TIDMKAZ
RNS Number : 6729Q
KAZ Minerals PLC
21 February 2019
21 February 2019
KAZ MINERALS PLC AUDITED RESULTS
FOR THE YEARED 31 DECEMBER 2018
FINANCIAL HIGHLIGHTS
-- Revenues increase by 12% to $2,162 million compared to Gross
Revenues of $1,938 million in 2017, supported by increased copper
production(1) and improved copper prices
- 2018 full year copper sales volumes of 296 kt (2017: 256 kt)
-- EBITDA of $1,310 million at a margin of 61% (2017 Gross EBITDA: $1,235 million)
- Operating profit increased by 19% to $851 million (2017: $715 million)
-- First quartile net cash cost of 85 USc/lb (2017: 66 USc/lb),
amongst the lowest of any pure-play copper miner
- Gross cash costs of 144 USc/lb, 4% higher than 2017 (138 USc/lb)
- Structural factors continue to support cost position,
including low strip ratios, energy efficiency, favourable water and
transport costs, automation and the use of modern, large scale
equipment
- Increase in net cash cost position compared to 2017 mainly due
to higher volumes from Aktogay, where by-product output is
minimal
-- Free Cash Flow of $585 million (2017: $452 million)
- Cash flow from operations of $673 million, lower than $752
million in 2017 due to receipt of $232 million of non-current VAT
refunds in the prior year
-- Net debt $1,986 million (2017: $2,056 million)
- Gross borrowings of $3,453 million (2017: $3,877 million) and
Gross Liquid Funds(3) of $1,467 million (2017: $1,821 million)
- Reduction in net debt driven by higher free cash flow despite
expansionary capital expenditure of $530 million during the
year
- Approximately $130 million of sustaining and expansionary
capital expenditure guided for 2018 carried over into 2019
- $386 million of initial $436 million cash consideration for
Baimskaya acquisition paid in January 2019
-- Final dividend of 6.0 US cents per ordinary share
recommended, which together with the interim dividend of 6.0 US
cents per ordinary share paid on 3 October 2018, brings the total
dividend for 2018 to 12.0 US cents per ordinary share
OPERATIONAL HIGHLIGHTS
-- Copper production(1) increased by 14% and gold production(2) by 3% compared to 2017
- Copper production(1) of 295 kt at upper end of guidance range
of 270-300 kt, gold(2) and silver(2) above guidance
- 2019 copper production(1) expected to be in the region of 300
kt, as continued growth at Bozshakol and Aktogay offsets lower
forecast output from East Region
NEAR AND LONG TERM GROWTH IN COPPER
-- The Group has established a pipeline of value-accretive growth projects
- Aktogay expansion project underway to deliver low risk
brownfield growth with first production from 2021
- Completed acquisition of the Baimskaya licence area in January
2019, one of the top ten largest undeveloped copper resources in
the world, for $900 million in cash and shares
$ million (unless otherwise stated) 2018 2017
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Revenues 2,162 1,663
EBITDA(3) 1,310 1,038
Operating profit 851 715
Profit before taxation 642 580
Underlying Profit(3) 530 476
EPS - basic and diluted ($) 1.14 1.00
EPS - based on Underlying Profit ($)(3) 1.18 1.07
Cash flow from operations 673 752
Free Cash Flow(3) 585 452
Gross cash cost (USc/lb)(3) 144 138
Bozshakol 129 121
Aktogay 106 100
East Region & Bozymchak 244 208
Net cash cost (USc/lb)(3) 85 66
Bozshakol 58 54
Aktogay 103 98
East Region & Bozymchak 94 42
Net debt(3) 1,986 2,056
Gross borrowings 3,453 3,877
Gross liquid funds(3) 1,467 1,821
---------------------------------------- ----- -----
1 Payable metal in concentrate and copper cathode from Aktogay
oxide ore.
2 Payable metal in concentrate.
3 Alternative Performance Measures (APMs) are used to assess the
performance of the Group and are not defined or specified under
IFRS. For further information on APMs, including justification for
their use, please refer to the APMs section on page 54.
Andrew Southam, Chief Executive Officer, said: "KAZ Minerals
increased copper production by 14% and delivered a net cash cost of
just 85 USc/lb in 2018, maintaining the Group's position in the
first quartile of the industry cash cost curve. We also progressed
our high growth strategy, commencing work on the expansion of
Aktogay and securing a new world class project through the
acquisition of Baimskaya in Russia. Our proven asset base is
generating strong cash flows, enabling the Group to invest in
significant growth in copper production in both the near and long
term, through value-accretive greenfield and brownfield projects.
Over this period, the outlook for the copper price remains positive
as supply from existing mines is set to decline, whilst demand from
both traditional and new markets is forecast to continue to
grow."
For further information please contact:
KAZ Minerals PLC
====================== ================================= ===================
Chris Bucknall Investor Relations, London Tel: +44 20 7901
7882
Tel: +44 20 7901
Anna Mallere Investor Relations, London 7814
Maksut Zhapabayev Tel: +7 727 244 03
Corporate Communications, Almaty 53
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Brunswick Group
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Carole Cable, Charlie Tel: +44 20 7404
Pretzlik 5959
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REGISTERED OFFICE
6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL, United
Kingdom.
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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, Kyrgyzstan and Russia. It operates the
Bozshakol and Aktogay open pit copper mines in the Pavlodar and
East Region of Kazakhstan, three underground mines and associated
concentrators in the East Region of Kazakhstan and the Bozymchak
copper-gold mine in Kyrgyzstan. In 2018, total copper production
was 295 kt with by-products of 50 kt of zinc in concentrate, 183
koz of gold and 3,511 koz of silver.
The Group's new operations at Bozshakol and Aktogay have
delivered one of the highest growth rates in the industry and
transformed KAZ Minerals into a company dominated by world class,
open pit copper mines.
Bozshakol is a first quartile asset on the global cost curve
with an annual ore processing capacity of 30 million tonnes and a
remaining mine life of 38 years at an average copper grade of
0.37%. The mine and processing facilities commenced output in 2016
and will produce an average of 100 kt of copper cathode equivalent
and 120 koz of gold in concentrate per year over the first 10 years
of operations.
Aktogay is a large scale, open pit mine similar to Bozshakol,
with a remaining mine life of 27 years (including the expansion
project) at an average copper grade of 0.37% (oxide) and 0.33%
(sulphide). Aktogay commenced production of copper cathode from
oxide ore in December 2015 and copper in concentrate from sulphide
ore in February 2017. The operating sulphide concentrator has an
annual ore processing capacity of 25 million tonnes and the
sulphide processing capacity will be doubled to 50 million tonnes
with the addition of a second concentrator by the end of 2021.
Aktogay is competitively positioned on the global cost curve and
will produce an average of 90 kt of copper per year from sulphide
ore until 2021, increasing to 170 kt per year from 2022 to 2027,
after the second concentrator commences operations. Copper
production from oxide ore will be in the region of 20 kt per annum
until 2025.
In January 2019, the Group acquired the Baimskaya licence area
in the Chukotka region of Russia, one of the world's most
significant undeveloped copper assets. The Peschanka deposit within
the Baimskaya licence area has the potential to become a large
scale, low cost, open pit copper mine, with JORC resources of 9.5
Mt of copper at an average grade of 0.43% and 16.5 Moz of gold at
an average grade of 0.23 g/t. Average annual production over the
first ten years of operations is expected to be 250 kt copper and
400 koz gold, or 330 kt Copper Equivalent Production, with a mine
life of approximately 25 years and first quartile operating costs.
The project is located in a region identified by the Russian
Government as strategically important for economic development and
will benefit from the construction of state-funded power and
transport infrastructure and the provision of tax incentives. The
estimated capital budget for the construction of the project is
$5.5 billion. The Group expects the project to generate a
significant NPV uplift and an attractive IRR at analyst consensus
copper prices. The development of the Peschanka deposit at
Baimskaya will enable the Group to continue its high growth
trajectory, adding a large-scale, long-life asset to the Group's
portfolio.
KAZ Minerals is listed on the London Stock Exchange and the
Kazakhstan Stock Exchange and employs around 14,000 people,
principally in Kazakhstan.
FORWARD-LOOKING STATEMENTS
These results include forward-looking statements with respect to
the business, strategy and plans of KAZ Minerals and its current
goals, assumptions and expectations relating to its future
financial condition, performance and results. Although KAZ Minerals
believes that the expectations reflected in such forward-looking
statements are reasonable and are made by the Directors in good
faith, based on current plans, estimates and projections, no
assurance can be given that such expectations will prove to be
correct. By their nature, forward-looking statements involve known
and unknown risks, assumptions and uncertainties and other factors
which are unpredictable as they relate to events and depend on
circumstances that will occur in the future which may cause actual
results, performance or achievements of KAZ Minerals to be
materially different from those expressed or implied in these
forward-looking statements. Principal risk factors that could cause
KAZ Minerals' actual results, performance or achievements to differ
materially from those in the forward-looking statements include
(without limitation) occupational health and safety, commodity
prices, foreign exchange and inflation, mergers, acquisitions and
divestments, major projects ramp up, business interruption, new
projects, external suppliers and contractors, community and labour
relations, exposure to China, staff skills, recruitment and
retention, political risk, liquidity management, tax regime and
legislation compliance, environmental management, reserves and
resources and such other risk factors disclosed in KAZ Minerals'
most recent Annual Report and Accounts. Forward-looking statements
should therefore be construed in light of such risk factors. These
forward-looking statements should not be construed as a profit
forecast.
No part of these results constitutes, or shall be taken to
constitute, an invitation or inducement to invest in KAZ Minerals
PLC, or any other entity, and shareholders are cautioned not to
place undue reliance on the forward-looking statements. Except as
required by the Listing Rules and applicable law, KAZ Minerals does
not undertake any obligation to update or change any
forward-looking statements to reflect events occurring after the
date of these results.
SHAREHOLDER INFORMATION
The Company declares dividends in US dollars. The default
currency for payment of dividends is US dollars, although
shareholders can elect to receive their dividends in UK pounds
sterling. Those shareholders who wish to receive their dividend in
UK pounds sterling should contact the Company's registrar to
request a currency election form.
For those shareholders who have elected to receive their
dividends in UK pounds sterling, the currency conversion rate to
convert the dividend into UK pounds sterling will be GBP0.7770 to
the US dollar. The conversion rate is based on the average exchange
rate for the five business days ending two days before the date of
the annual results announcement.
Subject to the approval of shareholders at the Annual General
Meeting on 2 May 2019, the final dividend in US dollars and UK
pounds sterling will be paid on Friday 17 May 2019 to shareholders
on the register at the close of business in the UK on the record
date, 23 April 2019. The ex-dividend date is Thursday 18 April
2019.
ANNUAL GENERAL MEETING
The 2019 Annual General Meeting will be held at 12.15pm on
Thursday 2 May 2019 at Linklaters LLP, One Silk Street, London EC2Y
8HQ, United Kingdom.
The 2018 Annual Report and Accounts and details of the business
to be conducted at the Annual General Meeting will be mailed to
shareholders and posted on the Company's website
(www.kazminerals.com) in late March 2019.
CHAIR'S STATEMENT
In 2018, KAZ Minerals has delivered a strong operational
performance and progressed its high growth strategy, securing a new
world class copper project through the acquisition of the Baimskaya
licence area in Russia. In the near term we are focused on the
expansion of Aktogay, where work has commenced on a $1.2 billion
project to double processing capacity, adding 80 ktpa of additional
copper production from 2022.
Health and safety
Providing our employees and contractors with a safe working
environment is the Group's highest priority. While fatalities are
on a long term downward trend, I am disappointed to report that
there were four fatalities at our underground mining operations
during 2018. The Board HSE Committee visited the Group's operations
twice during the year to monitor progress on the initiatives we are
implementing to improve safety culture and performance, in
particular at our underground mines in the East Region.
The Group's open pit mines of Bozshakol, Aktogay and Bozymchak
have operated without any fatal incidents for a total of 38 million
man hours, reflecting the strong safety culture that we have
established at these operations. The Group is committed to its goal
of zero fatalities across all assets and we will continue to devote
the necessary resources to achieve this.
Near and long term growth in copper
The Group has built a track record of delivering large scale,
open pit copper projects in the CIS region through the successful
execution of the Bozshakol and Aktogay projects. Copper production
from these mines has ramped up to achieve an industry leading
annual growth rate of over 50% from 2015 to 2018. 79% of our 295 kt
copper production in 2018 was from our recently commissioned
mines.
Looking forward, we believe the medium-term demand outlook for
copper is robust. There is a global trend towards investment in
highly copper intensive renewable energy generation, supported by
new sources of demand such as the growing use of electric vehicles.
Copper supply will be challenged as head grades at operating mines
across the world are declining and resources depleting. We have
reviewed a large number of potential copper projects and the
results of this exercise reinforced our view of a growing copper
supply deficit over the next decade. Large scale copper projects
with attractive operating costs are scarce and many face
significant execution challenges.
Through our commitment to the Aktogay expansion project and the
acquisition of Baimskaya we have now established a pipeline of
value-accretive projects which will enable the Group to continue to
deliver transformational growth in copper into a strengthening
market, whilst maintaining our position as a first quartile
producer on the cost curve.
Aktogay expansion project
The Aktogay expansion was approved by the Board in December 2017
and is expected to double Aktogay's sulphide ore processing
capacity by the end of 2021 through the construction of an
additional concentrator and crusher. This is a relatively low risk
brownfield project which will deliver near term material copper
production growth, with first output from the new plant expected in
2021, contributing 80 ktpa from 2022-27, and 60 ktpa thereafter.
The design of the new processing facility is identical to the
original Bozshakol and Aktogay sulphide concentrators and this will
be the third such plant constructed by the Group.
In 2018, the Group locked-in pricing on certain key long lead
items from equipment suppliers and commenced preparatory earthworks
ahead of the main structural construction phase beginning in 2019.
Our recent experience in building facilities of this type will
enable us to execute a greater proportion of the project using the
Group's in-house management capabilities than we did with Bozshakol
or Aktogay, working closely with proven local and international
contractors and suppliers.
Baimskaya
Our review of potential growth projects identified the Peschanka
deposit in the Baimskaya licence area as a rare opportunity to
acquire a globally significant greenfield copper resource, which is
located in a similar geographic region to our existing operations.
Peschanka is a large scale, copper porphyry deposit with a low
strip ratio and the project has certain construction and operating
challenges in common with our recently commissioned open pit mines
in Kazakhstan. The average copper and gold grades at Peschanka are
higher, whilst capital intensity is lower than both Bozshakol and
Aktogay, based on our expectation of copper equivalent output of
330 kt over the first 10 years.
After a due diligence process led by our experienced projects
team with support from external consultants, the Board approved the
acquisition of the Baimskaya licence area in August 2018 for a
total consideration of $900 million, comprising an initial cash
payment of $436 million and 22.3 million shares with the remaining
consideration expected to be payable in KAZ Minerals shares. A
share lock-up period and the deferred consideration structure
aligns the interests of the Vendor with KAZ Minerals in commencing
copper production from the asset as early as possible and allows
the Vendor to participate in the upside from the successful
delivery of the project, as shareholders of the Group. Initial
Completion took place on 22 January 2019, following receipt of the
required government approvals and the satisfaction of other
conditions precedent.
We have appointed Fluor to conduct a bankable feasibility study
of the Peschanka deposit and work on this is underway, with the
results expected to be announced to the market in the first half of
2020. This will include guidance on the timing of capital
expenditure, expected production volumes, operating costs and
sustaining capital expenditure. In parallel with the feasibility
study, the Group will have discussions with banks on financing the
construction phase and evaluate the potential for partnering.
Delivering for all stakeholders
KAZ Minerals is a responsible developer and operator of copper
mines and we seek to balance the interests of all stakeholders in
our business.
As a major investor in Kazakhstan, the Group has generated
growth in industrial output, export earnings, GDP and employment
through the delivery of the Bozshakol and Aktogay projects. The
Group paid taxes of $368 million in 2018 in Kazakhstan and our
total economic value distributed was over $1.4 billion.
KAZ Minerals supports a social investment programme focused on
healthcare, education, infrastructure, culture and sport to help
build on the strong relationships that exist with the communities
in the regions of our operations and to support the development of
Kazakhstan at a national level.
As we have increased output from our recently launched open pit
mines, the energy and CO(2) intensity of our operations has reduced
significantly. Energy intensity measured as TJ / kt of ore
processed has reduced every year from 2015 to 2018, falling from
0.86 TJ to 0.22 TJ. In the future, the CO(2) intensity of our
operations is expected to improve further, as we benefit from
economies of scale at the expanded Aktogay facilities. Future
production from Baimskaya will primarily be powered by energy from
carbon-free sources.
KAZ Minerals continues to be a sector leader in gender equality,
with a rate of female participation in the workforce of 23%,
amongst the highest in the industry. The proportion of women
employed is also reflected at senior management level and I am
pleased to report that two of the Group's senior female
professionals were recognised in this year's '100 Global
Inspirational Women in Mining 2018' awards.
Dividends
The Group's dividend policy, established at the time of Listing,
is for the Board to consider the cash generation and financing
requirements of the business before recommending a suitable
dividend. This maintains flexibility, which is appropriate given
the underlying cyclicality of a commodity business and the Group's
growth ambitions.
In Bozshakol and Aktogay, the Group has a portfolio of large
scale, low cost operations which are highly cash generative and
have performed strongly in the year. This has enabled the rapid
de-gearing of the balance sheet, with the Group's net debt to
EBITDA ratio at 1.5x at 31 December 2018. Accordingly, the Board
has recommended a final dividend of 6.0 US cents per share.
Combined with the interim dividend of 6.0 US cents per share, the
dividend in respect of the 2018 financial year is 12.0 US cents per
share.
An initial cash payment of $386 million for the Baimskaya
acquisition has been paid from existing liquidity, with a further
$50 million cash payment expected to be settled in 2019. The
financing requirements of the Baimskaya project construction
including the capital budget, phasing, sources of funding and
partnering options will be assessed during the feasibility study,
following which the Board will further review the Group's
allocation of capital.
Outlook
In the second half of 2018, short term macroeconomic concerns
and a lower than average level of supply disruption weighed on the
copper price. However, the medium term fundamentals for the copper
market remain strong and support the Group's strategy of investing
in large scale copper projects that will deliver value-accretive
growth. Together, the Aktogay expansion and Baimskaya projects
offer an industry leading pipeline of near and long term growth,
which will enable the Group to double copper production while
maintaining its position in the first quartile of the global cost
curve.
CHIEF EXECUTIVE OFFICER'S REVIEW
KAZ Minerals achieved high growth in production, earnings and
free cash flow from its portfolio of low cost copper mines in 2018.
Copper production increased by 14% to 295 kt (2017: 259 kt) and the
Group maintained its position in the first quartile of the cost
curve with a net cash cost of 85 USc/lb, amongst the lowest of any
pure play copper producer globally. With the new Bozshakol and
Aktogay mines fully ramped up, the Group is now focused on
operating consistently at design capacity and identifying
opportunities to improve efficiency and reduce costs in existing
operations, while planning ahead for the future growth to be
delivered from the Aktogay expansion and Baimskaya copper project
in Russia.
Health and safety
The Group prioritises its health and safety performance and I am
disappointed to report that four fatalities occurred as a result of
three incidents in our underground mining operations in the East
Region during 2018. No fatality is ever acceptable and we are
focused on our goal of operating with zero fatalities.
The number of fatalities continues to be on a long term downward
trend. Our open pit mines at Bozymchak, Bozshakol and Aktogay have
all operated with zero fatalities since the commencement of mining
operations. A strong safety culture and a high degree of compliance
with safety procedures has been established and maintained at these
mines and we strive to raise standards at our underground mines to
the same level. In 2018, we conducted detailed health and safety
audits at all our mines and held Group wide workshops, bringing
together managers from different operations to share best practice.
We have also invested in improving our emergency response and
medical support capabilities. To address longer term occupational
health issues, we have established new industrial hygiene guidance,
medical support standards and rehabilitation and return to work
procedures.
Our employees
The Group employs approximately 14,000 staff and 8,000
contractors. We are committed to providing fair remuneration, a
safe working environment and ongoing professional development for
all our people, as set out in our Corporate Values. We recognise
the crucial role of our employees in delivering the Group's success
and I would like to thank our staff, whose contribution has enabled
the Group to perform well in 2018.
Review of operations
Copper production in 2018 was 295 kt, compared with guidance of
270-300 kt (2017: 259 kt). Achieving the upper end of the copper
production range was largely due to output from Aktogay where a
well-executed ramp up, consistent periods of operation at design
capacity in both the sulphide and oxide plants and a strong copper
grade delivered output of 131 kt (2017: 90 kt), which was above the
top of the guided range of 110-130 kt. Bozshakol increased its ore
processed to 28.5 Mt in 2018, including over 15 Mt processed in the
second half of the year, approaching its design capacity of 30.0
Mtpa. Bozshakol achieved the upper half of the guided range for
copper production of 95-105 kt, with full year output of 102 kt
(2017: 101 kt). The East Region and Bozymchak produced 62 kt of
copper (2017: 67 kt), slightly below guidance of c.65 kt.
Group gold production of 183 koz was 3% higher than 2017 as
increased processing volumes at Bozshakol more than offset the
decline in average gold grades across the Group to 0.31 g/t (2017:
0.33 g/t). Silver output of 3,511 koz was in line with the prior
year (2017: 3,506 koz) as lower output from the East Region and
Bozymchak mines was replaced by increased silver production from
the ramp up of Aktogay. Zinc in concentrate production declined by
14% to 50 kt (2017: 58 kt), as mining moved through transitional
areas at Artemyevsky with lower than anticipated zinc grades.
