdenum circuit started at the
end of 2017 and production in 2018 will be dependent on successful
commissioning and market conditions.
Financial summary
$ million (unless otherwise stated) 2017 2016
------------------------------------------ ----- ------
Gross Revenues(1) 719 280
Copper 572 202
Gold 137 73
Silver 10 5
Revenues 698 93
Sales volumes(1)
Copper sales (kt) 99 45
Gold sales (koz) 107 60
Silver sales (koz) 617 286
Gross EBITDA (excluding special items)(1) 515 204
Capitalised EBITDA (12) (137)
EBITDA (excluding special items) 503 67
Gross cash costs (USc/lb)(1) 121 106
Net cash costs (USc/lb)(1) 54 27
Capital expenditure 74 104
Sustaining 10 -
Expansionary (direct project) 57 168
Expansionary (pre-commercial) 7 (64)
------------------------------------------ ----- ------
1 Includes sulphide and clay operations during the periods prior
to commercial production.
Gross Revenues
Prior to the achievement of commercial production, revenues and
operating costs were capitalised and not recognised in the income
statement. Sulphide operations achieved commercial levels of
production on 27 October 2016 and clay operations on 1 July 2017.
The income statement for 2017 therefore excludes revenues and costs
from clay operations during the first half of the year and the
income statement for 2016 represents only sulphide operations from
27 October. Gross Revenues and Gross EBITDA include all revenues
and operating costs, including periods prior to commercial
production.
Gross Revenues increased by over 150%, driven by volume growth
which contributed additional sales of $378 million. Favourable
commodity prices contributed a further $61 million, mainly relating
to the increase in copper price. Copper sales of 99 kt include 10
kt of material sold as copper cathode after processing at the
Balkhash smelter. Revenues recorded in the income statement during
the year of $698 million exclude $21 million of capitalised clay
revenues from the first half of the year.
EBITDA (excluding special items)
Bozshakol contributed Gross EBITDA of $515 million, with EBITDA
of $503 million excluding clay operations in the first half of the
year. A strong EBITDA margin of over 70% has been maintained.
The gross cash cost is expressed on a unit of copper sales
basis, after adjustment for the copper payable and TC/RC terms. The
gross cash cost of 121 USc/lb for the year was in line with market
guidance of 115-135 USc/lb. The gross cash cost has increased
versus the prior year when costs benefited from several factors
relating to the early nature of operations, including limited
maintenance expenditure, the processing of higher grade material
and the absence of clay operations, which have a higher operating
cost, particularly during the early stages of ramp up. After
deducting the by-product credits from gold and silver, the net cash
cost for Bozshakol in 2017 was 54 USc/lb, which makes Bozshakol
highly competitive on the global cost curve.
The gross cash cost for 2018 is estimated to be around 130-150
USc/lb which reflects the continued normalisation of operating
costs as the plant and mine fleet enter their third year. Unit
costs will also be impacted by the reduction in feed grades to
0.44% from 0.53% during 2017.
Capital expenditure
At 31 December 2017, construction activities were complete with
final outstanding project capital payments of approximately $40
million to the principal contractor carried over into 2018. In
2017, direct capital expenditure on Bozshakol, excluding
capitalised interest on debt facilities, was $57 million. This
included $35 million in respect of the stockpiling of clay material
to provide access to sulphide material. In addition, there was an
outflow of $7 million from clay operations during the period prior
to commercial production.
Sustaining capital requirements were low in 2017 given the early
nature of operations, incurring expenditure of $10 million, mainly
related to the overhaul of mining equipment. Sustaining capital is
expected to increase to around $35 million in 2018, broadly in line
with the expected life of mine average and reflecting the
requirements of the mine fleet and both processing plants.
AKTOGAY
The Aktogay mine is a large scale, open pit operation similar to
Bozshakol. Aktogay commenced production of copper cathode from
oxide ore in December 2015 and achieved commercial production on 1
July 2016. The production of copper in concentrate from sulphide
ore began in the first quarter of 2017 and achieved commercial
production on 1 October 2017. The existing concentrator has an
annual ore processing capacity of 25 million tonnes when fully
ramped up. On 21 December 2017 the Group announced a $1.2 billion
expansion project at Aktogay, to double sulphide ore processing
capacity to 50 million tonnes from 2021. With an expanded
processing capacity Aktogay will have an estimated mine life of 28
years.
Production summary
kt (unless otherwise stated) 2017 2016
----------------------------------- ------- -------
Oxide
Ore extraction 13,040 15,989
Copper grade (%) 0.36 0.41
Copper cathode production 25.1 18.1
Sulphide
Ore extraction 13,208 97
Ore processed 12,941 -
Average copper grade processed (%) 0.66 -
Recovery rate (%) 80 -
Copper in concentrate 68.2 -
Copper production 65.1 -
Total copper production 90.2 18.1
----------------------------------- ------- -------
Copper cathode production from oxide material was 25.1 kt in
2017, in line with market guidance. Cathode production reached full
capacity in the prior year which was maintained during 2017 when
output was also assisted by improved equipment availability rates
and efficiencies in the SX/EW process. Due to the higher levels of
available copper in solution, the quantity of oxide ore required
decreased, with an 18% reduction in ore extraction versus the prior
year.
Initial sulphide ore extraction began at the end of 2016 and
mining activities expanded in 2017 to the levels required to feed
the concentrator following its commissioning in February. Ore
processed was 66% of design capacity during the third quarter and
remained relatively constant during the fourth quarter at 68%.
Operations benefited from a copper grade of 0.66%, above the life
of mine grade of 0.33%, due to the mining of a layer of supergene
enriched ore. The majority of output was exported to China based
smelters during the year with 9.7 kt of copper in concentrate
dispatched for toll processing at Balkhash in Kazakhstan.
Copper production was 65.1 kt from sulphide material which,
combined with cathode output from the SX/EW plant resulted in total
copper production for the year of 90.2 kt, in line with market
guidance of 85-95 kt.
Copper production guidance for 2018 is 110-130 kt, consisting of
20-25 kt of copper cathode from oxide ore and 90-105 kt from
sulphide material. The sulphide concentrator is on track to achieve
design capacity during 2018 and increase ore throughput from 2017
levels, although this will be partly offset by a reduction in
copper grades as a lower volume of supergene enriched ores are
processed.
Financial summary
$ million (unless otherwise stated) 2017 2016
------------------------------------------ ------ ----
Gross Revenues(1) 530 68
Revenues 276 52
Copper sales (kt)(1) 87 14
Gross EBITDA (excluding special items)(1) 374 33
Capitalised EBITDA (185) (4)
EBITDA (excluding special items) 189 29
Gross cash costs (USc/lb)(1) 100 114
Capital expenditure (27) 156
Sustaining 4 -
Expansionary (direct project) 103 144
Expansionary (pre-commercial) (134) 12
------------------------------------------ ------ ----
1 Includes sulphide and oxide operations during the periods
prior to commercial production.
Gross Revenues
Prior to the achievement of commercial production all revenues
and operating costs were capitalised and excluded from the income
statement. Commercial production was achieved for oxide operations
on 1 July 2016 and sulphide operations on 1 October 2017. The
income statement for the prior year therefore represents only oxide
operations for the second half of the year, whilst 2017 includes a
full year of oxide operations together with sulphide operations for
the fourth quarter. Gross Revenues and Gross EBITDA shown in the
above table include the pre-commercial production period.
Gross Revenues increased substantially from the prior year to
$530 million, reflecting the growth in copper sales volumes,
particularly from sulphide operations. The sulphide plant
contributed additional copper sales volumes of 62 kt and sales from
oxide operations increased from 14 kt to 25 kt.
EBITDA (excluding special items)
Gross EBITDA of $374 million is mainly derived from sulphide
operations which began production and ramped up during the year.
EBITDA of $189 million excludes $185 million of capitalised EBITDA
generated from sulphide operations prior to 1 October 2017 during
pre-commercial production.
The gross cash cost has reduced from 114 USc/lb to 100 USc/lb,
reflecting the significant volume growth provided by the lower cost
sulphide operations. This was below market cost guidance of 110-130
USc/lb as the sulphide plant benefited from a higher than expected
copper grade, lower maintenance expenditures and muted inflationary
pressures. Unit costs at the oxide operations have reduced as
volumes have increased and efficiencies from higher plant
automation have been realised.
The gross cash cost in 2018 is estimated to increase to 110-130
USc/lb, in line with the level achieved by Bozshakol in 2017.
Aktogay benefited from limited maintenance expenditure during 2017,
however this will increase as maintenance programmes such as mine
equipment overhauls and mill relines occur during 2018. In
addition, whilst copper grades will remain above the life of mine
average, they are forecast to reduce from the elevated levels
reported in 2017. These factors, as well as tariff and general
inflation will more than offset the expected economies of scale
from higher production volumes.
Capital expenditure
Construction activities in respect of the main phase of the
Aktogay project are now substantially complete. Direct project
capital expenditure of $103 million was incurred in 2017. This
included payments for construction, the acquisition of mining
equipment and first fill items. Expenditure was below market
guidance as there have been no payments at Aktogay to purchase
rather than lease rail wagons, as it has now been determined that
these are not required. Cash inflows relating to the pre-commercial
activity of the sulphide plant of $134 million were capitalised and
netted against capital expenditure.
In 2018 payments of $300 million to the principal construction
contractor are scheduled in respect of work performed in 2016. $250
million was paid in January 2018, with the remaining $50 million to
be paid in July. In addition, further outstanding capital
expenditure of $70 million is expected to be invested from the
project budget, mainly in relation to the expansion of the heap
leach cells, with approximately $50 million scheduled for the
second half of 2018 and $20 million in 2019.
Sustaining capital expenditure was limited during 2017 but is
expected to increase to around $30 million in 2018.
The Board has approved an expansion project to double the ore
processing capacity at Aktogay. The expansion represents a low-risk
growth opportunity, being a duplicate of the existing plants at
Aktogay and Bozshakol and which will be managed by the same project
team. First production from the new plant is expected by the end of
2021. The capital budget for the expansion project is $1.2 billion
with approximately $200 million to be invested in 2018, $400
million in each of 2019 and 2020 and $200 million in 2021. The
mining fleet will be upgraded to support the higher ore
throughput.
EAST REGION AND BOZYMCHAK
Production summary
Copper
kt (unless otherwise stated) 2017 2016
----------------------------------- ------ ------
Ore extraction 3,919 4,664
Ore processed 4,172 4,620
Average copper grade processed (%) 1.89 1.96
Average recovery rate (%) 90 90
Copper in concentrate 71.0 81.0
Copper production 67.0 77.4
----------------------------------- ------ ------
Copper production in the East Region and Bozymchak reduced by
13% to 67.0 kt versus the prior year mainly due to the closure of
the Yubileyno-Snegirikhinsky mine. As a result, ore extraction and
ore processed were 16% and 10% lower than the prior year
respectively. Ore processed was higher than ore extracted in the
year as it included 135 kt of ore from the closed
Yubileyno-Snegirikhinsky mine and the use of ore stockpiles at
Artemyevsky. A small volume of stockpiled material from
Yubileyno-Snegirikhinsky will be processed during 2018.
The reduction in copper grade from 1.96% to 1.89% was mainly due
to a lower proportion of material from the higher grade Orlovsky
mine. Copper recoveries remained unchanged at 90%.
Copper production of 67.0 kt was above market guidance for the
year of 65 kt. Bozymchak operated at full design capacity during
the year, contributing copper production of 7.5 kt, consistent with
the prior year of 7.9 kt.
East Region and Bozymchak copper production in 2018 will remain
relatively stable, at around 65 kt.
By-products
koz (unless otherwise stated) 2017 2016
---------------------------------- ------ ------
Zinc bearing ore processed (kt) 3,163 3,586
Zinc grade processed (%) 2.65 2.95
Zinc in concentrate (kt) 57.6 75.4
Gold bearing ore processed (kt) 4,172 4,620
Gold grade processed (g/t) 0.76 0.81
Gold in concentrate 62.7 67.6
Gold production 58.9 63.5
Silver bearing ore processed (kt) 4,172 4,620
Silver grade processed (g/t) 33.6 37.6
Silver in concentrate 2,801 3,224
Silver production 2,549 2,980
---------------------------------- ------ ------
Output of all by-products was lower than the prior year, as
expected. Zinc in concentrate output reduced by 24% due to lower
processing volumes as well as a reduction in grades at Orlovsky and
Artemyevsky. Access to higher zinc grades at Artemyevsky, scheduled
to occur in the second half of 2017 is now delayed until 2018.
Lower than expected grades at Orlovsky also contributed to the
decline, with full year zinc in concentrate output of 57.6 kt,
slightly below the guidance range of 60-65 kt.
Full year gold production of 58.9 koz was at the top end of
external guidance of 50-60 koz. Bozymchak delivered a strong
production performance of 41.3 koz which offset lower grades in the
East Region, mainly from Orlovsky, as the average gold grade
reduced from 0.81 g/t to 0.76 g/t. As Bozymchak provides the
majority of production, the 7% reduction in gold output was lower
than other by-products.
Silver production of 2,549 koz for the year represents a
reduction of 14% compared to the prior year due to lower processing
volumes as well as lower grades from the Orlovsky mine.
East Region and Bozymchak is forecast to produce 45-50 koz and
around 2,000 koz of gold and silver production respectively in
2018. Zinc in concentrate production will be in the region of 60
kt.
Financial summary
$ million (unless otherwise stated) 2017 2016
------------------------------------ ------ ------
Revenues 689 621
Copper 433 399
Zinc 115 95
Gold 79 75
Silver 51 46
Other 11 6
Sales volumes
Copper sales (kt) 70 82
Zinc sales (kt) 57 75
Gold sales (koz) 62 60
Silver sales (koz) 2,979 2,740
EBITDA (excluding special items) 371 279
Gross cash costs (USc/lb) 208 191
Net cash costs (USc/lb) 42 68
Capital expenditure 74 62
Sustaining 52 50
Expansionary 22 12
------------------------------------ ------ ------
Revenues
Revenues generated by East Region and Bozymchak increased by 11%
to $689 million as a 27% improvement in the average LME copper
price more than offset a 15% fall in sales volumes. Revenues from
zinc were also higher, despite a 24% reduction in sales volumes, as
the average zinc price improved from $2,095/t to $2,896/t, a 38%
increase. Due to the sale of material built up at the end of 2016,
gold and silver sales volumes increased, despite lower production
in the year.
EBITDA (excluding special items)
EBITDA improved by $92 million compared to the prior year,
mainly due to the increase in revenues as well as a reduction in
aggregate cash costs. Cash operating costs of $318 million were 7%
below the prior year as the impact of reduced volumes was partially
offset by a 5% appreciation in the tenge. Management also took
action to control costs by limiting certain tariff and contract
price rises. During the second half of 2017, however, some
inflationary pressures were experienced and these are expected to
impact 2018 costs. At Bozymchak costs increased as a result of
adverse exchange rate movements and legislative changes which
raised salary costs.
The gross cash cost of copper for East Region and Bozymchak of
208 USc/lb was 9% above the prior year, principally due to the 15%
reduction in copper sales volumes. Gross cash costs were however at
the bottom end of market guidance of 205-225 USc/lb.
Gross cash costs for 2018 are estimated to increase to around
230-250 USc/lb, impacted by a reduction in copper sales volumes to
around 65 kt, compared to the 70 kt recorded in 2017 which
benefited from the sale of finished goods carried forward from
2016. The impact of a full year of inflation on salaries and other
costs, as well as an assumed modest appreciation of the tenge would
also place upward pressure on costs. At Bozymchak costs will rise
due to the impact of a deeper pit and longer haul distances and as
the processing plant enters its third year of full capacity
operations.
