TIDMKAZ
RNS Number : 2127O
KAZ Minerals PLC
17 August 2017
KAZ MINERALS PLC
6TH FLOOR
CARDINAL PLACE
100 VICTORIA STREET
LONDON SW1E 5JL
Tel: +44 (0) 20
7901 7800
======================
17 August 2017
Kaz minerals PLC HALF-YEARLY REPORT
FOR THE PERIODED 30 June 2017
OPERATIONAL HIGHLIGHTS
-- Copper output more than doubled to 118 kt in the first half of 2017
-- Aktogay ramp up progressing well, Bozshakol expected to
achieve full capacity in second half
-- By-products on track to meet or exceed 2017 guidance
FINANCIAL HIGHLIGHTS
-- Gross Revenues(1) increased by 2.3 times, to $837 million (H1
2016: $363 million) on higher volumes and commodity prices
- Revenues of $721 million, excluding pre-commercial sales (H1 2016: $302 million)
-- Gross EBITDA(1) of $505 million (H1 2016: $147 million)
driven by increased revenues and low operating costs
- EBITDA(1) of $429 million, excluding pre-commercial earnings (H1 2016: $115 million)
- Operating profit of $291 million (H1 2016: $68 million)
-- Net cash cost(1) of 64 USc/lb, maintained position amongst
the lowest cost copper producers globally
- Bozshakol full year gross cash cost(1) now expected to be 115-135 USc/lb
- Aktogay guidance reduced to 110-130 USc/lb following strong first half performance
- East Region and Bozymchak guidance now set at 205-225 USc/lb
FINANCIAL POSITION
-- Net debt(1) reduced to $2,442 million at 30 June 2017 (31
December 2016: $2,669 million), supported by higher operating cash
flows, lower capital expenditure and refund of project VAT of $176
million
-- Available liquidity of $1,563 million, including $1,223
million of cash and cash equivalents and $340 million available for
drawing
- New $600 million PXF facility
-- Gearing levels reducing rapidly
OUTLOOK
-- Full year copper production target narrowed to 235-260 kt
- Aktogay sulphide to achieve commercial production and
Bozshakol to reach design capacity in second half
-- KAZ Minerals is delivering copper growth into a tightening market
Six Six
months months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2017 2016
--------------------------------------------------- -------- --------
Gross Revenues(1,2) 837 363
Gross EBITDA(1,2,3) 505 147
Revenues 721 302
EBITDA (excluding special items)(1,3) 429 115
Operating profit 291 68
Profit before tax 240 91
Underlying Profit(1) 195 76
EPS - basic and diluted ($) 0.41 0.16
EPS - based on Underlying Profit ($)(1,4) 0.44 0.17
Net cash flows from/(used in) operating activities 337 (63)
Free Cash Flow(1) 155 (65)
Free Cash Flow before interest(1) 269 20
Gross cash cost (USc/lb)(1,2) 144 173
Net cash cost (USc/lb)(1,2) 64 78
Cash and cash equivalents 1,223 1,056
Net debt(1) 2,442 2,531
--------------------------------------------------- -------- --------
(1) These metrics, used throughout this document, are non-IFRS
measures that the Directors use internally to assess the financial
performance of the Group. See glossary for definitions.
(2) Includes operations during the period prior to commercial
production.
(3) Reconciliation to operating profit provided in note 4(a)(i)
in the financial information.
4 Reconciliation of EPS based on Underlying Profit/(Loss) is
found in note 8 in the financial information.
Oleg Novachuk, Chief Executive, said: "I am delighted that the
successful delivery of our two growth projects has been reflected
in our operating and financial results. We have doubled copper
production whilst maintaining our position amongst the lowest cost
copper producers globally. This strong performance has resulted in
a reduction in our gearing levels, with net debt falling and over
half a billion dollars of Gross EBITDA generated in the first half
of 2017. We aim to complete the final stages of ramping up
Bozshakol this year and Aktogay in 2018, supported by an improved
outlook for copper."
For further information, please contact:
KAZ Minerals
PLC
==================== ========================== =================
Investor Relations, Tel: +44 20 7901
Chris Bucknall London 7882
Financial Analyst, Tel: +44 20 7901
Anna Mallere London 7814
Corporate Communications, Tel: +7 727 244
Maksut Zhapabayev 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 regions of Kazakhstan,
three underground mines and associated concentrators in the East
Region of Kazakhstan and the Bozymchak copper-gold mine in
Kyrgyzstan. In 2016, total copper cathode equivalent output was 140
kt with by-products of 75 kt of zinc in concentrate, 120 koz of
gold bar equivalent and 3,103 koz of silver bar equivalent.
The Group's new operations at Bozshakol and Aktogay are
delivering one of the highest growth rates in the industry and
transforming 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
mine life of 40 years at a copper grade of 0.36%. The mine and
processing facilities will produce an average of 100 kt of copper
and 120 koz of gold in concentrate per year over the first 10 years
of operations.
Aktogay is a large scale, open pit mine similar to Bozshakol,
with a mine life of more than 50 years and average copper grades of
0.37% (oxide) and 0.33% (sulphide). Aktogay commenced production of
copper cathode from oxide ore in December 2015 and copper in
concentrate production from sulphide ore commenced in February
2017. The sulphide concentrator has an annual ore processing
capacity of 25 million tonnes. Aktogay is competitively positioned
on the global cost curve and will produce an average of 90 kt of
copper from sulphide ore and 20 kt of copper cathode from oxide ore
per year over the first 10 years of operations.
KAZ Minerals is listed on the London Stock Exchange, the
Kazakhstan Stock Exchange and the Hong Kong Stock Exchange and
employs around 13,000 people, principally in Kazakhstan.
AVAILABILITY OF THIS ANNOUNCEMENT
Copies of the half-yearly report will not be mailed to
shareholders. Copies can be obtained from the KAZ Minerals website
(www.kazminerals.com) or by contacting the Corporate Communications
department at the Company's registered office.
FORWARD-LOOKING STATEMENTS
This half-yearly report includes forward-looking statements with
respect to the business, strategy and plans of KAZ Minerals and its
current goals, assumptions and expectations relating to its future
financial condition, performance and results. Although KAZ Minerals
believes that the expectations reflected in such forward-looking
statements are reasonable and are made by the Directors in good
faith, no assurance can be given that such expectations will prove
to be correct. By their nature, forward-looking statements involve
known and unknown risks, assumptions and uncertainties and other
factors which are unpredictable as they relate to events and depend
on circumstances that will occur in the future which may cause
actual results, performance or achievements of KAZ Minerals to be
materially different 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, business interruption,
political risk, new project construction and commissioning,
community and labour relations, employees, reserves and resources,
legal and regulatory compliance, environmental compliance,
commodity price, foreign exchange and inflation, exposure to China,
acquisitions and divestment and 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 this half-yearly report constitutes, or shall be
taken to constitute, an invitation or inducement to invest in KAZ
Minerals, 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 this half-yearly report.
CHIEF EXECUTIVE'S REVIEW
KAZ Minerals has delivered a strong operational and financial
performance in the first half of 2017 reflecting the successful
delivery of our two major growth projects. Copper output increased
to 118 kt in the first half of the year, a 110% increase on the 56
kt of copper produced in the first half of 2016. As production from
our new, low cost assets ramps up we have also maintained our
competitive position on the global cost curve, with a copper net
cash cost of 64 USc/lb.
Our production is growing at a time when market conditions are
improving, with LME copper prices averaging $5,748/t during the
first half of the year compared to $4,701/t in the same period in
2016. The higher commodity price environment, combined with our low
operating costs and increased output generated a 3.4 times increase
in Gross EBITDA, to $505 million.
The Group's performance in the first half of 2017 has resulted
in a material improvement in the Group's financial position, with
gearing levels falling rapidly and net debt reducing to $2,442
million at 30 June 2017, from $2,669 million at 31 December 2016.
The PXF facility was refinanced at the beginning of June,
increasing the Group's available liquidity to $1,563 billion at 30
June 2017. Our operational performance and improving financial
position has been recognised by the market and the KAZ Minerals
share price has almost doubled since the beginning of the year,
significantly outperforming the mining peer group.
Health and safety
We are disappointed to report that one fatality occurred in the
first half of 2017 following a rock fall incident in June at the
Irtyshsky mine in the East Region. The Group has taken a number of
measures to improve roof support over the past few years and as
with every serious incident, a full investigation is underway to
determine the causes and the remedial actions to be taken. Our goal
is to reduce the number of fatal incidents to zero and we will
continue to work on improving our culture and systems to achieve
this. No fatalities have occurred at Bozshakol, Aktogay or
Bozymchak since the commencement of operations at each of those
mines.
The number of recordable injuries reduced from 29 reported in
the prior year period to 28 in the first half of 2017, representing
a Total Recordable Injury Frequency Rate of 1.81.
Current health and safety priorities include audits being
carried out at each of our operations to ensure compliance with
Group health and safety standards, implementation of
"permit-to-work" procedures and a programme to standardise personal
protective equipment across the Group.
Operational performance
Copper production of 118 kt consisted of 52 kt from Bozshakol
and 33 kt from each of Aktogay and the East Region and Bozymchak.
With increased ore throughput from Bozshakol and Aktogay
anticipated in the second half of the year, we have narrowed our
full year copper production guidance to 235-260 kt.
Group gold production of 93 koz represents good progress against
the full year target set at the start of 2017 of 135-170 koz. The
East Region and Bozymchak are expected to achieve the upper end of
2017 guidance of 50-60 koz following consistently strong output at
Bozymchak. Having produced 63 koz in the first six months of the
year, Bozshakol is likely to achieve the top end of its guidance,
after taking into account the expected reduction in gold grade over
the second half. Full year guidance for Bozshakol gold production
is therefore narrowed to 100-110 koz and Group gold guidance has
been revised to 150-170 koz.
Following silver production of 1,756 koz, it is now expected
that the Group will produce 3,100-3,350 koz of silver in 2017.
Silver output was higher than planned in the first half of the year
mainly due to the contribution from Bozshakol and Aktogay, where
the silver content in concentrate was consistently above the
minimum level required for payment.
Zinc in concentrate output was 32 kt in the first six months of
the year, with a temporarily lower zinc grade at the Artemyevsky
mine. Achieving the full year target for zinc in concentrate
production of 70-75 kt is dependent on the confirmation of higher
zinc grades in the second half.
Bozshakol and Aktogay ramp up
The ramp up of Bozshakol is progressing well, with processing
volumes during the second quarter averaging 93% of design capacity
in the main sulphide concentrator and 69% in the clay plant. As
previously guided, Bozshakol remains on track to achieve 100% of
design capacity in the second half of 2017. The lower end of the
copper production guidance range for 2017 has been increased to
100-110 kt.
With Bozshakol approaching full capacity, the focus of our ramp
up effort has shifted to Aktogay, where the sulphide concentrator
commenced output in February of this year. We are aiming for a
faster ramp up at Aktogay compared to Bozshakol. Copper production
from sulphide ore at Aktogay was 23 kt in the first half, assisted
by a layer of supergene enriched ore which elevated the average
copper processing grade to 0.75%. Whilst the benefit of this high
grade layer will continue into the second half, feed grades are
expected to reduce and ramp up progress will be driven by
increasing throughput levels. The Aktogay sulphide plant is on
track to achieve commercial levels of ore throughput in the second
half of the year and we have narrowed copper production guidance to
70-85 kt, consisting of 20 kt from oxide ore and 50-65 kt from the
sulphide concentrator in 2017.
Financial performance
Output growth at Bozshakol and Aktogay, combined with higher
commodity prices in 2017, has delivered significantly higher
revenues of $721 million, an increase of 139% compared to $302
million in the first half of 2016. Revenues exclude $116 million of
sales from pre-commercial production, principally arising from the
Aktogay sulphide concentrator.
The Group has maintained its low cost position with gross cash
costs of 144 USc/lb and net cash costs of 64 USc/lb, after
by-product credits. Bozshakol recorded a gross cash cost of 120
USc/lb, slightly below the lower end of the guidance range of
125-145 USc/lb, and a net cash cost of 48 USc/lb. Aktogay gross
cash costs were also below guidance at 113 USc/lb. Aktogay unit
costs were assisted by a higher than anticipated copper grade, a
smooth ramp up and low maintenance costs during the early stages of
commissioning at the sulphide plant. Following the first half
performance, the full year gross cash cost guidance for Bozshakol
has been reduced to 115-135 USc/lb and Aktogay to 110-130
USc/lb.
The East Region and Bozymchak recorded a gross cash cost of 200
USc/lb in the first half, 12% higher than the prior year period due
to lower production volumes. Costs were below the full year
guidance range of 230-250 USc/lb due to a release of finished goods
inventory resulting in copper sales of 38 kt compared to production
of 33 kt and limited domestic inflation in Kazakhstan. Net cash
costs after by-product credits remained competitive at 50 USc/lb,
supported by strong gold and silver sales volumes and by higher
zinc prices. Unit costs are expected to increase in the second half
due to lower copper sales volumes and some cost inflation, but
following the performance in the year to date the full year gross
cash cost guidance range for the East Region and Bozymchak has been
lowered to 205-225 USc/lb.
The Group generated $505 million of Gross EBITDA in the first
half of 2017 and $429 million EBITDA, with $76 million of EBITDA
from pre-commercial production capitalised to the balance sheet.
Operating profit increased to $291 million from $68 million in the
first half of 2016 and profit before tax was 164% higher at $240
million. Underlying Profit was $195 million and earnings per share
based on Underlying Profit for the first half increased by 159% to
$0.44 from $0.17 in the first half of 2016.
Free Cash Flow before interest increased to $269 million from
$20 million in the first half of 2016, from higher operating cash
flow compared to the prior year period. Net cash flows from
operating activities were $337 million in the first half of
2017.
Financial position
Net debt reduced from $2,669 million at the year end to $2,442
million at 30 June 2017 as cash flow from operations exceeded
capital expenditure in the period and refunds of $176 million of
project related VAT were received. Gross debt decreased from $3,777
million at the prior year end to $3,665 million as scheduled
repayments were made against the Group's debt facilities. The Group
had cash and cash equivalents of $1,223 million at 30 June
2017.
A new PXF agreement was signed on 9 June 2017, increasing the
size of the facility to $600 million from the $224 million
outstanding at the end of May, of which $300 million was drawn down
as at 30 June 2017. The repayment profile of the facility has also
been extended, to June 2021. I am pleased to report strong support
for the refinancing, with all the existing lenders increasing their
participation and four new lenders added to the syndicate. The
revised terms of the PXF provide additional financial flexibility
as we complete the ramp up of Bozshakol and Aktogay.
Against a background of strong EBITDA growth and with our net
debt falling, the Group's gearing metrics are reducing rapidly and
are expected to improve further over the second half of the
year.
Shareholder returns
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 before recommending a suitable
dividend. This maintains flexibility, which is appropriate given
the underlying cyclicality of a commodity business.
Whilst the outlook for the Group's financial position is
increasingly positive as Bozshakol and Aktogay continue to ramp up
successfully and commodity prices rise, the Group has invested
heavily in the new projects and it remains our near-term priority
to reduce gearing metrics. Accordingly, the Board does not
recommend an interim dividend in respect of the first half of the
2017 financial year, although it is the Board's intention that the
Group resumes dividend payments in the future.