Production outlook
Ore processing volumes at Bozshakol and Aktogay are expected to
be higher in 2019 compared with 2018 as both facilities operate at
or close to design capacity for the full year, though at Aktogay
this will be partially offset by a reduction in the average copper
grade processed. Copper production guidance for Bozshakol is set at
105-115 kt for 2019 and 130-140 kt for Aktogay, including c.25 kt
of oxide copper production. Combined with East Region and Bozymchak
output of around 55 kt, Group copper production guidance for 2019
is for production in the region of 300 kt. Gold production is
expected to be 170-185 koz in 2019, as lower gold grades are offset
by higher ore throughput at Bozshakol. Group silver output in 2019
is guided to be approximately 3,000 koz.
Financial performance
The Group generated $2,162 million of revenues in 2018, an
increase of 12% compared with $1,938 million in the prior year due
to increased production volumes and higher copper prices. The
average LME copper price in 2018 of $6,526/t was 6% higher than
2017, although prices were volatile, reaching a four year high of
$7,263/t in June before declining to a low of $5,823/t in
September.
The Group recorded EBITDA of $1,310 million, representing an
increase of 6% compared with Gross EBITDA of $1,235 million in
2017, as higher production volumes and copper prices were offset by
the increase in unit costs, mainly due to the ramp up of Aktogay.
Operating profit increased by 19% to $851 million (2017: $715
million). Free Cash Flow increased by 29% to $585 million (2017:
$452 million) and cash flow from operations reduced to $673 million
(2017: $752 million), due to the receipt of $232 million of net
non-current VAT refunds in 2017.
Unit costs
Supported by increased production volumes and a weaker tenge in
the second half of the year, the Group continued to operate with
one of the lowest net cash costs of any pure play copper producer
globally, with all divisions in the first quartile of the industry
cost curve in 2018. Group gross cash costs were 4% higher in 2018
at 144 USc/lb (2017: 138 USc/lb), mainly due to higher unit costs
in the East Region. The Group's net cash cost position increased to
85 USc/lb from 66 USc/lb in 2017 as expected, due to the greater
share of production from the Aktogay mine, where by-product output
is minimal. Aktogay ramped up sulphide ore processing volumes to
20.8 Mt from 12.9 Mt in 2017 and produced 45% of the Group's copper
output in 2018, at a gross cash cost of 106 USc/lb and a net cash
cost of 103 USc/lb, compared with 2018 gross cash cost guidance of
110-130 USc/lb. Bozshakol delivered a gross cash cost of 129 USc/lb
against 2018 guidance of 130-150 USc/lb and a full year net cash
cost of 58 USc/lb (2017: 54 USc/lb), supported by strong gold
output of 128 koz (2017:
119 koz). At 58 USc/lb in 2018, Bozshakol continues to operate
below the ten year net cash cost guidance set in 2016 US dollar
terms of 70-90 USc/lb over the first ten years of the life of the
mine.
In the East Region and Bozymchak, gross cash costs increased by
17% to 244 USc/lb (2017: 208 USc/lb), compared with guidance of
230-250 USc/lb, as cost and wage inflation combined with a reduced
copper output resulted in higher unit costs. The East Region and
Bozymchak continued to operate within the first quartile of the
cost curve with a net cash cost of 94 USc/lb (2017: 42 USc/lb), as
by-product credits of 150 USc/lb were generated (2017: 166 USc/lb)
from slightly lower gold, silver and zinc volumes compared with the
prior year.
Balance sheet
Net debt reduced from $2,056 million at the 2017 year end to
$1,986 million at 31 December 2018, as increased cash flow from
operations was offset by the settlement of $281 million of deferred
capital expenditure relating to the original Aktogay project and
investment in the Aktogay expansion project amounting to $204
million in 2018. Gross borrowings reduced to $3,453 million at the
year end (2017: $3,877 million) as the Group continued to pay down
its debt facilities according to agreed schedules. Gearing,
measured as a multiple of net debt to EBITDA, reduced to 1.5x from
1.7x at the end of 2017. Additional financing is required for the
Aktogay expansion project, which the Board expects to obtain in the
first half of 2019.
Financial guidance
Gross cash costs at Bozshakol are expected to benefit from
improved throughput and stable copper grades in 2019 compared with
2018, with some upwards pressure from general mining cost inflation
and increased maintenance costs. Gross cash cost guidance for
Bozshakol is therefore held at the same level as guided in 2018, at
130-150 USc/lb.
The Aktogay sulphide concentrator operated at an average of 83%
of design ore throughput capacity as it ramped up across 2018 and
unit costs are expected to benefit from higher throughput in 2019,
as the plant operates at or close to design capacity. This cost
benefit will be offset by an expected reduction in the average
copper grade processed from the elevated levels in 2018 and general
mining inflation. Gross cash cost guidance for Aktogay is set at
105-125 USc/lb (in line with the 10 year guidance range of 100-120
USc/lb for the project over its first ten years of operation, in
2016 US dollar terms).
Gross cash costs in the East Region and Bozymchak are expected
to be impacted by lower copper output, wage inflation and higher
raw materials prices and 2019 guidance is set at 260-280 USc/lb,
but will still benefit from significant by-product credits.
Sustaining capital expenditure in 2019 is expected to be in the
region of $50 million in the East Region and Bozymchak. At
Bozshakol and Aktogay, total sustaining capital expenditure in 2018
was $44 million compared with guidance of $65 million and
approximately $20 million of spending has been carried forward into
2019. Sustaining capital expenditure guidance is therefore expected
to be $50 million at Bozshakol and $50 million at Aktogay in
2019.
Excluding the Baimskaya copper project, expansionary capital
expenditure in 2019 will comprise $400 million on the Aktogay
expansion project, $70 million on the Artemyevsky II mine extension
and approximately $20 million on continued technical studies at
Koksay, funded by the $70 million investment into the Koksay entity
by NFC which is expected to be completed in the first half of 2019.
Final contractor retention payments of approximately $40 million at
Bozshakol will be settled in early 2019 and approximately $70
million of expansionary capital expenditure will be incurred at
Aktogay in 2019, largely to complete the second stage of heap leach
cells.
In January 2019, the Group paid $386 million of cash
consideration in respect of the acquisition of the Baimskaya
licence area with a further $50 million payment expected to be made
during 2019 following the release of a guarantee made by the
acquired entity which is the legal owner of the Baimskaya licence.
Expansionary capital expenditure on this project will mostly relate
to the completion of a bankable feasibility study, with an
estimated total spend of $70 million in 2019. Initial spend on site
infrastructure may be considered later in the year. A capital
expenditure profile for Baimskaya will be provided together with
other project metrics following completion of the bankable
feasibility study in the first half of 2020.
Outlook
With all of the Group's current mining operations now fully
ramped up, we are focused on consistently running our processing
plants at their design capacity. The Group is firmly established as
a first quartile producer on the copper cash cost curve and we
expect to continue to benefit from the structural factors which
underpin this, including low strip ratios, energy efficiency,
favourable water and transport costs, automation and the use of
modern, large scale mining and processing equipment.
The Group is entering an important phase in the construction of
the Aktogay expansion project with the main structural works set to
commence in 2019. This project will add 80 ktpa of copper
production over the period 2022-27, at a low capital intensity of
$15,000 per tonne of annual copper production. The additional cash
flow generation from this low risk brownfield project will help to
support our investment in the Peschanka deposit at Baimskaya, our
longer term growth project, which is expected to start production
in 2026.
OPERATING REVIEW
The Group's operations in 2018 comprised the Bozshakol and
Aktogay open pit copper mines in the Pavlodar and East regions of
Kazakhstan, three underground mines in the East Region of
Kazakhstan, the Bozymchak copper-gold mine in Kyrgyzstan and their
associated concentrators.
Group production summary
kt (unless otherwise stated) 2018 2017
----------------------------- ----- ------
Copper production 294.7 258.5
Bozshakol 101.6 101.3
Aktogay 131.4 90.2
East Region and Bozymchak 61.7 67.0
Zinc in concentrate 49.7 57.6
Gold production (koz) 183.4 178.7
Silver production (koz) 3,511 3,506
----------------------------- ----- ------
BOZSHAKOL
The Bozshakol open pit mine is a first quartile asset on the
global cost curve with a remaining mine life of 38 years at an
average copper grade of 0.37%. The main sulphide concentrator, with
a processing capacity of 25 million tonnes, commenced production in
the first quarter of 2016 and was declared commercial in October
2016. The separate clay plant, which can process a further 5
million tonnes per annum, began commissioning in the fourth quarter
of 2016 and achieved commercial production on 1 July 2017.
Production summary
kt (unless otherwise stated) 2018 2017
----------------------------------- ------ ------
Ore extraction 30,722 34,612
Ore processed 28,454 24,558
Average copper grade processed (%) 0.48 0.53
Copper recovery rate (%) 79 81
Copper in concentrate 106.4 106.0
Copper production 101.6 101.3
Average gold grade processed (g/t) 0.26 0.28
Gold recovery rate (%) 59 58
Gold in concentrate (koz) 136.7 127.2
Gold production (koz) 127.8 119.0
Silver production (koz) 666 687
----------------------------------- ------ ------
Processing volumes of 28,454 kt were 16% higher than the prior
year (2017: 24,558 kt) reflecting the ramp up of both the sulphide
and clay concentrators. In the second half of the year ore
processed was 15,024 kt, consistent with full design capacity. The
volume of clay ore mined in 2018 was 6,742 kt, down from 15,072 kt
in 2017, as less clay material was stripped to provide access to
future sulphide sections. As a result, total ore extraction was 11%
lower than the prior year as the reduced clay extraction more than
offset the increase in sulphide extraction to feed the main plant.
As guided, the average copper grade in sulphide ore processed
reduced in 2018, to 0.47% from 0.52% in 2017, but remained above
the life of mine average grade of 0.37%. The overall copper
recovery rate decreased to 79% from 81% in 2017, due to the
increased proportion of clay material processed, which has a lower
rate of recovery than sulphide material.
Copper production of 101.6 kt was marginally above the prior
year as the increase in processing volumes was broadly offset by
lower grades. Full year copper production was in the upper half of
the guidance range of 95-105 kt. Gold production of 127.8 koz
(2017: 119.0 koz) was ahead of guidance of 115-125 koz, supported
by continued high grades. Silver production of 666 koz (2017: 687
koz) was 33% ahead of guidance of around 500 koz.
The majority of copper in concentrate production was dispatched
as concentrate to customers in China, with 11.0 kt of material sent
for toll processing into cathode at the Balkhash smelter in
Kazakhstan, where spare capacity on attractive terms was
available.
Copper production in 2019 is forecast to be between 105-115 kt
with by-products from gold and silver of between 130-140 koz and
around 700 koz respectively. The average copper grade in sulphide
ore processed in 2019 is expected to be similar to the 0.47% grade
reported in 2018. The clay plant demonstrated in 2018 that it can
operate at ore throughput levels above its design capacity of 5
Mtpa however it is a major consumer of water and a programme of
upgrades to the process water and reclaim systems is planned to
increase recycling rates and significantly reduce its consumption
of fresh water. Production from the clay plant has been suspended
for a period of 2-3 months whilst the upgrade work is conducted,
with minimal impact on overall production at Bozshakol in 2019.
Financial summary
$ million (unless otherwise stated) 2018 2017
------------------------------------ ---- ----
Gross Revenues(1) 756 719
Copper 596 572
Gold 144 137
Silver 11 10
Others 5 -
Revenues 756 698
Sales volumes(1)
Copper sales (kt) 102 99
Gold sales (koz) 115 107
Silver sales (koz) 724 617
Gross EBITDA(1) 520 515
Capitalised EBITDA - (12)
EBITDA 520 503
Operating profit 361 365
Gross cash costs (USc/lb)(1) 129 121
Net cash costs (USc/lb)(1) 58 54
Capital expenditure 29 74
Sustaining 24 10
Expansionary 5 64
------------------------------------ ---- ----
1 The prior year includes the results of clay operations in the
period before commercial production.
Gross Revenues
Prior to the achievement of commercial production, revenues and
operating costs are capitalised and not recognised in the income
statement. In 2017, the income statement therefore excludes the
results of clay operations in the first half of the year as
commercial production was achieved on 1 July 2017. Gross Revenues
and Gross EBITDA include all revenues and operating costs,
including periods prior to commercial production.
Gross Revenues increased by 5% to $756 million due to the
increase in sales volumes across all products. There was a limited
benefit of $3 million from a favourable market price for copper
versus the prior year, as sales volumes were weighted to the second
half of 2018 when copper prices were lower. Copper sales of 102 kt
include 10 kt of copper cathode from material processed at the
Balkhash smelter. Revenues recorded in the income statement in 2017
exclude $21 million of capitalised clay revenues from the first
half of the year.
EBITDA
Bozshakol contributed Gross EBITDA of $520 million, broadly in
line with the prior year, as an increase in Gross Revenues was
offset by a small increase in operating costs. A strong EBITDA
margin of 69% was maintained.
The gross cash cost is expressed on a unit of copper sales
basis, after adjustment for the copper payable and TC/RC terms. As
expected, the gross cash cost of 129 USc/lb has increased from 121
USc/lb in the prior year when operations benefited from a higher
grade in ore processed, lower maintenance expenditure and lower
volumes from the smaller clay operations. The gross cash cost was
marginally below market guidance of 130-150 USc/lb. During the year
there were some inflationary impacts on local costs, including
salaries and certain consumables, however these were partially
offset by efficiencies in consumption rates as well as the
weakening of the tenge, which traded at an average 345 KZT/$ versus
326 KZT/$ in the prior year. In addition, there was a modest
reduction in the annual benchmark TC/RC. After deducting by-product
credits, the net cash cost for Bozshakol in 2018 was 58 USc/lb,
similar to the 54 USc/lb reported for the prior year as the
increase in gross cash costs was partially offset by higher gold
and silver sales volumes.
The gross cash cost for 2019 is estimated to be 130-150 USc/lb.
The net cash cost in 2019 is forecast to benefit from the sale of
around 25 koz of gold bar inventory at the end of 2018, which is
being shipped to the National Bank of Kazakhstan over the first
half of 2019.
Operating profit
Operating profit of $361 million has reduced slightly from the
prior year, as the increase in EBITDA was offset by an additional
$17 million of MET charged to the income statement due to higher
copper prices and greater clay volumes not capitalised following
the achievement of commercial production on 1 July 2017.
Capital expenditure
Sustaining capital expenditure amounted to $24 million, which
was higher than the prior year when maintenance requirements were
limited, given the early nature of operations. Expenditure in the
year mainly related to the overhaul of mining equipment.
Maintenance programmes will continue to accelerate into 2019, with
total sustaining capital of around $50 million, which includes
around $10 million of projects deferred from 2018. In 2018, there
was limited expansionary capital expenditure of $5 million, as
construction activities are now complete. The final retention
payments to contractors of approximately $40 million will be
settled in early 2019.
AKTOGAY
Aktogay is a large scale, open pit mine similar to Bozshakol,
with a remaining mine life of 27 years at an average copper grade
of 0.37% (oxide) and 0.33% (sulphide). Aktogay commenced production
of copper cathode from oxide ore in December 2015 and achieved
commercial production in July 2016. The production of copper in
concentrate from sulphide ore began in the first quarter of 2017
and achieved commercial production on 1 October 2017. The operating
sulphide concentrator has an annual ore processing capacity of 25
million tonnes and the sulphide processing capacity will be doubled
to 50 million tonnes with the addition of a second concentrator by
the end of 2021.
Production summary
kt (unless otherwise stated) 2018 2017
----------------------------------- ------ ------
Oxide
Ore extraction 16,104 13,040
Copper grade (%) 0.33 0.36
Copper cathode production 25.7 25.1
Sulphide
Ore extraction 25,807 13,208
Ore processed 20,766 12,941
Average copper grade processed (%) 0.61 0.66
Recovery rate (%) 87 80
Copper in concentrate 110.6 68.2
Copper production 105.7 65.1
Total copper production 131.4 90.2
Silver production (koz) 489 270
----------------------------------- ------ ------
Copper cathode production from oxide material was 25.7 kt in
2018, above market guidance of 20-25 kt and the prior year output
of 25.1 kt. Higher volumes of oxide ore were extracted and placed
onto leach pads, to take advantage of available mining capacity.
This more than offset a reduction in oxide grade, from 0.36% in the
prior year to 0.33%.
Copper production from the sulphide plant increased by 62% to
105.7 kt due to an increase in processing volumes which was
supported by higher recoveries. Ore processed increased by 60% to
20,766 kt (2017: 12,941 kt) due to the ramp up of operations. Ore
processing in the second half of the year was 17% above the first
half, despite scheduled shutdowns for maintenance in both the third
and fourth quarters. Ore extraction exceeded the requirements of
the concentrator as preparatory stripping works were undertaken to
enable the expansion of mining volumes to feed the second
concentrator from 2021. A total of 5.2 Mt of lower grade sulphide
ore was stockpiled during the year.
The average copper grade in sulphide ore processed in 2018
reduced to 0.61% (2017: 0.66%), although it remains at elevated
levels compared to the life of mine grade, due to the persistence
of supergene enriched ore. Average copper grades are expected to
reduce towards the sulphide resource grade of 0.33% over the first
ten years of operations. The copper recovery rate from sulphide ore
in 2018 improved to 87%, compared to 80% in 2017 when the plant was
in the early stages of ramp up. The majority of copper in
concentrate production was dispatched as concentrate to customers
in China, whilst 8.1 kt of material was sent for toll processing
into cathode at the Balkhash smelter in Kazakhstan where spare
capacity on attractive terms was available.
Copper production from sulphide ore of 105.7 kt and copper
cathode output from the heap leaching operations of 25.7 kt
resulted in total copper production of 131.4 kt, slightly above the
2018 guidance range of 110-130 kt.
Copper production guidance for 2019 is 130-140 kt, consisting of
25 kt of copper cathode from oxide ore and 105-115 kt from sulphide
material. Production from sulphide in 2019 is expected to benefit
from a full year of processing at close to design capacity, which
will be partially offset by an anticipated reduction in grades.
Aktogay is also forecast to contribute around 500 koz of silver
production, consistent with 2018.
Financial summary
$ million (unless otherwise stated) 2018 2017
------------------------------------ ---- ------
Gross Revenues(1) 775 530
Revenues 775 276
Copper sales (kt) 130 87
Gross EBITDA(1) 530 374
Capitalised EBITDA - (185)
EBITDA 530 189
Operating profit 350 126
Gross cash costs (USc/lb)(1) 106 100
Net cash costs (USc/lb)(1) 103 98
Capital expenditure 514 (27)
Sustaining 20 4
Expansionary 494 (31)
------------------------------------ ---- ------
1 The prior year includes the results of sulphide operations in
the period before commercial production.
Gross Revenues
Prior to the achievement of commercial production all revenues
and operating costs are capitalised and excluded from the income
statement. Commercial production was achieved for sulphide
operations on 1 October 2017, therefore the income statement for
the prior year includes sulphide operations for the fourth quarter
only. Gross Revenues and Gross EBITDA shown in the above table
include the pre-commercial production period.
Gross Revenues increased substantially from the prior year to
$775 million, reflecting the growth in copper sales volumes
resulting from the successful ramp up of the sulphide concentrator.
The average LME copper price increased by 6% versus the prior year,
however owing to the timing of sales, the realised price impact of
copper had a negative $15 million impact on Gross Revenues. In 2017
copper sales volumes were heavily weighted to the second half of
the year, when copper prices were high, whilst during 2018 sales
volumes were also weighted to the second half, when copper prices
were lower. Copper sales included 32 kt of cathode material,
primarily from oxide operations but also including a limited
quantity of copper concentrate processed at the Balkhash smelter.
Aktogay recorded by-product revenues of $11 million, mainly from
commercially payable quantities of silver and gold. Revenues
recorded in the income statement in 2017 exclude $254 million of
capitalised revenues from sulphide operations.
EBITDA
The significant increase in Gross EBITDA to $530 million
reflects the rise in revenues associated with the volume growth
from the sulphide operations. Similar to Bozshakol, Aktogay has a
competitive EBITDA margin of 68%.
Gross cash costs of 106 USc/lb were below market guidance of
110-130 USc/lb. As anticipated there was an increase in gross cash
costs as costs began to normalise, following the benefits of higher
grades and low maintenance costs in the first year of sulphide
operations in 2017. In 2018, three planned shutdowns occurred at
the sulphide plant for SAG mill and ball mill relines, with an
associated increase in maintenance materials and service charges.
In addition, local inflation resulted in higher salary costs and
price increases for certain consumables, as well as an increase in
the cost of reagents at the oxide operations. These factors more
than offset the economies of scale benefit from higher production
volumes. Net cash cost, after by-products from commercially payable
silver, was 103 USc/lb.
The gross cash cost in 2019 is estimated at 105-125 USc/lb.
Grades at the sulphide plant are expected to decrease and
maintenance programmes are forecast to accelerate. These factors,
as well as tariff and general inflation, will more than offset the
economies of scale achieved from an increase in throughput to
design capacity during 2019.
Operating profit
The $224 million increase in operating profit to $350 million in
the current year is due to the additional contribution from the
sulphide operations. This follows the $341 million rise in EBITDA,
partially offset by higher MET resulting from a greater volume of
ore mined at higher copper prices in addition to increased
depreciation following the achievement of commercial
production.
Capital expenditure
Sustaining capital was $20 million, mainly relating to the
overhaul of mining equipment. Expenditure in the prior year was
minimal due to the early stage of operations. Total sustaining
capital is forecast to increase towards more normal levels in 2019
as maintenance activities across the mining and processing
facilities continue to accelerate. Expenditure of around $50
million is expected in 2019, which includes around $10 million of
expenditure deferred from 2018.
Total expansionary capital expenditure of $494 million during
the year contains $290 million relating to the original Aktogay
project. This includes $281 million paid to the lead contractor in
respect of the $300 million deferred from 2016, the balance of
which will be settled in early 2019. Other expenditure incurred on
the original project relates to the acquisition of further mining
fleet and reserve spares to support the ramp up of operations to
full capacity. Expansionary capital also includes $204 million for
the Aktogay expansion project, in line with market guidance. This
includes approximately $100 million of procured equipment, with
contracts signed for long lead items for the sulphide concentrator.