The improvement in net cash costs from 68 USc/lb to 42 USc/lb is
due to the increase in by-product revenues. Gold and silver
revenues benefited from the sale of prior year material, with sales
volumes higher than production levels for the year. In addition,
despite the significant reduction in zinc sales volumes, zinc
revenues increased due to favourable market prices.
Capital expenditure
Sustaining capital expenditure of $52 million was broadly in
line with the prior year and below market guidance of around $60
million, as certain projects and payments were deferred into 2018.
Expenditure in the year relates to development work across the
underground mines, purchase of equipment, expansion of tailings
facilities and maintenance of support infrastructure.
In 2018, sustaining capital requirements for the East Region and
Bozymchak will remain constant at around $50 million.
Expansionary capital in 2017 of $22 million predominantly
relates to the initial development work for the extension of the
existing Artemyevsky mine to develop a ventilation tunnel.
Expansionary capital in 2018 is expected to be around $40 million
as work continues on the Artemyevsky extension as well as
development works at the Bozymchak mine. The Artemyevsky extension
will require around $60 million per annum during 2019 to 2022 with
limited annual spend thereafter.
Other projects
Expenditure on other projects was $14 million, to investigate
the feasibility of constructing a copper smelter in Kazakhstan and
further studies of the Koksay project. Following an assessment of
partnering options and a review of the smelter project it has been
determined not to progress the project further. The next step for
the Koksay project, which represents a future growth option, is the
launch of a feasibility study, however the recently announced
Aktogay expansion project is the immediate priority for the Group's
project division.
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 condensed consolidated financial
statements for the year ended 31 December 2017. In preparing the
condensed consolidated financial statements, the Group did not
apply or adopt any standards, interpretations or amendments that
were issued but not yet effective.
The Bozshakol clay and Aktogay sulphide plants commenced sales
in 2017 and were in pre-commercial production until they were
declared commercial on 1 July 2017 and 1 October 2017 respectively.
The Bozshakol sulphide and Aktogay oxide plants commenced sales in
2016 and were in pre-commercial production until 27 October 2016
and 1 July 2016 respectively. During the pre-commercial production
phase, revenues and operating costs were capitalised within
property, plant and equipment as part of the cost of construction
and are not included in the income statement.
The Financial review and the condensed consolidated financial
statements (note 4(a)(i)) include the non-IFRS measures Gross
Revenues and Gross EBITDA, which incorporate the results of the
Bozshakol and Aktogay plants before capitalisation to provide a
measure of their performance for the full year.
For the year ended 31 December 2017, Bozymchak did not satisfy
the quantitative requirements of IFRS 8 'Operating Segments' for
disclosure as a separate segment and was combined with the East
Region operations, given their similar economic characteristics,
similar concentrate production processes and as their combined
output is toll processed at the Balkhash smelter and subsequently
sold to the Group's customers. The comparative information has been
restated accordingly.
Income statement
An analysis of the consolidated income statement is shown
below:
$ million (unless otherwise stated) 2017 2016
----------------------------------------------- ------ ------
Gross Revenues 1,938 969
Gross EBITDA (excluding special items) 1,235 492
Revenues 1,663 766
Cash operating costs (625) (415)
----------------------------------------------- ------ ------
EBITDA (excluding special items) 1,038 351
Less: special items (19) (3)
Less: MET and royalties (132) (70)
Less: depreciation, depletion and amortisation (172) (60)
----------------------------------------------- ------ ------
Operating profit 715 218
Net finance (costs)/income (135) 2
----------------------------------------------- ------ ------
Profit before taxation 580 220
Income tax expense (133) (43)
----------------------------------------------- ------ ------
Profit for the year 447 177
Non-controlling interests - -
Profit attributable to equity holders of the
Company 447 177
----------------------------------------------- ------ ------
Earnings per share attributable to equity
shareholders of the Company
EPS - basic and diluted ($) 1.00 0.40
EPS based on Underlying Profit ($) 1.07 0.40
----------------------------------------------- ------ ------
Gross Revenues and revenues
Gross Revenues for 2017 were $1,938 million, double the prior
year principally due to the additional contributions from Bozshakol
and Aktogay of $439 million and $462 million respectively, as they
delivered significantly higher production into a tightening copper
market. Gross Revenues at the East Region and Bozymchak increased
by $68 million as lower copper and zinc production was more than
offset by higher prices.
The total copper sold in 2017 was 256 kt compared to 141 kt in
the prior year, driven by higher output from Bozshakol and Aktogay.
The LME copper and zinc prices averaged $6,163/t and $2,896/t
respectively during 2017, above their 2016 average prices of
$4,860/t and $2,095/t.
Gross Revenues from by-products were $406 million, of which gold
sales were $216 million. This compares to gold sales of $148
million in the prior year, with the increase driven primarily by
the ramp up in sales from Bozshakol.
By-products made up 21% of Gross Revenues in 2017 compared to
31% in the prior year due to the significant increase in copper
sales from Bozshakol and Aktogay.
Revenues recognised in the income statement increased by 117% to
$1,663 million, mainly due to increased volumes from the continued
ramp up of the Bozshakol and Aktogay mines and higher LME copper
prices. Revenues exclude sales earned during pre-commercial
production of $21 million and $254 million from the Bozshakol clay
plant and Aktogay sulphide plant respectively, which were
capitalised to property, plant and equipment. In 2016,
pre-commercial revenues at Bozshakol and Aktogay were $187 million
and $16 million respectively.
Further information on Gross Revenues and revenues by operating
segment can be found in the Operating review.
Operating profit
The operating profit for 2017 was $715 million compared to $218
million in 2016, primarily driven by higher sales volumes from
Bozshakol and Aktogay as well as stronger commodity prices.
The Group's operating profit margin, defined as operating profit
divided by revenues, increased to 43% in the current year from 28%
in the prior year, due to an increased proportion of production
coming from Bozshakol and Aktogay, which are lower cost on a per
unit basis than the East Region and Bozymchak operations, in
addition to higher prices. Within operating profit, the Group's
cost of sales and selling and distribution expenses rose, primarily
reflecting the increase in volumes from the recently launched
operations.
EBITDA (excluding special items)
EBITDA (excluding special items) is a key non-IFRS measure that
the Directors use internally to assess the performance of the
Group's segments and is viewed as relevant to capital intensive
industries with long life assets. This performance measure removes
depreciation, depletion, amortisation, MET, royalties and special
items. The Directors believe that the exclusion of MET and
royalties provides an informed measure of the operational
profitability given the nature of the tax, as further explained in
the 'Taxation' section. The Directors also believe that this
measure closely reflects the operating cash generative capacity and
therefore the trading performance of the business as a whole.
Special items are excluded to enhance the comparability of EBITDA
(excluding special items) from period to period. A reconciliation
of this measure to operating profit can be found in note 4(a)(i) of
the condensed consolidated financial statements.
Gross EBITDA (excluding special items) includes the EBITDA
(excluding special items) earned by the Group's major growth
projects in the period prior to commercial production, which is
capitalised to property, plant and equipment.
A reconciliation of EBITDA (excluding special items) by
operating segment is shown below:
$ million 2017 2016
-------------------------------------------- ------ ------
Bozshakol 515 204
Aktogay 374 33
East Region and Bozymchak 371 279
Corporate services (25) (24)
Gross EBITDA (excluding special items) 1,235 492
Less: capitalised pre-commercial production
EBITDA (197) (141)
-------------------------------------------- ------ ------
Bozshakol (12) (137)
Aktogay (185) (4)
-------------------------------------------- ------ ------
EBITDA (excluding special items) 1,038 351
-------------------------------------------- ------ ------
Gross EBITDA (excluding special items) for the Group rose by
151% to $1,235 million due to a full year of production from the
Bozshakol sulphide and Aktogay oxide plants, the start up of the
Bozshakol clay and Aktogay sulphide plants and higher copper and
zinc prices. The Gross EBITDA (excluding special items) margin for
the Group improved from 51% in 2016 to 64% in 2017 due to higher
commodity prices and as the proportion of EBITDA (excluding special
items) from the lower cost Bozshakol and Aktogay operations
increased compared to the prior year.
At Bozshakol, Gross EBITDA (excluding special items) increased
from $204 million in the previous year to $515 million following a
full year of production from the sulphide plant and the
commencement of sales from the clay plant in the first quarter of
2017. The Bozshakol clay plant reached commercial levels of
production on 1 July 2017, from when revenues and operating costs
were recognised in the income statement. Copper sales volumes
increased from 45 kt in 2016 to 99 kt in 2017, similarly gold sales
volumes increased from 60 koz in 2016 to 107 koz.
Aktogay's Gross EBITDA (excluding special items) was $374
million in 2017 due to the commencement of sales from the sulphide
plant in the first quarter and a full year's contribution from the
oxide plant. Copper sales volumes increased from 14 kt in the prior
year to 87 kt.
The East Region and Bozymchak's Gross EBITDA (excluding special
items) increased by 33% to $371 million in 2017 due to the
favourable impact of commodity prices and lower cash operating
costs, which more than offset reduced copper and zinc sales
volumes. Cash operating costs in 2017 of $318 million were $24
million below the prior year, due to lower volumes and management
action to control costs.
Corporate service costs were in line with the prior year, at $25
million.
The increase in EBITDA (excluding special items) from $351
million in the prior year to $1,038 million is attributable to a
stronger financial performance from all of the Group's operations,
in particular the low cost production growth from Bozshakol and
Aktogay.
Please refer to the Operating review for a detailed analysis of
EBITDA by operating segment.
Special items
Special items are non-recurring or variable in nature and do not
impact the underlying trading of the Group.
Special items within operating profit:
Impairment charges
The Group invested $16 million over the past two years on a
feasibility study on constructing a copper smelter in Kazakhstan.
Following an assessment of partnering options and a review of the
project, the Group has determined that it will not progress the
smelter project further and the costs incurred were expensed.
An impairment of $4 million (2016: $3 million) at the East
Region and Bozymchak was recognised against property, plant and
equipment which is not expected to be utilised.
Other items excluded from EBITDA (excluding special items)
MET and royalties
The MET and royalties charge in the income statement rose from
$70 million in 2016 to $132 million in 2017, reflecting the higher
volume of metal mined at Bozshakol and Aktogay and increased copper
and zinc prices.
The total MET incurred at Bozshakol was $88 million (2016: $65
million) of which $32 million (2016: $33 million) relates to
long-term stockpiled clay ore included within non-current inventory
on the balance sheet and $3 million relates to clay ore (2016: $25
million relating to sulphide ore) mined during pre-commercial
production which was capitalised to property, plant and
equipment.
The total MET incurred at Aktogay was $49 million (2016: $17
million) of which $23 million relates to sulphide ore (2016: $9
million relating to oxide ore) mined during pre-commercial
production and capitalised to property, plant and equipment. The
difference to the charge (see note 4(a)(i)) of $5 million (2016:
$nil) reflects MET in unsold inventory mostly on the oxide ore heap
leach pads.
The MET and royalties charged at the East Region and Bozymchak
operations of $59 million for 2017 was above the $55 million in the
prior year reflecting higher realised metal prices, partly offset
by lower metal in ore volumes mined.
Depreciation, depletion and amortisation
Depreciation, depletion and amortisation for 2017 of $172
million is higher than the $60 million charge in 2016 due to a full
year of depreciation of the Bozshakol sulphide and Aktogay oxide
plants and from the start of depreciation of the Bozshakol clay and
Aktogay sulphide plants on achievement of commercial production. At
the East Region and Bozymchak, depreciation was in line with the
prior year.
Net finance (costs)/income
Net finance (costs)/income includes:
$ million 2017 2016
----------------------------------------------- ------ ------
Interest income 17 9
Fair value gains on debt related derivative
financial instruments 13 -
Finance income 30 9
----------------------------------------------- ------ ------
Interest on borrowings (221) (197)
PXF fees (10) -
Unwinding of discount on NFC deferral (15) (8)
----------------------------------------------- ------ ------
Total interest expense (246) (205)
Interest capitalised 88 163
----------------------------------------------- ------ ------
Interest expense (158) (42)
Interest on employee obligations and unwinding
of discounts (7) (3)
Fair value losses on debt related derivative
financial instruments - (11)
Finance costs (165) (56)
----------------------------------------------- ------ ------
Net foreign exchange gains - 49
----------------------------------------------- ------ ------
Net finance (costs)/income (135) 2
----------------------------------------------- ------ ------
Net finance costs were $135 million compared to net finance
income of $2 million in 2016.
The total interest on borrowings amounted to $221 million, which
was $24 million higher than the $197 million incurred in the prior
year. The increase is attributed to higher US dollar LIBOR rates in
2017 and from additional borrowing costs associated with the DBK
loan drawn in December 2016. The PXF amendment fees of $10 million
which were incurred on the refinancing are classified as a special
item and excluded from Underlying Profit. The unwinding of the
discount on the NFC deferral of $15 million, being the implied
interest cost on the $300 million deferral agreed in 2015, was
capitalised to the cost of the Aktogay sulphide plant, until it
reached commercial production on 1 October 2017. The increase in
the unwinding of the discount on the NFC deferral to $15 million
from $8 million in the prior year is due to the full $300 million
being outstanding for the whole year in 2017.
The interest expense recognised in the income statement of $158
million (2016: $42 million) is after the capitalisation of interest
relating to the construction of the new mines. The increase is due
to a full year of interest cost relating to the Bozshakol sulphide
and Aktogay oxide plants being expensed in 2017, whereas this was
mostly capitalised in the prior year. Interest costs relating to
the Aktogay sulphide and Bozshakol clay plants were expensed in the
current year once these plants achieved commercial production.
The net impact of foreign exchange was neutral over the year.
The initial appreciation of the tenge in the first half of the year
and subsequent depreciation in the second half gave rise to a small
exchange gain of $13 million. This was offset by exchange losses
from the weakening of the US dollar against the Chinese yuan on the
CDB Aktogay CNY debt of $9 million and from its depreciation
against the British pound on sterling intercompany liabilities. A
cross currency and interest rate swap derivative financial
instrument is used to hedge part of the currency and interest rate
exposure on the CDB Aktogay CNY debt. The fair value gain on this
instrument was $12 million, which more than offset the $9 million
exchange loss on the CDB Aktogay CNY debt.
The $49 million net foreign exchange gain in 2016 was
principally driven by a 9% appreciation of the Kyrgyz som and from
the 18% depreciation in the UK pound sterling against the US
dollar. The appreciation of the som resulted in net exchange gains
of $20 million on Bozymchak's US dollar denominated intercompany
debt, while the depreciation of the UK pound sterling from June
2016 against the US dollar gave rise to a $16 million gain on
intercompany British pound sterling liabilities. The depreciation
of the Chinese yuan resulted in exchange gains of $9 million on the
CDB Aktogay CNY borrowing, which was mostly offset by the fair
value loss on the cross currency and interest rate swap of $11
million used as a hedge. The net gain was largely offset by
translation losses recognised within equity.
Taxation
The table below shows the Group's effective tax rate as well as
the all-in effective tax rate which takes into account the impact
of MET and removes the effect of special items on the Group's tax
charge.
$ million (unless otherwise stated) 2017 2016
-------------------------------------------- ----- -----
Profit before taxation 580 220
Add: MET and royalties 132 70
Add: special items 29 3
Adjusted profit before taxation 741 293
-------------------------------------------- ----- -----
Income tax expense 133 43
Add: MET and royalties 132 70
Less: recognition of deferred tax liability
on special items - -
Adjusted tax expense 265 113
-------------------------------------------- ----- -----
Effective tax rate (%) 23 20
-------------------------------------------- ----- -----
All-in effective tax rate(1) (%) 36 39
-------------------------------------------- ----- -----
1 The all-in effective tax rate is calculated as the income tax
expense plus MET and royalties less the tax effect of special items
and other non-recurring items, divided by profit before taxation
which is adjusted for MET and royalties and special items. The
all-in effective tax rate is considered to be a more representative
tax rate on the recurring profits of the Group.