Outlook
We maintain a positive view on copper prices in the medium term,
as suppliers face a number of challenges set against steadily
increasing demand from traditional sectors such as construction,
power and consumer goods in China. Copper consumption could grow
faster than currently expected if momentum towards new sources of
demand, such as the adoption of more copper-intensive energy and
transportation technologies continues to build.
In the remainder of 2017 we expect to benefit from delivering
production growth at industry leading operating costs into a
tightening market. By the end of the year we aim to achieve
commercial levels of production at the Aktogay sulphide
concentrator and design capacity throughput at Bozshakol. I look
forward to reporting on our progress against these goals as we
complete the final stages of the ramp up of our new, low cost
operations.
operating review
The Group's operations in 2017 include the Bozshakol and Aktogay
open pit copper mines in the Pavlodar and East regions of
Kazakhstan, three underground mines and associated concentrators in
the East Region of Kazakhstan and the Bozymchak copper-gold mine in
Kyrgyzstan.
Group production summary
Six Six
months months
ended ended
30 June 30 June
kt (unless otherwise stated) 2017 2016
----------------------------- -------- --------
Copper production 118.0 56.3
Bozshakol 52.0 10.1
Aktogay 33.0 5.4
East Region and Bozymchak 33.0 40.8
Zinc in concentrate 32.3 39.6
Gold production (koz) 93.0 45.1
Silver production (koz) 1,756 1,560
----------------------------- -------- --------
Group copper production of 118.0 kt was more than double the
prior year period as Bozshakol and Aktogay continued to ramp up.
Bozshakol contributed 52.0 kt of copper production, as the primary
sulphide concentrator achieved 93% of ore throughput capacity
during the second quarter and meaningful output commenced at the
clay plant. Aktogay production increased from 5.4 kt to 33.0 kt,
with the oxide plant now fully ramped up and as the sulphide plant
recorded output of 22.6 kt following initial production in February
2017. The Aktogay sulphide plant has ramped up faster than the
Bozshakol plant, benefitting from the experience gained at
Bozshakol as well as higher grades. As expected, production from
the East Region and Bozymchak has reduced following the closure of
the Yubileyno-Snegirikhinsky mine at the end of 2016 and the
adoption of a six-day week at Orlovsky for ventilation work.
Group financial summary
Six Six
months months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2017 2016
----------------------------------------------- -------- --------
Sales volumes(1)
Copper sales (kt) 115.3 54.2
Gold sales (koz) 83.6 39.1
Silver sales (koz) 2,043 1,383
Zinc in concentrate (kt) 32.0 39.3
Gross Revenues(1) 837 363
Realised price: copper in concentrate ($/t)(1) 5,238 3,970
Realised price: copper cathode ($/t)(1) 5,793 4,714
Gross EBITDA (excluding special items)(1) 505 147
EBITDA (excluding special items) 429 115
Gross cash costs (USc/lb)(1) 144 173
Net cash costs (USc/lb)(1) 64 78
----------------------------------------------- -------- --------
(1) Includes operations during the period prior to commercial production.
Gross Revenues increased by 131% to $837 million from the prior
year period, driven by the volume growth at Bozshakol and Aktogay
and assisted by improved prices across all commodities,
particularly copper and zinc. The LME copper price increased by 22%
from $4,701/t to $5,748/t, whilst the LME zinc price increased by
50% to $2,690/t from $1,799/t. Over half of the Group's copper
revenues are now derived from the sale of copper in concentrate,
whereas in the prior year period the majority of copper revenues
were 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 244% benefitting from the higher Gross
Revenues as well as the reduction in gross cash cost resulting from
increased volumes from the low cost operations of Bozshakol and
Aktogay. EBITDA, which excludes the results from operations in
pre-commercial production, was $429 million, significantly above
the prior year period following Bozshakol sulphide and Aktogay
oxide being declared commercial in the second half of 2016. The
tenge, in which a significant portion of the Group's costs are
based, strengthened slightly during the first half, trading at an
average of 319 KZT/$ versus 346 KZT/$ in the prior year period. The
Group recorded a gross and net cash cost of 144 USc/lb and 64
USc/lb respectively in the first half of 2017, placing the Group's
operations competitively amongst pure-play copper producers.
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 40 years at a
copper grade of 0.36%. 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 an annual
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 achieved
on 1 July 2017.
Production summary
Six Six
months months
ended ended
30 June 30 June
kt (unless otherwise stated) 2017 2016
----------------------------------- -------- --------
Ore extraction 19,426 11,016
Ore processed 11,690 2,290
Average copper grade processed (%) 0.56 0.56
Copper recovery rate (%) 83 82
Copper in concentrate 54.4 10.6
Copper production 52.0 10.1
Average gold grade processed (g/t) 0.31 0.29
Gold recovery rate (%) 59 60
Gold in concentrate (koz) 67.2 13.0
Gold production (koz) 62.9 12.3
Silver production (koz) 361 58
----------------------------------- -------- --------
Ore processing volumes of 11.7 million tonnes were significantly
above the prior year period when the sulphide concentrator was in
the early stages of commissioning and the clay plant was not yet in
operation. The main sulphide concentrator increased ore throughput
levels to 93% of design capacity in the second quarter of 2017 as
the plant approached full capacity and as scheduled downtimes
reduced. Following the commissioning of the clay plant at the end
of 2016, ramp up has progressed well, with ore throughput achieving
69% of design capacity during the second quarter. The ramp up of
both concentrators is proceeding in line with expectations and
Bozshakol remains on track to achieve design capacity in the second
half of 2017.
Ore extraction of 19.4 million tonnes was 76% higher than the
prior year period, reflecting the increased ore processing volumes.
There continued to be a build-up of stockpiled clay material to
enable access to sulphide ores. At 30 June 2017, there were
approximately 30 million tonnes of stockpiled material available
for processing at the clay plant.
In line with the increase in processing volumes, copper
production of 52.0 kt was more than five times higher than the
prior year period, with the copper grade remaining constant at
0.56% and recovery rates increasing slightly to 83%. Gold and
silver production also increased significantly, with gold
production benefitting from temporarily elevated grades and silver
production from improved recoveries.
The majority of copper in concentrate production has been
dispatched to customers in China, however 7.5 kt of material has
been sent for toll processing at the Balkhash smelter in
Kazakhstan, where additional capacity on attractive terms was
available.
Bozshakol is on track to achieve 2017 copper production guidance
of 100-110 kt. Gold production of 62.9 koz was assisted by higher
gold grades which are expected to reduce in the second half of the
year. As a result, the gold production guidance range has been
narrowed to 100-110 koz. Silver production is expected to be around
650 koz.
Financial summary
Six Six
months months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2017 2016
-------------------------------------------------- -------- --------
Gross Revenues(1) 344 45
Copper 264 32
Gold 74 12
Silver 6 1
Revenues 323 0
Sales volumes(1)
Copper sales (kt) 50.0 7.8
Gold sales (koz) 58.1 9.1
Silver sales (koz) 323 44
Gross EBITDA (excluding special items)(1) 242 23
Capitalised EBITDA (12) (28)
EBITDA (excluding special items) 230 (5)
Gross cash cost (USc/lb)(1) 120 152
Net cash cost (USc/lb)(1) 48 77
Expansionary capital expenditure (direct project) 49 87
Expansionary capital expenditure (pre-commercial) 7 20
-------------------------------------------------- -------- --------
(1) Includes sulphide and clay operations during the period prior to commercial production.
Gross Revenues
Prior to the achievement of commercial production, all revenues
and operating costs are capitalised and not recognised in the
income statement. Sulphide operations achieved commercial levels of
production on 27 October 2016 and clay operations from 1 July 2017.
The income statement for the current period therefore reflects
revenues and operating costs for sulphide operations only, whereas
in the prior year period all Bozshakol revenues and operating costs
were capitalised. Gross Revenues and Gross EBITDA include the
pre-commercial production period and are shown in the table
above.
Gross Revenues increased by over seven times to $344 million,
reflecting the growth in sales volumes and favourable commodity
prices. Copper sales of 50 kt include 4 kt of material sold as
copper cathode after processing at the Balkhash smelter. By-product
revenues were $80 million from the sale of 58 koz and 323 koz of
gold and silver respectively.
Revenues recorded in the income statement during the period of
$323 million exclude $21 million of revenues from clay material.
All revenues and operating costs will be recorded in the income
statement going forward as the clay plant was declared commercial
from 1 July 2017.
EBITDA (excluding special items)
Bozshakol generated a Gross EBITDA of $242 million, with EBITDA
excluding clay operations of $230 million. 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 120 USc/lb
has fallen from the prior year period due to the substantial
increase in volumes. As expected gross cash costs have increased
from the levels reported in the second half of 2016, when costs
benefited from several factors, including limited maintenance
expenditure, the processing of higher grade, softer material as
well as the absence of clay operations, which have a higher
operating cost, particularly during the early stages of ramp up.
The gross cash cost of copper sold in 2017 is expected to be
between 115-135 USc/lb which places Bozshakol competitively on the
global cost curve.
Capital expenditure
At 30 June 2017, construction activities were complete with
outstanding project capital payments of approximately $40 million
still to be incurred relating to retention payments, the
acquisition of key spares and a subsoil payment in respect of
reserves. Sustaining capital expenditure for both Bozshakol and
Aktogay is expected to total around $25 million in the second half
of 2017.
During the first half of 2017, payments in respect of direct
capital expenditure on Bozshakol, excluding capitalised interest on
debt facilities, were $49 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, whilst to date sustaining capital expenditure has been
minimal.
AKTOGAY
The Aktogay project is a large scale, open pit development
similar to Bozshakol, with a mine life of more than 50 years and
average copper grades of 0.37% (oxide) and 0.33% (sulphide).
Aktogay commenced production of copper cathode from oxide ore in
December 2015 and following a period of steady output the oxide
operations achieved commercial levels of production from 1 July
2016. The production of copper in concentrate from sulphide ore
began in the first quarter of 2017 and the concentrator has an
annual ore processing capacity of 25 million tonnes when fully
ramped up.
Production summary
Six Six
months months
ended ended
30 June 30 June
kt (unless otherwise stated) 2017 2016
----------------------------------- -------- --------
Oxide
Ore extraction 8,297 8,679
Copper grade (%) 0.42 0.41
Copper cathode production 10.4 5.4
Sulphide
Ore extraction 4,725 -
Ore processed 4,574 -
Average copper grade processed (%) 0.75 -
Recovery rate (%) 69 -
Copper in concentrate 23.7 -
Copper production 22.6 -
Total copper production 33.0 5.4
----------------------------------- -------- --------
The sulphide concentrator recorded its initial production in
February 2017 and together with cathodes from the oxide plant
Aktogay produced 33.0 kt of copper in the period.
With cathode production from oxide material now fully ramped up,
the mining of oxide ore was broadly stable at 8.3 million tonnes.
Copper cathode output increased to 10.4 kt, compared to 5.4 kt in
the prior year period when the oxide plant was in the early stages
of ramp up. Copper cathode production from oxide ore remains on
track to achieve guidance of around 20 kt in 2017.
The ramp up of the sulphide concentrator proceeded successfully
during the period, achieving 47% of design throughput capacity
during the second quarter, higher than the 32% achieved at
Bozshakol during the comparative stage of ramp up. Having benefited
from the lessons learnt at Bozshakol, as well as from elevated
copper grades, copper production from sulphide operations was 22.6
kt in the period. The average copper grade of sulphide ore
processed was 0.75%, above expectations due to the mining of a
layer of supergene enriched ore. The grade is expected to decline
in the second half of the year as enriched ores reduce. A small
quantity of material has been dispatched for toll processing in
Kazakhstan, with 5.4 kt of copper in concentrate sent to Balkhash
and the majority of output exported to China based smelters during
the period.
Aktogay is now well placed to achieve the 2017 guidance of 70-85
kt, consisting of around 20 kt from oxide ore and 50-65 kt sulphide
ore, with increasing ore throughput in the second half of the year
expected to offset a reduction in copper grade.
Financial summary
Six Six
months months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2017 2016
-------------------------------------------------- -------- --------
Gross Revenues(1) 153 16
Revenues 58 0
Copper sales (kt)(1) 27.8 3.3
Gross EBITDA (excluding special items)(1) 93 2
Capitalised EBITDA (64) (4)
EBITDA (excluding special items) 29 (2)
Gross cash cost (USc/lb)(1) 113 156
Expansionary capital expenditure (direct project) 64 73
Expansionary capital expenditure (pre-commercial) (52) 12
-------------------------------------------------- -------- --------
(1) Includes sulphide and oxide operations during the period prior to commercial production.
Gross Revenues
Prior to the achievement of commercial production all revenues
and operating costs are capitalised and not recognised in the
income statement. Oxide operations achieved commercial levels of
production from 1 July 2016 and sulphide operations are expected to
achieve commercial production in the second half of 2017. The
income statement for the prior year period therefore does not
reflect any revenues or operating costs, whilst for the first half
of 2017 represents oxide operations only. Gross Revenues and Gross
EBITDA have been shown in the table above which include the
pre-commercial production period.
Gross Revenues increased substantially from the prior year
period to $153 million and was mainly attributable to the 19 kt of
copper sales from the sulphide operations. Copper sales volumes
from oxide material increased from 3 kt to 9 kt.
EBITDA (excluding special items)
Gross EBITDA of $93 million includes $64 million from sulphide
operations, which began production and ramped up during the period.
EBITDA of $29 million relates to the sale of copper cathode from
oxide operations, which contributed a small positive Gross EBITDA
in the prior year period during the early stages of
commissioning.
The gross cash cost has reduced from 156 USc/lb to 113 USc/lb,
reflecting both the successful ramp up of the oxide plant as well
as the significant volume growth provided by the sulphide
operations. The gross cash cost benefited from increased
efficiencies and automation at the oxide plant, a smooth sulphide
ramp up, muted inflationary pressures and lower maintenance costs
during the early periods of operation. The gross cash cost was also
assisted by the elevated copper grade in the first half of 2017.
The full year gross cash cost for 2017 is expected to be 110-130
USc/lb.
Capital expenditure
In the first half of 2017 direct project capital expenditure,
excluding capitalised interest on debt facilities, was $64 million.
This included spend on mining equipment, the acquisition of first
fill items and the build-up of inventory included within the
project budget. Expenditure for the full year is expected to be in
the region of $150 million, to include final payments for
construction, first fill items and the purchase rather than lease
of wagons for the transportation of concentrate, which the Group is
currently assessing. In 2018, payments of $300 million to the
principal construction contractor are scheduled in respect of work
performed in 2016 and a further $70 million may be invested to
expand the heap leach cells, although management is seeking to
defer this construction work. Sustaining capital expenditure for
both Bozshakol and Aktogay is expected to total around $25 million
in the second half of 2017.
Pre-commercial cash flows in the first half of 2017 relate to
the sulphide operations and in the prior year period to the oxide
operations.
EAST REGION AND BOZYMCHAK
Production summary
Copper
Six Six
months months
ended ended
30 June 30 June
kt (unless otherwise stated) 2017 2016
----------------------------------- -------- --------
Ore extraction 1,973 2,404
Ore processed 1,965 2,458
Average copper grade processed (%) 1.97 1.95
Average recovery rate (%) 90 89
Copper in concentrate 34.9 42.7
Copper production 33.0 40.8
----------------------------------- -------- --------
Copper production in the East Region and Bozymchak reduced by
19% to 33.0 kt versus the prior year period due to the closure of
the Yubileyno-Snegirikhinsky mine at the end of 2016 and the
adoption of a six-day week at Orlovsky for ventilation maintenance.