The project is progressing as planned, with the lead contractor
starting earthworks in the second quarter and construction
activities in the third quarter.
Total expansionary capital of around $470 million is forecast in
2019. This includes $70 million in respect of the first Aktogay
project, largely to expand the heap leach cells. Expenditure on the
Aktogay expansion is expected to be around $400 million in 2019,
subject to additional financing. First production from the new
plant is expected in 2021. The total capital budget for the project
is $1.2 billion, with approximately $400 million required in 2020
and $200 million in 2021.
EAST REGION AND BOZYMCHAK
Production summary
Copper
kt (unless otherwise stated) 2018 2017
----------------------------------- ----- ------
Ore extraction 3,892 3,919
Ore processed 4,030 4,172
Average copper grade processed (%) 1.81 1.89
Average recovery rate (%) 90 90
Copper in concentrate 65.3 71.0
Copper production 61.7 67.0
----------------------------------- ----- ------
Copper production in the East Region and Bozymchak reduced by 8%
versus the prior year to 61.7 kt, slightly below market guidance of
approximately 65 kt. The volume of ore processed reduced by 3% from
4,172 kt to 4,030 kt due to the processing of stockpiled ore from
the closed Yubileyno-Snegirikhinsky mine in 2017. The average grade
of copper in ore processed decreased to 1.81% (2017: 1.89%), mainly
due to lower grades at Orlovsky in 2018.
East Region and Bozymchak copper production in 2019 is expected
to be around 55 kt, below 2018 due to a reduction in ore available
for processing as the mines mature. Ore extraction at Orlovsky in
2019 will be impacted by difficult geological conditions, with a
modest recovery forecast in 2020.
By-products
koz (unless otherwise stated) 2018 2017
---------------------------------- ----- ------
Zinc bearing ore processed (kt) 3,028 3,163
Zinc grade processed (%) 2.42 2.65
Zinc in concentrate (kt) 49.7 57.6
Gold bearing ore processed (kt) 4,030 4,172
Gold grade processed (g/t) 0.73 0.76
Gold in concentrate 58.5 62.7
Gold production 55.0 58.9
Silver bearing ore processed (kt) 4,030 4,172
Silver grade processed (g/t) 33.4 33.6
Silver in concentrate 2,590 2,801
Silver production 2,356 2,549
---------------------------------- ----- ------
Output of all by-products was lower than the prior year. Zinc in
concentrate output of 49.7 kt was 17% below full year guidance of
approximately 60 kt, as indicated in the Group's third quarter
production report. Zinc production in 2018 has been impacted by
lower than forecast grades at the Artemyevsky mine, where
extraction was limited with development works ongoing to access a
second ore body for the extension project.
Full year gold production of 55.0 koz was above the external
guidance of 45-50 koz. The majority of outperformance was driven by
the Bozymchak mine in Kyrgyzstan, where the average gold grade was
1.55 g/t (2017: 1.64 g/t), average recovery rates improved to 84.6%
(2017: 82.4%) and ore processing was maintained at 1,002 kt (2017:
1,009 kt), delivering full year gold output of 39.7 koz (2017: 41.3
koz).
Silver production of 2,356 koz for the year represents a
reduction of 8% compared to 2017, due to lower processing volumes
as well as lower grades from the Bozymchak mine. Silver production
was 18% ahead of market guidance of around 2,000 koz.
East Region and Bozymchak is forecast to produce 40-45 koz and
around 1,800 koz of gold and silver production respectively in
2019. Zinc in concentrate production will be in the region of 50
kt.
Financial summary
$ million (unless otherwise stated) 2018 2017
------------------------------------ ----- ------
Revenues 631 689
Copper 417 433
Zinc 101 115
Gold 68 79
Silver 37 51
Other 8 11
Sales volumes
Copper sales (kt) 64 70
Zinc sales (kt) 50 57
Gold sales (koz) 54 62
Silver sales (koz) 2,362 2,979
EBITDA 284 371
Operating profit 165 266
Gross cash costs (USc/lb) 244 208
Net cash costs (USc/lb) 94 42
Capital expenditure 70 74
Sustaining 40 52
Expansionary 30 22
------------------------------------ ----- ------
Revenues
Revenues generated by East Region and Bozymchak decreased by 8%
to $631 million as a result of lower sales volumes across all
products. Copper revenues fell by $16 million as a 9% reduction in
sales volumes was partially offset by a 6% improvement in the
average LME copper price. Revenues from by-products were $42
million below the prior year driven by lower volumes as well as a
lower silver price.
EBITDA
EBITDA reduced by $87 million, reflecting a $58 million
reduction in revenues as well as an increase in cash operating
costs. Cash operating costs of $347 million increased by $29
million from the prior year, despite lower production and a
weakening of the tenge, as inflationary pressures included a rise
in salaries following a period of muted growth since the
devaluation of the tenge in 2015. Market prices for raw materials,
including fuel and railway tariffs, have also risen. At Bozymchak,
operating costs have increased due to higher maintenance costs as
the operation matures whilst mining costs have risen owing to
longer haul distances. Operating costs in 2018 also include a $9
million impairment for VAT in the East Region.
As a result, the gross cash cost of copper for East Region and
Bozymchak of 244 USc/lb was 17% above the prior year, but in line
with market guidance of 230-250 USc/lb. Net cash costs increased
from 42 USc/lb to 94 USc/lb due to the increase in gross cash cost
combined with a reduction in by-product sales volumes and a lower
market price for silver.
Gross cash costs for 2019 are estimated to increase to around
260-280 USc/lb, mainly due to a further reduction in copper sales
volumes to circa 55 kt.
Operating profit
Operating profit of $165 million was $101 million lower than the
prior year due to the reduction in EBITDA as well as a $20 million
impairment to Bozymchak following adverse court rulings relating to
the recovery of VAT incurred on construction costs. This was
partially offset by lower depreciation and the absence of
impairment charges recorded within special items in 2017.
Capital expenditure
Sustaining capital expenditure of $40 million was below market
guidance of around $50 million and lower than the prior year, which
included certain projects deferred from previous years. Expenditure
in the year relates to mine development works across the
underground mines, the purchase of mine equipment, expansion of
tailings facilities and maintenance of support infrastructure. In
2019 sustaining capital requirements for the East Region and
Bozymchak are forecast to be around $50 million, including some
expenditure deferred from 2018.
Expansionary capital expenditure of $30 million predominantly
relates to the extension of the Artemyevsky mine, including initial
development works to develop a ventilation shaft. Expansionary
capital in 2019 is expected to be around $70 million and will
require around $60 million per annum from 2020 to 2022, with
limited spend thereafter.
Other projects
On 22 January 2019 the Group announced the Initial Completion of
the acquisition of the Baimskaya copper project. During 2019 the
Group will progress a bankable feasibility study of the project
with expected expenditure of around $70 million. Initial spend on
site infrastructure may be considered later in the year. Fluor has
been appointed as the lead contractor for the feasibility study and
work has commenced. The results of the feasibility study, including
guidance on the timing of capital expenditure, production volumes,
operating costs and sustaining capital expenditure are expected to
be announced in the first half of 2020. In parallel with the
feasibility study, the Group will continue discussions with banks
on financing the construction phase and evaluate the potential for
partnering.
On 8 June 2018 the Group announced an investment of $70 million
from NFC for a 19.4% holding in the Koksay project. $25 million was
received in December 2018 as a prepayment to fund ongoing
activities and the balance is expected to be settled in the first
half of 2019. The $70 million is to be used for the development of
Koksay including a feasibility study which will determine the
detailed design for mining and processing operations and the
associated capital budget. The Board will review the results of the
feasibility study to assess how and when to proceed with the
project. Approximately $20 million is expected to be spent on
feasibility work in 2019.
FINANCIAL REVIEW
Basis of preparation
The financial information has been prepared in accordance with
IFRSs, as adopted by the EU, using accounting policies consistent
with those adopted in the condensed consolidated financial
statements for the year ended 31 December 2018, including the
application of IFRS 15 'Revenue from Contracts with Customers' and
IFRS 9 'Financial Instruments' which were applicable from 1 January
2018.
The Aktogay sulphide and Bozshakol clay plants were in
pre-commercial production until 1 October 2017 and 1 July 2017
respectively. During the pre-commercial production phase, revenues
and operating costs were capitalised within property, plant and
equipment as part of the cost of construction and 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 incorporate the
results of the Aktogay sulphide and Bozshakol clay plants during
pre-commercial production, to provide measures of their performance
over the full year 2017 and as a comparative for 2018.
Income statement
An analysis of the consolidated income statement is shown
below:
$ million (unless otherwise stated) 2018 2017
---------------------------------------------------------- ----- -----
Gross Revenues(1) 2,162 1,938
Gross EBITDA(1) 1,310 1,235
---------------------------------------------------------- ----- -----
Revenues 2,162 1,663
Cash operating costs (852) (625)
---------------------------------------------------------- ----- -----
EBITDA(1) 1,310 1,038
Less: MET and royalties (200) (132)
Less: depreciation, depletion and amortisation (239) (172)
Less: special items (20) (19)
---------------------------------------------------------- ----- -----
Operating profit 851 715
Net finance costs (209) (135)
---------------------------------------------------------- ----- -----
Profit before tax 642 580
Income tax expense (132) (133)
---------------------------------------------------------- ----- -----
Profit for the year 510 447
Non-controlling interests - -
---------------------------------------------------------- ----- -----
Profit attributable to equity holders of the Company 510 447
---------------------------------------------------------- ----- -----
Earnings per share attributable to equity shareholders of
the Company
Ordinary EPS - basic and diluted ($) 1.14 1.00
EPS based on Underlying Profit - basic and diluted ($)(1) 1.18 1.07
---------------------------------------------------------- ----- -----
1 Alternative Performance Measures (APMs) are used to assess the
performance of the Group and are not defined or specified under
IFRS. For further information on APMs, including justification for
their use, please refer to the APMs section on page 54.
Gross Revenues and Revenues
Gross Revenues for 2018 were $2,162 million, an increase of $224
million from the prior year, mainly due to higher copper volumes
from the Aktogay sulphide and Bozshakol clay plants as they ramped
up to design capacity and from an improved average LME copper
price. The total copper sold in 2018 was 296 kt versus 256 kt in
2017, mainly due to higher throughput at the Aktogay sulphide
plant. The LME copper price averaged $6,526 per tonne in 2018, up
from $6,163 per tonne in the prior year. The average realised price
of copper increased only marginally to $6,002 per tonne from $5,992
per tonne in 2017, despite the 6% higher LME copper price, due to a
greater proportion of copper concentrate sales which amounted to
64% in the current year (2017: 56%) and are priced to include the
deduction of treatment and refining charges.
Revenues recognised in the income statement increased by 30% to
$2,162 million reflecting the inclusion of a full year of sales
from the Aktogay sulphide and Bozshakol clay plants in 2018, which
were capitalised in the prior year during pre-commercial
production. Revenues capitalised during the pre-commercial
production period in 2017 amounted to $254 million and $21 million
for the Aktogay sulphide and Bozshakol clay plants
respectively.
Gross Revenues from by-products were $385 million compared to
$406 million in the prior year, impacted by lower zinc and silver
revenues due to reduced output from the East Region operations.
Gold revenues were $212 million, slightly below the $216 million
recorded in 2017, due to lower output from the East Region and
Bozymchak. By-products comprised 18% of Gross Revenues in 2018
versus 21% in the prior year, due to growth in Aktogay volumes
which contain a smaller proportion of by-products.
Further information on Gross Revenues and revenues by operating
segment can be found in the Operating review. Additional
information on revenues and related credit risk management policies
can be found in note 4 to the condensed consolidated financial
statements.
Operating profit and EBITDA
The operating profit for 2018 was $851 million compared to $715
million in 2017, primarily due to the growth in sales volumes from
the Aktogay sulphide plant. The Group's operating profit margin,
measured as operating profit divided by revenues, reduced slightly
to 39% in the current year from 43% in 2017. The reduction in
margin was mainly due to an impairment of $20 million recognised
against Bozymchak, combined with lower production, inflationary
cost increases and a $9 million impairment of VAT at the East
Region. Within operating profit, the Group's cost of sales and
selling and distribution expenses rose mainly due to additional
volumes from the Aktogay sulphide and Bozshakol clay plants, for
which the associated costs were capitalised ahead of commercial
production in 2017, and a higher depreciation charge following a
full year of commercial operations at Aktogay sulphide.
Gross EBITDA for the Group rose by 6% to $1,310 million due to
the increase in Gross Revenues attributed mainly to the higher
volumes from the Aktogay sulphide plant partly offset by the impact
of lower volumes from the East Region and Bozymchak operations. The
Gross EBITDA margin for the Group decreased from 64% in 2017 to 61%
in 2018 due to the impact of higher unit costs at East Region and
Bozymchak including the $9 million impairment of VAT.
The increase in EBITDA from $1,038 million in the prior year to
$1,310 million was mainly attributed to higher Aktogay sales
volumes from the sulphide plant.
Please refer to the Operating review for a detailed analysis of
EBITDA by operating segment.
Items excluded from EBITDA
MET and royalties
The MET and royalties charge in the income statement rose from
$132 million in 2017 to $200 million in 2018. This reflects the
increased metal in ore mined to support the ramp up of Aktogay
sulphide operations and higher average LME copper prices, partly
offset by lower grade ore and reduced ore volumes mined at
Bozshakol. In 2017, $26 million of MET relating to the Aktogay
sulphide and Bozshakol clay plants was incurred during
pre-commercial production and capitalised to property, plant and
equipment.
The total MET and royalties incurred was $207 million compared
to $196 million in the prior year with the rise attributable to the
increased ore mined at the Aktogay sulphide operations and the
impact of higher LME copper prices. The difference between the MET
and royalties charge in the income statement and incurred reflects
MET included in unsold inventories on the balance sheet, mostly
within current assets.
Depreciation, depletion and amortisation
Depreciation, depletion and amortisation in 2018 of $239 million
is higher than the $172 million incurred in 2017, as depreciation
of the Aktogay sulphide and Bozshakol clay assets only commenced in
the second half of 2017, upon achievement of commercial
production.
Special items
Special items are non-recurring or variable in nature and do not
impact the underlying trading performance of the Group.
The Bozymchak CGU was subject to an impairment review following
the identification of an impairment indicator, being adverse court
rulings relating to the recovery of VAT incurred on the
construction of the plant. A total impairment of $20 million was
recognised, with $16 million recorded against property, plant and
equipment and $4 million against mining assets. The impairment
charge reduced the carrying value of the Bozymchak operation to its
estimated recoverable amount of $84 million, which was determined
as its fair value less cost to sell on a discounted cash flow basis
at 31 December 2018.
In the prior year the Group determined that it would not
progress a project to construct a copper smelter in Kazakhstan and
the associated feasibility study costs totalling $16 million were
expensed as a special item. An impairment charge of $4 million at
the East Region and Bozymchak in respect of property, plant and
equipment was also recognised in 2017 within special items.
Net finance costs
Net finance costs include:
$ million 2018 2017
--------------------------------------------------------------- ----- -----
Interest income 33 17
--------------------------------------------------------------- ----- -----
Total interest incurred (240) (246)
Interest capitalised 4 88
--------------------------------------------------------------- ----- -----
Interest expense (236) (158)
Interest on employee obligations and unwinding of discounts (6) (7)
Fair value (losses)/gains on debt related derivative financial
instruments (3) 13
--------------------------------------------------------------- ----- -----
Net interest expense (245) (152)
--------------------------------------------------------------- ----- -----
Net foreign exchange gains 3 -
--------------------------------------------------------------- ----- -----
Net finance costs (209) (135)
--------------------------------------------------------------- ----- -----
Net finance costs were $209 million compared to $135 million in
2017.
The total interest incurred amounted to $240 million and was $6
million lower than the $246 million incurred in the prior year. In
2017, the total interest incurred included $10 million of PXF fees
related to the refinancing of that facility and a $15 million
discount unwind on the NFC deferral (see note 14) which decreased
to $1 million in 2018, after $281 million of the $300 million
deferred was settled in the year. Interest on borrowings included
within total interest incurred increased to $239 million compared
to $221 million in the prior year, mainly due to higher US dollar
LIBOR rates in 2018, partly offset by the repayment of debt
facilities.
Interest expense recognised in the income statement of $236
million was higher than the $158 million reported in 2017, as
interest on the borrowings to finance the Aktogay sulphide and
Bozshakol clay plants was capitalised to the cost of the project in
the prior year until the achievement of commercial production.
Capitalised interest of $4 million in 2018 reflects financing costs
incurred on the Group's general borrowings used to fund the Aktogay
expansion project.
Taxation
The table below shows the Group's effective tax rate as well as
the all-in effective tax rate which takes into account the impact
of MET and removes the effect of special items on the Group's tax
charge.
$ million (unless otherwise stated) 2018 2017
------------------------------------------------------------- ---- ----
Profit before tax 642 580
Add: MET and royalties 200 132
Add: special items 20 29
------------------------------------------------------------- ---- ----
Adjusted profit before tax 862 741
------------------------------------------------------------- ---- ----
Income tax expense 132 133
Add: MET and royalties 200 132
------------------------------------------------------------- ---- ----
Less: recognition of deferred tax liability on special items - -
------------------------------------------------------------- ---- ----
Adjusted tax expense 332 265
------------------------------------------------------------- ---- ----
Effective tax rate (%) 21 23
------------------------------------------------------------- ---- ----
All-in effective tax rate(1) (%) 39 36
------------------------------------------------------------- ---- ----
1 The all-in effective tax rate is calculated as the income tax
expense plus MET and royalties less the tax effect of special items
and other non-recurring items, divided by profit before taxation
which is adjusted for MET and royalties and special items. The
all-in effective tax rate is considered to be a more representative
tax rate on the recurring profits of the Group.
Effective tax rate
The effective tax rate in 2018 was 21%, which was lower than the
prior year rate of 23%, mainly due to a reduction in non-deductible
expenses at the Group's Kazakhstan operations and 2017 including
income tax adjustments in respect of the prior years.
All-in effective tax rate
The increase in the all-in effective tax rate to 39% from 36% in
the prior year is mainly due to a higher MET and royalties charge,
as a greater proportion of MET was expensed in the current year,
whereas in 2017 MET associated with extraction during the
pre-commercial production periods of the Aktogay sulphide and
Bozshakol clay plants was capitalised.
Net profit attributable to the equity holders of the Company and
Underlying Profit
A reconciliation of Underlying Profit from profit attributable
to equity holders of the Company is set out below:
$ million (unless otherwise stated) 2018 2017
---------------------------------------------------------- ---- ----
Net profit attributable to equity holders of the Company 510 447
Special items within operating profit, net of tax - note
6 20 19
Special items within profit before taxation, net of tax
- PXF fees - 10
---------------------------------------------------------- ---- ----
Underlying Profit(1) 530 476
---------------------------------------------------------- ---- ----
Weighted average number of shares in issue (million) 447 447
---------------------------------------------------------- ---- ----
Ordinary EPS - basic and diluted ($) 1.14 1.00
EPS based on Underlying Profit - basic and diluted ($)(1) 1.18 1.07
---------------------------------------------------------- ---- ----
1 Alternative Performance Measures (APMs) are used to assess the
performance of the Group and are not defined or specified under
IFRS. For further information on APMs, including justification for
their use, please refer to the APMs section on page 54.
The Group's net profit attributable to equity holders of the
Company was $510 million in 2018 compared to $447 million in the
prior year. This was mainly due to increased operating profit,
partly offset by interest costs on project borrowings which were
expensed in the current year but capitalised in 2017, prior to the
achievement of commercial production.
Underlying Profit rose to $530 million in 2018 versus $476
million recorded in the prior year, following the increase in net
profit.
EPS and EPS based on Underlying Profit
Basic earnings per share of $1.14 increased from $1.00 in 2017,
whilst earnings per share based on Underlying Profit rose to $1.18
from $1.07.
Dividends
KAZ Minerals PLC, the parent company of the Group, is a
non-trading investment holding company and derives its profits from
dividends paid by subsidiary companies.
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 and the Group's
growth ambitions.
In October 2018 the Company paid an interim dividend of 6.0 US
cents per share equating to an interim payment of $27 million,
marking the successful delivery of the cash generative Aktogay and
Bozshakol operations. As a result of the Group's strong performance
in the year, the Board has recommended a final dividend for 2018 of
6.0 US cents per share, equivalent to a payment of $28 million.
Combined with the interim dividend of 6.0 US cents per share, the
dividend in respect of the 2018 financial year is 12.0 US cents per
share.
On 22 January 2019, the Group announced the Initial Completion
of the acquisition of the Baimskaya copper project. The financing
requirements of the project construction including capital budget,
phasing, sources of funding and partnering options will be assessed
during the feasibility study expected to be completed in the first
half of 2020, following which the Board will further review the
Group's allocation of capital.
The distributable reserves of KAZ Minerals PLC at 31 December
2018 were $1,385 million.
Cash flows
The summary of cash flows below is prepared on a basis
consistent with internal management reporting.
$ million 2018 2017
------------------------------------------------------------------- ----- -----
EBITDA(1) 1,310 1,038
Change in inventories(2) (138) (37)
Change in prepayments and other current assets(2) (30) (41)
Change in trade and other receivables(2) 4 27
Change in trade and other payables and provisions(2) 49 11
Interest paid (229) (222)
MET and royalties paid(2) (208) (151)
Income tax paid (95) (110)
Foreign exchange and other movements 7 5
------------------------------------------------------------------- ----- -----
Net cash flows from operating activities before capital
expenditure and non-current VAT associated with major projects(3) 670 520
Sustaining capital expenditure (85) (68)
------------------------------------------------------------------- ----- -----
Free Cash Flow(1) 585 452
Expansionary and new project capital expenditure(4) (530) (69)
Net non-current VAT received associated with major projects 3 232
Proceeds from disposal of property, plant and equipment - 1
Interest received 32 16
Dividends paid (27) -
Other investments 10 -
Other movements (3) (1)
------------------------------------------------------------------- ----- -----
Cash flow movement in net debt 70 631
------------------------------------------------------------------- ----- -----
1 Alternative Performance Measures (APMs) are used to assess the
performance of the Group and are not defined or specified under
IFRS. For further information on APMs, including justification for
their use, please refer to the APMs section on page 54.