Effective tax rate
The effective tax rate in 2017 was 23% reflecting the corporate
income tax rates applicable to the Group's operations and the
impact of certain non-deductible expenses. The prior year effective
rate was slightly lower at 20% due to a reduced level of
non-deductible expenses.
All-in effective tax rate
The all-in effective tax rate decreased from 39% in 2016 to 36%
as higher profitability from increased volumes and prices more than
offset the higher MET and royalties charge. As MET and royalties
are determined independently of the profitability of operations, in
periods of higher profitability, the MET and royalties' impact on
the all-in effective tax rate decreases. Conversely, during periods
of lower profitability this puts upward pressure on the all-in
effective tax rate.
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% whilst MET and royalties are revenue-based and dependent on
commodity prices. The CIT rate in the UK decreased from 20% to 19%
in April 2017 and is due to become 17% from 2020. In Kyrgyzstan,
changes to legislation applicable from November 2017 have reduced
CIT to 0%, replaced by a tax on gold revenues, which is reflected
as royalties within selling expenses.
Underlying Profit
Underlying Profit is a non-IFRS measure and is the 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 tax and
non-controlling effects.
The reconciliation of Underlying Profit from profit attributable
to equity holders of the Company is set out below:
$ million 2017 2016
--------------------------------------------- ----- -----
Net profit attributable to equity holders
of the Company 447 177
Special items within operating profit, net
of tax - note 6 19 3
Special items within profit before taxation,
net of tax - PXF fees 10 -
Underlying Profit 476 180
--------------------------------------------- ----- -----
Weighted average number of shares in issue
(million) 447 447
--------------------------------------------- ----- -----
EPS - basic and diluted ($) 1.00 0.40
EPS based on Underlying Profit - basic and
diluted ($) 1.07 0.40
--------------------------------------------- ----- -----
The Group's net profit attributable to equity holders of the
Company was $447 million in 2017 compared to $177 million for the
year ended 31 December 2016. The Underlying Profit for the year
increased to $476 million compared to $180 million in the prior
year, primarily due to greater profit contributions from the ramp
up of the Bozshakol and Aktogay operations, partially offset by
interest costs on project borrowings being expensed in the current
year whilst capitalised in the prior year.
Earnings per share
Basic earnings per share of $1.00 increased from $0.40 in 2016,
whilst earnings per share based on Underlying Profit rose to $1.07
from $0.40, reflecting the Group's improved profitability.
Dividends
The policy established at the time of Listing was for the
Company to maintain a dividend policy which took into account the
profitability of the business and underlying growth in earnings of
the Group, as well as its cash flows and growth requirements. The
Directors would also ensure that dividend cover was prudently
maintained.
Taking into consideration the Group's increase in net debt
during the construction and ramp up phase of two of the major
growth projects, the Directors did not declare an interim dividend
and will not recommend a final dividend for 2017. The Board will
continue to assess the Group's financial position, cash flows and
growth requirements in determining when to resume dividends in the
future.
Cash flows
Free Cash Flow is defined as the net cash flow from operating
activities before capital expenditure and non-current VAT
associated with major projects less sustaining capital expenditure.
This measure is used by the Directors to monitor the Group's
ability to reduce debt, fund returns to shareholders and invest in
the future growth and development of the business.
$ million 2017 2016
----------------------------------------------------- ------ ------
EBITDA (excluding special items)(1) 1,038 351
Change in inventories(2) (37) (19)
Change in prepayments and other current assets(2) (41) (14)
Change in trade and other receivables(2) 27 (38)
Change in trade and other payables and provisions(2) 11 (2)
Interest paid (222) (179)
MET and royalties paid(2) (151) (73)
Income tax paid (110) (39)
Foreign exchange and other movements 5 4
Net cash flows from/(used in) operating activities
before capital expenditure and non-current
VAT associated with major projects(3) 520 (9)
Sustaining capital expenditure (68) (51)
----------------------------------------------------- ------ ------
Free Cash Flow 452 (60)
Expansionary and new project capital expenditure(4) (69) (273)
Net non-current VAT received/(paid) associated
with major projects 232 (89)
Proceeds from disposal of property, plant
and equipment 1 1
Interest received 16 9
Other movements (1) (3)
----------------------------------------------------- ------ ------
Cash flow movement in net debt 631 (415)
----------------------------------------------------- ------ ------
1 EBITDA (excluding special items) is defined as profit before
interest, taxation, depreciation, depletion, amortisation, MET and
royalties. Please refer to note 4(a)(i) of the condensed
consolidated financial statements.
2 Excludes working capital and MET movements arising from
pre-commercial production activities at the Bozshakol and Aktogay
operations.
3 The difference between 'net cash flows from/(used in)
operating activities before capital expenditure and non-current VAT
associated with major projects' and 'net cash from/(used in)
operating activities' as reflected on the Group cash flow
statement, is the VAT received/(paid) on the construction of the
major projects.
4 Expansionary and new project capital expenditure includes
operating cash flows relating to pre-commercial production
activities, as explained further under "capital expenditure"
below.
Summary of the year
Net cash flows from operating activities before capital
expenditure and non-current VAT associated with major projects
improved by $529 million due to significantly higher
profitability.
Working capital
Working capital movements exclude the period of pre-commercial
production which are included within expansionary and new project
capital expenditure:
-- inventory levels have risen by $37 million following higher
consumables at Bozshakol and Aktogay to support the operational
ramp up and from an increase in finished goods in transit to
customers. The $65 million increase in inventory as reflected in
the IFRS based cash flow statement (see note 14(a)) includes MET
and depreciation which are excluded from the cash flow above as MET
is reflected separately and EBITDA (excluding special items) is
stated before depreciation and amortisation;
-- prepayments and other current assets increased by $41 million
primarily due to a build-up of operating VAT receivable at
Bozshakol and Aktogay and smaller increases at East Region and
Bozymchak. During the year, $36 million of VAT receivable at the
East Region and $10 million of non-project VAT receivable from
Bozshakol and Aktogay was refunded;
-- trade and other receivables decreased by $27 million
reflecting lower sales volumes at Bozshakol in December following
repairs in November, partly offset by increased sales volumes from
Aktogay; and
-- trade and other payables increased by $11 million due to
increased operational spend at Bozshakol and Aktogay, partly offset
by the reduction of advance receipts from customers. The $6 million
accounts payable inflows reflected in the IFRS based cash flow
statement (see note 14(a)) includes the accruals, net of payments,
relating to MET and royalties. The cash flow shown above reflects
MET and royalty payments separately.
Working capital movements relating to the Bozshakol clay and
Aktogay sulphide plants incurred during pre-commercial production
in 2017 are reflected within expansionary capital expenditure in
the cash flow above and are excluded from Free Cash Flow. These
include outflows of $35 million for long-term clay ore that was
stockpiled during the current year at Bozshakol and $29 million for
consumables and inventory at Aktogay (both funded out of their
respective project budgets). Other pre-commercial working capital
movements included a $52 million increase in trade and other
receivables and prepayments partly offset by increased accounts
payable of $6 million and a $12 million increase in MET payable. In
2016, pre-commercial working capital movements at Bozshakol and
Aktogay included a $39 million outflow for consumables and raw
materials, a $52 million outflow for stockpiled clay ore and a $43
million increase in trade and other receivables, partly offset by a
$45 million increase in trade and other payables, including MET
payable during 2017.
In 2016, inventory levels rose by $19 million from raw material
requirements at the Bozshakol sulphide and Aktogay oxide plant post
commercial production and from a small increase in East Region and
Bozymchak work in progress at the Balkhash smelter. Prepayments
increased by $14 million primarily from the build-up of VAT
receivables at the East Region operations and from increased
advances paid at the Aktogay oxide operations. During 2016, the
East Region received $30 million in VAT refunds. Trade and other
receivables increased by $38 million mainly due to higher volumes
and prices of Bozshakol concentrate sales over the last two months
of the year while trade and other payables and provisions decreased
by $2 million as creditor reductions from the East Region,
Bozymchak and Corporate segments were largely offset by increased
trade and other payables at the Bozshakol and Aktogay segments.
Interest cash flows
Interest paid during the year was $222 million compared with
$179 million paid in the prior year. The increased payments, which
include the $10 million PXF amendment costs, are broadly consistent
with the higher borrowing costs for the year at $231 million
compared to $197 million in the prior year. Interest payments are
made semi-annually under the CDB Bozshakol/Bozymchak, CDB Aktogay
US dollar and DBK facilities, quarterly under the CDB Aktogay RMB
facility and monthly under the PXF facility.
Income taxes and mineral extraction tax
Income tax paid of $110 million includes $48 million of
withholding tax on interest accrued in previous years financing the
major projects and is consistent with higher profitability and the
current income tax portion of the income tax expense in the income
statement. At 31 December 2017, the Group's net income tax payable
was $2 million, compared to $4 million in 2016.
MET and royalty payments increased to $151 million reflecting
the payments made by Bozshakol and Aktogay following the
achievement of commercial production and the impact of higher
copper and zinc metal prices. The total MET paid on ore mined at
Bozshakol and Aktogay in 2017 was $94 million and $33 million
respectively, with $27 million relating to Bozshakol clay ore and
$11 million relating to Aktogay sulphide material included within
expansionary capital expenditure. At 31 December 2017, MET and
royalties payable was $55 million, broadly consistent with the
prior year payable of $49 million.
Free Cash Flow
The Group's Free Cash Flow before interest payments on
borrowings was $674 million compared to $119 million in 2016 due to
the higher profitability of the Group, in particular the sales
contributions from Bozshakol, Aktogay and the improved copper
price. After interest payments, Free Cash Flow was an inflow of
$452 million compared to an outflow of $60 million in the prior
year.
Capital expenditure
Sustaining capital expenditure increased by $17 million to $68
million principally due to the additional spend at the Bozshakol
and Aktogay operations in the second half of the year.
Expansionary and new project expenditure of $69 million includes
operating cash flows relating to pre-commercial production
activities at the Aktogay sulphide and Bozshakol clay plants. The
spend was below the $273 million invested in 2016 as construction
was largely completed in the prior year and pre-commercial
production cash flows were offset against project spend. At
Aktogay, capital expenditure financed out of the project budget was
$103 million and includes $29 million for consumables and
inventory, while operating cash inflows from pre-commercial
production activities of the sulphide plant were $134 million to
arrive at a total expansionary capital expenditure inflow of $31
million. At Bozshakol, expenditure financed from the project budget
was $57 million, including $35 million for long-term stockpiled
clay ore, while operating cash outflows from pre-commercial
production activities at the clay plant amounted to $7 million,
resulting in total expansionary capital spend of $64 million. The
Group spent $22 million on expansionary projects including the
Artemyevsky mine extension in the East Region and $14 million on
the smelter feasibility study, which was subsequently expensed in
the income statement. Please refer to the Operating review for an
analysis of the Group's capital expenditure by operating
segment.
Non-current VAT
The non-current VAT associated with the major projects cash flow
includes the receipt of $243 million of VAT incurred during the
construction of Bozshakol and Aktogay.
Other investing and financing cash flows
In 2017, other investing cash flows relates to interest received
on cash and cash equivalents and deposits of $16 million (2016: $9
million).
Balance sheet
The Group's capital employed position at 31 December is shown
below:
$ million 2017 2016
--------------------------------------------- ------ ------
Equity attributable to owners of the Company 995 533
Non-controlling interests 3 3
Borrowings 3,877 3,777
Capital employed 4,875 4,313
--------------------------------------------- ------ ------
Summary of movements
The Group's attributable profit for the year of $447 million led
to the increase in the equity attributable to owners of the Company
and a marginal appreciation of the tenge increased the US dollar
value of the Group's foreign currency operations by $8 million.
Net debt
Net debt consists of cash and cash equivalents, current
investments and borrowings. A summary of the Group's net debt
position is shown below:
$ million 2017 2016
-------------------------- -------- --------
Cash and cash equivalents 1,821 1,108
Current investments - -
Borrowings (3,877) (3,777)
Net debt (2,056) (2,669)
-------------------------- -------- --------
Cash and cash equivalents at 31 December 2017, totalled $1,821
million and was above the $1,108 million at 31 December 2016, due
to the increased Free Cash Flow generated across the Group's
operations, receipt of VAT of $243 million relating to the major
projects and draw downs of $376 million from the amended PXF
facility. These cash inflows more than offset the repayment of debt
of $294 million and expansionary capital expenditure. The $294
million repayment of debt in 2017 includes $40 million to fully
repay the CAT facility.
In June 2017, the Group completed an amendment and extension of
the PXF facility. The new facility extends the maturity profile of
the facility by two and a half years from December 2018 until June
2021. Principal repayments will commence in July 2018 and then
continue in equal monthly instalments over a three year period
until final maturity in June 2021. The facility amount was
increased to $600 million and was fully drawn at 31 December
2017.
In order to manage counterparty and liquidity risk, surplus
funds within the Group are held predominantly in the UK and funds
remaining in Kazakhstan and Kyrgyzstan are utilised mainly for
working capital purposes. The funds within the UK are held
primarily with major European and US financial institutions and
highly rated liquidity funds. At 31 December 2017, $1,780 million
of cash and short-term deposits were held in the UK and Europe and
$41 million in Kazakhstan and Kyrgyzstan.
At 31 December 2017, borrowings (net of unamortised fees) were
$3,877 million, an increase of $100 million from 31 December 2016,
reflecting the drawdown of $376 million under the amended PXF
facility partly offset by $59 million repaid under the previous PXF
facility, the $40 million repayment of the CAT facility, $183
million in principal repayments of the CDB Bozshakol/Bozymchak
finance facility and $12 million paid under the CDB Aktogay RMB
facility. The $18 million other movement in borrowings consists of
$9 million of amortisation of fees on the Group's financing
facilities and $9 million of foreign exchange differences on the
CDB Aktogay RMB facility. The borrowings (net of unamortised fees)
consisted of $1,524 million under the CDB Bozshakol/Bozymchak
facilities, $1,455 million under the CDB Aktogay finance
facilities, $298 million under the DBK facility and $600 million
under the PXF debt facility.
Further details of the terms of the Group's borrowings are
included in note 12 of the condensed consolidated financial
statements.
Going concern
The Group manages liquidity risk by maintaining adequate
committed borrowing facilities and working capital funds. The Board
monitors the net debt level of the Group taking into consideration
the expected outlook of the Group's financial position, cash flows,
future capital expenditure and required debt repayments.
On 9 June 2017, the Group announced that it had successfully
completed an amendment and extension to its PXF facility. The
amended facility was increased to $600 million, the maturity
profile was extended by two and a half years to June 2021 and
financial covenants were revised to increase headroom as production
at Bozshakol and Aktogay continues to ramp up. The Board has
considered the outlook for commodity prices, production levels from
the Group's operations, its future capital requirements, including
the planned expansion of Aktogay and the deferred capital payments
to NFC and the principal repayments due under the Group's debt
facilities. The Board is satisfied that the Group's forecasts,
taking into account reasonably possible downside scenarios, show
that the Group has adequate liquidity to continue in operational
existence for the foreseeable future. Accordingly, it is
appropriate to adopt the going concern basis of accounting in the
preparation of these condensed consolidated financial
statements.
PRINCIPAL RISKS
Managing our risks
The Group's principal risks are set out below, along with
mitigating actions. There may be other risks, unknown or currently
considered immaterial, which might become material. The risks set
out below are not in order of likelihood of occurrence or
materiality and should be viewed, as with any forward-looking
statements in this document, with regard to the cautionary
statement.
SUSTAINABILITY RISKS
Health and safety
Impact
Mining is a hazardous industry. Health and safety incidents
could result in harm to people, as well as production disruption,
financial loss and reputational damage.
Mitigation
The Group's goal is for zero fatalities and to seek to minimise
health and safety incidents. Policies and procedures are designed
to identify and monitor risks and provide a clear framework for
conducting business. This is supported by regular training and
awareness campaigns for employees and contractors.