Bozymchak operated at design capacity throughout the period. As a
result, ore extraction and ore processed of 2.0 million tonnes were
around 20% lower than the prior year period. Ore processed included
83 kt of ore from the closed Yubileyno-Snegirikhinsky mine, the
remaining small stockpile will be processed during the second half
of the year.
Copper production for the East Region and Bozymchak is expected
to be around 65 kt in 2017.
By-products
Six Six
months months
ended ended
30 June 30 June
koz (unless otherwise stated) 2017 2016
-------------------------------- -------- --------
Zinc bearing ore processed (kt) 1,457 1,926
Zinc grade processed (%) 3.07 2.89
Zinc in concentrate (kt) 32.3 39.6
Gold bearing ore processed 1,965 2,458
Gold grade processed (g/t) 0.82 0.81
Gold in concentrate 31.6 34.8
Gold production 29.7 32.8
Silver bearing ore processed 1,965 2,458
Silver grade processed (g/t) 35.9 37.3
Silver in concentrate 1,409 1,622
Silver production 1,282 1,502
-------------------------------- -------- --------
As with copper and in line with expectations, output of all
by-products was lower than the prior year period due to the closure
of the Yubileyno-Snegirikhinsky mine and maintenance works at
Orlovsky.
Zinc in concentrate output reduced by 18%, with the reduction in
processing volumes partially offset by higher grades and
recoveries. Production in the first half of the year benefited from
higher zinc grades at the Irtyshsky mine and is expected to
increase further in the second half of the year when mining at
Artemyevsky moves to a high grade transitional zone.
The 9% reduction in gold output to 29.7 koz was lower than other
by-products as the majority of production is supplied from the
Bozymchak mine. Bozymchak gold production fell by 5% versus the
prior year period as a result of a reduction in ores processed and
a small reduction in grades.
Silver production of 1,282 koz in the period represents a
reduction of 15% compared to the prior year period due to lower
processing volumes in the East Region. The average silver grade
reduced to 35.9 g/t as a result of a higher proportion of output
from the lower grade Bozymchak mine.
Strong gold and silver output to date should result in
production from the East Region and Bozymchak being towards the
higher end of the 50-60 koz gold and 2,250-2,500 koz silver ranges
for 2017. Achieving full year zinc in concentrate production of
70-75 kt is dependent on the successful mining of higher zinc
grades in the second half of the year.
Financial Summary
Six Six
months months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2017 2016
------------------------------------ -------- --------
Revenues 340 302
Copper 216 202
Zinc 59 40
Silver 28 21
Gold 32 37
Other 5 2
Sales volumes
Copper sales (kt) 37.5 43.1
Zinc sales (kt) 32.0 39.3
Silver sales (koz) 1,632 1,339
Gold sales (koz) 25.5 30.0
EBITDA (excluding special items) 180 134
Gross cash costs (USc/lb) 200 178
Net cash costs (USc/lb) 50 72
Capital expenditure 34 26
Sustaining 23 22
Expansionary 11 4
------------------------------------ -------- --------
Revenues
Revenues generated at the East Region and Bozymchak increased by
13% to $340 million as a reduction in sales volumes was more than
offset by favourable commodity prices. Copper revenues benefited
from an increase in the average LME copper price, as well as the
sale of material built up at the end of 2016 such that sales
volumes of 38 kt were higher than production of 33 kt in the
period. Revenues from by-products increased by 24% to $124 million,
largely as a result of a significant increase in the LME price for
zinc. Silver sales volumes were supported by a release of work in
progress, whereas gold sales were below production owing to a
build-up of work in progress at Balkhash due to the timing of
maintenance works.
EBITDA (excluding special items)
EBITDA improved by $46 million compared to the prior year
period, in line with the increase in revenues. Cash operating costs
of $160 million reduced slightly, as lower costs from reduced
volumes were partially offset by a slightly stronger tenge. A
significant portion of the East Region's operating costs are
denominated in tenge which traded at an average of 319 KZT/$ versus
346 KZT/$ in the prior year period. There continues to be a focus
on cost control and management has taken a robust position in the
renegotiation of contracts following the devaluation of the tenge
in August 2015. However, some tariff increases have begun to feed
into costs during the period and costs in the second half of the
year are expected to be further impacted. Costs at Bozymchak
increased, impacted by a stronger exchange rate, as well as
legislative changes which have increased salary costs.
The gross cash cost of copper for East Region and Bozymchak of
200 USc/lb was 12% above the prior year period due to the reduction
in production volumes during the period as described above. Gross
cash costs did however benefit from favourable sales volumes in the
first half of the year, as finished goods carried forward from 2016
were sold and sales volumes therefore exceeded production in the
period. As a result, the gross cash cost is expected to increase in
the second half of the year due to lower sales volumes, the impact
of inflation and the timing of maintenance expenditure. However,
following the strong cost performance to date, the cost guidance
for the full year has been lowered to 205-225 USc/lb, from a
previous guidance range of 230-250 USc/lb.
The improvement in net cash cost from 72 USc/lb to 50 USc/lb is
due to the increase in by-product revenues. The higher market
prices for all by-products, particularly zinc, as well as higher
silver volumes, more than offset lower zinc and gold sales volumes
and the higher gross cash cost.
Capital expenditure
Sustaining capital expenditure of $23 million was broadly in
line with the prior year period and includes certain projects
deferred from previous years. Expenditure in the period relates to
mine development works across the underground mines, the purchase
of mine equipment, expansion of tailings facilities and maintenance
of support infrastructure. In 2017 sustaining capital requirements
for the East Region and Bozymchak are expected to be around $60
million.
Expansionary capital of $11 million predominantly relates to the
initial development works for the extension of the existing
Artemyevsky mine to develop a ventilation tunnel. The majority of
the expenditure for the project will occur from 2019, with
expenditure estimated at around $30 million in 2017 and 2018 for
long-lead items such as shaft development.
OTHER PROJECTS
The Group expects to make available up to $20 million during
2017 for other projects of which $6 million was invested in the
first half of 2017 relating to further studies at Koksay and to
study the feasibility of construction of a copper smelter in
Kazakhstan. The smelter would process copper concentrate from
Bozshakol and Aktogay. Any decision to proceed with construction
will be subject to additional technical and economic evaluation and
the availability of suitable financing.
Financial REVIEW
Basis of preparation
The financial information has been prepared in accordance with
IFRSs, as adopted by the EU, using accounting policies consistent
with those adopted in the consolidated financial statements for the
year ended 31 December 2016.
The Bozshakol clay and Aktogay sulphide plants commenced sales
during the six months ended 30 June 2017 and were in pre-commercial
production throughout the period. The Bozshakol clay plant has been
declared commercial from 1 July 2017. The Bozshakol sulphide and
Aktogay oxide plants commenced sales in the first half of 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 are 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 note 4(a)(i) to the condensed
consolidated financial statements include the non-IFRS measures
Gross Revenues and Gross EBITDA, which include the results of the
plants during pre-commercial production to provide a measure of
their performance for the periods presented. For the six months
ended 30 June 2017, Bozymchak has been combined with the East
Region and the comparative information has been restated
accordingly. In the first half of 2016, Aktogay formed part of the
Mining Projects segment.
Income statement
An analysis of the consolidated income statement is shown
below:
Six Six
months months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2017 2016
------------------------------------------------- -------- --------
Gross Revenues 837 363
Gross EBITDA (excluding special items) 505 147
------------------------------------------------- -------- --------
Revenues 721 302
Cash operating costs (292) (187)
------------------------------------------------- -------- --------
EBITDA (excluding special items) 429 115
Less: special items - (3)
Less: depreciation, depletion and amortisation (78) (19)
Less: MET and royalties (60) (25)
------------------------------------------------- -------- --------
Operating profit 291 68
Net finance (costs)/income (51) 23
------------------------------------------------- -------- --------
Profit before taxation 240 91
Income tax expense (55) (18)
------------------------------------------------- -------- --------
Profit attributable to equity holders of the
Company 185 73
------------------------------------------------- -------- --------
Earnings per share attributable to equity
shareholders of the Company
Ordinary EPS - basic and diluted ($) 0.41 0.16
EPS based on Underlying Profit - basic and
diluted ($) 0.44 0.17
------------------------------------------------- -------- --------
Gross Revenues and revenues
Gross Revenues for the first half of 2017 were $837 million, an
increase of 131% from the prior year period due to the additional
contributions from Bozshakol and Aktogay of $299 million and $137
million respectively. The higher revenues were due to the
significant production growth from the Group's recently launched
open pit operations and an improved commodity price environment.
The total copper sold in the first half of 2017 was 115.3 kt
compared to 54.2 kt in the prior year period from higher output
from the Bozshakol sulphide and Aktogay oxide plants and the
commencement of operations at the Bozshakol clay and Aktogay
sulphide plants. The LME copper price averaged $5,748/t in the
first half of 2017, up from $4,701/t in the prior year period.
Gross Revenues from by-products were $205 million, of which gold
was $106 million, above the $49 million gold revenues in the first
half of 2016 due to increased sales of Bozshakol material.
By-products made up 24% of Gross Revenues in the first half of 2017
compared to 31% in the prior year period due to the significant
increase in copper sales.
Revenues recognised in the income statement increased by 139% to
$721 million, reflecting the Bozshakol sulphide and Aktogay oxide
plants having achieved commercial production in the second half of
2016. Revenues recognised in the income statement exclude sales
during the pre-commercial production period which are capitalised.
Capitalised revenues in the first half of 2017 were $21 million and
$95 million from the Bozshakol clay and Aktogay sulphide plants
respectively with $45 million from the Bozshakol sulphide and $16
million from the Aktogay oxide plant being capitalised in the prior
year period.
Further information on Gross Revenues and revenues by operating
segment can be found in the Operating Review.
Operating profit
Operating profit for the first half of 2017 was $291 million
compared to $68 million in the first half of 2016 due primarily to
the growth in revenues across all the Group's products from higher
volumes at the new operations and stronger commodity prices. The
Group's operating profit margin, defined as operating profit
divided by revenues, has increased to 40% in the current half year
period from 23% in the comparative period in the prior year. This
increase is attributed to the higher contribution from the
Bozshakol and Aktogay operations and to improved commodity prices.
The increase in the Group's cost of sales and selling and
distribution expenses is due to the higher sales volumes from the
new 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 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:
Six Six
months months
ended ended
30 June 30 June
$ million 2017 2016
-------------------------------------------- -------- --------
Bozshakol 242 23
East Region and Bozymchak 180 134
Aktogay(1) 93 2
Corporate services (10) (12)
-------------------------------------------- -------- --------
Gross EBITDA (excluding special items) 505 147
Less: Capitalised pre-commercial production
EBITDA (76) (32)
-------------------------------------------- -------- --------
Bozshakol (12) (28)
Aktogay(1) (64) (4)
-------------------------------------------- -------- --------
EBITDA (excluding special items) 429 115
-------------------------------------------- -------- --------
(1) Aktogay has been included as a separate segment in the
current period and was reported within Mining Projects in the prior
year period.
Gross EBITDA (excluding special items) for the Group rose by
244% from $147 million to $505 million mainly due to the ramp up of
sales from the Bozshakol sulphide and Aktogay oxide plants and the
first contribution from the Bozshakol clay and Aktogay sulphide
plants which commenced sales activities during the first quarter of
2017. The Gross EBITDA (excluding special items) margin for the
Group improved from 40% in the first half of 2016 to 60% in the
first half of 2017 due to stronger commodity prices and as the
Group's unit cost of production reduced.
At Bozshakol, Gross EBITDA (excluding special items) rose from
$23 million in the first half of 2016 to $242 million due to the
sulphide plant operating at commercial levels of production in 2017
and the commencement of sales from the smaller clay plant. Copper
and gold sales rose from 7.8 kt and 9.1 koz in the first six months
of 2016 to 50.0 kt and 58.1 koz respectively.
Aktogay's Gross EBITDA (excluding special items) improved from
$2 million in the first half of 2016 to $93 million in the first
half of 2017 due to the oxide plant operating at commercial levels
of production throughout the current period and from the
commencement of sales from the sulphide plant in the first quarter
of 2017. Accordingly, copper sales increased from 3.3 kt in the
first half of 2016 to 27.8 kt in the current period.
The East Region and Bozymchak's Gross EBITDA (excluding special
items) of $180 million was $46 million above the first half of 2016
due to an increase in revenues from higher realised metal prices,
in particular copper and zinc, and from lower cash operating costs.
These factors more than offset lower copper (5.6 kt), zinc (7.3 kt)
and gold (4.5 koz) sales volumes. Cash operating costs in the first
half of 2017 of $160 million were $8 million lower than the first
half of 2016, largely due to lower sales volumes.
Corporate costs reduced slightly from $12 million in the first
half of 2016 to $10 million, reflecting the impact of the
strengthening US dollar on UK pound sterling costs.
The increase in EBITDA (excluding special items) from $115
million to $429 million in the first half of 2017 is due to the
$235 million and $31 million increased contribution from the
Bozshakol sulphide and Aktogay oxide plants respectively, following
their achievement of commercial production in the second half of
2016 and the price driven $46 million higher EBITDA from the East
Region and Bozymchak.
Please refer to the Operating Review for a detailed analysis of
the Group's EBITDA (excluding special items) by operating
segment.
Other items excluded from EBITDA (excluding special items)
MET and royalties
MET and royalties charge in the income statement increased from
$25 million in the first half of 2016 to $60 million in the first
half of 2017. This reflected the higher volume of metal in ore
mined from Bozshakol and Aktogay during commercial production.
The total MET incurred at Bozshakol and Aktogay was $49 million
and $23 million respectively (30 June 2016: $24 million and $9
million). This includes amounts capitalised prior to commercial
production, which comprised:
-- $23 million (30 June 2016: $24 million) incurred at Bozshakol
in respect of long-term stockpiled clay ore and included in the
cost of non-current inventory on the balance sheet;
-- $3 million relating to clay material processed and
capitalised to property, plant and equipment;
-- $11 million at Aktogay relating to sulphide operations (30
June 2016: $9 million, relating to oxide); and
-- $6 million relating to oxide ore included in the cost of
unsold inventory and work in progress.
The MET and royalties incurred at the East Region and Bozymchak
operations of $31 million for the first half of 2017 were above the
$25 million charge in the prior year period reflecting the impact
of higher metal realised prices, partly offset by lower
volumes.
Depreciation, depletion and amortisation
Depreciation, depletion and amortisation for the first half of
2017 of $78 million is $59 million higher than the $19 million
charge in the first half of 2016 as depreciation of the Bozshakol
sulphide and Aktogay oxide assets only commenced during the second
half of 2016 on their achievement of commercial production.
Net finance income/(costs)
Net finance income/(costs) includes:
Six Six
months months
ended ended
30 June 30 June
$ million 2017 2016
----------------------------------------------- -------- --------
Interest income 7 4
----------------------------------------------- -------- --------
Interest on borrowings (109) (93)
PXF fees (10) -
Unwinding of discount on NFC deferral (8) (2)
----------------------------------------------- -------- --------
Total interest (127) (95)
Interest capitalised 61 84
----------------------------------------------- -------- --------
Interest expense (66) (11)
Interest on employee obligations and unwinding
of discounts (3) (2)
----------------------------------------------- -------- --------
Net interest expense (62) (9)
Net foreign exchange gains 11 32
----------------------------------------------- -------- --------
Net finance (costs)/income (51) 23
----------------------------------------------- -------- --------
Net finance costs were $51 million compared to a net finance
income of $23 million in the first half of 2016.