2 Excludes working capital and MET movements arising from
pre-commercial production activities at the Bozshakol and Aktogay
operations in 2017.
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 operating
activities' as reflected on the Group cash flow statement, is the
VAT received on the construction of the major projects.
4 Expansionary and new project capital expenditure includes
operating cash flows relating to pre-commercial production
activities in 2017, as explained further below.
Summary of the year
Net cash flows from operating activities before capital
expenditure and non-current VAT associated with major projects
improved to $670 million due to increased profits, partly offset by
additional working capital requirements and higher MET payments due
to the rise in commodity prices and a greater volume of sulphide
ore mined at Aktogay. The MET paid in the prior year excludes $38
million capitalised to property, plant and equipment ahead of
commercial production at the Aktogay sulphide and Bozshakol clay
plants.
Working capital
-- Inventory levels rose by $138 million primarily related to
the acquisition of consumables and spare parts to support the ramp
up of Bozshakol and Aktogay. A conservative approach has been taken
to support sustained output as an operating history is established.
However it is expected that over time inventory requirements will
reduce as the Group develops better data on consumption and wear
rates, works with suppliers to shorten lead times and as the
Group's shared spares strategy develops further. In addition there
was a larger finished goods inventory at Bozshakol and East Region
and Bozymchak, due to the timing of sales. The $158 million
increase in inventory shown in the IFRS based cash flow statement
(see note 15) includes MET and depreciation, which are excluded
from the cash flow above, as MET is reflected separately and EBITDA
is stated before depreciation and amortisation;
-- Prepayments and other current assets increased by $30 million
primarily due to an increase in operating VAT receivable at the
Aktogay operations following its ramp up to design capacity and
advances paid for goods and services. During the year, $91 million
of VAT was refunded to the East Region, Bozshakol and Aktogay
operations;
-- Trade and other receivables decreased by $4 million mostly
due to the impact of lower copper prices in the second half of the
year. Further details relating to the nature of the Group's
customers are given in note 4(b) to the condensed consolidated
financial statements; and
-- Trade and other payables and provisions increased by $49
million due to increased credit purchases of raw materials to
support the ramp up to design capacity at the new operations and
$32 million of additional customer receipts in advance of product
deliveries. The difference to trade and other payables shown in the
IFRS based cash flow statement (see note 15) reflects the change in
MET and royalties payable over the year, if any. The cash flow
above contains MET and royalties payments as a separate line
item.
In 2017, inventory levels rose by $37 million due to higher
consumables needed to support the operational ramp up of Aktogay
and Bozshakol and from an increase in finished goods in transit to
customers. Trade and other receivables decreased by $27 million due
to lower volumes at Bozshakol in December following repairs in
November, while prepayments and other current assets increased by
$41 million due to a higher operating VAT receivable at Aktogay and
Bozshakol operations. Trade and other payables increased by $11
million due to higher operational spend at Aktogay and Bozshakol
and from lower customer advances received ahead of product
delivery.
The working capital movements in 2017 exclude the period of
pre-commercial production at the Aktogay sulphide and Bozshakol
clay plants, which were capitalised as part of the cost of
construction and were included within expansionary and new project
capital expenditure. These included outflows of $29 million for
consumables and inventory at Aktogay and $35 million for clay ore
stockpiled at Bozshakol, in addition to a $52 million increase in
trade and other receivables and prepayments at both operations,
partly offset by increased accounts payable of $6 million and MET
payable of $12 million. There were no pre-commercial production
working capital cash flows included within expansionary capital
expenditure in 2018.
Interest cash flows
Interest paid during the year was $229 million compared with
$222 million in 2017 which included PXF fees of $10 million.
Interest paid is broadly consistent with the higher borrowing costs
incurred during the year of $239 million and above the prior year
mainly due to increased LIBOR interest rates. Interest payments are
made semi-annually under the CDB Bozshakol/Bozymchak, CDB Aktogay
and DBK US dollar facilities, quarterly under the CDB Aktogay RMB
facility and monthly under the PXF facility.
Income taxes and MET
Income tax payments of $95 million (2017: $110 million) include
$41 million (2017: $48 million) of withholding tax on interest
accrued in previous years for financing the major projects.
Excluding withholding tax payments, taxes paid were below the
income statement charge of $132 million (2017: $133 million) due to
capital allowances and utilisation of available tax losses at
Aktogay and Bozshakol. At 31 December 2018, the Group's net income
tax receivable was $7 million, compared to a $2 million income tax
payable in 2017.
MET and royalties payments increased to $208 million (2017: $151
million) as a result of the higher charge at the Aktogay and
Bozshakol operations. In 2017, prior to commercial production at
the Aktogay sulphide and Bozshakol clay plants, $38 million of MET
and royalties paid was reflected within expansionary capital
expenditure. Once adjusted for the impact of capitalised MET paid
in 2017, the increased MET in the current year is attributable to a
greater volume of ore mined and higher copper prices. At 31
December 2018, MET and royalties payable was $48 million compared
to $55 million at 31 December 2017.
Free Cash Flow
The Group's Free Cash Flow before interest payments on
borrowings was $814 million compared to $674 million in 2017
following the higher profits recorded by the Group. After interest
payments, Free Cash Flow was $585 million compared to $452 million
in the prior year.
Capital expenditure
Sustaining capital expenditure increased to $85 million in 2018
from $68 million in the prior year, as maintenance spend at
Bozshakol and Aktogay was $30 million higher, following the ramp up
of operations, partly offset by lower expenditure at the East
Region and Bozymchak.
Expansionary and new project expenditure of $530 million in 2018
includes $281 million paid in 2018 in respect of the $300 million
Aktogay NFC deferral, $213 million invested at Aktogay, mainly on
the expansion project and $28 million incurred on the Artemyevsky
mine extension in the East Region. This compares to $69 million of
expansionary capital expenditure recorded in 2017, which was net of
$127 million in operating cash inflows capitalised ahead of
commercial production at the Aktogay sulphide and Bozshakol clay
plants. In 2017, a total of $196 million was spent mainly on
construction of the Group's major growth projects and the East
Region, of which $64 million related to investments in consumables,
inventory and the stockpiling of ore at the Aktogay sulphide and
Bozshakol clay plants ahead of commercial production. Please refer
to the Operating review for an analysis of the Group's capital
expenditure by operating segment.
Non-current VAT
The net non-current VAT received of $3 million (2017: $232
million) relates to VAT previously incurred during the construction
of Aktogay and Bozshakol.
Other investments
In 2018, other investing cash flows include the receipt of $25
million advance consideration in respect of NFC's equity investment
in Koksay (see Investments below) and $15 million of advances paid
to fund studies on the Baimskaya copper project.
Balance sheet
Equity attributable to owners of the Company at 31 December 2018
was $1,050 million (2017: $995 million), an increase of $55 million
as the Group's attributable profit for the year of $510 million
(2017: $447 million) was offset by a decrease in the US dollar
value of the Group's foreign currency operations of $428 million
(2017: increase of $8 million) and dividends of $27 million paid in
October (2017: $nil). There was a 16% decrease in the value of the
tenge from 31 December 2017 to 31 December 2018. The Group's mining
assets are largely held within Kazakhstan-based entities which
maintain tenge as their functional currency. At period ends, these
non-monetary assets are consolidated and reported in US dollars at
the closing exchange rate with the change in value arising from
movements in the tenge exchange rate reflected in equity and not
through the income statement. The weaker tenge should have a
positive effect on their underlying economic value as it reduces
local operating costs, whilst revenues are largely US dollar based.
The Group's external liabilities, principally bank debt, are mainly
US dollar denominated and not affected by movements in the KZT/$
exchange rate.
Net debt
A summary of the Group's net debt position is shown below:
$ million 2018 2017
-------------------------------------------------- ------- -------
Cash and cash equivalents and current investments 1,469 1,821
Less: restricted cash(1) (2) -
Borrowings (3,453) (3,877)
-------------------------------------------------- ------- -------
Net debt(2) (1,986) (2,056)
-------------------------------------------------- ------- -------
1 Cash at bank at 31 December 2018 of $2 million (2017: $nil)
was restricted by legal or contractual arrangements. These amounts
are excluded from the Group's measure of net debt.
2 Alternative Performance Measures (APMs) are used to assess the
performance of the Group and are not defined or specified under
IFRS. For further information on APMs, including justification for
their use, please refer to the APMs section on page 54.
Cash and cash equivalents and current investments at 31 December
2018 totalled $1,469 million, which was below the $1,821 million at
31 December 2017 mainly due to the settlement of $281 million of
the $300 million NFC deferral, expansionary spend on the Aktogay
expansion project of $204 million and repayment of the Group's debt
of $424 million. This was partly offset by a Free Cash Flow of $585
million.
To manage counterparty and liquidity risk, surplus funds within
the Group are held predominantly in the UK, with funds held in
Kazakhstan utilised mainly for working capital purposes. The funds
within the UK are held primarily with major European and US
financial institutions and triple-'A' rated liquidity funds. At 31
December 2018, $1,439 million of cash and cash equivalents and
current investments were held in the UK and Europe and $30 million
in Kazakhstan and Kyrgyzstan.
At 31 December 2018, borrowings (net of unamortised fees) were
$3,453 million, a decrease of $424 million from 31 December 2017
reflecting $183 million in principal repayments of the CDB
Bozshakol/Bozymchak finance facility, $12 million paid under the
CDB Aktogay RMB facility, $108 million paid under the CDB Aktogay
USD facility, $21 million paid in respect of the DBK Aktogay loan
and $100 million paid in respect of the PXF loan. The borrowings
(net of unamortised fees) consisted of $1,345 million under the CDB
Bozshakol/Bozymchak facilities, $1,331 million under the CDB
Aktogay finance facilities, $277 million under the DBK facility and
$500 million under the PXF debt facility.
Further details of the terms of the Group's borrowings are
included in note 13 of the condensed consolidated financial
statements.
Investments
On 22 January 2019, the Group announced the Initial Completion
of the acquisition of the Baimskaya copper project in the Chukotka
region of Russia. The consideration due at Initial Completion was
$436 million in cash and 22.3 million new KAZ Minerals shares,
which were allotted to the vendor. $50 million of the $436 million
cash consideration has been withheld pending the release of a
guarantee agreement made by the acquired entity which is the legal
owner of the Baimskaya licence. The final cash payment of $50
million is expected to be settled in 2019. The 22.3 million shares
are subject to a three-year lock-up period ending on the third
anniversary of Initial Completion. Deferred Consideration of $225
million for the remaining interest is payable in 21.0 million
shares, subject to the achievement of certain Project Delivery
Conditions, including a pre-determined level of throughput and
development of infrastructure by the Russian state. To the extent
these conditions are not met or waived by the Group and therefore
not settled in shares, the Deferred Consideration will become
payable in cash on 31 March 2029. The purchase will be accounted
for in 2019 as an asset acquisition, with the principal value
attributed to the mining licence, shown within mining assets.
On 8 June 2018, the Group completed an agreement for NFC to
invest $70 million for a 19.4% equity stake in Koksay B.V., the
parent company of the entity which holds the mining licence in
Kazakhstan. The Group received $25 million of consideration in
advance in December 2018. The remaining investment of $45 million
will be settled, on completion of the transaction, in the first
half of 2019. The $70 million to be invested by NFC will be solely
used for the development of Koksay, including a feasibility study,
which will determine the detailed design for mining and processing
operations and the associated capital budget. The Board will then
review the results of the feasibility study to assess how and when
to proceed with the project.
Hong Kong listing
On 1 August 2018, the Group delisted from the Hong Kong Stock
Exchange. The Group retains its primary listings on the London and
Kazakhstan Stock Exchanges.
Going concern
The Group manages liquidity risk by maintaining adequate
committed borrowing facilities and working capital funds. The Board
monitors the net debt level and liquidity position of the Group
taking into consideration the expected outlook of the Group's
financial position, cash flows, future capital expenditure and debt
service requirements.
The Group's funding strategy is to obtain a new financing
facility which the Group's forecasts show is required to finance
the construction of the Aktogay expansion. The Board is confident
of raising additional liquidity through a combination of new
sources of finance and/ or a refinance of debt facilities given the
quality of the Group's long-term low cost assets, the low risk
nature of the Aktogay expansion and the level of amortisation of
existing debt facilities during the period. The Board expects a new
facility, in the region of $600 million, to be completed during the
first half of 2019 to support the Aktogay expansion.
Assuming additional liquidity is committed as expected, the
Board is satisfied that the Group's forecasts, taking into account
reasonably possible downside scenarios, show that the Group has
adequate liquidity to continue in operational existence for the
foreseeable future. There can however be no guarantee that the new
liquidity can be secured as expected. In the unlikely event that no
new additional financing can be secured, mitigating actions will be
taken to defer planned capital expenditure, to ensure the Group has
adequate liquidity throughout the going concern period. In the
severe downside scenarios of sustained lower than expected
commodity prices with lower production; and sustained lower prices,
lower production and higher operating costs, the Group's forecasts
indicate that mitigating actions, including a deferral of
construction of the Aktogay expansion, would be required by the end
of the first half of 2019 if new financing is not obtained. Whilst
these scenarios are considered unlikely, the Board considers taking
such mitigating steps to be feasible. Accordingly, the Board is
satisfied that it is appropriate to adopt the going concern basis
of accounting in the preparation of these condensed consolidated
financial statements.
PRINCIPAL RISKS
Managing our risks
The Group's principal risks are set out below, along with
mitigating actions. There may be other risks, unknown or currently
considered immaterial, which might become material. The risks set
out below are not in order of likelihood of occurrence or
materiality and should be viewed, as with any forward-looking
statements in this document, with regard to the cautionary
statement.
SUSTAINABILITY RISKS
Health and safety
Impact
Mining is a hazardous industry. Health and safety incidents
could result in harm to people, as well as production disruption,
financial loss and reputational damage.
The Group is entering a period of more intense construction
activity, increasing potential health and safety exposures.
Mitigation
The Group's goal is for zero fatalities and to seek to minimise
health and safety incidents. Policies and procedures are designed
to identify and monitor risks and provide a clear framework for
conducting business. This is supported by regular training and
awareness campaigns for employees and contractors. Additional
measures are being taken to mitigate identified health and safety
risks associated with major construction works such as at Aktogay
and Artemyevsky, in particular the supervision of activities
performed by on site contractors.
The HSE Committee reviews and monitors associated risks across
the Group. Further details of the HSE function are set out in the
Corporate responsibility report.
Community and labour relations
Impact
The Group operates in areas where it is a major employer, where
employees are represented by labour unions and where it may provide
support to the local community. This may impose restrictions on the
Group's flexibility in taking certain operating decisions. Failure
to identify and manage the concerns and expectations of local
communities and the labour force could affect the Group's
reputation and social licence to operate, and could result in
production disruptions and increases in operating costs. Wage
negotiations could be impacted by higher commodity prices, higher
domestic inflation or the continued weakness of the tenge.
Mitigation
The Group engages with community representatives, unions and
employees and aims to address concerns raised by different
stakeholders. Through responsible behaviour, acting transparently,
promoting dialogue and complying with commitments the Group
minimises potentially negative impacts. Bozshakol and Aktogay are
in remote locations where the community relations risk is reduced.
As part of the due diligence process for the Baimskaya acquisition
the Group met with community representatives in the Chukotka region
to understand local issues and commence a dialogue.
Further details of the Group's social programme are set out in
the Corporate responsibility report.
Employees
Impact
The Group is dependent on its ability to attract and retain
highly skilled personnel. Failure to do so could have a negative
impact on operations or the successful implementation of growth
projects and result in higher operating costs to recruit required
staff. The remote location of some operations increases this
challenge.
Mitigation
The Group actively monitors the labour market to remain
competitive in the hiring of staff and provides remuneration
structures and development opportunities to attract and retain key
employees. Key positions are identified at all locations, and
training and succession plans developed. A leadership development
programme is in place to provide a talent pipeline of national
workers for key positions and aid retention. The Group is investing
in training resources to support the workforce requirement for the
Aktogay expansion. International workers with appropriate expertise
assist during the initial phase of operations.
Environmental
Impact
Mining operations involve the use of toxic substances and
require the storage of large volumes of waste materials in tailings
dams, which could result in spillages, loss of life and significant
environmental damage. The Group is subject to environmental laws
and regulations which are continually developing, including those
to tackle climate change. Failure to comply with applicable laws
could lead to the suspension of operating licences, the imposition
of financial penalties or costly compliance costs and reputational
damage.
Mitigation
Policies and procedures are in place to set out required
operating standards and to monitor environmental impacts. The Group
liaises with relevant governmental bodies on environmental matters,
including legislation changes.
Further details are set out in the Corporate responsibility
report.
OPERATIONAL RISKS
Business interruption
Impact
Operations are subject to a number of risks not wholly within
the Group's control, including: geological and technological
challenges; weather and other natural phenomena; damage to or
failure of equipment and infrastructure; information technology and
cyber risks; loss or interruption to key inputs such as electricity
and water; and the availability of key supplies and services,
including the Balkhash smelter.
Any disruption could impact production, may require the Group to
incur unplanned expenditure and negatively impact cash flows.
Mitigation
In-house and third-party specialists are utilised to identify
and manage operational risks and to recommend improvements.
Equipment and facilities are maintained appropriately and regularly
inspected. Property damage and business interruption insurance
programmes provide some protection from major incidents.
Should an outage occur at the Balkhash smelter the Group
believes it could sell concentrate directly to customers.
New projects and commissioning
Impact
Projects may fail to achieve the desired economic returns due to
an inability to recover mineral resources, design or construction
deficiencies, a failure to achieve expected operating parameters or
because of capital or operating costs being higher than expected.
Failure to effectively manage new projects or a lack of available
financing may prevent or delay completion of projects.
There are various project risks associated with the successful
development of the recently acquired Baimskaya copper project,
including its remote location, the delivery of government support
for infrastructure, obtaining certain tax incentives and local
weather conditions.
Mitigation
New projects are subject to rigorous assessment prior to
approval including feasibility or technical studies and capital
appraisal. Specialists are utilised throughout the life cycle of
projects. Project management and capital expenditure planning and
monitoring procedures are in place to review performance against
milestones and budgets. This includes the Projects Assurance
Committee which reports to the Board.
The Group performed a detailed due diligence exercise, led by
its experienced projects team and supported by external
consultants, prior to the acquisition of Baimskaya. An
international standard pre-feasibility study has been performed by
Fluor and the mine plan is based on a JORC resource.
The acquisition was structured with Deferred Consideration to
incentivise the Vendor, as a local partner, to assist in the
delivery of the project.
Further details of the major growth projects are included in the
Operating review.
Reserves and resources
Impact
The Group's ore reserves are in part based on an estimation
method established by the former Soviet Union. There are numerous
uncertainties inherent in estimating ore reserves, which if
changed, could require the need to restate ore reserves and impact
the economic viability of affected operations and development
projects.
Mitigation
The Group's ore reserves and mineral resources are published
annually in accordance with the criteria of the JORC Code and
reviewed by an independent technical expert. This includes mine
site visits where considered appropriate and the conversion from
the former Soviet Union estimation to that prescribed by the JORC
Code. Drilling and exploration programmes are conducted to enhance
the understanding of geological information.
Political
Impact
The Group could be affected by political instability or social
and economic changes in the countries in which it operates. This
could include a change in government, 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.
Following the acquisition of Baimskaya the Group is now exposed
to political risks associated with operating in Russia, a new
jurisdiction for the Group.
Further international sanctions on Russia could impact the
development of Baimskaya, as well as the supply of certain goods
and services to the Group's existing operations.
Mitigation
A proactive dialogue is maintained with KAZ Minerals' host
governments across a range of issues. Developments are monitored
closely and lobbying is conducted where appropriate.
Kazakhstan is one of the most politically stable and
economically developed countries in Central Asia and the Board
continues to view the political, social and economic environment
within Kazakhstan favourably and remains optimistic about the
conditions for business in the region. In Russia, the Baimskaya
acquisition was structured with Deferred Consideration to
incentivise the Vendor, as a local partner, to assist in the
delivery of the project. Prior to the acquisition, the Group
engaged with the Russian government at different levels and has
subsequently maintained an ongoing dialogue.
Legal and regulatory compliance
Impact
The Group is subject to various legal and regulatory
requirements across all of its jurisdictions including subsoil
usage rights in Kazakhstan, Kyrgyzstan and Russia and UK governance
rules including related party transactions and anti-bribery and
corruption. Legislation and taxation may be subject to change and
uncertainty of interpretation, application and enforcement. In a
number of jurisdictions around the world governments have been
increasing taxation on resource companies.
Non-compliance with legislation could result in regulatory
challenges, fines, litigation and ultimately the loss of operating
licences. Substantial payments of tax could arise for the Group, or
tax receivable balances may not be recovered as expected.
Mitigation
Management engages with the relevant regulatory authorities and
seeks appropriate advice to ensure compliance with all relevant
legislation and subsoil use contracts. A specialist department is
tasked with monitoring compliance with the terms of subsoil use
contracts in Kazakhstan. Management works closely with the tax
authorities in the review of proposed amendments to legislation.
Further details of the Group's tax strategy and risk management are
set out in the Financial review. Appropriate monitoring and
disclosure procedures are in place for related party transactions.
The Group's corporate policies are being applied in Russia where a
dedicated team is managing legal and regulatory compliance.
FINANCIAL RISKS
Commodity price
Impact
The Group's results are heavily dependent on the commodity price
for copper and to a lesser extent, the prices of gold, silver and
zinc. Commodity prices can fluctuate significantly and are
dependent on several factors, including world supply and demand and
investor sentiment.
The imposition of trade tariffs between the US and China in 2018
have negatively impacted the Chinese economy and its outlook. China
is the largest market for copper and the trade tariffs have had a
negative impact on copper prices and their near-term outlook.