The HSE Committee reviews and monitors associated risks across
the Group.
Community and labour relations
Impact
The Group operates in areas where it is a major employer, where
employees are represented by labour unions and where it may provide
support to the local community. This may impose restrictions on the
Group's flexibility in taking certain operating decisions. Failure
to identify and manage the concerns and expectations of local
communities and the labour force could affect the Group's
reputation and social licence to operate, and result in production
disruptions and increases in operating costs. Wage negotiations
could be impacted by higher commodity prices, higher domestic
inflation or the continued weakness of the tenge.
Mitigation
The Group engages with community representatives, unions and
employees and aims to address concerns raised by different
stakeholders. Through responsible behaviour, acting transparently,
promoting dialogue and complying with commitments the Group
minimises potentially negative impacts. Bozshakol and Aktogay are
in remote locations where the community relations risk is
reduced.
Employees
Impact
The Group is dependent on its ability to attract and retain
highly skilled personnel. Failure to do so could have a negative
impact on operations or the successful implementation of growth
projects and result in higher operating costs to recruit required
staff. The remote location of some operations increases this
challenge.
Mitigation
The Group actively monitors the labour market to remain
competitive in the hiring of staff and provides remuneration
structures and development opportunities to attract and retain key
employees. Key positions are identified at all locations, and
training and succession plans developed. International workers with
appropriate expertise assist during the initial phase of
operations.
Environmental
Impact
Mining operations involve the use of toxic substances and
require the storage of large volumes of waste materials in tailings
dams, which could result in spillages and significant environmental
damage. The Group is subject to environmental laws and regulations
which are continually developing, including those to tackle climate
change. Failure to comply with applicable laws could lead to the
suspension of operating licences, the imposition of financial
penalties or costly compliance costs and reputational damage.
Mitigation
Policies and procedures are in place to set out required
operating standards and to monitor environmental impacts. The Group
liaises with relevant governmental bodies on environmental matters,
including legislation changes.
OPERATIONAL RISKS
Business interruption
Impact
Operations are subject to a number of risks not wholly within
the Group's control, including: geological and technological
challenges; weather and other natural phenomena; damage to or
failure of equipment and infrastructure; loss or interruption to
key inputs such as electricity and water; and the availability of
key supplies and services, including the Balkhash smelter.
Any disruption could impact production, may require the Group to
incur unplanned expenditure and negatively impact cash flows.
Mitigation
In-house and third-party specialists are utilised to identify
and manage operational risks and to recommend improvements.
Equipment and facilities are maintained appropriately and regularly
inspected. Property damage and business interruption insurance
programmes provide some protection from major incidents.
Should an outage occur at the Balkhash smelter the Group
believes it could sell concentrate directly to customers.
New projects and commissioning
Impact
Projects may fail to achieve the desired economic returns due to
an inability to recover mineral resources, design or construction
deficiencies, a failure to achieve expected operating parameters or
because of capital or operating costs being higher than expected.
Failure to effectively manage new projects or a lack of available
financing may prevent or delay completion of projects.
Mitigation
New projects are subject to rigorous assessment prior to
approval including feasibility or technical studies and capital
appraisal. Specialists are utilised throughout the life cycle of
projects. Project management and capital expenditure planning and
monitoring procedures are in place to review performance against
milestones and budgets. This includes the Operations Ramp Up
Assurance Committee which reports to the Board.
The recently announced Aktogay expansion represents a low risk
growth project, being a duplicate processing facility with
construction to be managed by the project team which delivered the
first processing facility.
Further details regarding the major growth projects are included
in the Operating review.
Reserves and resources
Impact
The Group's ore reserves are in part based on an estimation
method established by the former Soviet Union. There are numerous
uncertainties inherent in estimating ore reserves, which if
changed, could require the need to restate ore reserves and impact
the economic viability of affected operations and development
projects.
Mitigation
The Group's ore reserves and mineral resources are published
annually in accordance with the criteria of the JORC Code and
reviewed by an independent technical expert. This includes mine
site visits where considered appropriate and the conversion from
the former Soviet Union estimation to that prescribed by the JORC
Code. Drilling and exploration programmes are conducted to enhance
the understanding of geological information.
Political
Impact
The Group could be affected by political instability or social
and economic changes in the countries in which it operates. This
could include the granting and renewal of permits and changes to
foreign trade or legislation that could affect the business
environment and negatively impact the Group's business, financial
performance and licence to operate.
Mitigation
A proactive dialogue is maintained with the Governments of
Kazakhstan and Kyrgyzstan across a range of issues. Developments
are monitored closely and lobbying is conducted where appropriate.
Kazakhstan is one of the most politically stable and economically
developed countries in Central Asia and the Board continues to view
the political, social and economic environment within Kazakhstan
favourably and remains optimistic about the conditions for business
in the region.
Legal and regulatory compliance
Impact
In Kazakhstan and Kyrgyzstan all subsoil reserves belong to the
State and subsoil usage rights must be renewed. Legislation,
including subsoil use laws and taxation have been in force for a
relatively short period of time and may be subject to change and
uncertainty of interpretation, application and enforcement.
Non-compliance with legislation could result in regulatory
challenges, fines, litigation and ultimately the loss of operating
licences. Substantial payments of tax could arise for the Group, or
tax receivable balances may not be recovered as expected.
Mitigation
Management engages with the relevant regulatory authorities and
seeks appropriate advice to ensure compliance with all relevant
legislation and subsoil use contracts. A specialist department is
tasked with monitoring compliance with the terms of subsoil use
contracts. Management works closely with the tax authorities in the
review of proposed amendments to legislation. Further details of
the Group's tax strategy and risk management are set out in the
Financial review. Appropriate monitoring and disclosure procedures
are in place for related party transactions.
FINANCIAL RISKS
Commodity price
Impact
The Group's results are heavily dependent on the commodity price
for copper and to a lesser extent, the prices of gold, silver and
zinc. Commodity prices can fluctuate significantly and are
dependent on several factors, including world supply and demand and
investor sentiment.
Mitigation
The Group regularly reviews its sensitivity to fluctuations in
commodity prices. The Group is not currently and does not normally
hedge commodity prices, but may enter into a hedge programme where
the Board determines it is appropriate to provide greater certainty
over future cash flows.
Foreign exchange and inflation
Impact
Fluctuations in rates of exchange or inflation in the
jurisdictions to which the Group is exposed could result in future
increased costs. As the functional currency of the Group's
operating entities is their local currency, fluctuations in
exchange rates can give rise to exchange gains and losses in the
income statement and volatility in the level of net assets recorded
on the Group's balance sheet.
Mitigation
Where possible the Group conducts its business and maintains its
financial assets and liabilities in US dollars. The Group generally
does not hedge its exposure to foreign currency risk in respect of
operating expenses.
Exposure to China
Impact
Sales are made to a limited number of customers in China,
particularly in respect of copper concentrate output. Treatment and
refining charges are dependent upon Chinese smelting capacity and
the level of copper concentrate supply in the region.
China is an important source of financing to the Group with
long-term debt facilities of $3.0 billion at 31 December 2017. In
addition, the Group uses contractors, services and materials from
China.
Mitigation
Bozshakol and Aktogay produce a copper concentrate that is
attractive to Chinese smelters, being 'clean' and high in sulphur
content. The Group has established good relationships with
strategic customers in China.
The Group maintains relationships with a number of international
lending banks, having the PXF facility and DBK facility in place
and has the flexibility to consider other sources of capital if
required.
Acquisitions and divestments
Impact
The Group may acquire or dispose of assets and businesses which
fail to achieve the expected benefit or value to the Group.
Changing market conditions, incorrect assumptions or deficiencies
in due diligence could result in the wrong decisions being made and
in acquisitions or disposals failing to deliver expected benefits.
The Restructuring was effected under the laws and regulations of
Kazakhstan which are subject to change and open to interpretation,
including the legal and tax aspects of the Restructuring in 2014,
which could give rise to liabilities for KAZ Minerals.
Mitigation
A rigorous assessment process is undertaken to assess all
potential acquisitions and divestments by specialist staff,
supported by external advisers where appropriate. Due diligence
processes are undertaken and material transactions are subject to
Board review and approval, including ensuring the transaction is
aligned with the Group's strategy, consideration of the key
assumptions being applied and the risks identified.
Liquidity
Impact
The Group is exposed to liquidity risk if it is unable to meet
payment obligations as they fall due or is unable to access
acceptable sources of finance. Non-compliance with financial
covenants could result in borrowing facilities becoming uncommitted
and repayable.
Failure to manage liquidity risk could have a material impact on
the Group's cash flows, earnings and financial position.
Mitigation
Forecast cash flows are closely monitored and the financing
strategy is set by the Board. Adequate levels of committed funds
are maintained with $1,821 million cash and committed facilities at
31 December 2017.
The Group has a successful track record of raising financing and
the majority of the Group's debt is long-term.
Further details regarding going concern are included in note 2
to the financial statements.
Consolidated statement of total comprehensive income
Year ended 31 December 2017
$ million (unless otherwise stated) Notes 2017 2016
-------------------------------------------- ----- ------ ------
Revenues 4(b) 1,663 766
Cost of sales (755) (413)
Gross profit 908 353
Selling and distribution expenses (69) (32)
Administrative expenses (108) (104)
Net other operating income 4 4
Impairment losses 5 (20) (3)
-------------------------------------------- ----- ------ ------
Operating profit 715 218
-------------------------------------------- ----- ------ ------
Analysed as:
Operating profit (excluding special items) 734 221
Special items 6 (19) (3)
-------------------------------------------- ----- ------ ------
Finance income 7 30 9
Finance costs 7 (165) (56)
Foreign exchange gain, net - 49
-------------------------------------------- ----- ------ ------
Profit before taxation 580 220
Income tax expense 8 (133) (43)
Profit for the year 447 177
-------------------------------------------- ----- ------ ------
Analysed as:
Underlying Profit 9 476 180
Special items 6 (29) (3)
-------------------------------------------- ----- ------ ------
Attributable to:
Equity holders of the Company 447 177
Non-controlling interests - -
-------------------------------------------- ----- ------ ------
447 177
-------------------------------------------- ----- ------ ------
Other comprehensive income for the year
after tax:
Items that may be reclassified subsequently
to the income statement:
Exchange differences on retranslation
of foreign operations 8 35
Items that will never be reclassified
to the income statement:
Actuarial gain on employee benefits, net
of tax 1 -
Other comprehensive income for the year 9 35
-------------------------------------------- ----- ------ ------
Total comprehensive income for the year 456 212
-------------------------------------------- ----- ------ ------
Attributable to:
Equity holders of the Company 456 212
Non-controlling interests - -
456 212
-------------------------------------------- ----- ------ ------
Earnings per share attributable to equity
shareholders of the Company
EPS - basic and diluted ($) 9(a) 1.00 0.40
EPS based on Underlying Profit - basic
and diluted ($) 9(b) 1.07 0.40
-------------------------------------------- ----- ------ ------
Consolidated balance sheet
At 31 December 2017
$ million Notes 2017 2016
------------------------------------------- ----- -------- --------
Assets
Non-current assets
Intangible assets 7 8
Property, plant and equipment 2,535 2,670
Mining assets 438 422
Other non-current assets 10 170 364
Deferred tax asset 65 72
3,215 3,536
------------------------------------------- ----- -------- --------
Current assets
Inventories 359 247
Prepayments and other current assets 82 54
Income taxes prepaid 13 7
Trade and other receivables 132 105
Investments 14(c) - -
Cash and cash equivalents 14(b) 1,821 1,108
2,407 1,521
------------------------------------------- ----- -------- --------
Total assets 5,622 5,057
------------------------------------------- ----- -------- --------
Equity and liabilities
Equity
Share capital 11(a) 171 171
Share premium 2,650 2,650
Capital reserves 11(c) (2,029) (2,037)
Retained earnings 203 (251)
Attributable to equity holders of the
Company 995 533
Non-controlling interests 3 3
------------------------------------------- ----- -------- --------
Total equity 998 536
------------------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 12 3,459 3,446
Deferred tax liability 70 56
Employee benefits 14 15
Provision for closure and site restoration 67 57
Other non-current liabilities 13 7 292
3,617 3,866
------------------------------------------- ----- -------- --------
Current liabilities
Trade and other payables 272 309
Borrowings 12 418 331
Income taxes payable 15 11
Employee benefits 2 2
Other current liabilities 13 300 2
1,007 655
------------------------------------------- ----- -------- --------
Total liabilities 4,624 4,521
------------------------------------------- ----- -------- --------
Total equity and liabilities 5,622 5,057
------------------------------------------- ----- -------- --------
Consolidated statement of cash flows
Year ended 31 December 2017
$ million Notes 2017 2016
------------------------------------------- ----- ------ ------
Cash flows from operating activities:
Cash receipts from customers 1,640 700
Net proceeds/(payments) on non-current
VAT 232 (89)
Cash payments to employees, suppliers
and taxes other than non-current VAT and
income tax (788) (491)
Cash flow from operations before interest
and income taxes paid 14(a) 1,084 120
Interest paid (222) (179)
Income taxes paid (110) (39)
------------------------------------------- ----- ------ ------
Net cash flows from/(used in) operating
activities 752 (98)
------------------------------------------- ----- ------ ------
Cash flows from investing activities:
Interest received 16 9
Proceeds from disposal of property, plant
and equipment and mining assets 1 1
Purchase of intangible assets (2) (3)
Purchase of property, plant and equipment (92) (269)
Investments in mining assets, including
licences (43) (52)
Licence payments for subsoil contracts (1) (2)
Acquisition of non-current investments - (1)
Movement in short-term bank deposits 14(c) - 400
------------------------------------------- ----- ------ ------
Net cash flows (used in)/from investing
activities (121) 83
------------------------------------------- ----- ------ ------
Cash flows from financing activities:
Proceeds from borrowings 376 594
Repayment of borrowings (294) (321)
------------------------------------------- ----- ------ ------
Net cash flows from financing activities 14(c) 82 273
------------------------------------------- ----- ------ ------
Net increase in cash and cash equivalents 14(c) 713 258
Cash and cash equivalents at the beginning
of the year 1,108 851
Effect of exchange rate changes on cash
and cash equivalents 14(c) - (1)
------------------------------------------- ----- ------ ------
Cash and cash equivalents at the end of
the year 14(b) 1,821 1,108
------------------------------------------- ----- ------ ------
Consolidated statement of changes in equity
Year ended 31 December 2017
Attributable to equity
holders of the Company
----------------------------- -------------------------------------------------- ------------ -------
Non-
Share Share Capital Retained controlling Total
$ million capital premium reserves(1) earnings Total interests equity
----------------------------- -------- -------- ------------ --------- ----- ------------ -------
At 1 January 2016 171 2,650 (2,072) (430) 319 3 322
Profit for the year - - - 177 177 - 177
Exchange differences
on retranslation of foreign
operations - - 35 - 35 - 35
-------- -------- ------------ --------- -----
Total comprehensive income
for the year - - 35 177 212 - 212
Share-based payments,
net of taxes - - - 2 2 - 2
------------------------------ -------- -------- ------------ --------- ----- ------------ -------
At 31 December 2016 171 2,650 (2,037) (251) 533 3 536
Profit for the year - - - 447 447 - 447
Exchange differences
on retranslation of foreign
operations - - 8 - 8 - 8
Actuarial gain on employee
benefits, net of tax - - - 1 1 - 1
Total comprehensive income
for the year - - 8 448 456 - 456
Share-based payments,
net of taxes - - - 6 6 - 6
------------------------------ -------- -------- ------------ --------- ----- ------------ -------
At 31 December 2017 171 2,650 (2,029) 203 995 3 998
------------------------------ -------- -------- ------------ --------- ----- ------------ -------
1 Refer to note 11(c) for an analysis of 'Capital reserves'.
Notes to the CONDENSED consolidated financial STATEMENTS
Year ended 31 December 2017
1. Corporate information
KAZ Minerals PLC (the 'Company') is a public limited company
incorporated in England and Wales. The Company's registered office
is 6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL,
United Kingdom. The Group comprises the Company and its
consolidated divisions. The Group consists of Bozshakol, Aktogay,
the East Region, Bozymchak and Mining Projects including
Koksay.