The interest cost on borrowings amounted to $109 million and was
$16 million higher than the $93 million incurred in the first half
of 2016. The increase is attributed to higher US dollar LIBOR rates
in 2017 and from the additional borrowing costs associated with the
DBK loan drawn in December 2016. The PXF amendment cost of $10
million reflects the fees paid on the refinancing, classified as a
special item and excluded from Underlying Profit. The increase in
the unwinding of the discount to $8 million compared to $2 million
in the prior year period is due to the accrual of the full amount
owed to NFC over 2016. This interest is capitalised to the cost of
the Aktogay sulphide plant until it reaches commercial
production.
The interest expense recognised in the income statement of $66
million ($11 million in the first half of 2016) is stated after the
deduction of interest capitalised to the construction of new mines.
Interest expenses rose as the borrowing costs associated with the
Bozshakol sulphide and Aktogay oxide plants ceased being
capitalised after these assets achieved commercial production in
the second half of 2016. Upon achievement of commercial production
at the Aktogay sulphide plant, expected in the second half of 2017,
the Group will cease capitalising borrowing costs, including the
DBK debt costs, associated with that project.
The $11 million net foreign exchange gain in the first half of
2017 was principally driven by a 4% appreciation of the tenge from
31 December 2016 which resulted in net foreign exchange gains on US
dollar net monetary liabilities in Kazakhstan based entities.
The $32 million net foreign exchange gain in the first half of
2016 was principally driven by the impact of the 11% appreciation
of the Kyrgyz som and the 9% depreciation in the UK pound sterling.
The appreciation of the som on Bozymchak's US dollar denominated
intercompany net debt resulted in a gain of $23 million. The
depreciation of the UK pound sterling in June 2016 against the US
dollar gave rise to a $9 million gain.
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 royalties and removes the effect of special items on the
Group's tax charge.
Six Six
months months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2017 2016
--------------------------------------- -------- --------
Profit before taxation 240 91
Add: MET and royalties 60 25
Add: special items 10 3
--------------------------------------- -------- --------
Adjusted profit before taxation 310 119
--------------------------------------- -------- --------
Income tax expense 55 18
Add: MET and royalties 60 25
Less: taxation effect of special items - -
--------------------------------------- -------- --------
Adjusted tax expense 115 43
--------------------------------------- -------- --------
Effective tax rate (%) 23 20
--------------------------------------- -------- --------
All-in effective tax rate(1) (%) 37 36
--------------------------------------- -------- --------
(1) The all-in effective tax rate, a non-IFRS measure, 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 to arrive at adjusted profit before
taxation. Adjusted profit before taxation is a non-IFRS measure.
The all-in effective tax rate is considered to be a representative
tax rate on the recurring profits of the Group.
Effective tax rate
The effective tax rate was 23% and higher than the prior year
period due to unrecognised tax losses from the Group's UK
entities.
All-in effective tax rate
The all-in effective tax rate was marginally above the first
half of 2016 as the higher effective tax rate more than offset a
slightly lower MET and royalties charge as a proportion of adjusted
profit. As MET and royalties are determined independently of the
profitability of operations, in periods of lower profitability it
puts upwards pressure on the all-in effective tax rate, as the
impact of MET and royalties is elevated due to their revenue based
nature. Conversely, during periods of higher profitability, the MET
and royalties impact on the all-in effective tax rate
decreases.
Future tax rates
Future tax rates are materially affected by the application of
corporate income tax ('CIT') and MET and royalties. The CIT rate in
Kazakhstan is 20% and 10% in Kyrgyzstan on assessable profits
whilst MET and royalties are revenue-based and dependent on
commodity prices.
Underlying Profit
Underlying Profit is a non-IFRS measure and is the profit for
the period after adding back items which are non-recurring or
variable in nature and which do not impact the underlying trading
performance of the business and their resultant tax and
non-controlling interest effects. The reconciliation of Underlying
Profit from profit attributable to equity holders of the Company is
set out below:
Six Six
months months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2017 2016
--------------------------------------------- -------- --------
Net profit attributable to equity holders
of the Company 185 73
Special items within operating profit - note
5 - 3
Special items within profit before taxation
- PXF fees 10 -
Underlying Profit 195 76
--------------------------------------------- -------- --------
Weighted average number of shares in issue
(millions) 447 447
--------------------------------------------- -------- --------
Ordinary EPS - basic and diluted ($) 0.41 0.16
EPS based on Underlying Profit - basic and
diluted ($) 0.44 0.17
--------------------------------------------- -------- --------
The Group's net profit attributable to equity holders of the
Company was $185 million in the first half of 2017 compared to $73
million for the first half of 2016.
The Underlying Profit for the period was $195 million compared
to $76 million in the prior year period, primarily due to increased
profit contributions from the Bozshakol and Aktogay operations as
they continue to ramp up production to their respective design
capacities, partially offset by interest costs on project
borrowings being expensed in the current period whilst being
capitalised in the prior year period.
Earnings per share
Basic earnings per share of $0.41 increased from the $0.16 in
the first half of 2016 and earnings per share based on Underlying
Profit rose to $0.44 from $0.17, reflecting the Group's improved
profitability.
Dividends
The policy established at the time of Listing was for the
Company to maintain a dividend policy which took into account the
profitability of the business and underlying growth in earnings of
the Group, as well as its cash flows and growth requirements. The
Directors would also ensure that dividend cover is prudently
maintained.
Whilst the Group's gearing metrics are improving, taking into
consideration the debt assumed for the construction of the two
major growth projects, the Directors did not declare an interim
dividend for 2017. The Board will continue to assess the Group's
financial position, its cash flows and growth requirements in
determining when to resume dividend payments in the future.
Cash flows
The summary of cash flows shown below is prepared on a basis
consistent with internal management reporting. The key non-IFRS
measure of 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.
Six Six
months months
ended ended
30 June 30 June
$ million 2017 2016
----------------------------------------------------- -------- --------
EBITDA (excluding special items)(1) 429 115
Change in inventories(2) (4) (7)
Change in prepayments and other current assets(2) (20) (11)
Change in trade and other receivables(2) (22) (4)
Change in trade and other payables and provisions(2) 15 (12)
Interest paid (114) (85)
MET and royalties paid(2) (66) (26)
Income tax paid (47) (15)
Foreign exchange and other movements 7 2
----------------------------------------------------- -------- --------
Net cash flows from/(used in) operating activities
before capital expenditure
and non-current VAT associated with major
projects(3) 178 (43)
Sustaining capital expenditure (23) (22)
----------------------------------------------------- -------- --------
Free Cash Flow 155 (65)
Expansionary and new project capital expenditure (85) (197)
Net non-current VAT received/(paid) associated
with major projects 159 (20)
Proceeds from disposal of property, plant
and equipment - 1
Interest received 7 4
Other movements (1) (1)
----------------------------------------------------- -------- --------
Cash flow movement in net debt 235 (278)
----------------------------------------------------- -------- --------
(1) EBITDA (excluding special items) is defined as profit before
interest, taxation, depreciation, depletion, amortisation, MET and
royalties. Please refer to note 4(a)(i) of the consolidated
financial statements.
(2) Excludes working capital and MET movements arising from
pre-commercial production activities at the Bozshakol and Aktogay
operations.
(3) The difference between 'net cash flow from 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.
Summary
Net cash flows from operating activities before capital
expenditure and non-current VAT associated with major projects
improved following higher profitability, partly offset by increased
interest payments on borrowings, increased MET payments from
Bozshakol and Aktogay following commercial production and higher
income tax payments.
Working capital
The working capital movements in the table above exclude the
period of pre-commercial production which are included within
expansionary and new project capital expenditure;
-- inventory levels have risen by $4 million following higher
consumables at the Bozshakol and Aktogay operations and an increase
in ore on leach pads at Aktogay. The $12 million increase in
inventory as reflected in the IFRS based cash flow statement (see
note 13(a)) includes MET and depreciation, both production costs,
which are excluded from the cash flow above as MET is reflected
separately and EBITDA (excluding special items) is stated before
depreciation and amortisation;
-- prepayments and other current assets increased by $20 million
primarily due to a build-up of operating VAT receivable at the
Bozshakol and Aktogay operations. During the period, $20 million of
VAT receivable at the East Region operations was refunded;
-- trade and other receivables increased by $22 million from
increased volumes at Bozshakol and Aktogay; and
-- trade and other payables rose by $15 million due to increased
operational spending at the Bozshakol and Aktogay operations and
from the timing of payments received for inventory delivered to
customers. The $13 million accounts payable and provision outflow
reflected in the IFRS based cash flow statement (see note 13(a))
includes the accruals relating to MET and royalties. The cash flow
shown above reflects MET and royalty payments separately.
Working capital movements at Bozshakol and Aktogay incurred
during pre-commercial production are reflected within expansionary
capital expenditure in the cash flow above and are not included in
Free Cash Flow. These include outflows of $24 million for
consumables and inventory at the Aktogay sulphide plant and $35
million for long-term clay ore that was stockpiled during the
current period and both funded out of their respective project
budgets. Other pre-commercial working capital movements include an
$18 million increase in trade and other receivables partly offset
by increased accounts payable of $4 million and a $6 million
increase in MET. In the first half of 2016, the pre-commercial
working capital movements included a $32 million outflow for
consumables and raw materials, a $20 million increase in trade and
other receivables and a $6 million increase in prepayments, partly
offset by a $24 million increase in trade and other payables and a
$17 million increase in fixed asset payables.
In the first half of 2016, inventory levels rose by $7 million
due to a build up of copper and gold work in progress and raw
material at the East Region and Bozymchak. Trade and other
receivables increased by $4 million due to lower revenues and the
timing of receipts, while prepayments and other current assets
increased by $11 million primarily from the build-up of VAT and
advances paid for processing services in the East Region and
Bozymchak. Trade and other payables decreased by $12 million due to
the release of payments received in advance for customer
deliveries.
Interest cash flows
Interest paid during the first half of 2017 was $114 million
compared with $85 million in the first half of 2016. The increased
payments, which includes the $10 million PXF amendment costs, are
broadly consistent with the higher borrowings cost for the year at
$119 million compared to $95 million in the prior period. Interest
payments are made semi-annually under the CDB Bozshakol/Bozymchak,
CDB Aktogay US dollar and DBK US dollar facilities, quarterly under
the CDB Aktogay RMB facility and monthly under the PXF
facility.
Income taxes and Mineral Extraction Tax
Income tax payments of $47 million include $25 million of
withholding tax on interest accrued in previous periods financing
the major growth projects. Excluding withholding tax payments,
taxes paid were below the income statement charge due to capital
allowances available on the major growth projects. At 30 June 2017,
the Group's net income tax payable was $5 million, compared to $4
million at 31 December 2016.
MET and royalty payments increased to $66 million reflecting the
payments made by Bozshakol and Aktogay and the impact of higher
metal prices. The total MET paid on ore mined at Bozshakol and
Aktogay in the first half of 2017 was $56 million and $11 million
respectively, with $27 million relating to clay ore and $6 million
relating to Aktogay sulphide material included within expansionary
capital expenditure. At 30 June 2017, the MET and royalty payable
was $53 million compared to $49 million at 31 December 2016.
Free Cash Flow
The Group's Free Cash Flow before interest payments on
borrowings was $269 million compared to $20 million in the first
half of 2016 due to the improved profitability of the Group, in
particular the sales contributions from Bozshakol and Aktogay and
the improved copper price. After interest payments, Free Cash Flow
was $155 million compared to an outflow of $65 million in the prior
year period.
Capital expenditure
Sustaining capital expenditure relates to the East Region and
Bozymchak and increased by $1 million to $23 million.
Expansionary and new project expenditure of $85 million includes
operating cash flows relating to pre-commercial production
activities at the Aktogay sulphide and Bozshakol clay plants. The
spend was below the $197 million invested in the first half of 2016
as construction activities were largely completed in the prior
year. At Aktogay, capital expenditure financed out of the project
budget was $64 million and includes $24 million for consumables and
inventory while operating cash inflows from pre-commercial
production activities of the sulphide plant were $52 million to
arrive at total expansionary capital spend of $12 million. At
Bozshakol, expenditure financed from the project budget was $49
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 $56 million. The Group incurred
$17 million on other expansionary projects including the
Artemyevsky mine extension. 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 growth projects
cash flow includes the receipt of $176 million of VAT incurred
during the construction of Bozshakol and Aktogay.
Other investing and financing cash flows
In the first half of 2017 other investing cash flows relate to
interest received on cash and cash equivalents and deposits of $7
million (30 June 2016; $4 million).
Balance sheet
The Group's capital employed position is shown below:
At At
30 June 31 December
$ million 2017 2016
--------------------------------------------- -------- ------------
Equity attributable to owners of the Company 837 533
Non-controlling interests 3 3
Borrowings 3,665 3,777
--------------------------------------------- -------- ------------
Capital employed 4,505 4,313
--------------------------------------------- -------- ------------
Summary of movements
The Group's attributable profit for the period of $185 million
led to the increase in the equity attributable to owners of the
Company and an appreciation of the tenge increased the US dollar
value of the Group's foreign currency operations by $117
million.
Net debt
Net debt consists of cash and cash equivalents and borrowings. A
summary of the Group's net debt position is shown below:
At At
30 June 31 December
$ million 2017 2016
-------------------------- -------- ------------
Cash and cash equivalents 1,223 1,108
Borrowings (3,665) (3,777)
-------------------------- -------- ------------
Net debt (2,442) (2,669)
-------------------------- -------- ------------
Cash and cash equivalents at 30 June 2017 totalled $1,223
million and was above the $1,108 million at 31 December 2016 due to
the Free Cash Flow generated by the Bozshakol and Aktogay
operations as well as increased cash flow from the East Region and
Bozymchak, receipt of VAT relating to the major growth projects and
a draw down of $76 million from the amended PXF facility. These
cash inflows more than offset the repayment of debt of $196 million
and expansionary capital expenditure. The $196 million repayment of
debt in the first half of 2017 includes the settlement of the $40
million 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 2.5 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 was increased to $600 million of which $300 million was
drawn at 30 June 2017 with the remainder available for drawing
until 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 are utilised mainly for working capital
purposes. The funds within the UK are held primarily with major
European and US financial institutions and triple-'A' rated
liquidity funds. At 30 June 2017, $1,137 million of cash and cash
equivalents was held in the UK and Europe and $86 million in
Kazakhstan and Kyrgyzstan.
At 30 June 2017, borrowings (net of amortised fees) were $3,665
million, a decrease of $112 million from 31 December 2016
reflecting the $40 million repayment of the CAT facility, $91
million in principal repayments of the CDB Bozshakol/Bozymchak
finance facility, $59 million repaid under the previous PXF
facility and $6 million paid under the CDB Aktogay RMB facility.
$76 million was drawn under the amended and extended PXF facility.
The borrowings (net of unamortised fees) consisted of $1,613
million under the CDB Bozshakol/Bozymchak facility, $1,455 million
under the CDB Aktogay finance facilities, $297 million under the
DBK facility and $300 million under the PXF debt facility.