Mitigation
The Group regularly reviews its sensitivity to fluctuations in
commodity prices. The Group is not currently and does not normally
hedge commodity prices, but may enter into a hedge programme where
the Board determines it is appropriate to provide greater certainty
over future cash flows.
Sensitivity analysis to movements in commodity prices is
included in the Market overview.
Foreign exchange and inflation
Impact
Fluctuations in rates of exchange or inflation in the
jurisdictions to which the Group is exposed could result in future
increased costs. The Group will be exposed to fluctuations in the
Russian rouble, which may affect the capital cost associated with
the development of Baimskaya.
As the functional currency of the Group's operating entities is
their local currency, fluctuations in exchange rates can give rise
to exchange gains and losses in the income statement and volatility
in the level of net assets recorded on the Group's balance
sheet.
Mitigation
Where possible the Group conducts its business and maintains its
financial assets and liabilities in US dollars. The Group generally
does not hedge its exposure to foreign currency risk in respect of
operating expenses.
Exposure to China
Impact
Sales are made to a limited number of customers in China,
particularly in respect of copper concentrate output. Treatment and
refining charges are dependent upon Chinese smelting capacity and
the level of copper concentrate supply in the region.
China is an important source of financing to the Group with
long-term debt facilities of $2.7 billion at 31 December 2018. In
addition, the Group uses contractors, services and materials from
China.
The imposition of trade tariffs between the US and China in 2018
have negatively impacted the Chinese economy and its outlook. A
slowdown in the Chinese economy could impact the availability of
Chinese credit and its demand for commodities, both important to
the Group.
Mitigation
Bozshakol and Aktogay produce a copper concentrate that is
attractive to Chinese smelters, being 'clean' and high in sulphur
content. The Group has established good relationships with
strategic customers in China.
The Group maintains relationships with a number of international
lending banks, having the PXF and DBK facilities in place and has
the flexibility to consider other sources of capital if
required.
Acquisitions and divestments
Impact
The Group may acquire or dispose of assets and businesses which
fail to achieve the expected benefit or value to the Group.
Changing market conditions, incorrect assumptions or deficiencies
in due diligence could result in the wrong decisions being made and
in acquisitions or disposals failing to deliver expected
benefits.
The $900 million acquisition of the Baimskaya copper project
represents a material acquisition for the Group.
The 2014 Restructuring was effected under the laws and
regulations of Kazakhstan which are subject to change and open to
interpretation, including the legal and tax aspects of the
Restructuring in 2014, which could give rise to liabilities for KAZ
Minerals.
Mitigation
A rigorous assessment process is undertaken to assess all
potential acquisitions and divestments by specialist staff,
supported by external advisers where appropriate. Due diligence
processes are undertaken, and material transactions are subject to
Board review and approval, including ensuring the transaction is
aligned with the Group's strategy, consideration of the key
assumptions being applied and the risks identified.
The due diligence on the Baimskaya acquisition was led by the
Group's experienced project team, supported by external
consultants, the results of which were reported on an on-going
basis to the Board.
Liquidity
Impact
The Group is exposed to liquidity risk if it is unable to meet
payment obligations as they fall due or is unable to access
acceptable sources of finance. Non-compliance with financial
covenants could result in borrowing facilities becoming uncommitted
and repayable.
Baimskaya is a large-scale project and its development will
require additional financing which will increase the debt levels of
the Group.
Failure to manage liquidity risk could have a material impact on
the Group's cash flows, earnings and financial position.
Mitigation
Forecast cash flows are closely monitored and the financing
strategy is set by the Board. Adequate levels of committed funds
are maintained with $1,469 million cash and cash equivalents and
current investments at 31 December 2018. The Group's existing
operations are highly cash generative.
The Group has a successful track record of raising finance for
major projects. In respect of Baimskaya, in parallel with the
feasibility study, the Group will continue discussions with banks
on financing the construction phase and evaluate the potential for
partnering.
Further details regarding going concern are included in note 2
to the financial statements.
CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME
Year ended 31 December 2018
$ million (unless otherwise stated) Notes 2018 2017
------------------------------------------------------------- ----- -------- ------
Revenues 4(b) 2,162 1,663
Cost of sales (1,077) (755)
Gross profit 1,085 908
Selling and distribution expenses (94) (69)
Administrative expenses (115) (108)
Net other operating income 4 4
Impairment losses 5 (29) (20)
------------------------------------------------------------- ----- -------- ------
Operating profit 851 715
------------------------------------------------------------- ----- -------- ------
Analysed as:
Operating profit (excluding special items) 871 734
Special items 6 (20) (19)
------------------------------------------------------------- ----- -------- ------
Finance income 7 33 30
Finance costs 7 (245) (165)
Net foreign exchange gain 3 -
Profit before tax 642 580
Income tax expense 8 (132) (133)
------------------------------------------------------------- ----- -------- ------
Profit for the year 510 447
------------------------------------------------------------- ----- -------- ------
Analysed as:
Underlying Profit 9 530 476
Special items 6 (20) (29)
------------------------------------------------------------- ----- -------- ------
Attributable to:
Equity holders of the Company 510 447
Non-controlling interests - -
510 447
------------------------------------------------------------- ----- -------- ------
Other comprehensive (expense)/income for the year after
tax:
Items that may be reclassified subsequently to the
income statement:
Exchange differences on retranslation of foreign operations (427) 8
Items that will never be reclassified to the income
statement:
Actuarial gain on employee benefits, net of tax - 1
Other comprehensive (expense)/income for the year (427) 9
------------------------------------------------------------- ----- -------- ------
Total comprehensive income for the year 83 456
------------------------------------------------------------- ----- -------- ------
Attributable to:
Equity holders of the Company 82 456
Non-controlling interests 1 -
83 456
------------------------------------------------------------- ----- -------- ------
Earnings per share attributable to equity shareholders
of the Company
Ordinary EPS - basic and diluted ($) 9 1.14 1.00
EPS based on Underlying Profit - basic and diluted
($) 9 1.18 1.07
------------------------------------------------------------- ----- -------- ------
CONSOLIDATED BALANCE SHEET
At 31 December 2018
$ million Notes 2018 2017
---------------------------------------------- ----- -------- --------
Assets
Non-current assets
Intangible assets 6 7
Property, plant and equipment 2,130 2,535
Mining assets 432 438
Other non-current assets 11 301 170
Deferred tax asset 28 65
2,897 3,215
---------------------------------------------- ----- -------- --------
Current assets
Inventories 439 359
Prepayments and other current assets 90 82
Income taxes prepaid 18 13
Trade and other receivables 127 132
Current investments 15(c) 250 -
Cash and cash equivalents 15(b) 1,219 1,821
2,143 2,407
---------------------------------------------- ----- -------- --------
Total assets 5,040 5,622
---------------------------------------------- ----- -------- --------
Equity and liabilities
Equity
Share capital 12(a) 171 171
Share premium 2,650 2,650
Capital reserves 12(c) (2,457) (2,029)
Retained earnings 686 203
Attributable to equity holders of the Company 1,050 995
Non-controlling interests 4 3
---------------------------------------------- -------- --------
Total equity 1,054 998
---------------------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 13 2,914 3,459
Deferred tax liability 76 70
Employee benefits 12 14
Provision for closure and site restoration 58 67
Other non-current liabilities 14 7 7
3,067 3,617
---------------------------------------------- ----- -------- --------
Current liabilities
Trade and other payables 320 272
Borrowings 13 539 418
Income taxes payable 11 15
Employee benefits 2 2
Provision for closure and site restoration 1 -
Other current liabilities 14 46 300
919 1,007
---------------------------------------------- ----- -------- --------
Total liabilities 3,986 4,624
---------------------------------------------- ----- -------- --------
Total equity and liabilities 5,040 5,622
---------------------------------------------- ----- -------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2018
$ million Notes 2018 2017
------------------------------------------------------------- ----- -------- ------
Operating activities
Cash receipts from customers 2,198 1,640
Net proceeds on non-current VAT 3 232
Cash payments to employees, suppliers and taxes other
than non-current VAT and income tax (1,204) (788)
Cash flows from operations before interest and income
taxes paid 15(a) 997 1,084
Interest paid (229) (222)
Income taxes paid (95) (110)
Net cash flows from operating activities 673 752
------------------------------------------------------------- ----- -------- ------
Investing activities
Interest received 32 16
Proceeds from disposal of property, plant and equipment
and mining assets - 1
Purchase of intangible assets (2) (2)
Purchase of property, plant and equipment (567) (92)
Investments in mining assets, including licences (46) (43)
Licence payments for subsoil contracts (2) (1)
Additions to long-term bank deposits (1) -
Baimskaya advances (15) -
Net additions to current investments 15(c) (250) -
Advance consideration for investment in Koksay 25 -
Net cash flows used in investing activities (826) (121)
------------------------------------------------------------- ----- -------- ------
Financing activities
Proceeds from borrowings 15(c) - 376
Repayment of borrowings 15(c) (424) (294)
Dividends paid by the Company 10 (27) -
Net cash flows (used in)/from financing activities (451) 82
------------------------------------------------------------- ----- -------- ------
Net (decrease)/increase in cash and cash equivalents 15(c) (604) 713
Cash and cash equivalents at the beginning of the year 1,821 1,108
Effect of exchange rate changes on cash and cash equivalents 15(c) 2 -
------------------------------------------------------------- ----- -------- ------
Cash and cash equivalents at the end of the year 15(b) 1,219 1,821
------------------------------------------------------------- ----- -------- ------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2018
Attributable to equity holders
of the Company
-------------------------------------------------- --------------- -------
Share Share Capital Retained Non-controlling Total
$ million Notes capital premium reserves(1) earnings Total interests equity
----------------------------- ----- -------- -------- ------------ --------- ----- --------------- -------
At 1 January 2017 171 2,650 (2,037) (251) 533 3 536
Profit for the year - - - 447 447 - 447
Exchange differences on retranslation
of foreign operations - - 8 - 8 - 8
Actuarial gain on employee benefits,
net of tax - - - 1 1 - 1
--- ---- ------ -------- ------ ------
Total comprehensive income for
the year - - 8 448 456 - 456
Share-based payments, net of
taxes - - - 6 6 - 6
-------------------------------------- --- ---- ------ -------- ------ ------ ------
At 31 December 2017 171 2,650 (2,029) 203 995 3 998
Profit for the year - - - 510 510 - 510
Exchange differences on retranslation
of foreign operations - - (428) - (428) 1 (427)
Total comprehensive income/(expense)
for the year - - (428) 510 82 1 83
Dividends paid by the Company 10 - - - (27) (27) - (27)
-------------------------------------- --- ---- ------ -------- ------ ------ ------
At 31 December 2018 171 2,650 (2,457) 686 1,050 4 1,054
-------------------------------------- --- ---- ------ -------- ------ ------ ------
1 See note 12(c) for an analysis of 'Capital reserves'.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 December 2018
1. Corporate information
KAZ Minerals PLC (the 'Company') is a public limited company
incorporated in England and Wales. The Company's registered office
is 6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL,
United Kingdom. The Group comprises the Company and its
consolidated divisions. The Group consists of Bozshakol, Aktogay,
the East Region, Bozymchak and Mining Projects including
Koksay.
2. Basis of preparation
The condensed consolidated financial statements ('the financial
statements') for the year ended 31 December 2018 does not
constitute statutory accounts as defined in Sections 435(1) and (2)
of the Companies Act 2006. Statutory accounts for the year ended 31
December 2017 have been delivered to the Registrar of Companies and
those for 2018 will be delivered following the Company's Annual
General Meeting convened for Thursday 2 May 2019. The auditor has
reported on these accounts; their reports were unqualified, did not
include a reference to any matters to which the auditor drew
attention by way of emphasis of matter and did not contain a
statement under Sections 498(2) or (3) of the Companies Act
2006.
(a) Going concern
The Group manages liquidity risk by maintaining adequate
committed borrowing facilities and working capital funds. The Board
monitors the net debt level and liquidity position of the Group
taking into consideration the expected outlook of the Group's
financial position, cash flows, future capital expenditure and debt
service requirements.
At 31 December 2018, the Group's net debt was $1,986 million
with gross debt of $3,453 million and gross liquid funds of $1,467
million. The gross debt facilities, which are fully drawn, consist
of:
-- $1,345 million of the CDB-Bozshakol and Bozymchak facilities,
which amortise over the period to 2025;
-- $1,331 million of the CDB-Aktogay US dollar and Chinese yuan
facilities, which amortise over the period to 2029;
-- $500 million of the PXF facility which amortises over the
period from July 2018 to June 2021; and
-- $277 million of the DBK facility, which amortises during the
period from June 2018 to June 2025.
Since year end the Group has completed the acquisition of
Baimskaya, comprising an initial cash payment of $386 million with
a further $50 million payment expected to be made during 2019.
The Board has considered the Group's cash flow forecasts for the
period to 30 March 2020 including the outlook for commodity prices,
production levels from the Group's operations, its future capital
requirements, including the planned expansion of Aktogay and the
acquisition and an initial investment in the Baimskaya project, and
the principal repayments and interest due under the Group's debt
facilities.
The Group's funding strategy is to obtain a new financing
facility which the Group's forecasts show is required to finance
the construction of the Aktogay expansion. The Board is confident
of raising additional liquidity through a combination of new
sources of finance and/ or a refinance of debt facilities given the
quality of the Group's long-term low cost assets, the low risk
nature of the Aktogay expansion and the level of amortisation of
existing debt facilities during the period. The Board expects a new
facility, in the region of $600 million, to be completed during the
first half of 2019 to support the Aktogay expansion.
Assuming additional liquidity is committed as expected, the
Board is satisfied that the Group's forecasts, taking into account
reasonably possible downside scenarios, show that the Group has
adequate liquidity to continue in operational existence for the
foreseeable future. There can however be no guarantee that the new
liquidity can be secured as expected. In the unlikely event that no
new additional financing can be secured, mitigating actions will be
taken to defer planned capital expenditure, to ensure the Group has
adequate liquidity throughout the going concern period.
In the severe downside scenarios of sustained lower than
expected commodity prices with lower production; and sustained
lower prices, lower production and higher operating costs, the
Group's forecasts indicate that mitigating actions, including a
deferral of construction of the Aktogay expansion, would be
required by the end of the first half of 2019 if new financing is
not obtained. Whilst these scenarios are considered unlikely, the
Board considers taking such mitigating steps to be feasible.
Accordingly, the Board is satisfied that it is appropriate to
adopt the going concern basis of accounting in the preparation of
these condensed consolidated financial statements.
(b) Basis of accounting
The financial statements have been prepared on a historical cost
basis, except for derivative financial instruments which have been
measured at fair value. The financial statements are presented in
US dollars ('$') and all financial information has been rounded to
the nearest million dollars ('$ million'), except where otherwise
indicated.
All accounting policies adopted in the preparation of the
financial statements are consistent with those followed in the
preparation of the Group's annual consolidated financial statements
for the year ended 31 December 2018.
None of the amendments to standards and interpretations
applicable during the period has had a material impact on the
financial position or performance of the Group. The Group has not
early adopted any standard, interpretation or amendment that was
issued but is not yet effective.
In preparing these 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 EU up to 31 December 2018.
The following accounting standards, amendments and
interpretations, which had no significant impact on these financial
statements, became effective in the current reporting period as
adopted by the EU through the European Financial Reporting Advisory
Group ('EFRAG'):
Revenue
On 1 January 2018, the Group adopted IFRS 15 'Revenue from
Contracts with Customers' using the 'modified retrospective
approach', which did not result in a classification or measurement
adjustment to retained earnings on transition or a restatement of
comparative information. In applying the transition requirements
and provisions of the new standard, the Group reviewed its
contracts and assessed the nature of its performance obligations.
Certain sales contracts, in particular those relating to copper
concentrate, reflect Carriage Insurance Paid delivery terms
(Incoterms) which require the Group to deliver the material to a
specified location. Whilst the sale and delivery of the material
are regarded as two separate performance obligations for which
revenue should be recognised, the delivery performance obligation
was found to be wholly immaterial compared to the sales performance
obligation and therefore no change to prior period revenue
recognition was required. The Group also considered the variable
consideration constraint on revenue recognition imposed by the new
standard in relation to post sale volume adjustments on metal
concentrates. Historically, such final volume adjustments on metal
concentrates have been minimal and therefore there was no
constraint imposed on revenue recognition.
Financial instruments
On 1 January 2018, the Group adopted IFRS 9 'Financial
Instruments' which replaced IAS 39 'Financial Instruments:
Recognition and Measurement'. The new standard has been applied
retrospectively but did not result in a material change to the
Group's accounting policies or a restatement of prior period
financial assets and liabilities. As a result of the application of
IFRS 9, trade receivables subject to provisional pricing are
required to be classified and presented at fair value through
profit or loss. Most of the Group's sales contracts are based on
provisional pricing which are marked to market at each period end
using appropriate quoted market forward prices, with any adjustment
included in revenue. Changes in classification and measurement of
the Group's financial instruments on transition to IFRS 9 are
outlined in note 17. The standard also outlines a new 'expected
credit loss' model, used to estimate the credit risk to the Group's
financial assets measured at amortised cost. The impact of this
model was evaluated and found to be immaterial, given the nature of
the Group's financial assets and its credit risk management
policies and procedures which control credit exposure and minimise
the risk of loss.
Leases
IFRS 16 'Leases' becomes effective in the EU on 1 January 2019.
The standard changes the identification of leases and how they will
be recognised, measured and disclosed by lessees, requiring the
recognition of a right-of-use asset and liability for the future
lease payments on the balance sheet. The new standard requires the
right-of-use asset to be depreciated over the duration of the lease
term and shown within operating profit in the income statement,
with the interest cost associated with the financing of the asset
included within interest expense. The Group has reviewed its lease
contracts in place at 31 December 2018, which mainly relate to
leased office buildings and payments for land, and the right-of-use
asset and related liability was found to be immaterial. The net
impact on profit before tax in 2019 is also expected to be
immaterial. The Group has elected to apply the modified
retrospective approach requiring no restatement of comparative
figures and there will be no impact on opening equity at 1 January
2019. The new standard does not apply to leases to explore for or
use natural resources, such as mining licences and rights.
IFRIC 23 'Uncertainty over Income Tax Treatments', Borrowing
costs eligible for capitalisation (Amendments to IAS 23)' effective
from 1 January 2019, 'Definition of a Business (Amendments to IFRS
3)' effective from 1 January 2020, IFRS 17 'Insurance Contracts'
effective from 1 January 2021 and a number of other amendments,
including those issued following the 2015-2017 annual improvements
project, which have not yet been endorsed by the EU are not
expected to have a material impact on the Group's condensed
consolidated financial statements.
(c) Basis of consolidation
The financial statements set out the Group's financial position
as at 31 December 2018 and the Group's financial performance for
the year ended 31 December 2018.
Subsidiaries are those enterprises controlled by the Group.
Control exists when the Group has the power, directly or
indirectly, to direct those activities of an enterprise that most
significantly affect the returns the Group earns from its
involvement with the enterprise. Subsidiaries are consolidated from
the date on which control is transferred to the Group and cease to
be consolidated from the date on which control is transferred out
of the Group. When the Group ceases to have control, any retained
interest in the entity is remeasured to its fair value, with the
change in carrying amount recognised in the income statement. The
fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate,
joint venture or financial asset. In addition, any amounts
previously recognised in other comprehensive income in respect of
that entity are accounted for as if the Group had directly disposed
of the related assets or liabilities. This treatment may mean that
amounts previously recognised in other comprehensive income are
recycled through the income statement. Joint operations are those
arrangements jointly controlled by the Group and one or more
parties with rights to the assets and obligations for the
liabilities relating to the arrangement. Joint operations are
proportionally consolidated from the date on which the Group
obtains joint control and cease to be proportionally consolidated
from the date on which the Group no longer has joint control.
The financial statements of subsidiaries and joint operations
are prepared for the same reporting year as the Company, using
consistent accounting policies. All intercompany balances and
transactions, including unrealised profits arising from intragroup
transactions, are eliminated in full. Unrealised losses are
eliminated in the same way as unrealised gains except that they are
only eliminated to the extent that there is no evidence of
impairment.
(d) Statement of compliance
The financial statements of the Company, and all its
subsidiaries and joint operations have been prepared in accordance
with IFRSs as issued by the IASB and interpretations issued by the
IFRIC of the IASB, as adopted by the EU, and in accordance with the
provisions of the Companies Act 2006.
3. Significant accounting judgements and key sources of estimation uncertainty
In the course of preparing these financial statements, the
Directors make necessary judgements, estimates and assumptions
about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. Judgements are based on the
Directors' best knowledge of the relevant facts and circumstances
having regard to prior experience, but actual results may differ
from the amounts included in the financial statements.
Estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant,
but actual results may differ from these estimates. The estimates
and underlying assumptions applied are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods, if the revision affects both current and future
periods.
The following are the critical judgements, key assumptions and
sources of estimation uncertainty concerning the future that arise
mainly from the nature of the Group's mining operations and which
the Directors believe are likely to have the greatest effect on the
amounts recognised in the financial statements. However, the
Directors do not expect a significant risk of a material change to
the Group's carrying value of the assets and liabilities affected
by these factors in the next 12 months, within a reasonably
possible range, with the exception of Bozymchak, as discussed
below.
The qualitative disclosures regarding these sources of
estimation uncertainty are presented because the Directors consider
these to be relevant to the mining industry and useful in
understanding the financial statements of the Group. These
disclosures go beyond the minimum requirements of IAS 1
'Presentation of Financial Statements' which only requires
disclosure of estimation uncertainty where changes in estimates,
within a reasonably possible range, could have a significant risk
of a material effect, within the next 12 months, on the amounts
recognised in the financial statements.