2. Basis of preparation
The condensed consolidated financial statements ('the financial
statements') for the year ended 31 December 2017 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 2016 have been delivered to the Registrar of Companies and
those for 2017 will be delivered following the Company's Annual
General Meeting convened for Thursday 3 May 2018. The auditor has
reported on these accounts; their reports were unqualified, did not
include a reference to any matters to which the auditor drew
attention by way of emphasis of matter and did not contain a
statement under Sections 498(2) or (3) of the Companies Act
2006.
(a) Going concern
The Group's business activities, together with the factors
likely to impact its future growth and operating performance, are
set out in the Operating review. The financial performance and
position of the Group, its cash flows and available debt facilities
are described in the Financial review. In addition, the Group's
objectives, policies and processes for managing its capital
structure, liquidity position and financial risks arising from
exposures to commodity prices, interest rates, foreign exchange and
counterparties are set out in the notes to the Financial Statements
in the Annual Report and Accounts.
The Group manages liquidity risk by maintaining adequate
committed borrowing facilities and working capital funds. The Board
monitors the net debt level and liquidity position of the Group
taking into consideration the expected outlook of the Group's
financial position, cash flows, future capital expenditure and debt
service requirements.
At 31 December 2017, the Group's net debt was $2,056 million
with total debt of $3,877 million, and gross liquid funds of $1,821
million.
The gross debt consisted of:
-- $1,524 million of the CDB-Bozshakol and Bozymchak facilities,
which amortises over the period to 2025;
-- $1,455 million of the CDB-Aktogay US dollar and Chinese yuan
facilities, which amortise over the period to 2029, with repayments
increasing from March 2018;
-- $600 million of the PXF facility which amortises over the
period from July 2018 to June 2021; and
-- $298 million of the DBK facility, which amortises during the
period from June 2018 to June 2025.
The Board has considered the Group's cash flow forecasts for the
period to 31 March 2019, the outlook for commodity prices,
production levels from the Group's operations, its future capital
requirements, including the planned expansion of Aktogay, the
deferred capital payments to NFC and the principal repayments due
under the Group's debt facilities. The Board is satisfied that the
Group's forecasts, taking into account reasonably possible downside
scenarios, show that the Group has adequate liquidity to continue
in operational existence for the foreseeable future. Accordingly,
it is appropriate to adopt the going concern basis of accounting in
the preparation of these consolidated financial statements.
(b) Basis of accounting
The consolidated financial statements have been prepared on a
historical cost basis, except for derivative financial instruments
which have been measured at fair value. The consolidated financial
statements are presented in US dollars ('$') and all financial
information has been rounded to the nearest million dollars ('$
million') except where otherwise indicated.
All accounting policies adopted in the preparation of the
consolidated financial statements are consistent with those
followed in the preparation of the Group's annual consolidated
financial statements for the year ended 31 December 2017.
None of the amendments to standards and interpretations
applicable during the period has had a material impact on the
financial position or performance of the Group. The Group has not
early adopted any standard, interpretation or amendment that was
issued but is not yet effective.
In preparing these consolidated financial statements, the Group
has adopted all the applicable extant accounting standards issued
by the International Accounting Standards Board ('IASB') and all
the applicable extant interpretations issued by the International
Financial Reporting Interpretations Committee ('IFRIC') and as
adopted by the European Union ('EU') up to 31 December 2017.
IFRS 15 'Revenue from Contracts with Customers' and IFRS 9
'Financial Instruments' are new accounting standards issued by IASB
and endorsed by the EU and effective from 1 January 2018. The
application of and transition to the two standards do not have a
material impact on the Group's net assets. More detailed
information on the transition to the standards applicable in 2018
will be included in the Group's 2017 Annual Report and Accounts.
IFRS 16 'Leases' and IFRIC 23 'Uncertainty over Income Tax
Treatments' which are effective from 1 January 2019 are being
assessed.
(c) Basis of consolidation
The consolidated financial statements set out the Group's
financial position as at 31 December 2017 and the Group's financial
performance for the year ended 31 December 2017.
Subsidiaries are those enterprises controlled by the Group.
Control exists when the Group has the power, directly or
indirectly, to direct those activities of an enterprise that most
significantly affect the returns the Group earns from its
involvement with the enterprise. Subsidiaries are consolidated from
the date on which control is transferred to the Group and cease to
be consolidated from the date on which control is transferred out
of the Group. When the Group ceases to have control, any retained
interest in the entity is remeasured to its fair value, with the
change in carrying amount recognised in the income statement. The
fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate,
joint venture or financial asset. In addition, any amounts
previously recognised in other comprehensive income in respect of
that entity are accounted for as if the Group had directly disposed
of the related assets or liabilities. This treatment may mean that
amounts previously recognised in other comprehensive income are
recycled through the income statement.
The financial statements of subsidiaries are prepared for the
same reporting year as the Company, using consistent accounting
policies. All intercompany balances and transactions, including
unrealised profits arising from intragroup transactions, have been
eliminated in full. Unrealised losses are eliminated in the same
way as unrealised gains except that they are only eliminated to the
extent that there is no evidence of impairment.
(d) Statement of compliance
The consolidated financial statements of the Company and all its
subsidiaries have been prepared in accordance with IFRSs as issued
by IASB and interpretations issued by IFRIC of the IASB, as adopted
by EU, and in accordance with the provisions of the Companies Act
2006.
3. Significant accounting judgements and key sources of estimation uncertainty
In the course of preparing these financial statements, the
Directors make necessary judgements, estimates and assumptions
about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. Judgements are based on the
Directors' best knowledge of the relevant facts and circumstances
having regard to prior experience, but actual results may differ
from the amounts included in the consolidated financial
statements.
Estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates. The estimates and
underlying assumptions applied are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods, if the
revision affects both current and future periods.
The following are the critical judgements and the key
assumptions and sources of estimation uncertainty concerning the
future which the Directors believe are likely to have the most
significant effect on the amounts recognised in the consolidated
financial statements. However, the Directors do not expect a
significant risk of a material change to the carrying value of
non-current inventory, decommissioning and site restoration
liabilities and taxes, including deferred taxes, over the next
twelve months arising from changes in estimates.
Achievement of commercial production
Once an operation reaches the operating level intended by
management and regarded to be "commercial", capitalisation of
development costs including borrowing costs ceases, the
depreciation of capitalised costs begins and the revenues and
operational costs are recorded in the income statement and not
capitalised to the balance sheet. Significant judgement is required
to determine when the Group's assets achieve commercial production,
including completion of a reasonable period of commissioning,
consistent achievement of operational results at a pre-determined
level of expected capacity and indications exist that this level
will continue, mineral recoveries are at or approaching expected
levels and the transfer of the operation from project personnel to
operational personnel.
For the Bozshakol operation, commercial production of the clay
plant was determined to have been achieved on 1 July 2017. In
making this assessment, the Directors considered the performance of
the plant of at least 60% of its design capacity for a three month
period, which is broadly consistent with industry practice.
Revenues, production costs and interest incurred on borrowings to
finance the project were recognised in the income statement and
depreciation of its asset base commenced from that date. The
Bozshakol sulphide plant achieved commercial production on 27
October 2016.
The Aktogay sulphide plant achieved commercial production from 1
October 2017 after consistent production of at least 60% of its
design capacity over a three month period. Revenues, production
costs and interest incurred on borrowings to finance the project
were recognised in the income statement with the commencement of
depreciation of its assets from that date. The Aktogay oxide plant
achieved commercial production on 1 July 2016.
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 or reversal
thereof has arisen requires considerable judgement, taking account
of future operational and financial plans, commodity prices, market
demand and the competitive environment. For exploration and
evaluation assets held by the Group, indicators of impairment can
include: (a) the right to explore in a specific area has expired
and is not expected to be renewed (b) significant expenditure for
further exploration or evaluation activities is not being planned
(c) exploration and evaluation of mineral resources have not led to
the discovery or confirmation of commercially viable resource, or
(d) that sufficient data exists to indicate that the carrying
amount of the asset may not be recovered in full from development
or sale.
Where such indicators exist, the carrying value of the assets of
a cash generating unit or exploration and evaluation asset is
compared with the recoverable amount of those assets, that is, the
higher of its fair value less costs to sell and value in use, which
is typically determined on the basis of discounted future cash
flows.
The preparation of discounted future cash flows includes
management estimates of commodity prices, market demand and supply,
future operating costs, economic and regulatory environments,
capital expenditure requirements, long-term mine plans and other
factors.
Any subsequent changes to cash flows due to changes in the
factors listed above could impact the recoverable amount of the
assets.
An assessment of the key external and internal factors,
including changes to equity analyst and management's medium and
long-term commodity prices expectations, exchange rates, cash costs
and production expectations affecting the Group and its cash
generating units ('CGUs') at 31 December 2017 (and 31 December
2016) did not identify any indicators of impairment or reversal
thereof. The Group's CGUs are aligned to the operating divisions as
described in note 1. In assessing commodity prices for indicators
of impairment, consideration was given to a range of equity analyst
long-term copper prices with a median price of around $6,500/t.
Non-current inventories
Mining activities that may result in the stockpiling of ore
which is not expected to be processed within 12 months of the
balance sheet date and is considered to fall outside of the normal
operating cycle of the operation is classified as a non-current
asset. The classification of stockpiled ore between non-current and
current assets is based on judgements as to the expected timing of
processing and on future production plans. The stockpiled ore is
reflected at the lower of cost or net realisable value, with net
realisable value subject to estimates of further processing,
delivery costs and future commodity prices. Commodity prices
applied in assessing the net realisable value fall within the range
of equity analyst commodity price expectations.
Determination of ore reserves and useful lives of property,
plant and equipment
Ore reserves are estimates of the amount of product that can be
economically and legally extracted from the Group's mining
properties. In order to estimate reserves, assumptions are required
about a range of geological, technical and economic factors,
including quantities, grades, production techniques, recovery
rates, production costs, transport costs, commodity demand,
commodity prices and exchange rates. The Group estimates its ore
reserves and mineral resources based on information compiled and
reviewed by independent competent persons as defined in accordance
with the JORC Code.
In assessing the life of a mine for accounting purposes, ore
reserves are taken into account where there is a high degree of
confidence of economic extraction. Since the economic assumptions
used to estimate reserves change from period to period, and as
additional geological data is generated during the course of
operations, estimates of reserves may change from period to period.
Changes in reported reserves may affect the Group's financial
results and financial position in a number of ways, including the
following:
-- asset recoverable amounts may be affected due to changes in estimated future cash flows;
-- deferral of stripping costs which are determined using a waste to ore stripping ratio;
-- depreciation, depletion and amortisation charged in the
income statement may change where such charges are determined by
the unit of production basis, or where the useful economic lives of
assets change;
-- decommissioning, site restoration and environmental
provisions may change where changes in estimated reserves affect
expectations about the timing or cost of these activities; and
-- the carrying value of deferred tax assets may change due to
changes in estimates of the likely recovery of tax benefits.
There are numerous uncertainties inherent in estimating ore
reserves, and assumptions that are valid at the time of estimation
may change significantly when new information becomes available.
Changes in the forecast prices of commodities, exchange rates,
production costs or recovery rates may change the economic status
of reserves and may ultimately result in reserves being
revised.
For property, plant and equipment depreciated on a straight-line
basis over its useful economic life, the appropriateness of the
asset's useful economic life is reviewed at least annually and any
changes could affect prospective depreciation rates and asset
carrying values.
Decommissioning and site restoration costs
The Directors use judgement and experience in determining the
expected timing and closure and decommissioning methods, which can
vary in response to changes to relevant legal requirements and
technologies. The ultimate cost of decommissioning and
rehabilitation is uncertain and cost estimates can also vary in
response to many factors including the emergence of new restoration
techniques and costs of materials and labour. The expected timing
and extent of expenditure can also change in response to changes in
ore reserve estimates, processing levels and even commodity prices
while future costs are discounted using expected discount rates. As
such, there could be significant adjustments to the current
provisions which would affect the future financial performance of
the Group.
Taxes
The Directors make judgements in relation to the recognition of
various taxes levied on the Group, which are both payable and
recoverable. Judgement applies particularly to corporate income
taxes, transfer pricing, VAT and outcomes of tax disputes, if any,
that would affect recognition of tax liabilities and deferred tax
assets. Judgement over recognition also applies to taxes which are
recoverable by the Group, principally VAT paid, in assessing its
future recoverability and the timing of such recovery. In making
judgements related to taxes, the Directors believe that the tax
positions it adopts are in line with the applicable legislation and
reflect the probable outcome. Estimates are made to determine the
amount of taxes payable or recoverable, including deferred tax
assets. The tax obligations and receivables, upon audit by the tax
authorities at a future date, may differ as a result of differing
interpretations. These interpretations may impact the expected
timing and quantum of taxes payable and recoverable.
4. Segment information
Information provided to the Group's Board of Directors for the
purposes of resource allocation and the assessment of segmental
performance is prepared in accordance with the management and
operational structure of the Group. For management and operational
purposes, the Group is organised into a number of 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'. On the grounds of materiality, the East
Region and Bozymchak segments have been presented on a combined
basis for the year ended 31 December 2017 and the comparative
information has been restated accordingly.
The Group's operating segments are:
Bozshakol
The Bozshakol open pit, sulphide concentrator and clay plant
located in the Pavlodar region of Kazakhstan and the associated
international sales and marketing activities managed out of the UK.
The sulphide concentrator, which sells copper concentrate with gold
content as a by-product, was commissioned in February 2016 and
achieved commercial production on 27 October 2016 with its revenues
and costs being recognised in the income statement from that date.
The clay plant, which was commissioned in the fourth quarter of
2016 and which achieved commercial production on 1 July 2017, is
included in the Bozshakol operating segment due to the sharing of
infrastructure and mining pit, its relative small size and to
reflect the Group's management structure. The clay plant's
pre-commercial revenues and costs were recorded against property,
plant and equipment until it achieved commercial production from
when depreciation of the asset base commenced and interest
associated with borrowings used to finance the construction of the
plant was expensed.
Aktogay
The Aktogay open pit, sulphide concentrator and oxide plant
located in the east of Kazakhstan and the associated international
sales and marketing activities managed out of the UK. The sulphide
concentrator was commissioned in the final quarter of 2016 and
achieved commercial production on 1 October 2017 with its revenues
and costs being recognised in the income statement from that date.
Until commercial production was achieved, the revenues and
operating costs of the sulphide concentrator were recorded against
property, plant and equipment. The oxide operation, which sells
copper cathodes, reached commercial production on 1 July 2016 with
its revenues and costs being recognised in the income statement
from that date. The oxide plant is included in the Aktogay
operating segment due to the sharing of infrastructure, its
relative small size and to reflect the Group's management
structure.
East Region and Bozymchak
The East Region and Bozymchak are reflected as one operating
segment and consists of Vostoktsvetmet LLC ('East Region'), whose
principal activity is the mining and processing of copper and other
metals which are produced as by-products from three underground
mines and concentrators located in the eastern region of
Kazakhstan; and KAZ Minerals Bozymchak LLC ('Bozymchak') a
copper-gold open pit mine and concentrator located in western
Kyrgyzstan and the associated international sales and marketing
activities managed out of the UK. In the current period, Bozymchak
did not satisfy the quantitative requirements of IFRS 8 'Operating
Segments' for disclosure as a separate segment and was combined
with the East Region operations, given their similar economic
characteristics; similar concentrate production processes and as
their combined output is toll processed at the Balkhash smelter and
subsequently sold to the Group's customers. In 2016, Bozymchak was
reflected as a separate segment. The comparative disclosures have
been restated to reflect the East Region and
Bozymchak as a combined segment.