Full details of the terms of the Group's borrowings are included
in note 11 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 half years to June 2021 and
financial covenants were revised to increase headroom as production
at Bozshakol and Aktogay continue to ramp up. The Board considers
that there is sufficient committed available liquidity to meet the
Group's requirements for the foreseeable future, taking into
account reasonably possible downside scenarios, including lower
than expected commodity prices and lower than expected production
at Bozshakol and Aktogay. A severe downturn in copper price or a
material adverse event impacting production could adversely impact
future liquidity, including financial covenants.
After making appropriate assessment, the Board has a reasonable
expectation 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.
PRINCIPAL RISKS
Managing our risks
The significant risks identified by KAZ Minerals are those that
could materially affect the Group's financial condition,
performance, strategy and prospects together with their potential
impact and the mitigating actions being taken by management, are
set out in the 2016 Annual Report and Accounts, which is available
at www.kazminerals.com.
In the view of the Board, the principal risks set out in the
2016 Annual Report and Accounts reflect the significant risks and
uncertainties for the Group for the remaining six months of 2017,
with a summary and any key changes described below, including an
update on liquidity risk. There may be other risks unknown, or
currently believed immaterial by the Group, which might become
material. The risks set out below are not in order of likelihood of
occurrence or materiality and should be viewed, as with any forward
looking statements in this document, with regard to the cautionary
statement.
Health & safety
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.
Business interruption
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.
Political
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.
New project construction and commissioning
Projects may fail to achieve the desired economic returns due to
an inability to recover mineral resources, design or construction
deficiencies, a failure to achieve expected operating parameters or
because of capital or operating costs being higher than expected.
Failure to effectively manage new projects or a lack of available
financing may prevent or delay completion of projects.
These risks will continue in 2017 during the ramp up of the
Bozshakol and Aktogay operations to design capacity. The speed of
ramp up is dependent on the successful start-up and operation of
equipment and the performance of suppliers and the workforce. These
factors could result in delays which could impact cash flows,
liquidity and financial results.
Community and labour relations
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.
Employees
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.
Reserves and resources
The Group's ore reserves are partly 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.
Legal and regulatory compliance
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. As a
Company listed in the UK, the Group is also subject to legislation
and compliance requirements, including related party rules and the
UK Bribery Act.
Non-compliance with legislation could result in regulatory
challenges, reputational damage, 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.
Environmental compliance
Mining operations involve the use of toxic substances and
requires the storage of large volumes of waste materials in
tailings dams, which could result in spillages and significant
environmental damage. The Group is subject to environmental laws
and regulations which are continually developing, including those
to tackle climate change. Failure to comply with applicable laws
could lead to the suspension of operating licences, the imposition
of financial penalties or costly compliance costs and reputational
damage.
Increased levels of production from Bozshakol and Aktogay will
increase the Group's environmental footprint and energy and water
consumption.
Commodity price
The Group's results are heavily dependent on the commodity price
for copper and to a lesser extent, the prices of gold, silver and
zinc. Commodity prices can fluctuate significantly and are
dependent on several factors, including world supply and demand and
investor sentiment. The financial impact of commodity price
movements on the Group's financial position will increase with the
continued ramp up of output from Bozshakol and Aktogay.
Foreign exchange and inflation
Fluctuations in rates of exchange or inflation in the
jurisdictions to which the Group is exposed could result in future
increased costs. As the functional currency of the Group's
operations is the local currency, fluctuations in exchange rates
can give rise to exchange gains and losses in the income statement
and volatility in the level of net assets recorded on the Group's
balance sheet.
Exposure to China
Sales are made to a limited number of end customers in China,
with Chinese sales to increase further as copper concentrate output
increases in 2017. Treatment and refining charges are dependent
upon Chinese smelting capacity and the level of copper concentrate
supply in the region.
China is an important source of financing to the Group with
long-term debt facilities of $3.1 billion at 30 June 2017. In
addition, the Group uses contractors, services and materials from
China.
Acquisitions and divestments
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.
Liquidity
The Group is exposed to liquidity risk if it is unable to meet
payment obligations as they fall due or is unable to access
acceptable sources of finance. Non-compliance with financial
covenants could result in borrowing facilities becoming uncommitted
and repayable. The debt financing of the Bozshakol and Aktogay
projects has resulted in an elevated net debt level. Gearing
metrics are expected to reduce as Bozshakol and Aktogay ramp up to
full capacity.
Failure to manage liquidity risk could have a material impact on
the Group's cash flows, earnings and financial position.
On 9 June 2017, the Group announced that it had completed an
amendment and extension of its PXF facility, including an increase
in commitments to $600 million. The maturity profile of the
facility increased by 2.5 years until June 2021. Financial
covenants were revised to increase headroom as Bozshakol and
Aktogay continue to ramp up production.
Further details regarding going concern are included in note 2
to the financial statements.
DIRECTORS' RESPONSIBILITY STATEMENT
Each Director confirms to the best of his/her knowledge that
this condensed set of financial statements has been prepared in
accordance with IAS 34, Interim Financial Reporting, as adopted by
the European Union and that the half-yearly report includes a fair
review of the information required by DTR 4.2.7 and DTR 4.2.8,
namely:
-- an indication of important events that have occurred during
the first six months of the financial year, and their impact on
this condensed set of financial statements, and a description of
the principal risks and uncertainties for the remaining six months
of the financial year; and
-- material related party transactions that have taken place in
the first six months of the current financial year and any material
changes in the related party transactions described in the KAZ
Minerals 2016 Annual Report and Accounts.
The Directors of KAZ Minerals PLC are listed on the Company's
website at www.kazminerals.com.
OLEG NOVACHUK
CHIEF EXECUTIVE
16 August 2017
INDEPENT REVIEW REPORT TO KAZ MINERALS PLC
Conclusion
We have been engaged by KAZ Minerals PLC (the 'Company') to
review the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2017 which
comprises consolidated statement of total comprehensive income,
consolidated balance sheet, consolidated statement of cash flows,
consolidated statement of changes in equity and notes 1 to 15.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2017 is not prepared, in all material respects, in accordance
with IAS 34 'Interim Financial Reporting' as adopted by the
European Union (the 'EU') and the Disclosure Guidance and
Transparency Rules (the 'DTR') of the UK's Financial Conduct
Authority (the 'UK FCA').
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the UK. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. We have read the other information contained in the
half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards ('IFRSs') as adopted by the EU. The Directors
are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in
accordance with IAS 34 as adopted by the EU.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Juliette Lowes
For and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
16 August 2017
Consolidated statement of total comprehensive income
(UNAUDITED)
Six months ended 30 June 2017
Six Six
months months
ended ended
30 June 30 June
$ million (unless otherwise stated) Notes 2017 2016
--------------------------------------------- ----- -------- --------
Revenues 4(b) 721 302
Cost of sales (344) (170)
--------------------------------------------- ----- -------- --------
Gross profit 377 132
Selling and distribution expenses (37) (13)
Administrative expenses (53) (51)
Net other operating income 5 3
Impairment losses (1) (3)
--------------------------------------------- ----- -------- --------
Operating profit 291 68
--------------------------------------------- ----- -------- --------
Analysed as:
Operating profit (excluding special items) 291 71
Special items 5 - (3)
--------------------------------------------- ----- -------- --------
Interest income 7 4
Finance costs 6 (69) (13)
Foreign exchange gain, net 11 32
--------------------------------------------- ----- -------- --------
Profit before taxation 240 91
Income tax expense 7 (55) (18)
--------------------------------------------- ----- -------- --------
Profit for the period 185 73
--------------------------------------------- ----- -------- --------
Analysed as:
Underlying Profit 8 195 76
Special items 5 (10) (3)
--------------------------------------------- ----- -------- --------
Attributable to:
Equity holders of the Company 185 73
Non-controlling interests - -
--------------------------------------------- ----- -------- --------
185 73
--------------------------------------------- ----- -------- --------
Other comprehensive income/(expense) for
the period after tax:
Items that may be reclassified subsequently
to the income statement:
Exchange differences on retranslation
of foreign operations 117 (12)
--------------------------------------------- ----- -------- --------
Other comprehensive income/(expense) for
the period 117 (12)
--------------------------------------------- ----- -------- --------
Total comprehensive income for the period 302 61
--------------------------------------------- ----- -------- --------
Attributable to:
Equity holders of the Company 302 61
Non-controlling interests - -
--------------------------------------------- ----- -------- --------
302 61
--------------------------------------------- ----- -------- --------
Earnings per share attributable to equity
shareholders of the Company
Ordinary EPS - basic and diluted ($) 8 0.41 0.16
EPS based on Underlying Profit - basic
and diluted ($) 8 0.44 0.17
--------------------------------------------- ----- -------- --------
CONSOLIDATED BALANCE SHEET (UNAUDITED)
At 30 June 2017
At At At
30 June 31 December 30 June
$ million Notes 2017 2016 2016
---------------------------------------------- ----- -------- ------------ --------
Assets
Non-current assets
Intangible assets 7 8 7
Property, plant and equipment 2,786 2,670 2,490
Mining assets 431 422 389
Other non-current assets 9 242 364 260
Deferred tax asset 74 72 66
---------------------------------------------- ----- -------- ------------ --------
3,540 3,536 3,212
---------------------------------------------- ----- -------- ------------ --------
Current assets
Inventories 280 247 157
Prepayments and other current assets 73 54 61
Income taxes receivable 5 7 1
Trade and other receivables 138 105 52
Cash and cash equivalents 13(b) 1,223 1,108 1,056
---------------------------------------------- ----- -------- ------------ --------
1,719 1,521 1,327
---------------------------------------------- ----- -------- ------------ --------
Total assets 5,259 5,057 4,539
---------------------------------------------- ----- -------- ------------ --------
Equity and liabilities
Equity
Share capital 10(a) 171 171 171
Share premium 2,650 2,650 2,650
Capital reserves (1,920) (2,037) (2,084)
Retained earnings (64) (251) (356)
---------------------------------------------- ----- -------- ------------ --------
Attributable to equity holders of the Company 837 533 381
Non-controlling interests 3 3 3
---------------------------------------------- ----- -------- ------------ --------
Total equity 840 536 384
---------------------------------------------- ----- -------- ------------ --------
Non-current liabilities
Borrowings 11 3,399 3,446 3,277
Deferred tax liability 65 56 40
Employee benefits 15 15 14
Provisions 62 57 14
Other non-current liabilities 12 57 292 188
---------------------------------------------- ----- -------- ------------ --------
3,598 3,866 3,533
---------------------------------------------- ----- -------- ------------ --------
Current liabilities
Trade and other payables 299 309 294
Borrowings 11 266 331 310
Income taxes payable 10 11 14
Employee benefits 2 2 2
Other current liabilities 12 244 2 2
---------------------------------------------- ----- -------- ------------ --------
821 655 622
---------------------------------------------- ----- -------- ------------ --------
Total liabilities 4,419 4,521 4,155
---------------------------------------------- ----- -------- ------------ --------
Total equity and liabilities 5,259 5,057 4,539
---------------------------------------------- ----- -------- ------------ --------
These condensed consolidated financial statements were approved
by the Board of Directors on 16 August 2017.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six months ended 30 June 2017
Six Six
months months
ended ended
30 June 30 June
$ million Notes 2017 2016
------------------------------------------- ----- -------- --------
Cash flows from operations
Cash receipts from customers 679 265
Net proceeds/(payments) on non-current
VAT 159 (20)
Cash payments to employees, suppliers
and taxes other than non-current VAT and
income tax (340) (208)
------------------------------------------- ----- -------- --------
Cash flows from operations before interest
and income taxes 13(a) 498 37
Interest and financing charges paid (114) (85)
Income taxes paid (47) (15)
------------------------------------------- ----- -------- --------
Net cash flows from/(used in) operating
activities 337 (63)
------------------------------------------- ----- -------- --------
Cash flows from investing activities
Interest received 7 4
Proceeds from disposal of property, plant
and equipment - 1
Purchase of intangible assets (1) (1)
Purchase of property, plant and equipment (89) (194)
Investments in mining assets (18) (24)
Licence payments for subsoil contracts (1) (1)
Movement in short-term bank deposits 13(c) - 400
------------------------------------------- ----- -------- --------
Net cash flows (used in)/from investing
activities (102) 185
------------------------------------------- ----- -------- --------
Cash flows from financing activities
Proceeds from borrowings 76 250
Repayment of borrowings (196) (166)
------------------------------------------- ----- -------- --------
Net cash flows (used in)/from financing
activities (120) 84
------------------------------------------- ----- -------- --------
Net increase in cash and cash equivalents 13(c) 115 206
Cash and cash equivalents at the beginning
of the period 1,108 851
Effect of exchange rate changes on cash
and cash equivalents 13(c) - (1)
------------------------------------------- ----- -------- --------
Cash and cash equivalents at the end of
the period 13(b) 1,223 1,056
------------------------------------------- ----- -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Six months ended 30 June 2017
Attributable to equity
holders of the Company
----------------------------------------------- ------------ -------
Non-
Share Share Capital Retained controlling Total
$ million capital premium reserves earnings Total interests equity
------------------------------------- -------- -------- --------- --------- ----- ------------ -------
At 1 January 2017 171 2,650 (2,037) (251) 533 3 536
Profit for the period - - - 185 185 - 185
Exchange differences
on retranslation of foreign
operations - - 117 - 117 - 117
------------------------------------- -------- -------- --------- --------- ----- ------------ -------
Total comprehensive income
for the period - - 117 185 302 - 302
Share-based payments - - - 2 2 - 2
------------------------------------- -------- -------- --------- --------- ----- ------------ -------
At 30 June 2017 171 2,650 (1,920) (64) 837 3 840
------------------------------------- -------- -------- --------- --------- ----- ------------ -------
At 1 January 2016 171 2,650 (2,072) (430) 319 3 322
Profit for the period - - - 73 73 - 73
Exchange differences
on retranslation of foreign
operations - - (12) - (12) - (12)
------------------------------------- -------- -------- --------- --------- ----- ------------ -------
Total comprehensive income/(expense)
for the period - - (12) 73 61 - 61
Share-based payments - - - 1 1 - 1
------------------------------------- -------- -------- --------- --------- ----- ------------ -------
At 30 June 2016 171 2,650 (2,084) (356) 381 3 384
------------------------------------- -------- -------- --------- --------- ----- ------------ -------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Six months ended 30 June 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 divisions
as set out below.
The Group operates in the natural resources industry through
five divisions, the principal activities of which during the first
half of 2017 were:
Operating division Principal activity Primary country of operations
------------------ ----------------------------- -----------------------------
Mining and processing of
Bozshakol copper and other metals Kazakhstan
Mining and processing of
East Region(1) copper and other metals Kazakhstan
Mining and processing of
Bozymchak(1) copper and other metals Kyrgyzstan
Mining and processing of
Aktogay copper and other metals Kazakhstan
Development of metal deposits
Mining Projects and processing facilities Kazakhstan
------------------ ----------------------------- -----------------------------
1 The East Region and Bozymchak are separate divisions but have
been combined for segmental reporting purposes.