Impairment of assets
Significant accounting judgements
The Directors review the carrying value of the Group's assets to
determine whether there are any indicators of impairment such that
the carrying values of the assets may not be recoverable. The
assessment of whether an indicator of impairment or reversal
thereof has arisen requires considerable judgement, taking account
of future operational and financial plans, commodity prices, market
demand and the competitive environment. For exploration and
evaluation assets held by the Group, indicators of impairment can
include: (a) the right to explore in a specific area has expired
and is not expected to be renewed (b) significant expenditure for
further exploration or evaluation activities is not being planned
(c) exploration and evaluation of mineral resources have not led to
the discovery or confirmation of commercially viable resource, or
(d) that sufficient data exists to indicate that the carrying
amount of the asset may not be recovered in full from development
or sale.
Where such indicators exist, the carrying value of the assets of
a cash generating unit or exploration and evaluation asset is
compared with the recoverable amount of those assets, that is, the
higher of its fair value less costs to sell and value in use, which
is typically determined on the basis of discounted future cash
flows. For the purpose of assessing commodity prices for indicators
of impairment, consideration was given to a range of equity analyst
long-term copper prices with a median price of around $6,700/t.
An assessment of the key external and internal factors affecting
the Group and its cash generating units ('CGUs'), at 31 December
2018 (and 31 December 2017) did not identify any indicators of
impairment or reversal thereof at any of the Group's Kazakhstan
CGUs.
At the Bozymchak CGU, adverse court rulings in Kyrgyzstan for
the recovery of historical VAT incurred on the construction of the
plant, amounting to $16 million and previously included within
non-current assets, were received in the second half of 2018. This
was considered to be an impairment indicator and an impairment
review was undertaken (see note 5).
Key sources of estimation uncertainty
The preparation of discounted future cash flows used for
impairment reviews where indicators are identified, includes
management estimates of commodity prices, market demand and supply,
future operating costs, economic and regulatory environments,
capital expenditure requirements, long-term mine plans and other
factors. Any subsequent revisions to cash flows due to changes in
the factors listed above, principally commodity prices, beyond what
is considered as reasonably possible, could impact the recoverable
amount of the assets. Changes to commodity prices within a
reasonably possible range are not expected to significantly impact
the carrying value of the Group's Kazakhstan CGU's.
Bozymchak
An impairment charge of $20 million was recognised against the
Bozymchak CGU, which is included in the East Region and Bozymchak
segment, following the identification of an impairment indicator.
In determining the recoverable amount of the CGU, the Directors
made estimates of the future risk adjusted cash flows with the key
variables being copper and gold price assumptions, operational
costs, production profile, copper grades and the discount rate. The
recoverable amount of the CGU was estimated at $84 million and
determined as its fair value less costs to sell (see note 5).
Non-current inventories
Significant accounting judgements
Mining activities may result in the stockpiling of ore. Ore
which is not expected to be processed within 12 months of the
balance sheet date and is considered to fall outside of the normal
operating cycle of the operation is classified as a non-current
asset. The classification of stockpiled ore between non-current and
current assets is based on judgements as to the expected timing of
processing and on future production plans.
Key sources of estimation uncertainty
Stockpiled ore is reported at the lower of cost or net
realisable value, with net realisable value subject to estimates of
further processing, delivery costs and future commodity prices.
Commodity prices applied in assessing the net realisable value fall
within the range of equity analyst commodity price expectations.
Changes to commodity prices in the next 12 months within a
reasonably possible range are not expected to significantly impact
the carrying value of non-current inventories.
Determination of ore reserves and useful lives of property,
plant and equipment
Key sources of estimation uncertainty
Ore reserves are estimates of the amount of product that can be
economically and legally extracted from the Group's mining
properties. In order to estimate reserves, assumptions are required
about a range of geological, technical and economic factors,
including quantities, grades, production techniques, recovery
rates, production costs, transport costs, commodity demand,
commodity prices and exchange rates. The Group estimates its ore
reserves and mineral resources based on information compiled and
reviewed by independent competent persons as defined in accordance
with the JORC Code.
In assessing the life of a mine for accounting purposes, ore
reserves are taken into account where there is a high degree of
confidence of economic extraction. Since the economic assumptions
used to estimate reserves change from period to period, and as
additional geological data is generated during the course of
operations, estimates of reserves may change from period to period.
Changes in reported reserves may affect the Group's financial
results and financial position in a number of ways, including the
following:
-- asset recoverable amounts may be affected due to changes in estimated future cash flows;
-- deferral of stripping costs which are determined using a waste to ore stripping ratio;
-- depreciation, depletion and amortisation charged in the
income statement may change where such charges are determined by
the unit of production basis, or where the useful economic lives of
assets change;
-- decommissioning, site restoration and environmental
provisions may change where changes in estimated reserves affect
expectations about the timing or cost of these activities; and
-- the carrying value of deferred tax assets may change due to
revisions in estimates of the likely recovery of tax benefits.
There are numerous uncertainties inherent in estimating ore
reserves and assumptions that are valid at the time of estimation
may change significantly when new information becomes available.
Changes in the forecast prices of commodities, exchange rates,
production costs or recovery rates may change the economic status
of reserves and may ultimately result in reserves being revised.
The Directors do not expect significant changes in the carrying
value of the Group's mining properties; property plant and
equipment; closure liabilities and deferred taxes to arise from
changes in ore reserve estimates within a reasonably possible range
in the next 12 months. Revisions to ore reserve estimates in 2018
did not result in a material change to the carrying value of these
assets and liabilities.
For property, plant and equipment depreciated on a straight-line
basis over its useful economic life, the appropriateness of the
asset's useful economic life is reviewed at least annually and
changes could affect prospective depreciation rates and asset
carrying values.
Decommissioning and site restoration costs
Significant accounting judgements
The Directors use judgement and experience in determining the
expected timing, closure and decommissioning methods, which can
vary, in response to changes in the relevant legal requirements or
decommissioning technologies.
Key sources of estimation uncertainty
The ultimate cost of decommissioning and rehabilitation is
uncertain and cost estimates can vary in response to many factors
including the emergence of new restoration techniques and costs of
materials and labour. Therefore, the Group periodically reviews the
closure cost estimate at each operation. The expected timing and
extent of expenditure can also change in response to revisions in
ore reserve estimates, processing levels and commodity prices
whilst future costs are discounted using expected discount rates.
Due to the relatively long life of the Group's most significant
assets, changes in estimates within a reasonable possible range in
the next 12 months are not expected to significantly impact the
carrying value of the Group's provisions for decommissioning and
site restoration costs.
Taxes
Significant accounting judgements
The Directors make judgements in relation to the recognition of
various taxes levied on the Group, which are both payable and
recoverable. Judgement applies particularly to corporate income
taxes, transfer pricing, VAT and outcomes of any tax disputes which
would affect the recognition of tax liabilities and deferred tax
assets. Judgement over recognition also applies to taxes which are
recoverable by the Group, principally VAT paid for which the
recoverability and timing of recovery is assessed. In making
judgements related to taxes, the Directors believe that the tax
positions it adopts are in line with the applicable legislation and
reflect the probable outcome. The tax obligations and receivables,
upon audit by the tax authorities at a future date, may differ as a
result of differing interpretations. These interpretations may
impact the expected timing and quantum of taxes payable and
recoverable.
Key sources of estimation uncertainty
Estimates may be made to determine the amount of taxes
recoverable, principally VAT and deferred tax assets. The
recognition of deferred tax assets mainly relates to tax losses
which may be utilised in the future, giving consideration to future
profitability, estimates on commodity prices, interest rates,
operating costs and any statute of limitation period. Changes in
these estimates within a reasonably possible range in the next 12
months are not expected to significantly alter the carrying value
of the Group's taxes that are recoverable.
Joint operations
Significant accounting judgements
Joint arrangements are classified as joint operations where the
Group exercises joint control and the parties have the rights to
the assets and obligations for the liabilities relating to the
arrangement. Judgement is required in determining the nature of the
joint arrangement based on the particular facts and circumstances,
the legal form and purpose of the joint arrangement. Industrial
Construction Group LLC ('ICG') is a joint arrangement established
to undertake the engineering and construction of the additional
sulphide processing facility at Aktogay. The Group exercises joint
control as decisions require unanimous consent. As the output of
the joint arrangement is the construction of the additional
processing facilities at Aktogay and thus benefits the Group, ICG
is accounted for as a joint operation and is therefore
proportionally consolidated.
Achievement of commercial production - applicable to 2017
only
Significant accounting judgements
Once an operation reaches the operating level intended by
management and regarded to be 'commercial', capitalisation of
development costs including borrowing costs ceases, the
depreciation of capitalised costs begins and the revenues and
operational costs are recorded in the income statement and not
capitalised to the balance sheet. Significant judgement is required
to determine when the Group's assets achieve commercial production,
including evaluation of the following factors: completion of a
reasonable period of commissioning; consistent achievement of
operational results at a pre-determined level of expected capacity
and indicators exist that this level will continue; mineral
recoveries are at or approaching expected levels; and transfer of
the operation from project personnel to operational personnel.
For the Bozshakol operation, commercial production of the clay
plant was determined to have been achieved on
1 July 2017. In making this judgement, the Directors considered
the performance of the plant of at least 60% of its design capacity
for a three month period, which is broadly consistent with industry
practice. Revenues, production costs and interest incurred on
borrowings to finance the project were recognised in the income
statement and depreciation of its asset base commenced from that
date.
The Aktogay sulphide plant achieved commercial production from 1
October 2017 after consistent production of at least 60% of its
design capacity over a three month period. Revenues, production
costs and interest incurred on borrowings to finance the project
were recognised in the income statement with the commencement of
depreciation of its assets from that date.
4. Segment information
Information provided to the Group's Board of Directors for the
purposes of resource allocation and the assessment of segmental
performance is prepared in accordance with the management and
operational structure of the Group. For management and operational
purposes, the Group is organised into a number of businesses as
shown below, according to the nature of their operations,
end-products and services rendered. Each of these business units
represents an operating segment in accordance with IFRS 8
'Operating Segments'. The East Region and Bozymchak segments are
presented on a combined basis.
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 relatively 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, after
which depreciation of the asset base commenced and interest
associated with borrowings used to finance the construction of the
plant was expensed.
Aktogay
The Aktogay open pit, sulphide concentrator and oxide plant
located in the east of Kazakhstan and the associated international
sales and marketing activities managed out of the UK. The sulphide
concentrator was commissioned in the final quarter of 2016 and
achieved commercial production on 1 October 2017, with its revenues
and costs being recognised in the income statement from that date.
Until commercial production was achieved, the revenues and
operating costs of the sulphide concentrator were recorded against
property, plant and equipment. The oxide operation, which sells
copper cathodes, reached commercial production on 1 July 2016, with
its revenues and costs being recognised in the income statement
from that date. The oxide plant is included in the Aktogay
operating segment due to the sharing of infrastructure, its
relatively small size and to reflect the Group's management
structure. An expansion of the sulphide processing facilities at
Aktogay was announced in December 2017, which is expected to double
its sulphide ore processing capacity by the end of 2021.
East Region and Bozymchak
The East Region and Bozymchak operations are shown as one
operating segment consisting of Vostoktsvetmet LLC ('East Region'),
whose principal activity is the mining and processing of copper and
other metals which are produced as by-products from three
underground mines and concentrators located in the eastern region
of Kazakhstan; and KAZ Minerals Bozymchak LLC ('Bozymchak') a
copper-gold open pit mine and concentrator located in western
Kyrgyzstan and the associated international sales and marketing
activities managed out of the UK. Bozymchak is 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.
Mining Projects
The Group's mining projects consist of companies which are
responsible for the assessment and greenfield development of metal
deposits and processing facilities. The segment includes the Koksay
mineral deposit.
Managing and measuring operating segments
The key performance measure which the Directors use internally
to assess the performance of the operating segments is EBITDA.
Refer to the APMs section on page 54 for further details.
The Treasury department manages the Group's borrowings and
monitors finance income and finance costs at the Group level on a
net basis, rather than by operating segment.
Segmental information is also provided in respect of revenues,
by destination and by product.
(a) Operating segments
(i) Income statement information
Year ended 31 December 2018
-----------------------------------------------------
East
Region Corporate
$ million Bozshakol Aktogay and Bozymchak Services Total
-------------------------------------------------- --------- ------- -------------- --------- ------
Revenues - income statement 756 775 631 - 2,162
EBITDA 520 530 284 (24) 1,310
Special items - note 6 - - (20) - (20)
EBITDA (after special items) 520 530 264 (24) 1,290
Less: depreciation, depletion and amortisation(1) (90) (108) (40) (1) (239)
Less: MET and royalties(1,2) (69) (72) (59) - (200)
-------------------------------------------------- --------- ------- -------------- --------- ------
Operating profit/(loss) 361 350 165 (25) 851
Net finance costs and foreign exchange
gain (209)
Income tax expense (132)
-------------------------------------------------- --------- ------- -------------- --------- ------
Profit for the year 510
-------------------------------------------------- --------- ------- -------------- --------- ------
Year ended 31 December 2017
-----------------------------------------------------
East
Region Corporate
$ million Bozshakol Aktogay and Bozymchak Services Total
-------------------------------------------------- --------- ------- -------------- --------- ------
Revenues
Gross Revenues 719 530 689 - 1,938
Pre-commercial production revenues capitalised
to property, plant and equipment(3) (21) (254) - - (275)
Revenues - income statement 698 276 689 - 1,663
-------------------------------------------------- --------- ------- -------------- --------- ------
Gross EBITDA 515 374 371 (25) 1,235
Pre-commercial production EBITDA capitalised
to property, plant and equipment(2,3) (12) (185) - - (197)
-------------------------------------------------- --------- ------- -------------- --------- ------
EBITDA 503 189 371 (25) 1,038
Special items(4) - note 6 - - (3) (16) (19)
-------------------------------------------------- --------- ------- -------------- --------- ------
EBITDA (after special items) 503 189 368 (41) 1,019
Less: depreciation, depletion and amortisation(1) (86) (42) (43) (1) (172)
Less: MET and royalties(1,2) (52) (21) (59) - (132)
-------------------------------------------------- --------- ------- -------------- --------- ------
Operating profit/(loss) 365 126 266 (42) 715
Net finance costs and foreign exchange
loss (135)
Income tax expense (133)
-------------------------------------------------- --------- ------- -------------- --------- ------
Profit for the year 447
-------------------------------------------------- --------- ------- -------------- --------- ------
1 Depreciation, depletion and amortisation and MET and royalties
exclude the costs associated with inventories on the balance
sheet.
2 MET and royalties have been excluded from the key financial
indicator of EBITDA. The Directors believe that MET and royalties
are a substitute for a tax on profits, hence their exclusion
provides an informed measure of the operational performance of the
Group. In 2017 MET incurred at the Bozshakol clay and Aktogay
sulphide plants during the pre-commercial production stage of $3
million and $22 million, respectively was capitalised to property,
plant and equipment.
3 During pre-commercial production, revenues and operating costs
were capitalised to property, plant and equipment.
4 An impairment of $16 million arose from the decision not to
continue with the smelter project and reflects costs incurred. This
was disclosed in the Corporate Services segment.
(ii) Balance sheet information
At 31 December 2018
---------------------------------------------------------------------
East
Region Mining Corporate
$ million Bozshakol Aktogay and Bozymchak Projects Services(4) Total
--------------------------------------------- --------- ------- -------------- --------- ------------ --------
Assets
Non-current assets(1) 1,104 1,178 335 236 5,325 8,178
Current assets excluding cash and
cash equivalents and current investments(2) 258 255 1,944 - 1,746 4,203
Cash and cash equivalents and current
investments 7 55 12 25 1,370 1,469
Segment assets 1,369 1,488 2,291 261 8,441 13,850
Taxes receivable 46
Elimination (8,856)
--------------------------------------------- --------- ------- -------------- --------- ------------ --------
Total assets 5,040
--------------------------------------------- --------- ------- -------------- --------- ------------ --------
Liabilities
Non-current liabilities 6 9 59 3 - 77
Inter-segment borrowings 941 676 121 - - 1,738
Current liabilities(3) 99 94 68 25 1,892 2,178
Segment liabilities 1,046 779 248 28 1,892 3,993
Borrowings 3,453
Taxes payable 87
Elimination (3,547)
--------------------------------------------- --------- ------- -------------- --------- ------------ --------
Total liabilities 3,986
--------------------------------------------- --------- ------- -------------- --------- ------------ --------
At 31 December 2017
---------------------------------------------------------------------
East
Region Mining Corporate
$ million Bozshakol Aktogay and Bozymchak Projects Services(4) Total
---------------------------------- --------- ------- -------------- --------- ------------ --------
Assets
Non-current assets(1) 1,342 1,200 363 243 5,307 8,455
Current assets excluding cash and
cash equivalents(2) 191 188 198 - 1,877 2,454
Cash and cash equivalents 87 354 176 2 1,202 1,821
Segment assets 1,620 1,742 737 245 8,386 12,730
Taxes receivable 78
Elimination (7,186)
---------------------------------- --------- ------- -------------- --------- ------------ --------
Total assets 5,622
---------------------------------- --------- ------- -------------- --------- ------------ --------
Liabilities
Non-current liabilities 9 8 68 3 - 88
Inter-segment borrowings 1,031 694 146 - - 1,871
Current liabilities(3) 86 354 55 1 88 584
Segment liabilities 1,126 1,056 269 4 88 2,543
Borrowings 3,877
Taxes payable 85
Elimination (1,881)
---------------------------------- --------- ------- -------------- --------- ------------ --------
Total liabilities 4,624
---------------------------------- --------- ------- -------------- --------- ------------ --------
1 Non-current assets includes property, plant and equipment,
mining assets and intangible assets which are located in the
principal country of operations of each operating segment.
Bozshakol, Aktogay and Mining Projects segments principally operate
in Kazakhstan. The East Region and Bozymchak segment includes
property, plant and equipment, mining assets and intangible assets
of $253 million relating to the East Region assets located in
Kazakhstan and $55 million of Bozymchak assets located in
Kyrgyzstan (2017: $273 million and $61 million respectively).
Additionally included within non-current assets is long-term
stockpiled ore of $111 million (2017: $124 million) at Bozshakol
and $15 million (2017: $nil million) at Aktogay.
2 Current assets excluding cash and cash equivalents and current
investments comprise inventories, prepayments and other current
assets and trade and other receivables, including intragroup
non-financing receivables.
3 Current liabilities comprise trade and other payables,
including intragroup non-financing related payables, and other
current liabilities including provisions.
4 Corporate Services non-current assets include $5,309 million
of intra-group investments while current assets includes $1,738
million of inter-segment loans, which are eliminated within total
assets (2017: $5,305 million and $1,871 million respectively).
(iii) Capital expenditure(1)
Year ended 31 December 2018
------------------------------------------------------------------
East
Region Mining Corporate
$ million Bozshakol Aktogay(3) and Bozymchak Projects Services Total
--------------------------------- --------- ---------- -------------- --------- --------- -----
Property, plant and equipment(2) 25 512 29 - 1 567
Mining assets(2) 4 1 40 1 - 46
Intangible assets - 1 1 - - 2
--------------------------------- --------- ---------- -------------- --------- --------- -----
Capital expenditure 29 514 70 1 1 615
--------------------------------- --------- ---------- -------------- --------- --------- -----
Year ended 31 December 2017
---------------------------------------------------------------------
East
Region Mining Corporate
$ million Bozshakol(4) Aktogay(3) and Bozymchak Projects Services Total
--------------------------------- ------------ ---------- -------------- --------- --------- -----
Property, plant and equipment(2) 71 (29) 35 14 1 92
Mining assets(2) 2 2 39 - - 43
Intangible assets 1 - - - 1 2
--------------------------------- ------------ ---------- -------------- --------- --------- -----
Capital expenditure 74 (27) 74 14 2 137
--------------------------------- ------------ ---------- -------------- --------- --------- -----
1 The capital expenditure presented by operating segment
reflects cash paid and is aligned with the Group's internal capital
expenditure reporting.
2 Capital expenditure includes non-current advances paid for
items of property, plant and equipment and mining assets.
3 Capital expenditure for Aktogay in 2018 includes $281 million
settled in respect of the $300 million NFC deferral. Capital
expenditure for Aktogay in 2017 included $106 million of net
operating cash inflows capitalised during the period ahead of
commercial production.
4 Capital expenditure for Bozshakol in 2017 included $7 million
of net operating cash outflows incurred during the period ahead of
commercial production. Of the $74 million capital expenditure for
Bozshakol in 2017, $35 million related to long-term clay ore
stockpiled ahead of commercial production to 30 June 2017.
(b) Information in respect of revenues
Revenues by product to third parties are as follows:
Year ended 31 December
2018
------------------------------------------
East
Region
$ million Bozshakol Aktogay and Bozymchak Total
------------------------------------------- --------- ------- -------------- ------
Copper cathodes 67 206 417 690
Copper in concentrate 529 558 - 1,087
Zinc in concentrate - - 101 101
Gold - - 68 68
Gold in concentrate 144 - - 144
Silver 2 1 37 40
Silver in concentrate 9 6 - 15
Other revenues including other by-products 5 4 8 17
Revenues - income statement 756 775 631 2,162
------------------------------------------- --------- ------- -------------- ------
Year ended 31 December
2017
------------------------------------------
East
Region
$ million Bozshakol Aktogay and Bozymchak Total
-------------------------------------------------------- --------- ------- -------------- ------
Copper cathodes 62 212 424 698
Copper in concentrate 510 315 9 834
Zinc in concentrate - - 115 115
Gold - - 78 78
Gold in concentrate 137 - 1 138
Silver - - 50 50
Silver in concentrate 10 3 1 14
Other revenues including other by-products - - 11 11
Gross Revenues 719 530 689 1,938
Less: pre-commercial production revenues capitalised to
property, plant and equipment (21) (254) - (275)
-------------------------------------------------------- --------- ------- -------------- ------
Revenues - income statement 698 276 689 1,663
-------------------------------------------------------- --------- ------- -------------- ------
Most of the Group's sales agreements are based on provisional
pricing with the final pricing usually determined by the average
market price of the respective metal in the month (for silver), the
month following (for copper cathode and zinc concentrate) or the
second month following (for copper concentrate including
by-products) dispatch to the customer. At 31 December, the Group's
provisionally priced volumes and their respective average
provisional price were as follows:
At 31 December At 31 December
2018 2017
--------------------------- -------------------------------------
Weighted
Provisionally average Provisionally Weighted
priced provisional priced average provisional
volumes price volumes price
------------------------------------- ------------- -------------- ------------- ----------------------
Copper cathodes 4 kt 6,244 $/t 4 kt 6,865 $/t
Copper in concentrate(1) 29 kt 5,558 $/t 22 kt 6,067 $/t
Zinc in concentrate(1) 2 kt 2,102 $/t 4 kt 2,516 $/t
Gold in concentrate(1) 21 koz 1,217 $/oz 19 koz 1,276 $/oz
Silver in concentrate(1) 113 koz 14 $/oz 65 koz 16 $/oz
------------------------------------- ------------- -------------- ------------- ----------------------
1 Payable metal in concentrate. Typically priced after deduction
of a processing charge.