Mining Projects
The Group's project companies, who are responsible for the
assessment and development of metal deposits and processing
facilities. The segment includes the Koksay mineral deposit.
Managing and measuring operating segments
The key performance measure of the operating segments is EBITDA
(excluding special items), which is defined as earnings before
interest, taxation, depreciation, depletion, amortisation, mineral
extraction tax and royalties, as adjusted for special items.
Special items are those items which are non-recurring or variable
in nature and which do not impact the underlying trading
performance of the business (see note 6). EBITDA (excluding special
items) is a key non-IFRS measure that the Directors use internally
to assess the performance of the Group's segments and is viewed as
relevant to capital intensive industries with long life assets. The
Directors also believe that this measure closely reflects the
operating cash generative capacity and therefore the trading
performance of the business as a whole. Special items are excluded
to enhance comparability of EBITDA (excluding special items) from
period to period.
The Group's Treasury department manages the Group's borrowings
and monitors finance income and finance costs at the Group level on
a net basis rather than on a gross basis at an operating segment
level.
(a) Operating segments
(i) Income statement information
Year ended 31 December
2017
-------------------------------------------------
East
Region
and Corporate
$ million Bozshakol Aktogay Bozymchak Services Total
----------------------------------- --------- ------- ---------- --------- ------
Revenues
Gross Revenues 719 530 689 - 1,938
Pre-commercial production revenues
capitalised to property, plant
and equipment(1) (21) (254) - - (275)
Revenues - income statement 698 276 689 - 1,663
----------------------------------- --------- ------- ---------- --------- ------
Gross EBITDA (excluding special
items) 515 374 371 (25) 1,235
Pre-commercial production EBITDA
capitalised to property, plant
and equipment(1,2) (12) (185) - - (197)
----------------------------------- --------- ------- ---------- --------- ------
EBITDA (excluding special items) 503 189 371 (25) 1,038
Special items(3) - note 6 - - (3) (16) (19)
EBITDA 503 189 368 (41) 1,019
Less: depreciation, depletion
and amortisation(4) (86) (42) (43) (1) (172)
Less: mineral extraction tax
and royalties(2,4) (52) (21) (59) - (132)
----------------------------------- --------- ------- ---------- --------- ------
Operating profit/(loss) 365 126 266 (42) 715
Net finance costs (135)
Income tax expense (133)
----------------------------------- --------- ------- ---------- --------- ------
Profit for the year 447
----------------------------------- --------- ------- ---------- --------- ------
Year ended 31 December
2016
-------------------------------------------------
East
Region
and Corporate
$ million Bozshakol Aktogay Bozymchak Services Total
----------------------------------- --------- ------- ---------- --------- ------
Revenues
Gross Revenues 280 68 621 - 969
Pre-commercial production revenues
capitalised to property, plant
and equipment(1) (187) (16) - - (203)
Revenues - income statement 93 52 621 - 766
----------------------------------- --------- ------- ---------- --------- ------
Gross EBITDA (excluding special
items) 204 33 279 (24) 492
Pre-commercial production EBITDA
capitalised to property, plant
and equipment(1,2) (137) (4) - - (141)
----------------------------------- --------- ------- ---------- --------- ------
EBITDA (excluding special items) 67 29 279 (24) 351
Special items - note 6 - - (3) - (3)
----------------------------------- --------- ------- ---------- --------- ------
EBITDA 67 29 276 (24) 348
Less: depreciation, depletion
and amortisation (11) (6) (42) (1) (60)
Less: mineral extraction tax
and royalties(2) (7) (8) (55) - (70)
----------------------------------- --------- ------- ---------- --------- ------
Operating profit/(loss) 49 15 179 (25) 218
Net finance income 2
Income tax expense (43)
----------------------------------- --------- ------- ---------- --------- ------
Profit for the year 177
----------------------------------- --------- ------- ---------- --------- ------
1 During pre-commercial production, revenues and operating costs
are capitalised to property, plant and equipment.
2 MET and royalties have been excluded from the key financial
indicator of EBITDA. The Directors believe that MET and royalties
are a substitute for a tax on profits, hence their exclusion
provides an informed measure of the operational performance of the
Group. The MET incurred at the Bozshakol clay and Aktogay sulphide
plants during the pre-commercial production stage of $3 million
(2016: $25 million - sulphide plant) and $22 million (2016: $9
million - oxide plant) respectively has been capitalised to
property, plant and equipment. MET incurred on stockpiled clay ore
at Bozshakol and included within non-current inventories was $32
million (2016: $33 million).
3 The impairment of $16 million arises from the decision not to
continue with the smelter study and reflects cost incurred to date.
These costs were incurred in the Mining Projects segment and
disclosed in the Corporate Services segment to reflect the write
off to the income statement.
4 Depreciation, depletion and amortisation and MET and royalties
exclude the costs associated with inventories on the balance
sheet.
(ii) Balance sheet information
At 31 December 2017
--------------------------------------------------------------
East
Region
and Mining Corporate
$ million Bozshakol Aktogay Bozymchak Projects Services Total
--------------------------------- --------- ------- ---------- --------- --------- --------
Assets
Property, plant and equipment,
mining assets and intangible
assets(1) 1,211 1,191 334 242 2 2,980
Intragroup investments - - - - 5,305 5,305
Other non-current assets(2) 131 9 29 1 - 170
Inter-segment loans - - - - 1,871 1,871
Operating assets(3) 191 188 198 - 6 583
Cash and cash equivalents 87 354 176 2 1,202 1,821
--------------------------------- --------- ------- ---------- --------- --------- --------
Segment assets 1,620 1,742 737 245 8,386 12,730
Deferred tax asset 65
Income taxes receivable 13
Elimination (7,186)
--------------------------------- --------- ------- ---------- --------- --------- --------
Total assets 5,622
--------------------------------- --------- ------- ---------- --------- --------- --------
Liabilities
Employee benefits and provisions 8 4 71 - - 83
Inter-segment borrowings 1,031 694 146 - - 1,871
Operating liabilities(4) 87 358 52 4 88 589
--------------------------------- --------- ------- ---------- --------- --------- --------
Segment liabilities 1,126 1,056 269 4 88 2,543
Borrowings 3,877
Deferred tax liability 70
Income taxes payable 15
Elimination (1,881)
--------------------------------- --------- ------- ---------- --------- --------- --------
Total liabilities 4,624
--------------------------------- --------- ------- ---------- --------- --------- --------
At 31 December 2016
--------------------------------------------------------------
East
Region
and Mining Corporate
$ million Bozshakol Aktogay Bozymchak Projects Services Total
--------------------------------- --------- ------- ---------- --------- --------- --------
Assets
Property, plant and equipment,
mining assets and intangible
assets(1) 1,291 1,261 305 241 2 3,100
Intragroup investments - - - - 5,195 5,195
Other non-current assets(2) 214 120 29 1 - 364
Inter-segment loans - - - - 2,252 2,252
Operating assets(3) 140 82 198 - 8 428
Cash and cash equivalents 33 293 41 1 740 1,108
--------------------------------- --------- ------- ---------- --------- --------- --------
Segment assets 1,678 1,756 573 243 8,197 12,447
Deferred tax asset 72
Income taxes receivable 7
Elimination (7,469)
--------------------------------- --------- ------- ---------- --------- --------- --------
Total assets 5,057
--------------------------------- --------- ------- ---------- --------- --------- --------
Liabilities
Employee benefits and provisions 6 2 66 - - 74
Inter-segment borrowings 1,201 839 212 - - 2,252
Operating liabilities(4) 110 339 75 3 98 625
--------------------------------- --------- ------- ---------- --------- --------- --------
Segment liabilities 1,317 1,180 353 3 98 2,951
Borrowings 3,777
Deferred tax liability 56
Income taxes payable 11
Elimination (2,274)
--------------------------------- --------- ------- ---------- --------- --------- --------
Total liabilities 4,521
--------------------------------- --------- ------- ---------- --------- --------- --------
1 Property, plant and equipment, mining assets and intangible
assets are located in the principal country of operations of each
operating segment. Bozshakol, Aktogay and Mining Projects segments
principally operate in Kazakhstan. The East Region and Bozymchak
segment includes $273 million of the East Region assets located in
Kazakhstan and $61 million of Bozymchak assets located in
Kyrgyzstan (2016: $247 million and $58 million respectively).
2 Other non-current assets comprise non-current VAT receivable,
advances paid for property, plant and equipment, non-current
inventories and other non-current investments (see note 10).
3 Operating assets comprise inventories, prepayments and other
current assets and trade and other receivables, including
intragroup non-financing related receivables.
4 Operating liabilities comprise trade and other payables,
including intragroup non-financing related payables, other
non-current and current liabilities.
(iii) Capital expenditure(1)
Year ended 31 December 2017
-----------------------------------------------------------
East
Region
and Mining Corporate
$ million Bozshakol Aktogay Bozymchak Projects Services Total
----------------------------------- --------- ------- ---------- --------- --------- -----
Property, plant and equipment(2,3) 71 (29) 35 14 1 92
Mining assets(2,3) 2 2 39 - - 43
Intangible assets 1 - - - 1 2
----------------------------------- --------- ------- ---------- --------- --------- -----
Capital expenditure 74 (27) 74 14 2 137
----------------------------------- --------- ------- ---------- --------- --------- -----
Year ended 31 December 2016
-----------------------------------------------------------
East
Region
and Mining Corporate
$ million Bozshakol Aktogay Bozymchak Projects Services Total
----------------------------------- --------- ------- ---------- --------- --------- -----
Property, plant and equipment(2,3) 90 150 28 - 1 269
Mining assets(2,3) 12 6 33 1 - 52
Intangible assets 2 - 1 - - 3
----------------------------------- --------- ------- ---------- --------- --------- -----
Capital expenditure 104 156 62 1 1 324
----------------------------------- --------- ------- ---------- --------- --------- -----
1 The capital expenditure presented by operating segment
reflects cash paid and is aligned with the Group's internal capital
expenditure reporting.
2 Cash capital expenditure for Aktogay and Bozshakol includes a
$106 million inflow and a $7 million outflow respectively of net
operating cash flows incurred during the period prior to the
achievement of commercial production (2016: cash outflow of $12
million and cash inflow $12 million respectively). Of the $74
million cash capital expenditure at Bozshakol in 2017 (2016: $104
million), $35 million relates to long-term stockpiled clay ore
spent ahead of commercial production to 30 June 2017 (2016: $52
million).
3 Capital expenditure includes non-current advances paid for
items of property, plant and equipment and mining assets.
(b) Segmental information in respect of revenues
Revenues by product to third parties are as follows:
Year ended 31 December
2017
--------------------------------------
East
Region
and
$ million Bozshakol Aktogay Bozymchak Total
-------------------------------------------------------- --------- ------- ---------- ------
Copper cathodes 62 212 424 698
Copper in concentrate 510 315 9 834
Zinc in concentrate - - 115 115
Gold - - 78 78
Gold in concentrate 137 - 1 138
Silver - - 50 50
Silver in concentrate 10 3 1 14
Other revenue - - 11 11
-------------------------------------------------------- --------- ------- ---------- ------
Gross Revenues 719 530 689 1,938
Less: pre-commercial production revenues capitalised to
property, plant and equipment (21) (254) - (275)
-------------------------------------------------------- --------- ------- ---------- ------
Revenues - income statement 698 276 689 1,663
-------------------------------------------------------- --------- ------- ---------- ------
Year ended 31 December
2016
--------------------------------------
East
Region
and
$ million Bozshakol Aktogay Bozymchak Total
-------------------------------------------------------- --------- ------- ---------- ------
Copper cathodes - 68 389 457
Copper in concentrate 202 - 10 212
Zinc in concentrate - - 95 95
Gold - - 69 69
Gold in concentrate 73 - 6 79
Silver - - 46 46
Silver in concentrate 5 - - 5
Other revenue - - 6 6
-------------------------------------------------------- --------- ------- ---------- ------
Gross Revenues 280 68 621 969
Less: pre-commercial production revenues capitalised to
property, plant and equipment (187) (16) - (203)
-------------------------------------------------------- --------- ------- ---------- ------
Revenues - income statement 93 52 621 766
-------------------------------------------------------- --------- ------- ---------- ------
Most of the Group's sales agreements are based on provisional
pricing with the final pricing usually determined by the average
market price of the respective metal in the month (for silver), the
month following (for copper cathode and zinc concentrate) or the
second month following (for copper concentrate including
by-products) dispatch to the customer. At 31 December, the Group's
provisionally priced volumes and their respective average
provisional price were:
At 31 December At 31 December
2017 2016
--------------------------- ---------------------------
Weighted Weighted
Provisionally average Provisionally average
priced provisional priced provisional
volumes price volumes price
--------------------- ------------- ------------ ------------- ------------
6,865 5,466
Copper 4 kt $/t 3 kt $/t
6,067 5,063
Copper in concentrate 22 kt $/t 13 kt $/t
2,516 1,517
Zinc in concentrate 4 kt $/t 4 kt $/t
1,276 1,261
Gold in concentrate 19 koz $/oz 34 koz $/oz
Silver in concentrate 65 koz 16 $/oz - -
--------------------- ------------- ------------ ------------- ------------
Revenues by destination from sales to third parties are as
follows:
Year ended 31 December
2017
--------------------------------------
East
Region
and
$ million Bozshakol Aktogay Bozymchak Total
-------------------------------------------------------- --------- ------- ---------- ------
China 706 371 391 1,468
Europe 13 159 136 308
Kazakhstan and Central Asia - - 162 162
-------------------------------------------------------- --------- ------- ---------- ------
Gross Revenues 719 530 689 1,938
Less: pre-commercial production revenues capitalised to
property, plant and equipment (21) (254) - (275)
-------------------------------------------------------- --------- ------- ---------- ------
Revenues - income statement 698 276 689 1,663
-------------------------------------------------------- --------- ------- ---------- ------
Year ended 31 December
2016
--------------------------------------
East
Region
and
$ million Bozshakol Aktogay Bozymchak Total
-------------------------------------------------------- --------- ------- ---------- ------
China 280 15 275 570
Europe - 53 195 248
Kazakhstan and Central Asia - - 151 151
-------------------------------------------------------- --------- ------- ---------- ------
Gross Revenues 280 68 621 969
Less: pre-commercial production revenues capitalised to
property, plant and equipment (187) (16) - (203)
-------------------------------------------------------- --------- ------- ---------- ------
Revenues - income statement 93 52 621 766
-------------------------------------------------------- --------- ------- ---------- ------
Year ended 31 December 2017
The Group's copper concentrate sales and some cathode and zinc
sales have been contracted to a single trader, Advaita Trade
Private Ltd (Advaita). Advaita is part of an independent metals
trading group founded in 2014 by former employees of the Group with
significant experience in marketing metals the Group produces into
Europe and China. Sales from all the Group's segments to Advaita,
comprise 71% ($1,377 million) of Gross Revenues.
Year ended 31 December 2016
Two customers, which each represented more than 10% of Gross
Revenues, in aggregate comprised 32% or $313 million of Gross
Revenues. The largest customer, which represented 19% ($184
million) of Gross Revenues, was distributed between Bozshakol (85%)
and the East Region and Bozymchak segment (15%) Gross Revenues. The
second largest customer, which represented 13% of Gross Revenues
($129 million), was distributed between Bozshakol (96%) and the
East Region and Bozymchak (4%) segment Gross Revenues.
5. Impairment losses
$ million 2017 2016
------------------------------------------- ---- ----
Impairment charges against property, plant
and equipment(1) 19 3
Impairment charges against non-current VAT
receivable(1) 1 -
20 3
------------------------------------------- ---- ----
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
9).