These condensed consolidated financial statements for the six
months ended 30 June 2017 were authorised for issue in accordance
with a resolution of the Board on 16 August 2017. The information
for the year ended 31 December 2016 does not constitute statutory
accounts as defined in Section 434 of the Companies Act 2006. A
copy of the statutory accounts for that year, which were prepared
in accordance with International Financial Reporting Standards
('IFRSs') issued by the International Accounting Standards Board
('IASB') and interpretations issued by the International Financial
Reporting Interpretations Committee ('IFRIC') of the IASB, as
adopted by the European Union up to 31 December 2016, has been
delivered to the Registrar of Companies. The auditor's opinion in
relation to those accounts was unqualified, did not draw attention
to any matters by way of emphasis and also did not contain a
statement under Section 498(2) or 498(3) of the Companies Act
2006.
2. Basis of preparation
(a) Condensed consolidated financial statements
The condensed consolidated financial statements for the six
month period ended 30 June 2017 have been prepared in accordance
with International Accounting Standard ('IAS') 34 'Interim
Financial Reporting' and the requirements of the Disclosure and
Transparency Rules of the Financial Conduct Authority in the United
Kingdom as applicable to interim financial reporting. These
condensed consolidated financial statements represent a 'condensed
set of financial statements' as referred to in the Disclosure and
Transparency Rules issued by the Financial Conduct Authority.
Accordingly, they do not include all the information and
disclosures required for full annual financial statements, and
should be read in conjunction with the Annual Report and Accounts
for the year ended 31 December 2016.
(b) Comparative figures
Where a change in the presentational format of these condensed
consolidated financial statements has been made during the period,
comparative figures have been restated accordingly. Figures may
have been restated to conform with the current basis of
understanding.
(c) Significant accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, the
Directors are required to make 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 condensed 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.
In preparing these condensed consolidated financial statements,
significant judgements made by the Directors in applying the
Group's accounting policies and the key sources of estimation
uncertainty used were consistent, in all material respects, with
those applied to the Group's consolidated financial statements for
the year ended 31 December 2016.
Consistent with the year end, the Directors reviewed the
carrying value of the Group's assets to determine whether there
were any indicators of impairment such that the carrying values of
the assets may not be recoverable. The assessment of whether an
indicator of impairment has arisen requires considerable judgement,
taking account of future operational and financial plans, commodity
prices, market demand and the competitive environment. Where such
indicators exist, the carrying value of the assets of a cash
generating unit is compared with the recoverable amount of those
assets, that is, the higher of its fair value less costs to sell
and value in use, which is determined on the basis of discounted
future cash flows.
The preparation of discounted future cash flows includes
management estimates of commodity prices, market demand and supply,
future operating costs, economic and regulatory climates, capital
expenditure requirements, long-term mine plans and other
factors.
Any subsequent changes to cash flows due to changes in the
factors listed above could impact the recoverable amount of the
assets.
An assessment of the key external and internal factors,
including short to long-term commodity prices, exchange rates, cash
costs and production expectations affecting the Group and its Cash
Generating Units ('CGU's') at 30 June 2017 did not identify any
indicators of impairment.
For the six month period to 30 June 2016 the reduction in the
short and medium term consensus market estimate of copper prices
was identified as an impairment indicator at the Bozymchak CGU due
to its shorter life of mine compared to the Group's other
operations and an impairment assessment was undertaken. This
assessment required an estimation of the projected cash flows using
forecast commodity prices, production profile and operating costs
and sustaining capital requirements, among other factors. The
projected cash flows were discounted using an appropriate rate to
determine the CGU's recoverable amount and was compared to its
carrying value. After considering the improved operational
performance of Bozymchak in the first half of 2016, its lower cash
operating costs and the impact of the lower short and medium term
copper prices, no impairment was considered necessary.
(d) 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.
At 30 June 2017, the Group's net debt was $2,442 million with
total debt of $3,665 million, gross liquid funds of $1,223 million
and total undrawn committed facilities of $340 million. The gross
debt consisted of:
-- $1,613 million of the CDB-Bozshakol and Bozymchak facilities
which amortises over the period to 2025;
-- $1,455 million of the $1.5 billion loan facility with CDB,
which amortises over the period to 2029, with repayments increasing
from March 2018;
-- $300 million for the amended PXF facility, with a further
$300 million undrawn commitment. The facility amortises over the
period from July 2018 to June 2021.
-- $297 million of the DBK facility, which amortises during the
period from June 2018 to June 2025.
These condensed consolidated financial statements have been
prepared on a going concern basis. In making the assessment that
the Group is a going concern, the Board has considered the Group's
cash flow forecasts for the period to 30 September 2018, the
outlook for commodity prices, based on market consensus forecasts,
the assumed ramp up of production from Bozshakol and Aktogay and
the principal repayments due under the Group's debt facilities.
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 $600 million, the maturity
profile was extended by two and half years to June 2021 and
financial covenants were revised to increase headroom as production
at Bozshakol and Aktogay continue to ramp up.
The Board considers that there is sufficient committed available
liquidity to meet the Group's requirements for the foreseeable
future, taking into account reasonably possible downside scenarios,
including lower than expected commodity prices and lower than
expected production at Bozshakol and Aktogay. A severe downturn in
copper price or a material adverse event impacting production could
adversely impact future liquidity, including financial
covenants.
After making appropriate assessment, the Board has a reasonable
expectation that the Group has adequate liquidity to continue in
operational existence for the foreseeable future. Accordingly, it
is appropriate to adopt the going concern basis of accounting in
the preparation of these consolidated financial statements.
3. Summary of significant accounting policies
(a) Basis of accounting
The condensed consolidated financial statements have been
prepared on a historical cost basis, except for derivative
financial instruments which have been measured at fair value. The
condensed consolidated financial statements are presented in US
dollars ('$') and all financial information has been rounded to the
nearest million dollars ('$ million') except where otherwise
indicated.
None of the amendments to standards and interpretations
applicable during the period has had an 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.
All accounting policies adopted in the preparation of the
condensed 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
2016.
In preparing these condensed consolidated financial statements,
the Group has adopted all the applicable extant accounting
standards issued by the IASB and all the applicable extant
interpretations issued by the IFRIC and as adopted by the European
Union up to 30 June 2017. The impact and assessment of IFRS 15
'Revenue from Contracts with Customers' which becomes effective in
the European Union on 1 January 2018 is documented in the Group's
annual consolidated financial statements in the 2016 Annual Report
and Accounts. The impact of IFRS 15, which is not expected to have
a material effect on the Group's reported revenues when compared to
the current accounting policy, is being assessed in respect of
sales arrangements entered into for 2018.
(b) Exchange rates
The following foreign exchange rates against the US dollar have
been used in the preparation of the condensed consolidated
financial statements:
30 June 2017 31 December 30 June
2016 2016
--------------- --------------- ---------------
Spot Average Spot Average Spot Average
------------------ ------ ------- ------ ------- ------ -------
Kazakhstan tenge 321.46 318.59 333.29 342.16 338.87 346.11
Kyrgyzstan som 69.14 68.84 69.23 69.88 67.49 71.29
UK pound sterling 0.77 0.79 0.80 0.74 0.75 0.70
------------------ ------ ------- ------ ------- ------ -------
In the six months to 30 June 2017, the appreciation of the tenge
resulted in a non-cash foreign exchange gain of $117 million (30
June 2016: non-cash foreign exchange loss of $12 million)
recognised directly within reserves arising on the translation on
consolidation of the Group's Kazakhstan based subsidiaries whose
functional currency is the tenge.
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. 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 grounds of materiality, the East
Region and Bozymchak segments have been presented on a combined
basis for the six months ended 30 June 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 were 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 commenced commissioning in the final quarter of 2016
and is in pre-commercial production. With the commissioning of the
sulphide plant, Aktogay has been reflected as a separate segment
from the second half of 2016. Until commercial production is
achieved, the revenues and operating costs of the sulphide
concentrator will be 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. In the first half of 2016,
Aktogay was included within the Mining Projects segment.
East Region and Bozymchak
The East Region and Bozymchak are reflected as one operating
segment and consists of Vostoktsvetmet LLC ('VCM' or '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, whose responsibility was the
development of the Group's major growth projects until the
respective concentrators are commissioned. For the period ended 30
June 2017, the segment principally includes the Koksay mineral
deposit. The Mining Projects segment for the period ended 30 June
2016 included Aktogay.
Managing and measuring operating segments
The key performance measure of the operating segments is EBITDA
(excluding special items), which is defined as profit before
interest, taxation, depreciation, depletion, amortisation, mineral
extraction tax and royalties, as adjusted for special items.
Special items are those items which are non-recurring or variable
in nature and which do not impact the underlying trading
performance of the business (see note 5). 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 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
Six months ended 30 June
2017
-------------------------------------------------
East
Region
and Corporate
$ million Bozshakol Bozymchak Aktogay Services Total
----------------------------------- --------- ---------- ------- --------- ------
Revenues
Gross Revenues 344 340 153 - 837
Pre-commercial production revenues
capitalised to property, plant
and equipment(1) (21) - (95) - (116)
----------------------------------- --------- ---------- ------- --------- ------
Revenues - income statement 323 340 58 - 721
----------------------------------- --------- ---------- ------- --------- ------
Gross EBITDA (excluding special
items) 242 180 93 (10) 505
Pre-commercial production EBITDA
capitalised to property, plant
and equipment(1,2) (12) - (64) - (76)
----------------------------------- --------- ---------- ------- --------- ------
EBITDA (excluding special items) 230 180 29 (10) 429
Less: special items - note 5 - - - - -
----------------------------------- --------- ---------- ------- --------- ------
EBITDA 230 180 29 (10) 429
Less: depreciation, depletion
and amortisation(3) (43) (23) (11) (1) (78)
Less: mineral extraction tax
and royalties(2,3) (23) (31) (6) - (60)
----------------------------------- --------- ---------- ------- --------- ------
Operating profit/(loss) 164 126 12 (11) 291
Net finance costs and foreign
exchange gain (51)
Income tax expense (55)
----------------------------------- --------- ---------- ------- --------- ------
Profit for the period 185
----------------------------------- --------- ---------- ------- --------- ------
Six months ended 30 June
2016
---------------------------------------------------
East
Region Mining
and Projects Corporate
$ million Bozshakol Bozymchak - Aktogay Services Total
----------------------------------- --------- ---------- ---------- --------- -----
Revenues
Gross Revenues 45 302 16 - 363
Pre-commercial production revenues
capitalised to property, plant
and equipment(1) (45) - (16) - (61)
----------------------------------- --------- ---------- ---------- --------- -----
Revenues - income statement - 302 - - 302
----------------------------------- --------- ---------- ---------- --------- -----
Gross EBITDA (excluding special
items) 23 134 2 (12) 147
Pre-commercial production EBITDA
capitalised to property, plant
and equipment(1,2) (28) - (4) - (32)
----------------------------------- --------- ---------- ---------- --------- -----
EBITDA (excluding special items) (5) 134 (2) (12) 115
Less: special items - note 5 - (3) - - (3)
----------------------------------- --------- ---------- ---------- --------- -----
EBITDA (5) 131 (2) (12) 112
Less: depreciation, depletion
and amortisation(3) - (19) - - (19)
Less: mineral extraction tax
and royalties(2,3) - (25) - - (25)
----------------------------------- --------- ---------- ---------- --------- -----
Operating profit/(loss) (5) 87 (2) (12) 68
Net finance costs and foreign
exchange gain 23
Income tax expense (18)
----------------------------------- --------- ---------- ---------- --------- -----
Profit for the period 73
----------------------------------- --------- ---------- ---------- --------- -----
(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 (excluding special items). The Directors
believe that MET and royalties are a substitute for a tax on
profits, hence their exclusion provides a more informed measure of
the operational performance of the Group. The MET incurred at
Bozshakol (clay) and Aktogay (sulphide) during the pre-commercial
production stage of $3 million (30 June 2016: $9 million) and $11
million (30 June 2016: $9 million) respectively has been
capitalised to property, plant and equipment. MET incurred on
stockpiled clay ore at Bozshakol and included within non-current
inventory was $23 million (30 June 2016: $15 million).
(3) Depreciation, depletion and amortisation and MET and
royalties excludes the costs associated with inventories on the
balance sheet.
(ii) Balance sheet information
At 30 June 2017
--------------------------------------------------------------
East
Region
and Mining Corporate
$ million Bozshakol Bozymchak Aktogay Projects Services Total
--------------------------------- --------- ---------- ------- --------- --------- --------
Assets
Property, plant and equipment,
mining assets and intangible
assets(1) 1,308 325 1,339 250 2 3,224
Intragroup investments - - - - 5,294 5,294
Other non-current assets 157 26 58 1 - 242
Operating assets(2) 163 205 145 - 361 874
Inter-segment loans - - - - 1,874 1,874
Cash and cash equivalents 20 71 275 2 855 1,223
--------------------------------- --------- ---------- ------- --------- --------- --------
Segment assets 1,648 627 1,817 253 8,386 12,731
Deferred tax asset 74
Income taxes receivable 5
Elimination (7,551)
--------------------------------- --------- ---------- ------- --------- --------- --------
Total assets 5,259
--------------------------------- --------- ---------- ------- --------- --------- --------
Liabilities
Employee benefits and provisions 7 69 3 - - 79
Inter-segment borrowings 1,058 116 700 - - 1,874
Operating liabilities(3) 267 165 458 5 88 983
--------------------------------- --------- ---------- ------- --------- --------- --------
Segment liabilities 1,332 350 1,161 5 88 2,936
Borrowings 3,665
Deferred tax liability 65
Income taxes payable 10
Elimination (2,257)
--------------------------------- --------- ---------- ------- --------- --------- --------
Total liabilities 4,419
--------------------------------- --------- ---------- ------- --------- --------- --------
At 31 December 2016
--------------------------------------------------------------
East
Region
and Mining Corporate
$ million Bozshakol Bozymchak Aktogay Projects Services Total
--------------------------------- --------- ---------- ------- --------- --------- --------
Assets
Property, plant and equipment,
mining assets and intangible
assets(1) 1,291 305 1,261 241 2 3,100
Intragroup investments - - - - 5,195 5,195
Other non-current assets 214 29 120 1 - 364
Operating assets(2) 140 198 82 - 346 766
Inter-segment loans - - - - 1,914 1,914
Cash and cash equivalents 33 41 293 1 740 1,108
--------------------------------- --------- ---------- ------- --------- --------- --------
Segment assets 1,678 573 1,756 243 8,197 12,447
Deferred tax asset 72
Income taxes receivable 7
Elimination (7,469)
--------------------------------- --------- ---------- ------- --------- --------- --------
Total assets 5,057
--------------------------------- --------- ---------- ------- --------- --------- --------
Liabilities
Employee benefits and provisions 6 66 2 - - 74
Inter-segment borrowings 1,020 136 758 - - 1,914
Operating liabilities(3) 291 151 420 3 98 963
--------------------------------- --------- ---------- ------- --------- --------- --------
Segment liabilities 1,317 353 1,180 3 98 2,951
Borrowings 3,777
Deferred tax liability 56
Income taxes payable 11
Elimination (2,274)
--------------------------------- --------- ---------- ------- --------- --------- --------
Total liabilities 4,521
--------------------------------- --------- ---------- ------- --------- --------- --------
At 30 June 2016
-------------------------------------------------------------
Mining Projects
--------------------------------- --------- ---------- ----------------- --------- --------
East
Region
and Corporate
$ million Bozshakol Bozymchak Aktogay Koksay Services Total
--------------------------------- --------- ---------- --------- ------ --------- --------
Assets
Property, plant and equipment,
mining assets and intangible
assets(1) 1,315 250 1,079 240 2 2,886
Intragroup investments - - - - 5,191 5,191
Other non-current assets 154 24 81 1 - 260
Operating assets(2) 61 203 25 - 238 527
Inter-segment loans - - - - 1,811 1,811
Cash and cash equivalents 23 41 19 - 973 1,056
--------------------------------- --------- ---------- --------- ------ --------- --------
Segment assets 1,553 518 1,204 241 8,215 11,731
Deferred tax asset 66
Income taxes receivable 1
Elimination (7,259)
--------------------------------- --------- ---------- --------- ------ --------- --------
Total assets 4,539
--------------------------------- --------- ---------- --------- ------ --------- --------
Liabilities
Employee benefits and provisions 6 22 2 - - 30
Inter-segment borrowings 1,003 151 657 - - 1,811
Operating liabilities(3) 220 145 286 3 87 741
--------------------------------- --------- ---------- --------- ------ --------- --------
Segment liabilities 1,229 318 945 3 87 2,582
Borrowings 3,587
Deferred tax liability 40
Income taxes payable 14
Elimination (2,068)
--------------------------------- --------- ---------- --------- ------ --------- --------
Total liabilities 4,155
--------------------------------- --------- ---------- --------- ------ --------- --------
(1) Property, plant and equipment, mining assets and intangible
assets are located in the principal country of operations of each
operating segment. The East Region, Bozshakol, Aktogay and Mining
Projects segments operate in Kazakhstan. Bozymchak, which is
reflected within the East Region and Bozymchak segment operates in
Kyrgyzstan.