The final prices for the provisionally priced volumes shown
above will be determined during the quarter after the year end. At
31 December 2018, sales contracts which had not been finally priced
were marked to market to reflect the expected settlement price
based on the appropriate forward metal price (typically one month
for copper cathode and zinc concentrate and two months for copper
concentrate including by-products). This adjustment decreased
revenue by $7 million (2017: $12 million increase in Gross Revenues
and revenues). The cumulative commodity pricing adjustments
recorded during 2018 between the final price and the forward price
at the expected settlement date, at the time of the sale, resulted
in a $17 million reduction which is included within revenue.
Revenues by destination from sales to third parties are as
follows:
Year ended 31 December
2018
------------------------------------------
East
Region
$ million Bozshakol Aktogay and Bozymchak Total
---------------------------- --------- ------- -------------- ------
China 527 600 298 1,425
Europe 229 175 209 613
Kazakhstan and Central Asia - - 124 124
Revenues - income statement 756 775 631 2,162
---------------------------- --------- ------- -------------- ------
Year ended 31 December
2017
------------------------------------------
East
Region
$ million Bozshakol Aktogay and Bozymchak Total
-------------------------------------------------------- --------- ------- -------------- ------
China 706 371 391 1,468
Europe 13 159 136 308
Kazakhstan and Central Asia - - 162 162
Gross Revenues 719 530 689 1,938
Less: pre-commercial production revenues capitalised to
property, plant and equipment (21) (254) - (275)
-------------------------------------------------------- --------- ------- -------------- ------
Revenues - income statement 698 276 689 1,663
-------------------------------------------------------- --------- ------- -------------- ------
The Group's copper concentrate sales and certain cathode and
zinc sales have been contracted to Advaita Trade Private Limited
('Advaita'). Sales from all the Group's segments to Advaita
comprise 83% ($1,788 million) of revenues (2017: 71% or $1,377
million of Gross Revenues). The risk arising from the concentration
of revenue to one customer is managed through the Group's financial
risk management policies requiring sale of metal to be made either
on receipt of cash prior to delivery, on delivery or through
letters of credit which are received from the customer's bank
depending on when the transfer of title of the goods takes
place.
5. Impairment losses
$ million 2018 2017
------------------------------------------------------------ ---- ----
Impairment charges against property, plant and equipment(1) 16 19
Impairment charges against mining assets(1) 4 -
Impairment charges against non-current VAT receivable(1) - 1
Impairment charges against current VAT receivable 9 -
29 20
------------------------------------------------------------ ---- ----
1 These impairments are considered to be special items for the
purposes of determining the Group's key financial indicators of
EBITDA and Underlying Profit (see note 9).
Bozymchak - impairment charges
The Bozymchak CGU was subject to an impairment review following
the identification of an impairment indicator, being adverse court
rulings relating to the recovery of VAT incurred on the
construction of the plant. The Bozymchak operation is reflected
within the East Region and Bozymchak segment. A total impairment of
$20 million was recognised, with $16 million recorded against
property, plant and equipment and $4 million against mining assets.
The impairment charge reduced the carrying value of the Bozymchak
operation to its estimated recoverable amount of $84 million, which
was determined as its fair value less cost to sell on a discounted
cash flow basis at 31 December 2018. The risk adjusted cash flow
forecasts were discounted at a post tax nominal discount rate of
12%.
The key assumptions and estimates made in determining the cash
flows were the future prices of copper and gold and the discount
rate. The price estimates used were consistent with those applied
by the Directors in considering whether commodity prices were an
indicator of impairment, with reference to a long term copper price
of $6,700 per tonne (see note 3). The fair value less cost to sell
estimate is a fair value measure that is categorised within Level 3
of the fair value hierarchy.
As a sensitivity, a 5% reduction in the forecast copper prices
could result in a further impairment of around $9 million. This is
a simple sensitivity on copper prices in isolation and does not
consider any actions which management would take to mitigate the
impact of a fall in commodity prices. Additionally, a 1% increase
in the discount rate could result in a further impairment of around
$3 million.
East Region - impairment charges
The $9 million impairment against current VAT receivable was
recognised on prior period VAT claims which are approaching the
statute of limitation of five years and for which recovery is
regarded as less than probable. $3 million was subsequently written
off against the provision on the balance sheet. In 2017, an
impairment of $4 million was recognised against items of property,
plant and equipment which were no longer expected to be
utilised.
Mining Projects - impairment charges
In 2017, following an assessment of partnering options and a
review of the project, the Group determined that it would not
progress the smelter project further. $16 million incurred on the
feasibility study was impaired and comprised $15 million of
impairment charges against property, plant and equipment and $1
million written off against non-current VAT receivable.
6. Special items
Special items are those items which are non-recurring or
variable in nature and which do not impact the underlying trading
performance of the business.
$ million 2018 2017
--------------------------------------------------------- ---- ----
Special items within operating profit
Impairment charges against property, plant and equipment 16 19
Impairment charges against mining assets 4 -
Impairment charges against non-current VAT receivable - 1
Other reimbursements - (1)
20 19
--------------------------------------------------------- ---- ----
Special items within profit before tax
PXF fees - 10
--------------------------------------------------------- ---- ----
Total special items 20 29
--------------------------------------------------------- ---- ----
Further information on special items is in the Financial review
on page 18.
7. Finance income and finance costs
Finance income
$ million 2018 2017
------------------------------------------------------------------ ---- ----
Interest income 33 17
Fair value gains on debt related derivative financial instruments - 13
33 30
------------------------------------------------------------------ ---- ----
Finance costs
$ million 2018 2017
------------------------------------------------------------------- ---- -----
Interest expense 236 158
Total interest expense(1) 240 246
Less: amounts capitalised to the cost of qualifying assets(2,3) (4) (88)
------------------------------------------------------------------- ---- -----
Interest on employee obligations 1 2
Unwinding of discount on provisions and other liabilities 5 5
Fair value losses on debt related derivative financial instruments 3 -
245 165
------------------------------------------------------------------- ---- -----
1 Total interest expense includes $239 million (2017: $221
million) of interest incurred on borrowings and $1 million (2017:
$15 million) relating to the unwinding of the discount on the NFC
deferral (see note 14). The prior year comparative period included
$10 million in PXF fees that were treated as a special item.
2 In 2018, the Group capitalised to the cost of the Aktogay
expansion project $4 million of general borrowings costs from the
PXF facility, at an average rate of interest of 4.97%. In 2017, the
Group capitalised to the cost of qualifying assets $10 million of
borrowing costs incurred on the outstanding debt during the year on
the CDB-Bozshakol and Bozymchak facilities at an average rate of
interest (net of interest income) of 5.87%, $56 million on the
CDB-Aktogay US$ and CNY facilities at an average rate of interest
of 5.60% and 4.54% respectively and $11 million on the $300 million
DBK loan at an average rate of interest of 5.89%. Interest
capitalised during 2017 also included $11 million of unwinding of
interest on the NFC deferral (see note 14).
3 In 2018, the interest cost on borrowings capitalised to
qualifying assets of $4 million is deductible for tax purposes
against income in the current year. This capitalised interest,
which relates to the expansion project at Aktogay arose from
interest incurred on the Group's PXF facility, which is regarded as
a general borrowing for Group reporting purposes.
Further information relating to finance income and costs is in
the Financial review on page 19.
8. Income tax expense
Major components of income tax expense are:
$ million 2018 2017
------------------------------------------------------------ ---- ----
Current income tax
Corporate income tax - current period (UK) - -
Corporate income tax - current period (overseas) 83 103
Corporate income tax - prior periods (UK) - 4
Corporate income tax - prior periods (overseas) 1 1
84 108
------------------------------------------------------------ ---- ----
Deferred income tax
Corporate income tax - current period temporary differences 49 24
Corporate income tax - prior periods temporary differences (1) 1
48 25
------------------------------------------------------------ ---- ----
132 133
------------------------------------------------------------ ---- ----
A reconciliation of the income tax expense applicable to the
accounting profit before tax at the statutory income tax rate to
the income tax expense at the effective income tax rate is as
follows:
$ million 2018 2017
------------------------------------------------------------ ---- ----
Profit before tax 642 580
At UK statutory income tax rate of 19.0% (2017: 19.25%)(1) 122 112
Underprovided in prior periods - current income tax 1 5
(Over)/under provided in prior periods - deferred income
tax (1) 1
Unrecognised tax losses - 4
Effect of domestic tax rates applicable to individual Group
entities 5 -
Tax effect of non-deductible items:
Transfer pricing 1 2
Other non-deductible expenses 4 9
132 133
------------------------------------------------------------ ---- ----
1 In 2017, the UK statutory rate for January to March 2017 was
20.0% and for April to December 2017 was 19.0%, giving a weighted
average full year rate of 19.25%.
Corporate income tax ('CIT') is calculated at 19.0% (2017:
19.25%) of the assessable profit for the year for the Company and
its UK subsidiaries and 20.0% for the operating subsidiaries in
Kazakhstan (2017: 20.0%). In Kyrgyzstan, changes to legislation
applicable from November 2017 have reduced CIT to 0%, replaced by a
tax on gold revenues, which is reflected as royalties within
selling expenses.
Effective tax rate
The effective tax rate was 21% (2017: 23%). Tax charges are
affected by the mix of profits and tax jurisdictions in which the
Group operates. The impact of unrecognised tax losses and
non-deductible items, which may include impairment losses,
increases the Group's overall effective tax rate.
The following factors impacted the effective tax rate for the
year ended 31 December 2018:
Unrecognised tax losses and untaxed income
Bozymchak
No income tax expense is recognised at Bozymchak as CIT is
charged at 0%, which has the effect of reducing the Group's overall
effective tax rate. With the introduction of this legislation in
2017, Bozymchak will not be able to utilise historical losses.
Other non-deductible expenses
The 2018 non-deductible items mainly comprise of impairment of
VAT receivable at the East Region operations and costs relating to
the acquisition of the Baimskaya copper project.
Further information relating to income taxes and the change in
the effective tax rate is in the Financial review on page 19.
9. Earnings per share
The following reflects the income and share data used in the EPS
computations.
$ million (unless otherwise stated) 2018 2017
-------------------------------------------------------------- ------------ ------------
Net profit attributable to equity shareholders of the Company 510 447
Special items net of tax - note 6 20 29
Underlying Profit 530 476
-------------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares of 20 pence each
for EPS on Ordinary and Underlying Profit calculation 447,331,406 446,658,862
-------------------------------------------------------------- ------------ ------------
Ordinary EPS - basic and diluted ($) 1.14 1.00
EPS based on Underlying Profit - basic and diluted ($)(1) 1.18 1.07
-------------------------------------------------------------- ------------ ------------
1 Alternative Performance Measures (APMs) are used to assess the
performance of the Group and are not defined or specified under
IFRS. For further information on APMs, including justification for
their use, please refer to the APMs section on page 54.
Ordinary EPS
Basic and diluted EPS is calculated by dividing profit for the
year attributable to equity holders of the Company by the weighted
average number of ordinary shares of 20 pence each outstanding
during the year. Purchases of the Company's shares by the Employee
Benefit Trust and by the Company under any share buy-back
programmes are both held in treasury and treated as own shares.
10. Dividends
(a) Dividends paid
The dividends paid during the year ended 31 December 2018 are as
follows:
Per share Amount
US cents $ million
----------------------------------------------------------- --------- ----------
Year ended 31 December 2018
Interim dividend in respect of year ended 31 December 2018 6.0 27
----------------------------------------------------------- --------- ----------
There were no dividends paid in the year ended 31 December
2017.
(b) Dividends declared after the balance sheet date
Per share Amount
US cents $ million
----------------------------------------------------------------- --------- ----------
Recommended by the Directors on 20 February 2019 (not recognised
as a liability
at 31 December 2018)
Final dividend in respect of year ended 31 December 2018 6.0 28
----------------------------------------------------------------- --------- ----------
The amount of the recommended final dividend of 6.0 US cents per
share has been estimated based on the ordinary shares in issue
(excluding treasury shares) at 31 December 2018 and on the new
shares issued in January 2019 as part settlement of the acquisition
of the Baimskaya copper project. For further details see note
19.
11. Other non-current assets
$ million 2018 2017
------------------------------------------------ ---- ----
Advances paid for property, plant and equipment 147 8
Non-current VAT receivable(1) 11 38
Non-current inventories(2) 127 124
Long-term bank deposits(3) 3 2
Other long-term advances(4) 15 -
Gross value of other non-current assets 303 172
Provision for impairment (2) (2)
------------------------------------------------ ---- ----
301 170
------------------------------------------------ ---- ----
1 Comprises VAT incurred at Bozymchak which is subject to audit
and other administrative procedures prior to refund, with
anticipated refund dates in excess of 12 months from the balance
sheet date.
2 Non-current inventories comprise ore stockpiles that are
expected to be processed in excess of 12 months from the balance
sheet date and relate mainly to clay ore at Bozshakol.
3 Long-term bank deposits are monies placed in escrow accounts
with financial institutions in Kazakhstan and Kyrgyzstan as
required by the Group's site restoration obligations.
4 Other long-term advances are amounts transferred to the
Baimskaya project for study costs, ahead of Initial Completion of
the acquisition. Following Initial Completion, announced in January
2019, these amounts will be reclassified to mining assets.
12. Share capital and reserves
(a) Allotted share capital
Number GBP million $ million
---------------------------------------------------------- ------------ ----------- ---------
Allotted and called up share capital - ordinary shares of
20 pence each
At 1 January 2017, 31 December 2017 and 2018 458,379,033 92 171
---------------------------------------------------------- ------------ ----------- ---------
The issued share capital was fully paid. During the year,
1,396,856 (2017: 143,310) treasury shares were used to satisfy
awards under the Company's Save As You Earn ('SAYE'), Long Term
Incentive Plans ('LTIP') and Deferred Share Bonus Plan ('DSBP')
schemes. At 31 December 2018, the Company holds 10,146,890 (2017:
11,543,746) ordinary shares in treasury and the issued share
capital of the Company which carries voting rights of one vote per
share, comprises 448,232,143 (2017: 446,835,287) ordinary shares
(excluding treasury shares).
(b) Own shares purchased under the Group's share-based payment plans
The provision of shares to the Group's share-based payment plans
is facilitated by an Employee Benefit Trust. The cost of shares
purchased by the Trust is charged against retained earnings as
treasury shares. The Employee Benefit Trust has waived the right to
receive dividends on these shares. During 2018, the Company made no
purchases through the Trust in anticipation of satisfying future
awards (2017: no purchases). 14,565 shares (2017: 223,429) were
transferred out of the Trust in settlement of share awards granted
to employees that were exercised during the period. Following
approval from shareholders, shares held in treasury will be used to
settle future awards.
At 31 December 2018, the Group, through the Employee Benefit
Trust, owned 5,162 shares in the Company (2017: 19,727) with a
market value of $35 thousand and a cost of $79 thousand (2017: $0.2
million and $0.1 million respectively). The shares held by the
Trust represented less than 0.01% (2017: 0.01%) of the issued share
capital at 31 December 2018.
(c) Capital reserves
Currency Capital
translation redemption
$ million reserve reserve Total
------------------------------------------------------------ ------------ ----------- --------
At 1 January 2017 (2,068) 31 (2,037)
Exchange differences on retranslation of foreign operations 8 - 8
At 31 December 2017 (2,060) 31 (2,029)
Exchange differences on retranslation of foreign operations (428) - (428)
------------------------------------------------------------ ------------ ----------- --------
At 31 December 2018 (2,488) 31 (2,457)
------------------------------------------------------------ ------------ ----------- --------
(i) Currency translation reserve
The foreign currency translation reserve is used to record
exchange differences arising from the translation of the financial
statements of subsidiaries whose functional currency is not the US
dollar into the Group's presentation currency. The decrease in the
US dollar value of the Group's foreign currency operations of $428
million (2017: increase of $8 million) follows a 16% decrease in
the value of the tenge from 31 December 2017 to 31 December
2018.
(ii) Capital redemption reserve
As a result of the share buy-back programme undertaken in 2008
and the repurchase of Company shares in 2013, transfers were made
from share capital to the capital redemption reserve based on the
nominal value of the shares cancelled.
13. Borrowings
Average
interest
rate Currency
during of Current Non-current Total
Maturity the year denomination $ million $ million $ million
----------------------------------- --------- --------- ------------- ---------- ----------- ----------
31 December 2018
CDB-Bozshakol and Bozymchak - US$
LIBOR + 4.50% 2025 6.65% US dollar 180 1,165 1,345
CDB-Aktogay facility - PBoC 5 year 2028 5.17% CNY 12 98 110
CDB-Aktogay facility - US$ LIBOR
+ 4.20% 2029 6.45% US dollar 105 1,116 1,221
Pre-export finance facility - US$
LIBOR + 3.00% - 4.50% 2021 4.97% US dollar 200 300 500
Development Bank of Kazakhstan -
US$ LIBOR + 4.50% 2025 6.70% US dollar 42 235 277
539 2,914 3,453
--------------------------------------------- --------- ------------- ---------- ----------- ----------
31 December 2017
CDB-Bozshakol and Bozymchak - US$
LIBOR + 4.50% 2025 5.87% US dollar 179 1,345 1,524
CDB-Aktogay facility - PBoC 5 year 2028 4.54% CNY 12 116 128
CDB-Aktogay facility - US$ LIBOR
+ 4.20% 2029 5.60% US dollar 105 1,222 1,327
Pre-export finance facility - US$
LIBOR + 3.00% - 4.50% 2021 5.04% US dollar 100 500 600
Development Bank of Kazakhstan -
US$ LIBOR + 4.50% 2025 5.89% US dollar 22 276 298
418 3,459 3,877
--------------------------------------------- --------- ------------- ---------- ----------- ----------
CDB-Bozshakol and Bozymchak facilities
At 31 December 2018, $1.3 billion (2017: $1.5 billion) was drawn
under the facility agreements. The facilities accrue interest at
US$ LIBOR plus 4.50% and arrangement fees with an amortised cost at
31 December 2018 of $12 million (2017: $15 million) have been
netted off against these borrowings in accordance with IFRS 9.
During 2018, $183 million of the borrowing was repaid, with $180
million due to be paid within 12 months of the balance sheet date
(including $3 million of unamortised debt costs). The facility is
repayable in semi-annual instalments in January and July with final
maturity in 2025. KAZ Minerals PLC acts as guarantor of the
facilities.
CDB-Aktogay finance facilities
The CDB-Aktogay facilities consists of a CNY 1.0 billion
facility and a $1.3 billion US dollar facility. The funds mature 15
years from the date of the first draw down. KAZ Minerals PLC acts
as guarantor of the loans.
The CNY 1.0 billion facility was fully drawn at 31 December
2015. At 31 December 2018, the drawn US dollar equivalent amount
was $110 million (2017: $128 million). The facility accrues
interest at the applicable benchmark lending rate published by the
People's Bank of China. This facility is repayable in semi-annual
instalments in March and September with $12 million repaid in 2018,
while $12 million is due to be paid within 12 months of the balance
sheet date. To protect the Group from currency risks arising on the
CNY denominated debt, the Group has entered into CNY/US$ 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 31 December 2018, included within payables, is $12
million (2017: $9 million).
The US dollar facility accrues interest at US$ LIBOR plus 4.20%.
At 31 December 2018, the $1.3 billion facility was fully drawn.
Arrangement fees with an amortised cost of $11 million (2017: $13
million) have been netted off against these borrowings in
accordance with IFRS 9. The facility is repayable in semi-annual
instalments in March and September commencing from 2018. During
2018, $108 million was repaid, with $105 million due to be paid
within 12 months of the balance sheet date (including $2 million of
unamortised debt costs).
Pre-export finance facility ('PXF')
In June 2017, the Group completed an amendment and extension of
the PXF. The new facility extended the maturity profile of the
facility by two and a half years from December 2018 until June
2021. Under the revised repayment profile, principal repayments
commenced in July 2018 and continue in equal monthly instalments
over a three-year period until final maturity in June 2021.
The facility amount is $600 million and was fully drawn at 31
December 2017. The interest basis of the facility is substantially
the same as the previous facility with a variable margin of between
3.0% and 4.5% above US$ LIBOR, dependent on the ratio of net debt
to EBITDA which will be tested semi-annually. During 2018, $100
million of the borrowing was repaid, with $200 million due to be
paid within 12 months of the balance sheet date. KAZ Minerals PLC,
Vostoktsvetmet LLC and KAZ Minerals Sales Limited act as guarantors
of the facility.
Development Bank of Kazakhstan facility ('DBK')
In December 2016, the Group entered into a $300 million credit
facility with the DBK which was fully drawn at 31 December 2016.
The facility extends for a term of eight and a half years and bears
an interest rate of US$ LIBOR plus 4.5%. The facility is repayable
in instalments with the first repayment made in June 2018, followed
by semi-annual repayments in May and November of each year from
2019 until 2024 and a final repayment in June 2025. The facility
was drawn by KAZ Minerals Aktogay LLC, a Kazakhstan wholly owned
subsidiary. KAZ Minerals PLC acts as guarantor of the facility.