Mining Projects - impairment charges
Following an assessment of partnering options and a review of
the project, the Group determined that it will not progress the
smelter project further. $16 million incurred to date on the
feasibility study was impaired and comprises $15 million of
impairment charges against property, plant and equipment and $1
million written off against non-current VAT receivable.
East Region - impairment charges
An impairment of $4 million (2016: $3 million) has been
recognised against items of property, plant and equipment which are
no longer expected to be utilised.
6. 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 2017 2016
---------------------------------------------- ---- ----
Special items within operating profit:
Impairment charges against property, plant
and equipment 19 3
Impairment charges against non-current VAT
receivable 1 -
Other reimbursements (1) -
---------------------------------------------- ---- ----
19 3
---------------------------------------------- ---- ----
Special items within profit before taxation:
PXF fees 10 -
---------------------------------------------- ---- ----
Taxation related special items:
Recognition of a deferred tax asset resulting
from impairment charges - -
---------------------------------------------- ---- ----
Total special items 29 3
---------------------------------------------- ---- ----
7. Finance income and finance costs
Finance income
$ million 2017 2016
-------------------------------------------- ---- ----
Interest income 17 9
Fair value gains on debt related derivative
financial instruments 13 -
30 9
-------------------------------------------- ---- ----
Finance costs
$ million 2017 2016
----------------------------------------------------- ----- ------
Interest expense 158 42
Total interest expense(1) 246 205
Less: amounts capitalised to the cost of qualifying
assets(2,3) (88) (163)
----------------------------------------------------- ----- ------
Interest on employee obligations 2 1
Unwinding of discount on provisions and other
liabilities 5 2
Fair value losses on debt related derivative
financial instruments - 11
165 56
----------------------------------------------------- ----- ------
1 Total interest expense includes $221 million (2016: $197
million) of interest incurred on borrowings, $10 million PXF fees
and $15 million (2016: $8 million) relating to the unwinding of the
discount on the NFC deferral agreement (see note 13).
2 In 2017, the Group capitalised to the cost of qualifying
assets $10 million (2016: $82 million) of borrowing costs incurred
on the outstanding CDB-Bozshakol and Bozymchak facilities during
the year at an average rate of interest of 5.87% (2016: 5.40%), $56
million (2016: $73 million) on the CDB-Aktogay US$ and CNY
facilities at an average rate of interest of 5.60% and 4.54%
respectively (2016: 5.12% and 4.33%) and $11 million (2016: $nil)
on the $300 million DBK loan at an average interest rate of 5.89%.
Interest capitalised also includes $11 million (2016: $8 million)
of unwinding of interest on the deferred NFC payable (see note
13).
3 Interest costs on borrowings capitalised to qualifying assets
of $77 million (2016: $155 million) will be deductible for tax
purposes against future taxable income as an annual wear and tear
allowance on assets or when incurred based on country specific tax
definitions. The capitalised interest will provide tax relief at
20%, being the currently applicable corporate income tax rate of
Kazakhstan where the assets are located.
8. Income tax expense
Major components of income tax expense are:
$ million 2017 2016
------------------------------------------------- ---- ----
Current income tax
Corporate income tax - current period (UK) - -
Corporate income tax - current period (overseas) 103 31
Corporate income tax - prior periods (UK) 4 -
Corporate income tax - prior periods (overseas) 1 1
Deferred income tax
Corporate income tax - current period temporary
differences 24 14
Corporate income tax - prior periods temporary
differences 1 (3)
133 43
------------------------------------------------- ---- ----
A reconciliation of the income tax expense applicable to the
accounting profit before tax at the statutory income tax rate to
the income tax expense at the effective income tax rate is as
follows:
$ million 2017 2016
-------------------------------------------------- ---- ----
Profit before tax 580 220
At UK statutory income tax rate of 19.25%
(2016: 20.0%)(1) 112 44
Underprovided in prior periods - current income
tax 5 1
Under/(over) provided in prior periods - deferred
income tax 1 (3)
Unrecognised tax losses 4 3
Effect of domestic tax rates applicable to
individual Group entities - (5)
Non-deductible items:
Transfer pricing 2 1
Other non-deductible expenses 9 2
133 43
-------------------------------------------------- ---- ----
1 The UK statutory rate for January to March 2017 was 20.0% and
for April to December 2017 is 19.0%, giving an average full year
rate of 19.25%.
Corporate income tax ('CIT') is calculated at 19.25% (2016:
20.0%) of the assessable profit for the year for the Company and
its UK subsidiaries and 20.0% for the operating subsidiaries in
Kazakhstan (2016: 20.0%). In Kyrgyzstan, changes to legislation
applicable from November 2017 has reduced CIT to 0%, replaced by a
tax on gold revenues, which is reflected as royalties within
selling expenses.
Effective tax rate
The effective tax rate was 23% (2016: 20%). Tax charges are
affected by the mix of profits and tax jurisdictions in which the
Group operates. The impact of unrecognised tax losses and
non-deductible items, which may include impairment losses,
increases the Group's overall effective tax rate.
The following factors impacted the effective tax rate for the
year ended 31 December 2017:
Unrecognised tax losses
Deferred tax assets have not been recognised on available tax
losses at Bozymchak, as the entity is subject to a CIT rate of 0%
following the introduction of a tax on gold revenues. As such, the
prior period tax losses will not be available for use from November
2017. In the UK, unrecognised tax losses in 2017 arise from the
application of the interest limitation rules which has restricted
the amount of interest deductible in the UK. The restricted
interest was not recognised as a deferred tax asset given the
uncertainty over its full utilisation in future years.
In 2016, deferred tax assets were not recognised on tax losses
at Bozymchak, given the five year statute of limitations and as it
was uncertain whether it will would generate sufficient taxable
profits after capital allowances to utilise these losses, and in
the United Kingdom, given limitations on the carry forward of Group
losses.
Other non-deductible expenses
Non-deductible items mainly comprise of impairment losses
arising from the write off of assets in the East Region and the
smelter feasibility study costs and from certain social community
investments.
The 2016 non-deductible expenses mainly comprise of supplier
replaced equipment treated as gains for tax purposes and social
community investments and contributions, which are not generally
deductible and impairment charges and provisions recognised against
various assets most notably in the East Region operations.
9. Earnings per share
The following reflects the income and share data used in the EPS
computations.
$ million (unless otherwise stated) 2017 2016
---------------------------------------------------------------- ------------ ------------
Net profit attributable to equity shareholders of the Company 447 177
Special items net of taxation - note 6 29 3
Underlying Profit 476 180
---------------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares of 20 pence each for
EPS on Ordinary and Underlying Profit calculation 446,658,862 446,504,093
---------------------------------------------------------------- ------------ ------------
Ordinary EPS - basic and diluted ($) 1.00 0.40
EPS based on Underlying Profit - basic and diluted ($) 1.07 0.40
---------------------------------------------------------------- ------------ ------------
(a) Ordinary EPS
Basic EPS is calculated by dividing profit for the year
attributable to equity holders of the Company by the weighted
average number of ordinary shares of 20 pence each outstanding
during the year. Purchases of the Company's shares by the Employee
Benefit Trust and by the Company under any share buy-back
programmes are both held in treasury and treated as own shares.
(b) EPS based on Underlying Profit
The Group's Underlying Profit is the net profit for the year
excluding special items and their tax and non-controlling interest
effects, as shown in the table above. EPS based on Underlying
Profit is calculated by dividing Underlying Profit attributable to
equity holders of the Company by the weighted average number of
ordinary shares of 20 pence each outstanding during the year. EPS
based on Underlying Profit is a non-IFRS measure that the Directors
believe provides a consistent measure for comparing the underlying
trading performance of the Group.
10. Other non-current assets
$ million 2017 2016
------------------------------------------------ ---- ----
Advances paid for property, plant and equipment 8 18
Non-current VAT receivable(1) 38 264
Non-current inventories(2) 124 82
Long-term bank deposits(3) 2 2
Gross value of other non-current assets 172 366
Provision for impairment (2) (2)
------------------------------------------------ ---- ----
170 364
------------------------------------------------ ---- ----
1 Comprises VAT incurred, principally at Bozymchak at 31
December 2017 (2016: principally Bozshakol and Aktogay) which is
subject to audit and other administrative procedures prior to
refund, with anticipated refund dates in excess of 12 months from
the balance sheet date.
2 Non-current inventories comprise ore stockpiles that are
expected to be processed in excess of 12 months from the balance
sheet date and relate mainly to clay ore at Bozshakol.
3 Long-term bank deposits are monies placed in escrow accounts
with financial institutions in Kazakhstan and Kyrgyzstan as
required by the Group's site restoration obligations.
11. Share capital and reserves
(a) Allotted share capital
Number GBP $ million
million
---------------------------------------------------------- ------------ -------- ---------
Allotted and called up share capital - ordinary shares of
20 pence each
At 1 January 2016, 31 December 2016 and 2017 458,379,033 92 171
---------------------------------------------------------- ------------ -------- ---------
The issued share capital was fully paid. During the year 143,310
(2016: 14,774) treasury shares were used to satisfy awards under
the Company's Save As You Earn ('SAYE') and Deferred Share Bonus
Plan ('DSBP') schemes. At 31 December 2017, the Company holds
11,543,746 (2016: 11,687,056) ordinary shares in treasury and the
issued share capital of the Company which carries voting rights of
one vote per share, comprises 446,835,287 (2016: 446,691,977)
ordinary shares (excluding treasury shares).
(b) Own shares purchased under the Group's share-based payment plans
The provision of shares to the Group's share-based payment plans
is facilitated by an Employee Benefit Trust. The cost of shares
purchased by the Trust is charged against retained earnings as
treasury shares. The Employee Benefit Trust has waived the right to
receive dividends on these shares. During 2017, the Company made no
purchases of shares (2016: 250,000 shares at a cost of $0.6
million) through the Trust in anticipation of satisfying future
awards. 223,429 shares (2016: 218,249) were transferred out of the
Trust in settlement of share awards granted to employees that were
exercised during the period. Following approval from shareholders,
shares held in treasury will be used to settle future awards.
At 31 December 2017, the Group, through the Employee Benefit
Trust, owned 19,727 shares in the Company (2016: 243,156) with a
market value of $0.2 million and a cost of $0.1 million (2016: $1.1
million and $4.6 million respectively). The shares held by the
Trust represented less than 0.01% (2016: 0.05%) of the issued share
capital at 31 December 2017.
(c) Capital reserves
Currency Capital
translation redemption
$ million reserve reserve Total
-------------------------------------- ------------ ----------- --------
At 1 January 2016 (2,103) 31 (2,072)
Exchange differences on retranslation
of foreign operations 35 - 35
At 31 December 2016 (2,068) 31 (2,037)
Exchange differences on retranslation
of foreign operations 8 - 8
-------------------------------------- ------------ ----------- --------
At 31 December 2017 (2,060) 31 (2,029)
-------------------------------------- ------------ ----------- --------
(i) Currency translation reserve
The foreign currency translation reserve is used to record
exchange differences arising from the translation of the financial
statements of subsidiaries whose functional currency is not the US
dollar into the Group's presentation currency.
(ii) Capital redemption reserve
As a result of the share buy-back programme undertaken in 2008
and the repurchase of Company shares in 2013, transfers were made
from share capital to the capital redemption reserve based on the
nominal value of the shares cancelled.
12. Borrowings
Average
interest
rate
during Currency
the of Current Non-current Total
Maturity year denomination $ million $ million $ million
------------------------------- --------- --------- ------------- ---------- ----------- ----------
31 December 2017
CDB-Bozshakol and Bozymchak
- US$ LIBOR + 4.50% 2025 5.87% US dollar 179 1,345 1,524
CDB-Aktogay facility - PBoC
5 year 2028 4.54% CNY 12 116 128
CDB-Aktogay facility - US$
LIBOR + 4.20% 2029 5.60% US dollar 105 1,222 1,327
Pre-export finance facility
- US$ LIBOR + 3.00% - 4.50% 2021 5.04% US dollar 100 500 600
Development Bank of Kazakhstan
- US$ LIBOR + 4.50% 2025 5.89% US dollar 22 276 298
418 3,459 3,877
----------------------------------------- --------- ------------- ---------- ----------- ----------
31 December 2016
CDB-Bozshakol and Bozymchak
- US$ LIBOR + 4.50% 2025 5.40% US dollar 183 1,520 1,703
CDB-Aktogay facility - PBoC
5 year 2028 4.33% CNY 11 120 131
CDB-Aktogay facility - US$
LIBOR + 4.20% 2029 5.12% US dollar - 1,325 1,325
Pre-export finance facility
- US$ LIBOR + 3.00% - 4.50% 2018 4.97% US dollar 137 144 281
Caterpillar revolving credit
facility - US$ LIBOR + 4.25% 2019 4.92% US dollar - 40 40
Development Bank of Kazakhstan
- US$ LIBOR + 4.50% 2025 5.79% US dollar - 297 297
331 3,446 3,777
----------------------------------------- --------- ------------- ---------- ----------- ----------
CDB-Bozshakol and Bozymchak facilities
At 31 December 2017, $1.5 billion (2016: $1.7 billion) was drawn
under the facility agreements. The facilities accrue interest at
US$ LIBOR plus 4.50% and arrangement fees with an amortised cost at
31 December 2017 of $15 million (2016: $20 million) have been
netted off against these borrowings in accordance with IAS 39.
During 2017, $183 million of the borrowing was repaid, with $183
million due to be paid within 12 months of the balance sheet date
(including $4 million of unamortised debt costs). The facility is
repayable in half-yearly instalments in January and July with final
maturity in 2025. KAZ Minerals PLC acts as guarantor of the
facilities.
CDB-Aktogay facilities
The CDB-Aktogay facility consists of a CNY 1.0 billion facility
and a $1.3 billion US dollar facility. The funds mature 15 years
from the date of the first draw down. KAZ Minerals PLC acts as
guarantor of the loans.
The CNY 1.0 billion facility was fully drawn at 31 December
2015. At 31 December 2017, the drawn US dollar equivalent amount
was $128 million (2016: $131 million). The facility accrues
interest at the applicable benchmark lending rate published by the
People's Bank of China. During 2017, the Group made principal
payments of $12 million with $12 million due to be paid within 12
months of the balance sheet date. The facility is repayable in
half-yearly instalments in March and September. To protect the
Group from currency risks arising on the CNY denominated debt, the
Group has entered into CNY/US$ cross currency swaps. This
derivative instrument provides a hedge against movements in the CNY
exchange rate against the US dollar and swaps the interest basis
from a CNY interest rate into a US$ LIBOR interest basis. The fair
value of the swap at 31 December 2017, included within payables, is
$9 million (2016: $21 million).
The US dollar facility accrues interest at US$ LIBOR plus 4.20%.
At 31 December 2017, the $1.3 billion facility was fully drawn.
Arrangement fees with an amortised cost of $13 million (2016: $15
million), have been netted off against these borrowings in
accordance with IAS 39. The facility is repayable in half-yearly
instalments commencing from March 2018. $107 million is due to be
paid within 12 months of the balance sheet date (including $2
million of unamortised debt costs). KAZ Minerals PLC acts as
guarantor of the facilities.
Pre-export finance facility ('PXF')
In June 2017, the Group completed an amendment and extension of
the PXF. The new facility extends the maturity profile of the
facility by two and a half years from December 2018 until June
2021. Under the revised repayment profile, principal repayments
will commence in July 2018 and then continue in equal monthly
instalments over a three-year period until final maturity in June
2021.
The facility amount is $600 million and was fully drawn at 31
December 2017. The interest basis of the facility is substantially
the same as the previous facility with a variable margin of between
3.0% and 4.5% above US$ 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 facility.
At 31 December 2017, $600 million (2016: $281 million) was drawn
under the facility. $59 million was repaid under the previous
facility in the first half of 2017 and $376 million drawn under the
new facility. $100 million is due to be paid within 12 months of
the balance sheet date.