(2) Operating assets comprise inventories, prepayments and other
current assets and trade and other receivables, including
intragroup receivables.
(3) Operating liabilities comprise trade and other payables,
including intragroup payables, other non-current and current
liabilities.
(iii) Capital expenditure(1)
Six months ended 30 June
2017
------------------------------------------------------
East
Region
and Mining
$ million Bozshakol(2) Bozymchak Aktogay(2) Projects Total
--------------------------------- ------------ ---------- ---------- --------- -----
Property, plant and equipment(3) 55 16 12 6 89
Mining assets(3) - 18 - - 18
Intangible assets 1 - - - 1
--------------------------------- ------------ ---------- ---------- --------- -----
Capital expenditure 56 34 12 6 108
--------------------------------- ------------ ---------- ---------- --------- -----
Six months ended 30 June
2016
---------------------------------------------------
Mining Projects
--------------------------------- ------------ ---------- ------------------ -----
East
Region
and
$ million Bozshakol(2) Bozymchak Aktogay(2) Koksay Total
--------------------------------- ------------ ---------- ---------- ------ -----
Property, plant and equipment(3) 100 12 82 - 194
Mining assets(3) 7 14 2 1 24
Intangible assets - - 1 - 1
--------------------------------- ------------ ---------- ---------- ------ -----
Capital expenditure 107 26 85 1 219
--------------------------------- ------------ ---------- ---------- ------ -----
(1) The capital expenditure presented by operating segment
reflects cash paid and is aligned with the Group's internal capital
expenditure reporting.
(2) In the first half of 2017, cash capital expenditure for
Aktogay and Bozshakol includes $27 million inflows and $7 million
outflows respectively of net operating cash flows incurred during
the period and ahead of commercial production (30 June 2016: $12
million and $41 million). Of the $56 million, $35 million relates
to stockpiled clay ore at Bozshakol (30 June 2016: $21 million of
$41 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
Six months ended
30 June 2017
--------------------------------------
East
Region
and
$ million Bozshakol Bozymchak Aktogay Total
------------------------------------------------------- --------- ---------- ------- ------
Copper cathodes 22 207 72 301
Copper in concentrate 242 9 80 331
Zinc in concentrate - 59 - 59
Gold - 31 - 31
Gold in concentrate 74 1 - 75
Silver - 27 - 27
Silver in concentrate 6 1 1 8
Other revenue - 5 - 5
------------------------------------------------------- --------- ---------- ------- ------
344 340 153 837
Less pre-commercial production revenues capitalised to
property, plant and equipment (21) - (95) (116)
------------------------------------------------------- --------- ---------- ------- ------
323 340 58 721
------------------------------------------------------- --------- ---------- ------- ------
Six months ended
30 June 2016
----------------------------------------
East
Region Mining
and Projects
$ million Bozshakol Bozymchak - Aktogay Total
------------------------------------------------------- --------- ---------- ---------- -----
Copper cathodes - 199 16 215
Copper in concentrate 32 3 - 35
Zinc in concentrate - 40 - 40
Gold - 32 - 32
Gold in concentrate 12 5 - 17
Silver - 21 - 21
Silver in concentrate 1 - - 1
Other revenue - 2 - 2
------------------------------------------------------- --------- ---------- ---------- -----
45 302 16 363
Less pre-commercial production revenues capitalised to
property, plant and equipment (45) - (16) (61)
------------------------------------------------------- --------- ---------- ---------- -----
- 302 - 302
------------------------------------------------------- --------- ---------- ---------- -----
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 following (for
copper cathode and zinc concentrate) or the second month following
(for copper concentrate) dispatch to the customer. At 30 June 2017
and 30 June 2016, the Group's provisionally priced volumes and
their respective average provisional price for its largest products
were:
Copper Copper concentrate Zinc concentrate Gold
------------ -------------------- ------------------ --------------
At At At At At At At At
30 30 30 30 30 30 30 30
June June June June June June June June
2017 2016 2017 2016 2017 2016 2017 2016
-------------------- ----- ----- --------- --------- -------- -------- ------ ------
Provisionally priced
volumes 4 kt 2 kt 27 kt 4 kt 6 kt 7 kt 26 koz 13 koz
Weighted average 5,602 4,738 4,749 3,831 1,570 1,043 1,194 1,283
provisional price $/t $/t $/t $/t $/t $/t $/oz $/oz
-------------------- ----- ----- --------- --------- -------- -------- ------ ------
Revenues by destination from sales to third parties are as
follows:
Six months ended
30 June 2017
--------------------------------------
East
Region
and
$ million Bozshakol Bozymchak Aktogay Total
------------------------------------------------------- --------- ---------- ------- ------
Europe 2 65 57 124
China 342 200 96 638
Kazakhstan and Central Asia - 75 - 75
------------------------------------------------------- --------- ---------- ------- ------
344 340 153 837
Less pre-commercial production revenues capitalised to
property plant and equipment (21) - (95) (116)
------------------------------------------------------- --------- ---------- ------- ------
323 340 58 721
------------------------------------------------------- --------- ---------- ------- ------
Six months ended
30 June 2016
----------------------------------------
East
Region Mining
and Projects
$ million Bozshakol Bozymchak - Aktogay Total
------------------------------------------------------- --------- ---------- ---------- -----
Europe - 80 6 86
China 45 150 10 205
Kazakhstan and Central Asia - 72 - 72
------------------------------------------------------- --------- ---------- ---------- -----
45 302 16 363
Less pre-commercial production revenues capitalised to
property plant and equipment (45) - (16) (61)
------------------------------------------------------- --------- ---------- ---------- -----
- 302 - 302
------------------------------------------------------- --------- ---------- ---------- -----
Six months ended 30 June 2017
The Group's 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 69%
($575 million) of Gross Revenues.
Six months ended 30 June 2016
Five customers within the East Region and Bozymchak segment, two
of which are collectively under common control, represent 52% of
total Group revenue ($157 million) for the six months. The revenue
from the two customers under common control of $63 million
represents 21% of the total Group revenue. Revenues from the
remaining three major customers of $94 million represent 31% of
Group revenue.
5. Special items
Special items are those items which are non-recurring or
variable in nature and which do not impact the underlying trading
performance of the business.
Six Six
months months
ended ended
30 June 30 June
$ million 2017 2016
--------------------------------------------- -------- --------
Special items within operating profit:
Impairment charges against property, plant
and equipment 1 3
Other reimbursements (1) -
--------------------------------------------- -------- --------
- 3
--------------------------------------------- -------- --------
Special items within profit before taxation:
PXF fees 10 -
--------------------------------------------- -------- --------
Total special items 10 3
--------------------------------------------- -------- --------
There is no income tax impact on the special items.
6. Finance costs
Six Six
months months
ended ended
30 June 30 June
$ million 2017 2016
------------------------------------------------------ -------- --------
Interest expense 66 11
------------------------------------------------------ -------- --------
Total interest expense(1) 127 95
Less: amounts capitalised to the cost of qualifying
assets(2) (61) (84)
------------------------------------------------------ -------- --------
Interest on employee obligations 1 1
Unwinding of discount on provisions 2 1
------------------------------------------------------ -------- --------
69 13
------------------------------------------------------ -------- --------
(1) Total interest expense includes $109 million (30 June 2016:
$93 million) of interest incurred on borrowings, $10 million PXF
fees and $8 million (30 June 2016: $2 million) relating to the
unwinding of the discount on the NFC deferral agreement.
(2) During the first half of 2017, the Group capitalised to the
cost of qualifying assets $9 million (30 June 2016: $48 million) of
borrowing costs incurred on the outstanding debt during the period
on the CDB-Bozshakol and Bozymchak facilities at an average rate of
interest (net of interest income) of 5.8% (30 June 2016: 5.33%),
$36 million on the CDB-Aktogay US$ and CNY facilities (30 June
2016: $36 million) at an average rate of interest of 5.55% and
4.54% respectively (30 June 2016: 4.97% and 4.26%) and $8 million
(30 June 2016: $nil) on the $300 million Development Bank of
Kazakhstan loan at an average rate of interest of 5.82%. Interest
capitalised includes $8 million of unwinding of interest on the
deferred NFC payable (30 June 2016: $2 million).
7. Income taxes
The major components of income tax expense are:
Six Six
months months
ended ended
30 June 30 June
$ million 2017 2016
------------------------------------------------- -------- --------
Current income tax
Corporate income tax - current period (UK) - -
Corporate income tax - current period (overseas) 45 16
Corporate income tax - prior periods 2 -
------------------------------------------------- -------- --------
47 16
------------------------------------------------- -------- --------
Deferred income tax
Corporate income tax - current period temporary
differences 9 4
Corporate income tax - prior period temporary
differences (1) (2)
------------------------------------------------- -------- --------
8 2
------------------------------------------------- -------- --------
55 18
------------------------------------------------- -------- --------
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:
Six Six
months months
ended ended
30 June 30 June
$ million 2017 2016
------------------------------------------- -------- --------
Profit before tax 240 91
At UK statutory income tax rate of 19.25%
(30 June 2016: 20.0%)(1) 46 18
Current income tax - prior periods 2 -
Deferred income tax - prior periods (1) (2)
Unrecognised tax losses 3 -
Effect of domestic tax rates applicable to
individual Group entities - (4)
Effect of changes in future tax rates - 1
Non-deductible items:
Transfer pricing 1 1
Non-deductible expenses 4 4
------------------------------------------- -------- --------
Total income tax expense 55 18
------------------------------------------- -------- --------
(1) For the period ended 30 June 2017, the UK statutory rate for
January to March 2017 was 20.0% and for April to December 2017 is
19.0%, giving a weighted average full year rate of 19.25%.
Corporate income tax is calculated at 19.25% (30 June 2016:
20.0%) of the assessable profit for the period for the Company and
its UK subsidiaries, 20.0% for the operating subsidiaries in
Kazakhstan (30 June 2016: 20.0%) and 10.0% for the Group's
Kyrgyzstan based subsidiary (30 June 2016: 10.0%).
8. Earnings per share
The following reflects the income and share data used in the EPS
computations:
Six months Six months
ended ended
$ million (unless otherwise stated) 30 June 2017 30 June 2016
------------------------------------------- ------------- -------------
Net profit attributable to equity holders
of the Company 185 73
Total special items - note 5 10 3
Underlying Profit 195 76
------------------------------------------- ------------- -------------
Weighted average number of ordinary shares
of 20 pence each for EPS
based on Underlying Profit calculation 446,540,123 446,517,038
------------------------------------------- ------------- -------------
Ordinary EPS - basic and diluted ($) 0.41 0.16
EPS based on Underlying Profit - basic
and diluted ($) 0.44 0.17
------------------------------------------- ------------- -------------
(a) Basic and diluted EPS
Basic EPS is calculated by dividing profit for the period
attributable to equity holders of the Company by the weighted
average number of ordinary shares of 20 pence each outstanding
during the period. Purchases of the Company's shares by the
Employee Benefit Trust and by the Company under any share buy-back
programmes are 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 six
months excluding special items and their resultant 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 period. 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.
9. Other non-current assets
At At At
30 June 31 December 30 June
$ million 2017 2016 2016
---------------------------------------- -------- ------------ --------
Advances paid for property, plant and
equipment 8 18 38
Non-current VAT receivable(1) 108 264 181
Non-current inventories(2) 126 82 44
Long-term bank deposits(3) 2 2 2
---------------------------------------- -------- ------------ --------
Gross value of other non-current assets 244 366 265
Provision for impairment (2) (2) (5)
---------------------------------------- -------- ------------ --------
242 364 260
---------------------------------------- -------- ------------ --------
(1) Comprises VAT incurred during the construction phases of the
Bozshakol, Aktogay and Bozymchak projects which at each period end
was subject to audit and other administrative procedures prior to
refund.
(2) Non-current inventories comprise ore stockpiles that are
expected to be processed in the medium term i.e. in excess of 12
months from the balance sheet date and relate mainly to clay ore at
Bozshakol.
(3) Long-term bank deposits include long-term deposits placed in
escrow accounts with financial institutions in Kazakhstan as
required by the Group's site restoration obligations.
10. Share capital and reserves
(a) Allotted share capital
At 30 June 2016, 31 December 2016 and 30 June 2017, allotted and
called up share capital (ordinary shares of 20 pence each) amounted
to 458,379,033 or $171 million (GBP92 million).
(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 'Trust'). The cost
of shares purchased by the Trust is charged against retained
earnings as treasury shares. The Trust has waived the right to
receive dividends on these shares. In the six months ended 30 June
2017, 223,429 shares (30 June 2016: 160,807) were transferred out
of the Trust in settlement of share awards granted to employees
that were exercised during the period.
At 30 June 2017, the Group, through the Trust, owned 19,727 KAZ
Minerals PLC shares (31 December 2016: 243,156, 30 June 2016:
50,598) with a market value of $0.1 million (31 December 2016: $1.1
million, 30 June 2016: $0.1 million) and a cost of $0.1 million (31
December 2016: $4.6 million, 30 June 2016: $1.0 million).
11. Borrowings
Average
interest
rate
during Currency
the of Current Non-current Total
Maturity period denomination $ million $ million $ million
------------------------------- --------- --------- ------------- ---------- ----------- ----------
30 June 2017
CDB-Bozshakol and Bozymchak
- US$ LIBOR + 4.50% 2025 5.80% US dollar 179 1,434 1,613
CDB-Aktogay facility - PBoC
5 year 2028 4.54% CNY 12 117 129
CDB-Aktogay facility - US$
LIBOR + 4.20% 2029 5.55% US dollar 54 1,272 1,326
Pre-export finance facility
- US$ LIBOR + 3.00% - 4.50% 2021 5.38% US dollar - 300 300
Development Bank of Kazakhstan
- US$ LIBOR + 4.50% 2025 5.82% US dollar 21 276 297
------------------------------- --------- --------- ------------- ---------- ----------- ----------
266 3,399 3,665
----------------------------------------- --------- ------------- ---------- ----------- ----------
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
----------------------------------------- --------- ------------- ---------- ----------- ----------
30 June 2016
CDB-Bozshakol and Bozymchak
- US$ LIBOR + 4.50% 2025 5.33% US dollar 182 1,609 1,791
CDB-Aktogay facility - PBoC
5 year 2028 4.26% CNY 12 131 143
CDB-Aktogay facility - US$
LIBOR + 4.20% 2029 4.97% US dollar - 1,324 1,324
Pre-export finance facility
- US$ LIBOR + 3.00% - 4.50% 2018 4.94% US dollar 116 173 289
Caterpillar revolving credit
facility - US$ LIBOR + 4.25% 2019 4.82% US dollar - 40 40
------------------------------- --------- --------- ------------- ---------- ----------- ----------
310 3,277 3,587
----------------------------------------- --------- ------------- ---------- ----------- ----------
The fair value of the Group's borrowings at 30 June 2017 was
estimated at $3,731 million (31 December 2016: $3,842 million; 30
June 2016: $3,848 million) and are classified as level 3 fair
values in the fair value hierarchy.
CDB-Bozshakol and Bozymchak facilities
As at 30 June 2017, $1.6 billion (31 December 2016: $1.7
billion; 30 June 2016: $1.8 billion) was drawn under the facility
agreements. The facilities accrue interest at US$ LIBOR plus 4.50%
and arrangement fees with an amortised cost at 30 June 2017 of $17
million (31 December 2016: $20 million; 30 June 2016: $22 million)
have been netted off against these borrowings in accordance with
IAS 39. During the six month period, $91 million of the borrowing
was repaid, with $179 million due to be paid within 12 months of
the balance sheet date. 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 finance facility
The CDB-Aktogay finance facility consists of a CNY 1.0 billion
facility and a $1.3 billion US dollar facility. The funds mature 15
years from the date of the first draw down. KAZ Minerals PLC acts
as guarantor of the loans.
The CNY 1.0 billion facility was fully drawn by 30 June 2015
with CNY880 million outstanding at 30 June 2017. The US dollar
equivalent at that date was $129 million (31 December 2016: $131
million; 30 June 2016: $143 million). The facility accrues interest
at the applicable benchmark lending rate published by the People's
Bank of China. The facility is repayable in semi-annual instalments
in March and September. In order to protect the Group from currency
risks arising on the CNY denominated debt, the Group has entered
into CNY/US$ cross currency swaps for a portion of the exposure.
This derivative instrument provides a hedge against movements in
the CNY exchange rate against the US dollar and also swaps the
interest basis from a CNY interest rate into a US$ LIBOR interest
basis. The fair value of the swaps at 30 June 2017, included within
payables, is $13 million (31 December 2016: $21 million; 30 June
2016: $10 million).
The US dollar facility accrues interest at US$ LIBOR plus 4.20%.
The $1.3 billion facility was fully drawn by 30 June 2016.
Arrangement fees with an amortised cost of $14 million (31 December
2016: $15 million; 30 June 2016: $16 million) have been netted off
against these borrowings in accordance with IAS 39. During the six
month period, $6 million was repaid on the CNY facility, with $12
million due to be paid within 12 months of the balance sheet
date.
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 2.5 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 of which $300 million was
drawn at 30 June 2017 with the remaining available for draw down to
31 December 2017. The interest basis of the facility is
substantially the same as the previous facility with a variable
margin of between 3.0% and 4.5% above US$ 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 30 June 2017, $300 million (31 December 2016: $281 million;
30 June 2016: $289 million) was drawn under the facility. $59
million was repaid under the previous facility in the first half of
2017 (30 June 2016: $58 million) with $76 million drawn under the
new facility. $300 million of the new facility remains available
for drawing until 31 December 2017.
Development Bank of Kazakhstan ('DBK')
On 14 December 2016, the Group entered into a $300 million
credit facility with the DBK which was fully drawn by the end of
that year. The facility extends for a term of eight and a half
years and bears an interest rate of US$ 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, KAZ
Minerals PLC acts as guarantor of the facility.
At 30 June 2017, $297 million was drawn under the facility (31
December 2016: $297 million). Arrangement fees with an amortised
cost of $3 million (31 December 2016: $3 million) have been netted
off against these borrowings in accordance with IAS 39.
Revolving credit facility
On 14 August 2015, the Group entered into a $50 million
revolving credit facility provided by Caterpillar Financial
Services (UK) Limited ('CAT'), a subsidiary of Caterpillar Inc. The
CAT facility is available for three years from the date of signing,
and is repayable in four equal quarterly instalments ending in
2019. An interest rate of US$ LIBOR plus 4.25% is payable on
amounts outstanding under the facility. During June 2017, the
facility was repaid in full and $40 million remains available for
drawing until August 2018. When drawn, certain Caterpillar
equipment used at the Bozshakol and Aktogay operations is pledged
as collateral against the facility. KAZ Minerals PLC acts as
guarantor of the facility.
Undrawn project and general and corporate purpose facilities
At At
30 June 31 December
$ million 2017 2016
---------------------------- -------- ------------
Pre-export finance facility 300 -
Revolving credit facility 40 -
---------------------------- -------- ------------
12. Other liabilities
At At At
30 June 31 December 30 June
$ million 2017 2016 2016
---------------------- -------- ------------ --------
Payables to NFC 291 284 179
Payments for licences 10 10 11
---------------------- -------- ------------ --------
301 294 190
---------------------- -------- ------------ --------
Current 244 2 2
Non-current 57 292 188
---------------------- -------- ------------ --------
301 294 190
---------------------- -------- ------------ --------
Payables to NFC include the cost of works and services on the
construction of the Aktogay concentrator under the agreement signed
with NFC to extend the payment terms of $300 million to 2018. $250
million becomes payable shortly after 31 December 2017 and $50
million shortly after 30 June 2018. The extended credit terms have
been discounted using a rate of US$ LIBOR plus 4.20% on the
estimated cost of services performed. The unwinding of the interest
is charged to property, plant and equipment as a borrowing cost
until the date that the project has reached commercial production,
after which any interest will be charged to the income statement
within finance costs.
13. Consolidated cash flow analysis
(a) Reconciliation of profit before taxation to net cash inflow from operating activities
Six Six
months months
ended ended
30 June 30 June
$ million 2017 2016
-------------------------------------------------- -------- --------
Profit before taxation 240 91
Interest income (7) (4)
Interest expense 69 11
Share-based payments 3 1
Amortisation, depreciation and depletion 83 24
Impairment losses 1 3
Unrealised foreign exchange gain (8) (30)
Other reimbursements (1) -
-------------------------------------------------- -------- --------
Operating cash flows before changes in working
capital and provisions 380 96
Decrease/(increase) in non-current VAT receivable 159 (20)
Increase in inventories (12) (13)
Increase in prepayments and other current
assets (20) (11)
Increase in trade and other receivables (22) (4)
Increase in employee benefits - 2
Increase/(decrease) in trade and other payables 13 (13)
-------------------------------------------------- -------- --------
Cash flows from operations before interest
and income taxes 498 37
-------------------------------------------------- -------- --------
(b) Cash and cash equivalents
At At At
30 June 31 December 30 June
$ million 2017 2016 2016
-------------------------------------- -------- ------------ --------
Cash deposits with short-term initial
maturities 1,086 820 338
Cash at bank 137 288 718
-------------------------------------- -------- ------------ --------
Cash and cash equivalents 1,223 1,108 1,056
-------------------------------------- -------- ------------ --------
At 30 June 2017, cash and cash equivalents includes
approximately $146 million of cash drawn down under the CDB-Aktogay
financing facility (31 December 2016: $170 million; 30 June 2016:
$336 million).
(c) Movement in net debt
At At
1 January Cash Other 30 June
$ million 2017 flow movements(1) 2017
-------------------------- ---------- ----- ------------- --------
Cash and cash equivalents 1,108 115 - 1,223
Borrowings (3,777) 120 (8) (3,665)
-------------------------- ---------- ----- ------------- --------
Net debt (2,669) 235 (8) (2,442)
-------------------------- ---------- ----- ------------- --------
At At
1 January Cash Other 30 June
$ million 2016 flow movements(1) 2016
-------------------------- ---------- ------ ------------- --------
Cash and cash equivalents 851 206 (1) 1,056
Current investments(2) 400 (400) - -
Borrowings (3,504) (84) 1 (3,587)
-------------------------- ---------- ------ ------------- --------
Net debt (2,253) (278) - (2,531)
-------------------------- ---------- ------ ------------- --------
(1) Other movements comprise net foreign exchange movements,
non-cash amortisation of fees on borrowings and other non-cash
reconciling items. For the period ended 30 June 2017, the $8
million (30 June 2016: $1 million) other movement on borrowings
consists of $5 million (30 June 2016: $4 million) amortisation of
fees on the Group's financing facilities and a foreign currency
loss of $3 million (30 June 2016: gain $3 million) on the CDB
Aktogay RMB facility. For the period ended 30 June 2016 the $1
million non-cash movement on cash and cash equivalents represents
the foreign currency losses on KZT cash balances held by Kazakhstan
entities.
(2) Current investments at 1 January 2016 were bank term
deposits. From 30 June 2016, all of the Group's gross liquid funds
were cash and cash equivalents.
14. Related party disclosures
(a) Transactions with related parties
Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation and are not disclosed in this note. Details of
transactions between the Group and other related parties, including
Cuprum Holding, are disclosed below.
The following table provides the total value of transactions
which have been entered into with the Group's related parties and
the associated receivables and payables for the relevant financial
period:
Amounts Amounts
Sales Purchases owed owed
to from by to
related related related related
$ million parties parties parties(1) parties
--------------------------------------- --------- ----------- ----------- --------
Cuprum Holding and the Disposal Assets
30 June 2017 2 47 7 3
30 June 2016 3 55 7 3
--------------------------------------- --------- ----------- ----------- --------
(1) No provision is held against the amounts owed by related
parties at 30 June 2017 and 2016. The bad debt expense in relation
to related parties was $nil for the period (30 June 2016:
$nil).
Cuprum Holding and the Disposal Assets
The majority of the related party transactions and balances are
with companies which are part of the Cuprum Holding Group (a
company owned by Vladimir Kim, a Director of the Company, and
Eduard Ogay, a former Director of the Company) and provided under
two Framework Service Agreements. These include the provision of
smelting and refining of the Group's copper concentrate,
electricity supply and certain maintenance functions.
(b) Terms and conditions of transactions with related parties
Prices for related party transactions are determined by the
parties on an ongoing basis depending on the nature of the
transaction.
15. Commitments and contingencies
(a) Legal claims
In the ordinary course of business, the Group is subject to
legal actions and complaints. The Directors believe that the
ultimate liability, if any, arising from such actions or complaints
will not have a materially adverse effect on the financial
condition or results of operations of the Group. As of 30 June
2017, the Group was not involved in any significant legal
proceedings, including arbitration, which may crystallise a
financial loss for the Group.
(b) 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 as at 30 June 2017 amounted to $77
million (31 December 2016: $109 million, 30 June 2016: $289
million).
GLOSSARY
Board or Board of Directors
the Board of Directors of the Company
capital employed
the aggregate of equity attributable to owners of the Company,
non-controlling interests and borrowings
cash operating costs
all costs included within profit/(loss) before finance items and
taxation, net of other operating income, excluding mineral
extraction tax, royalties, depreciation, depletion, amortisation
and special items
CAT facility
revolving credit facility provided by Caterpillar Financial
Services (UK) Limited
CDB or China Development Bank
the China Development Bank Corporation
CIT
corporate income tax
CNY
Chinese yuan, basic unit of renminbi
Company or KAZ Minerals
KAZ Minerals PLC
Cuprum Holding
Cuprum Netherlands Holding B.V. (now named Kazakhmys Holding
Group B.V.), the entity to which the Disposal Assets were
transferred
DBK
Development Bank of Kazakhstan
Directors
the Directors of the Company
Disposal Assets
the Disposal Assets comprised the mining, processing, auxiliary,
transportation, and heat and power assets of the Group in the
Zhezkazgan and Central Regions. The Disposal Assets included 12
copper mines, mine development opportunities, four concentrators,
two smelters, two coal mines, and three captive heat and power
stations all of which were disposed of as a result of the
Restructuring
dollar or $ or US$
United States dollars, the currency of the United States of
America
EBITDA
earnings before interest, taxation, depreciation, depletion,
amortisation, mineral extraction tax and royalties
EPS
earnings per share
EPS based on Underlying Profit/Loss
Profit/loss for the year after adding back items which are
non-recurring or variable in nature and which do not impact the
underlying trading performance of the business, and their resulting
taxation and non-controlling interest impact, divided by the
weighted average number of ordinary shares in issue during the
period
Free Cash Flow
net cash flow from operating activities before capital
expenditure and non-current VAT associated with expansionary and
new projects less sustaining capital expenditure
g/t
grammes per metric tonne
gross cash cost
cash operating costs, including pre-commercial production costs,
excluding purchased cathode, divided by the volume of own copper
cathode equivalent sales
Gross EBITDA
earnings, including pre-commercial earnings, before interest,
taxation, depreciation, depletion, amortisation, mineral extraction
tax and royalties
Gross Revenues
sales proceeds from all volumes sold, including pre-commercial
production volume
the Group
KAZ Minerals PLC and its subsidiary companies
IAS
International Accounting Standard
IASB
International Accounting Standards Board
IFRIC
International Financial Reporting Interpretations Committee
IFRS
International Financial Reporting Standard
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 cost
cash operating costs, including pre-commercial production costs,
excluding purchased cathode, less by-product Gross Revenues,
divided by the volume of own copper cathode equivalent sales
net debt
The carrying value of the Group's current and non-current
borrowings less the carrying value of its cash and cash equivalents
as reflected on its consolidated balance sheet and note 13(c)
Non Ferrous China or NFC
China Non Ferrous Metal Industry's Foreign Engineering and
Construction Co., Ltd
ounce or oz
a troy ounce, which equates to 31.1035 grammes
PXF
pre-export finance debt facility
Recordable Case
a Recordable Injury case or a Recordable Disease case
Recordable Disease
a new disease in the categories of occupational respiratory
disorders, occupational hearing loss, musculoskeletal disorders,
occupational cancers and other occupational medical disorders.
pre-export finance debt facility
Recordable Injury
a new occupational injury of sufficient severity that it
requires medical treatment beyond first aid or results in the
worker's inability to perform his or her routine function on the
next calendar day
$/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 or KGS
the official currency of Kyrgyzstan
special items
those items which are non-recurring or variable in nature and
which do not impact the underlying trading performance of the
business. Special items are set out in note 5 to the condensed
consolidated half-yearly 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
Total Recordable Case Frequency Rate
the number of Recordable Cases occurring per million hours
worked
TRI
Total Recordable Injuries
Total Recordable Injury Frequency Rate or TRIFR
the number of Recordable Injuries occurring per million hours
worked
UK
United Kingdom
Underlying Profit/Loss
profit/loss for the period after adding back items which are
non-recurring or variable in nature and which do not impact the
underlying trading performance of the business and their resultant
tax and non-controlling interest effects. Underlying Profit is set
out in note 8 to the condensed consolidated half-yearly 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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(END) Dow Jones Newswires
August 17, 2017 02:00 ET (06:00 GMT)
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