Development Bank of Kazakhstan facility ('DBK')
On 14 December 2016, the Group entered into a $300 million
credit facility with the DBK which was fully drawn by the end of
the year. The facility extends for a term of eight and a half years
and bears an interest rate of US$ LIBOR plus 4.5%. The facility is
repayable in instalments with the first repayment due in June 2018,
followed by semi-annual repayments in May and November of each year
from 2019 until 2024 and a final repayment in June 2025. The
facility was drawn by KAZ Minerals Aktogay LLC, a Kazakhstan wholly
owned subsidiary. KAZ Minerals PLC acts as guarantor of the
facility.
At 31 December 2017, $298 million was drawn under the facility.
Arrangement fees with an amortised cost of $2 million (2016: $3
million) have been netted off against these borrowings in
accordance with IAS 39. $22 million is due to be paid within 12
months of the balance sheet date.
Caterpillar revolving credit facility
In August 2015, the Group entered into a $50 million revolving
credit facility provided by Caterpillar Financial Services (UK)
Limited ('CAT'), a subsidiary of Caterpillar Inc. The CAT facility
was available for three years from the date of signing, and
repayable in four equal quarterly instalments ending in 2019. An
interest rate of US$ LIBOR plus 4.25% was payable on amounts
outstanding under the facility. During June 2017, the facility was
repaid in full and cancelled in December 2017.
Undrawn project and general and corporate purpose facilities
All debt facilities were fully drawn at 31 December 2017 and
2016.
13. Other liabilities
Payments
Payables for
$ million to NFC licences Total
------------------------ -------- --------- ------
At 1 January 2016 - 11 11
Additions 276 - 276
Payments - (2) (2)
Unwinding of discount 8 1 9
At 31 December 2016 284 10 294
Additions - - -
Payments - (1) (1)
Unwinding of discount 15 1 16
Net exchange adjustment - (2) (2)
------------------------ -------- --------- ------
At 31 December 2017 299 8 307
------------------------ -------- --------- ------
Current 299 1 300
Non-current - 7 7
At 31 December 2017 299 8 307
------------------------ -------- --------- ------
Current - 2 2
Non-current 284 8 292
------------------------ -------- --------- ------
At 31 December 2016 284 10 294
------------------------ -------- --------- ------
( ) Payables to NFC
In November 2015, the Group reached an agreement with its
principal construction contractor at Aktogay, NFC, to defer payment
of $300 million. Under these terms, $300 million scheduled for
payment in 2016 and 2017, was deferred for settlement in the first
half of 2018, with $250 million becoming payable shortly after 31
December 2017 and $50 million shortly after 30 June 2018. The
extended credit terms arising from the agreement were discounted
using a rate of US$ LIBOR plus 4.2% on the estimated cost of
services. The discount rate applied is in line with the CBD Aktogay
facility. The unwinding of the interest was charged to property,
plant and equipment as a borrowing cost (see note 7) until the date
the sulphide plant reached commercial production, after which it
was charged to the income statement within finance costs. At 31
December 2017, the full liability, discounted to its present value,
was recognised as current due to its expected settlement in 2018.
$250 million of the payable to NFC was settled in January 2018.
(b) Payments for licences for mining assets
In accordance with its contracts for subsoil use, the Group is
liable to repay the costs of geological information provided by the
Government of Kazakhstan for licenced deposits. Some of these
obligations are payable in tenge while others are payable in US
dollars, depending on the terms of each subsoil use contract. The
total amount payable by the Group is discounted to its present
value using a discount rate of 7.6% for tenge (2016: 7.6%) and 4.0%
(2016: 4.0%) for US dollar obligations. Under the subsoil use
agreements, the historical cost payments amortise over a ten year
period and commence with first production.
14. Consolidated cash flow analysis
(a) Reconciliation of profit before taxation to net cash inflow from operating activities
$ million Note 2017 2016
------------------------------------------- ---- ------ -----
Profit before taxation 580 220
Finance income 7 (30) (9)
Finance costs 7 165 56
Share-based payments 3 3
Depreciation, amortisation and depletion 187 84
Impairment losses 5 20 3
Unrealised foreign exchange loss/(gain) 2 (47)
Other reimbursements (1) -
Operating cash flows before changes in
working capital and provisions 926 310
Decrease/(increase) in non-current VAT
receivable 232 (89)
Increase in inventories (65) (47)
Increase in prepayments and other current
assets (41) (14)
Decrease/(increase) in trade and other
receivables 27 (38)
(Decrease)/increase in employee benefits (1) 2
Increase in provision for closure and
site restoration - 6
Increase/(decrease) in trade and other
payables 6 (10)
------------------------------------------- ---- ------ -----
Cash flows from operations before interest
and income taxes paid 1,084 120
------------------------------------------- ---- ------ -----
Non-cash transactions
There were the following non-cash transactions:
-- capitalised depreciation of $nil (2016: $19 million) for
property, plant and equipment and mining assets;
-- capitalised interest of $88 million (2016: $163 million) for
property, plant and equipment and mining assets;
-- the reassessment of the provision for closure and site
restoration during the year has resulted in an increase of $6
million (2016: increase of $25 million) to property, plant and
equipment and $nil (2016: $17 million) to mining assets, with a
corresponding increase (2016: increase) in the site restoration and
clean up provisions.
(b) Cash and cash equivalents
$ million 2017 2016
------------------------------------------------- ------ ------
Cash deposits with short term initial maturities 1,543 820
Cash at bank 278 288
1,821 1,108
------------------------------------------------- ------ ------
(c) Movement in net debt
At At
1 January Cash Other 31 December
$ million 2017 flow movements(1) 2017
----------------------------- ---------- ----- ------------- ------------
Cash and cash equivalents(2) 1,108 713 - 1,821
Current investments(2) - - - -
Borrowings(3) (3,777) (82) (18) (3,877)
Net debt (2,669) 631 (18) (2,056)
----------------------------- ---------- ----- ------------- ------------
At At
1 January Cash Other 31 December
$ million 2016 flow movements(1) 2016
----------------------------- ---------- ------ ------------- ------------
Cash and cash equivalents(2) 851 258 (1) 1,108
Current investments(2) 400 (400) - -
Borrowings(3) (3,504) (273) - (3,777)
Net debt (2,253) (415) (1) (2,669)
----------------------------- ---------- ------ ------------- ------------
1 Other movements comprise net foreign exchange movements,
non-cash amortisation of fees on borrowings. Other movements on
cash and cash equivalents arise primarily from currency movements
on non-US dollar cash and cash equivalents. For the year ended 31
December 2017, the $18 million other movement on borrowings
consists of $9 million of amortisation of fees on the Group's
financing facilities and $9 million of foreign exchange differences
on the CDB-Aktogay RMB facility. For the year ended 31 December
2016, the $nil other movement on borrowings consists of $9 million
of amortisation of fees on the Group's financing facilities less $9
million of foreign exchange differences on the CDB-Aktogay RMB
facility.
2 At 31 December 2016 and 2017, all of the Group's gross liquid
funds were cash and cash equivalents.
3 The cash flows on borrowings reflect draw downs of $376
million (2016: $594 million) and repayments on existing facilities
of $294 million (2016: $321 million).
15. Related party disclosures
(a) Transactions with related parties
Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation and are not disclosed in this note. Details of
transactions between the Group and other related parties, including
Cuprum Holding, are disclosed below.
The following table provides the total amount of transactions
which have been entered into with related parties for the relevant
financial year:
Purchases Amounts Amounts
Sales from owed owed
to related related by related to related
$ million parties parties parties(1) parties
------------------------------------ ----------- --------- ----------- -----------
Cuprum Holding and related entities
2017 5 100 2 3
2016 4 95 2 3
------------------------------------ ----------- --------- ----------- -----------
1 No provision is held against the amounts owed by related
parties at 31 December 2017 and 2016. The bad debt expense in
relation to related parties was $nil for the year (2016: $nil).
Cuprum Holding and related entities
The majority of the related party transactions and balances are
with companies which are part of the Cuprum Holding Group (a
company owned by Vladimir Kim, a Director of the Company, and
Eduard Ogay, a former Director of the Company) and provided under
two Framework Service Agreements. These include the provision of
smelting and refining of the Group's copper concentrate,
electricity supply and certain maintenance functions.
(b) Terms and conditions of transactions with related parties
Prices for related party transactions are determined by the
parties on an ongoing basis depending on the nature of the
transaction.
16. Financial instruments
The carrying amounts of financial assets and liabilities by
categories are as follows:
$ million 2017 2016
-------------------------------------------- -------- --------
Loans and receivables:
Long-term bank deposits(1) 2 2
Trade and other receivables(2) 132 105
Current investments - -
Cash and cash equivalents 1,821 1,108
--------------------------------------------- -------- --------
1,955 1,215
-------------------------------------------- -------- --------
Financial liabilities measured at fair
value through profit and loss:
Derivative instrument(3) (9) (21)
--------------------------------------------- -------- --------
Financial liabilities measured at amortised
cost:
Borrowings(4) (3,877) (3,777)
Other liabilities (307) (294)
Trade and other payables(5) (190) (219)
(4,383) (4,311)
-------------------------------------------- -------- --------
1 Long-term bank deposits reflect amounts in escrow accounts
with financial institutions in Kazakhstan and Kyrgyzstan as
required by the Group's restoration obligations.
2 Trade and other receivables includes $12 million (2016: $2
million) arising from marked to market adjustments on provisionally
priced contracts at the year end. These are measured according to
quoted forward prices in a market that is not considered active,
which is a level 2 valuation method within the fair value
hierarchy.
3 Derivative financial instruments, representing a cross
currency swap and interest rate swap, are measured according to
inputs other than quoted prices that are observable for the
derivative financial instrument, either directly or indirectly,
which is a level 2 valuation method within the fair value
hierarchy.
4 The fair value of borrowings is estimated $3,934 million
(2016: $3,842 million).
5 Excludes payments received in advance, other taxes payable and
MET and royalties payable that are not regarded as financial
instruments.
The fair values of each category of financial asset and
liability are not materially different from their carrying values
as presented, except for borrowings as described in note 4 to the
table.
17. Capital expenditure commitments
The Group has capital expenditure commitments for the purchase
of property, plant and equipment as well as commitments under its
mining subsoil agreements. Committed expenditure under the subsoil
agreements typically relates to investments in community-related
projects, and includes investments in social sphere assets,
infrastructure and public utilities. The total commitments for
property, plant and equipment at 31 December 2017 amounted to $47
million (2016: $109 million). After the balance sheet date, the
Group entered into commitments of $195 million for the Aktogay
expansion project.
GLOSSARY
Board or Board of Directors
the Board of Directors of the Company
capital employed
the aggregate of equity attributable to owners of the Company,
non-controlling interests and borrowings
cash operating costs
all costs included within profit before finance items and
taxation, net of other operating income, excluding mineral
extraction tax, royalties, depreciation, depletion, amortisation
and special items
CAT facility
revolving credit facility provided by Caterpillar Financial
Services (UK) Limited
CDB or China Development Bank
China Development Bank Corporation
CIT
corporate income tax
CNY
Chinese yuan, basic unit of renminbi
Code or UK Corporate Governance Code
the UK Corporate Governance Code issued by the Financial
Reporting Council
Committee or Committees
any or all of the Audit; Health, Safety and Environment;
Remuneration; Nomination; Operations Ramp Up Assurance; and
Projects Assurance Committees depending on the context in which the
reference is used
Company or KAZ Minerals
KAZ Minerals PLC
Cuprum Holding
Cuprum Netherlands Holding B.V. (now named Kazakhmys Holding
Group B.V.), the entity to which the Disposal Assets were
transferred
DBK
Development Bank of Kazakhstan
Directors
the Directors of the Company
Disposal Assets
the Disposal Assets comprised the mining, processing, auxiliary,
transportation, and heat and power assets of the Group in the
Zhezkazgan and Central Regions. The Disposal Assets included 12
copper mines, mine development opportunities, four concentrators,
two smelters, two coal mines, and three captive heat and power
stations all of which were disposed of as a result of the
Restructuring
dollar or $ or US$
United States dollars, the currency of the United States of
America
EBITDA
earnings before interest, taxation, depreciation, depletion,
amortisation, mineral extraction tax and royalties. A
reconciliation to operating profit is in note 4(a)(i) of the
consolidated financial statements
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 (see note 9 of the consolidated financial statements)
Free Cash Flow
net cash flow from operating activities before capital
expenditure and non-current VAT associated with expansionary and
new projects less sustaining capital expenditure
g/t
grammes per metric tonne
gross cash cost
cash operating costs, including pre-commercial production costs,
excluding purchased cathode plus TC/RC on concentrate sales,
divided by the volume of own copper cathode equivalent sales
Gross EBITDA
earnings, including pre-commercial earnings, before interest,
taxation, depreciation, depletion, amortisation, mineral extraction
tax and royalties. A reconciliation to operating profit is in note
4(a)(i) of the consolidated financial statements
Gross Revenues
sales proceeds from all volumes sold, including pre-commercial
production volume. A reconciliation to revenues is in note 4(a)(i)
of the consolidated financial statements
the Group
KAZ Minerals PLC and its subsidiary companies
IAS
International Accounting Standard
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standard
JORC
Joint Ore Reserves Committee
JORC Code
the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves, a professional code of practice
that sets minimum standards for Public Reporting of minerals
Exploration Results, Mineral Resources and Ore Reserves.
Kazakhmys Corporation LLC or Kazakhmys LLC
Kazakhmys Corporation LLC, the Group's principal operating
subsidiary in Kazakhstan prior to the Restructuring
Kazakhstan
the Republic of Kazakhstan
koz
thousand ounces
kt
thousand metric tonnes
Kyrgyzstan
the Kyrgyz Republic
lb
pound, unit of weight
LBMA
London Bullion Market Association
LIBOR
London Interbank Offered Rate
Listing
the listing of the Company's ordinary shares on the London Stock
Exchange on 12 October 2005
LME
London Metal Exchange
major growth projects
Bozshakol and Aktogay
MET
mineral extraction tax
Mt
million metric tonnes
net cash costs
gross cash costs less by-product Gross Revenues, divided by the
volume of own copper cathode equivalent sales
net debt
the excess of current and non-current borrowings over cash and
cash equivalents and current investments. A reconciliation of net
debt is in note 14 (c) to the consolidated financial statements
NFC
China Non Ferrous Metal Industry's Foreign Engineering and
Construction Co., Ltd
ounce or oz
a troy ounce, which equates to 31.1035 grammes
PXF
pre-export finance debt facility
$/t or $/tonne
US dollars per metric tonne
Restructuring
the transfer, subject to certain consents and approvals, of the
Disposal Assets to Cuprum Netherlands Holding B.V. which was
approved by shareholders at the General Meeting held on 15 August
2014 and completed on 31 October 2014
RMB
Renminbi, the official currency of the People's Republic of
China
som
the official currency of Kyrgyzstan
special items
those items which are non-recurring or variable in nature and
which do not impact the underlying trading performance of the
business. Special items are set out in note 6 to the consolidated
financial statements
SX/EW
solvent extraction and electrowinning, a two-stage metallurgy
process used for the extraction of copper
t
metric tonnes
TC/RCs
treatment charges and refining charges for smelting and refining
services
tenge or KZT
the official currency of the Republic of Kazakhstan
UK
United Kingdom
Underlying Profit
profit for the period after adding back items which are
non-recurring or variable in nature and which do not impact the
underlying trading performance of the business and their resultant
tax and non-controlling interest effects. Underlying Profit is set
out in note 9 to the consolidated financial statements
US
United States of America
USc/lb
US cents per pound
This information is provided by RNS
The company news service from the London Stock Exchange
END
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February 22, 2018 02:01 ET (07:01 GMT)
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