At 31 December 2018, $277 million was drawn under the facility.
Arrangement fees with an amortised cost of $1 million (2017: $2
million) have been netted off against these borrowings in
accordance with IFRS 9. During 2018, $21 million of the borrowing
was repaid, with $42 million due to be paid within 12 months of the
balance sheet date.
Undrawn project and general and corporate purpose facilities
All debt facilities were fully drawn at 31 December 2018 and
2017.
14. Other liabilities
Payables Advance Payments
$ million to NFC consideration for licences Total
------------------------ -------- -------------- ------------- ------
At 1 January 2017 284 - 10 294
Payments - - (1) (1)
Unwinding of discount 15 - 1 16
Net exchange adjustment - - (2) (2)
At 31 December 2017 299 - 8 307
Additions - 25 - 25
Payments (281) - (2) (283)
Unwinding of discount 1 - 1 2
Net exchange adjustment - - 2 2
At 31 December 2018 19 25 9 53
------------------------ -------- -------------- ------------- ------
Current 19 25 2 46
Non-current - - 7 7
At 31 December 2018 19 25 9 53
------------------------ -------- -------------- ------------- ------
Current 299 - 1 300
Non-current - - 7 7
------------------------ -------- -------------- ------------- ------
At 31 December 2017 299 - 8 307
------------------------ -------- -------------- ------------- ------
( ) Payables to NFC
The Group previously reached an agreement with its principal
construction contractor at Aktogay, NFC, to defer payment of $300
million, of which $281 million was settled in 2018 with $19 million
to be settled in early 2019.
The extended credit terms were discounted using a rate of US$
LIBOR plus 4.20% on the estimated cost of services performed. The
unwinding of the interest was charged to the income statement
within finance costs (2017: $11 million charged to property, plant
and equipment as a borrowing cost until the date that the project
reached commercial production).
(b) Advance consideration
In December 2018, the Group received $25 million advance
consideration from NFC in respect of the agreement for NFC to
invest $70 million for a 19.4% equity stake in KAZ Minerals Koksay
B.V., the immediate parent entity of the Koksay exploration licence
holder, as announced in June 2018.
The transaction is expected to complete in the first half of
2019, with the consideration to be solely used for investment in
the Koksay project. On completion of the transaction, NFC's share
in Koksay will be reflected as a non-controlling interest.
(c) Payments for licences for mining assets
In accordance with its contracts for subsoil use, the Group is
liable to repay the costs of geological information provided by the
Government of Kazakhstan for licenced deposits. Some of these
obligations are payable in tenge whilst others are payable in US
dollars, depending on the terms of each subsoil use contract. The
total amount payable by the Group is discounted to its present
value using a discount rate of 7.6% for tenge (2017: 7.6%) and 4.0%
for US dollar (2017: 4.0%) obligations. Under the subsoil use
agreements, the historical cost payments amortise over a 10 year
period and commence with first production.
15. Consolidated cash flow analysis
(a) Reconciliation of profit before tax to net cash inflow from operating activities
$ million Notes 2018 2017
------------------------------------------------------- ----- ------ ------
Profit before tax 642 580
Finance income 7 (33) (30)
Finance costs 7 245 165
Share-based payments 3 3
Depreciation, amortisation and depletion 251 187
Impairment losses 5 29 20
Unrealised foreign exchange (gain)/loss (8) 2
Other reimbursements - (1)
Operating cash flows before changes in working capital
and provisions 1,129 926
Decrease in non-current VAT receivable 3 232
Increase in inventories (158) (65)
Increase in prepayments and other current assets (30) (41)
Decrease in trade and other receivables 4 27
Decrease in employee benefits (1) (1)
Decrease in provision for closure and site restoration (1) -
Increase in trade and other payables 51 6
------------------------------------------------------- ----- ------ ------
Cash flows from operations before interest and income
taxes paid 997 1,084
------------------------------------------------------- ----- ------ ------
Non-cash transactions
There were the following non-cash transactions:
-- capitalised interest of $4 million (2017: $88 million) for property, plant and equipment; and
-- the reassessment of the provision for closure and site
restoration during the year has resulted in a decrease of $3
million (2017: increase of $6 million) to property, plant and
equipment, with a corresponding decrease (2017: increase) in the
site restoration and clean up provisions.
(b) Cash and cash equivalents
$ million 2018 2017
---------------------------------------------------- ------ ------
Cash deposits with short-term initial maturities(1) 1,157 1,543
Cash at bank(2) 62 278
---------------------------------------------------- ------ ------
1,219 1,821
---------------------------------------------------- ------ ------
1 Excludes term deposits with original maturity of greater than
three months classified within current investments.
2 Cash at bank at 31 December 2018 of $2 million (2017: $nil)
was restricted by legal or contractual arrangements. These amounts
are excluded from the Group's measure of net debt (see note 15(c)).
Included within Cash and cash equivalents is $25 million advance
consideration received from NFC in respect of the agreement for NFC
to invest $70 million for a 19.4% equity stake in Koksay, as
announced in June 2018. This amount is to be solely used for the
investment into the Koksay project (see note 14).
(c) Movement in net debt
At At
1 January Cash Other 31 December
$ million 2018 flow movements(1) 2018
-------------------------- ---------- ------ ------------- ------------
Cash and cash equivalents 1,821 (604) 2 1,219
Less: restricted cash - - (2) (2)
Current investments - 250 - 250
Borrowings(2) (3,877) 424 - (3,453)
Net debt(3) (2,056) 70 - (1,986)
-------------------------- ---------- ------ ------------- ------------
At At
1 January Cash Other 31 December
$ million 2017 flow movements(1) 2017
-------------------------- ---------- ----- ------------- ------------
Cash and cash equivalents 1,108 713 - 1,821
Borrowings(2) (3,777) (82) (18) (3,877)
Net debt(3) (2,669) 631 (18) (2,056)
-------------------------- ---------- ----- ------------- ------------
1 Other movements in 2018 within restricted cash reflect legal
or contractual arrangements against cash and cash equivalents which
are excluded from the Group's measure of net debt. Other movements
on borrowings comprise net foreign exchange movements and non-cash
amortisation of fees on borrowings. For the year ended 31 December
2018, the $nil other movement on borrowings consists of $6 million
of amortisation of fees on the Group's financing facilities and $6
million foreign exchange gains on the CDB-Aktogay RMB facility. For
the year ended 31 December 2017, the $18 million other movement on
borrowings consisted of $9 million of amortisation of fees on the
Group's financing facilities and $9 million of foreign exchange
differences on the CDB-Aktogay RMB facility.
2 The cash flows on borrowings reflect repayments on existing
facilities of $424 million (2017: $294 million) with no draw downs
in 2018 (2017: $376 million).
3 Net debt is an APM. APMs are used to assess the performance of
the Group and are not defined or specified under IFRS. For further
information on APMs, including justification for their use, please
refer to the APMs section on page 54.
16. 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
Kazakhmys Holding Group, are disclosed below.
The following table provides the total amount of transactions
which have been entered into with related parties for the relevant
financial year:
Purchases Amounts Amounts
Sales from owed owed
to related related by related to related
$ million parties parties parties(1) parties
------------------------ ----------- --------- ----------- -----------
Kazakhmys Holding Group
2018 4 101 3 2
2017 5 100 2 3
------------------------ ----------- --------- ----------- -----------
1 No provision is held against the amounts owed by related
parties at 31 December 2018 and 2017.
Kazakhmys Holding Group
The related party transactions and balances are with companies
which are part of the Kazakhmys Holding Group (a company owned by
Vladimir Kim, a Director of the Company, and Eduard Ogay, a former
Director of the Company) are 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.
17. Financial instruments
The carrying amounts of financial assets and liabilities by
categories are as follows:
$ million Notes 2018 2017
---------------------------------------------------------- ----- -------- --------
Financial assets at amortised cost(1)
Long-term bank deposits 11 3 2
Other long-term advances 11 15 -
Trade and other receivables not subject to provisional
pricing 13 5
Current investments 15(c) 250 -
Cash and cash equivalents 15(b) 1,219 1,821
1,500 1,828
---------------------------------------------------------- ----- -------- --------
Financial assets at fair value through profit and loss(1)
Trade receivables subject to provisional pricing(2) 114 127
---------------------------------------------------------- ----- -------- --------
Financial liabilities at amortised cost(1)
Borrowings(3) 13 (3,453) (3,877)
Other liabilities 14 (53) (307)
Trade and other payables(4) (211) (190)
---------------------------------------------------------- ----- -------- --------
(3,717) (4,374)
---------------------------------------------------------- ----- -------- --------
Financial liabilities at fair value through profit
and loss(1)
Derivative instrument(5) (12) (9)
---------------------------------------------------------- ----- -------- --------
1 Financial assets at amortised cost were previously classified
as 'loans and receivables' under IAS 39. There was no difference
between the carrying amount under IAS 39 and the carrying amount
under IFRS 9, at 1 January 2018. Trade receivables subject to
provisional pricing were previously classified as 'loans and
receivables' under IAS 39 whereas they are classified as Financial
assets at fair value through profit and loss under IFRS 9. The
transition to IFRS did not have any impact on the recognition or
measurement of financial assets. There was no change in the
classification and measurement of financial liabilities at fair
value through profit and loss and financial liabilities at
amortised cost from IFRS 9 on 1 January 2018.
2 Trade receivables subject to provisional pricing include $7
million adverse adjustment (2017: $12 million favourable) arising
from the marked to market valuation on provisionally priced
contracts at the year end. These are measured according to quoted
forward prices in a market that is not considered active, which is
a level 2 valuation method within the fair value hierarchy.
3 The fair value of borrowings approximates its carrying value
and is measured by discounting future cash flows using currently
available interest rates for debt of similar maturities, which is a
level 3 valuation method within the fair value hierarchy.
4 Excludes payments received in advance from customers, other
taxes payable and MET and royalties payable that are not regarded
as financial instruments.
5 Derivative financial instruments, representing a cross
currency swap and interest rate swap, are measured according to
inputs other than quoted prices that are observable for the
derivative financial instrument, either directly or indirectly,
which is a level 2 valuation method within the fair value
hierarchy.
The fair values of each category of financial asset and
liability are not materially different from their carrying values
as presented.
18. Capital expenditure commitments
The Group has capital expenditure commitments for the purchase
of property, plant and equipment. The total commitments for
property, plant and equipment at 31 December 2018 amounted to $724
million (2017: $47 million). These amounts relate mainly to the
Aktogay expansion project and reflect contractual commitments, not
the minimum cost which would be incurred in the event of delay or
cancellation.
19. Post balance sheet events
(a) Baimskaya copper project
On 22 January 2019, the Group announced the Initial Completion
of the acquisition of the Baimskaya copper project in the Chukotka
region of Russia. The consideration due at Initial Completion was
$436 million in cash and 22.3 million new KAZ Minerals shares,
which were allotted to the vendor. $50 million of the $436 million
cash consideration has been withheld pending the release of a
guarantee agreement made by the acquired entity which is the legal
owner of the Baimskaya licence. The final cash payment of $50
million is expected to be settled in 2019. The 22.3 million shares
are subject to a three-year lock-up period ending on the third
anniversary of Initial Completion. Deferred Consideration of $225
million for the remaining interest is payable in 21.0 million
shares, subject to the achievement of certain Project Delivery
Conditions, including a pre-determined level of throughput and
development of infrastructure by the Russian state. To the extent
these conditions are not met or waived by the Group and therefore
not settled in shares, the Deferred Consideration will become
payable in cash on 31 March 2029.
In assessing the accounting for the acquisition, consideration
was given to whether the copper project consisted of an integrated
set of inputs and processes (as defined under IFRS 3 'Business
Combinations') that could be used to generate an output. As the
copper project is in the exploration stage prior to feasibility,
the work undertaken to date was considered to be an assessment of
its inputs rather than the existence of inputs and processes
capable of generating an output. As such, the acquisition will be
accounted for as an asset acquisition, not a business combination,
with the majority of the value paid being shown as a mining licence
within mining assets.
As part of the consideration is settled in shares, the
transaction falls within the scope of IFRS 2 'Share-based Payment'.
The Initial Consideration of $675 million includes 22.3 million KAZ
Minerals PLC shares valued at $239 million, which will be
recognised as an increase in share capital of around $6 million and
share premium of $233 million. The Deferred Consideration of $225
million will also be included within equity, representing the
Group's ability to settle this amount through the issue of 21.0
million shares. The Group obtained a 75% equity stake in the
project on Initial Completion, however a non-controlling interest
will not be recognised as the remaining 25% will be purchased
through Deferred Consideration.
(b) Dividends
On 20 February the Directors of the Company recommended a final
dividend for 2018 of 6.0 USc per share. See note 10.
ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measures (APMs) are measures of
financial performance, financial position or cash flows that are
not defined or specified under IFRS. APMs are used by the Directors
internally to assess the performance of the Group and assist in
providing relevant and useful information to users of the Annual
Report and Accounts.
APMs are not uniformly defined by all companies, including those
in the Group's industry. APMs used by the Group may not be
comparable with similarly titled measures and disclosures made by
other companies. APMs should be considered in addition to and not
as a substitute for measures of financial performance, financial
position or cash flows reported in accordance with IFRS.
The Group uses APMs to improve the comparability of information
between reporting periods and segments, either by adjusting for
special items which impact upon IFRS measures or by aggregating or
disaggregating IFRS measures, to aid understanding of the Group's
performance. The definition and relevance of the APMs used by the
Group is set out below.
(a) EBITDA
EBITDA is defined as earnings before interest, taxation,
depreciation, depletion, amortisation, MET and royalties and
special items(1) . EBITDA 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 believe that the exclusion of
MET and royalties provides an informed measure of the operational
profitability given the nature of the taxes, as further explained
in the 'Taxation' section on page 19. Special items are excluded to
enhance the comparability of EBITDA and certain other APMs from
period to period. This performance measure is one of the Group's
KPIs, the relevance of which is shown on page 24 of KAZ Minerals'
2017 Annual Report and Accounts. A reconciliation to operating
profit is provided in note 4(a)(i) of the condensed consolidated
financial statements.
(b) Underlying Profit
Underlying Profit is defined as profit/loss excluding special
items(1) and their resulting tax and non-controlling interest
effects. This measure is considered to be useful as it provides an
indication of the profit resulting from the underlying trading
performance of the Group. Underlying Profit is reconciled from net
profit attributable to equity holders of the Company on page 20 as
set out in note 9 to the condensed consolidated financial
statements.
(c) EPS based on Underlying Profit
EPS based on Underlying Profit is profit/loss excluding special
items(1) and their resulting tax and non-controlling interest
effects, divided by the weighted average number of ordinary shares
in issue during the period (see note 9 of the condensed
consolidated financial statements). This is one of the Group's KPIs
for measuring financial performance, the relevance of which is
outlined on page 24 of KAZ Minerals' 2017 Annual Report and
Accounts. A calculation of EPS based on Underlying Profit is
included within note 9 of the condensed consolidated financial
statements.
(d) Gross liquid funds
Gross liquid funds is defined as the aggregate of cash and cash
equivalents and current investments less restricted cash.
$ million 2018 2017
-------------------------- ------ ------
Cash and cash equivalents 1,219 1,821
Current investments 250 -
Less: restricted cash (2) -
Gross liquid funds 1,467 1,821
-------------------------- ------ ------
(e) Net debt
Net debt is the excess of current and non-current borrowings
over gross liquid funds. The Board uses this measure for the
purposes of capital management. A reconciliation of net debt is
included on page 23.
(f) Free Cash Flow
Free Cash Flow is net cash flow from operating activities, as
reflected in the consolidated statement of cash flows on page 32,
before capital expenditure and non-current VAT associated with
expansionary and new projects less sustaining capital expenditure.
This is one of the Group's KPIs for measuring financial
performance, the relevance of which is outlined on page 24 of KAZ
Minerals' 2017 Annual Report and Accounts. A reconciliation from
net cash flow from operating activities is provided below.
$ million 2018 2017
----------------------------------------- ----- ------
Net cash flows from operating activities 673 752
Less: net proceeds on non-current VAT (3) (232)
Less: sustaining capital expenditure (85) (68)
----------------------------------------- ----- ------
Free Cash Flow 585 452
----------------------------------------- ----- ------
(g) Gross cash costs
Gross cash costs is defined as cash operating costs, including
pre-commercial production costs, excluding purchased cathode plus
TC/RC on concentrate sales, divided by the volume of own copper
sales. Cash costs are a standard industry measure applied by most
major copper mining companies. The Directors use gross cash costs
to measure the performance of the Group in managing its costs. A
reconciliation from revenues is shown below.
$ million (unless otherwise stated) 2018 2017
-------------------------------------------------------------- -------- --------
Revenues 2,162 1,663
Less: EBITDA - see note 4(a)(i) (1,310) (1,038)
-------------------------------------------------------------- -------- --------
Cash operating costs 852 625
Less: cash operating costs at corporate segment (24) (25)
Less: tolling revenues included within other revenues (4) -
Add: TC/RC on concentrate sales 115 98
Add: pre-commercial production costs capitalised to property,
plant and equipment - 78
-------------------------------------------------------------- -------- --------
Gross cash costs 939 776
Own copper cathode equivalent sales (kt) 296.1 255.7
Gross cash costs ($/t) 3,171 3,035
-------------------------------------------------------------- -------- --------
Gross cash costs (USc/lb) 144 138
-------------------------------------------------------------- -------- --------
(h) Net cash costs
Net cash costs is defined as gross cash costs less by-product
Gross Revenues, divided by the volume of own copper sales. This is
one of the Group's KPIs for measuring cost performance, the
relevance of which is outlined on page 25 of KAZ Minerals' 2017
Annual Report and Accounts. A reconciliation from gross cash costs
is shown below.
$ million (unless otherwise stated) 2018 2017
----------------------------------------------------------- ------ ------
Gross cash costs - see note (g) above 939 776
Less: by-product Gross Revenues - see note 4(b), excluding
tolling revenues (381) (406)
----------------------------------------------------------- ------ ------
Net cash costs 558 370
Own copper cathode equivalent sales (kt) 296.1 255.7
Net cash costs ($/t) 1,884 1,447
----------------------------------------------------------- ------ ------
Net cash costs (USc/lb) 85 66
----------------------------------------------------------- ------ ------
(i) Maintenance spend per tonne of copper produced
Maintenance spend per tonne of copper produced is defined as
sustaining capital expenditure, divided by copper production
volumes. This is one of the Group's KPIs for measuring the
efficiency of controlling sustaining capital expenditure, the
relevance of which is outlined on page 25 of KAZ Minerals' 2017
Annual Report and Accounts. A reconciliation from capital
expenditure included within the consolidated statement of cash
flows is shown below.
$ million (unless otherwise stated) 2018 2017
---------------------------------------------------------------- ------ ------
Purchase of intangible assets - cash flow statement 2 2
Purchase of property, plant and equipment - cash flow statement 567 92
Investments in mining assets, including licences - cash
flow statement 46 43
Less: expansionary capital expenditure - see Financial review (530) (69)
Sustaining capital expenditure 85 68
Copper production (kt) 294.7 258.5
Maintenance spend per tonne of copper produced ($/t) 288 263
---------------------------------------------------------------- ------ ------
(j) Gross Revenues - applicable to 2017 only
Gross Revenues are sales proceeds from all volumes sold,
including pre-commercial production volumes. This measure includes
the results of the pre-commercial Bozshakol and Aktogay operations
before capitalisation and provides a measure of their performance
for the full year. A reconciliation to revenues is in note 4(a)(i)
of the condensed consolidated financial statements.
(k) Gross EBITDA - applicable to 2017 only
Gross EBITDA is defined as earnings, including pre-commercial
earnings, before interest, taxation, depreciation, depletion,
amortisation, MET and royalties and special items(1) . This measure
includes the results of the pre-commercial Bozshakol and Aktogay
operations before capitalisation and provides a measure of their
performance for the full year. A reconciliation to operating profit
is in note 4(a)(i) of the condensed consolidated financial
statements.
___________________________
1 Special items are defined as those items which are
non-recurring or variable in nature and do not impact the
underlying trading performance of the Group. Special items are
identified in note 6 in the condensed consolidated financial
statements.
GLOSSARY
APMs
Alternative Performance Measures being measures of financial
performance, financial position or cash flows that are not defined
or specified under IFRS but used by the Directors internally to
assess the performance of the Group
Baimskaya copper project
the mining licence covering the Peschanka copper deposit,
located in the Chukotka region of Russia
Board or Board of Directors
the Board of Directors of the Company
cash operating costs
all costs included within profit before finance items and
taxation, net of other operating income, excluding MET, royalties,
depreciation, depletion, amortisation and special items
CDB or China Development Bank
China Development Bank Corporation
CIS
Commonwealth of Independent States, comprised of former Soviet
Republics
CIT
corporate income tax
CNY
Chinese yuan, basic unit of the renminbi
CO(2)
carbon dioxide
Code or UK Corporate Governance Code
the UK Corporate Governance Code issued by the Financial
Reporting Council in April 2016
Commercial Production (Baimskaya)
the first commissioned concentrator at the Project achieving 70
per cent of nameplate processing capacity for six consecutive
calendar months
Committee or Committees
any or all of the Audit; Health, Safety and Environment;
Remuneration; Nomination; Operations Ramp Up Assurance; and
Projects Assurance Committees depending on the context in which the
reference is used
Company or KAZ Minerals
KAZ Minerals PLC
Copper Equivalent Production
copper equivalent production units consisting of copper
production, plus gold production converted into copper units
assuming analyst consensus long term average price forecasts of
$6,700/t for copper and $1,300/oz for gold
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
Deferred Cash Consideration
$225 million in cash payable to the Vendor at the Long Stop
Date, in lieu (in whole or in part) of payment of Deferred Equity
Consideration at Final Completion, if and to the extent that the
Project Delivery Conditions are not satisfied at the date of
Commercial Production
Deferred Consideration
any Deferred Equity Consideration payable at Final Completion
and any Deferred Cash Consideration payable at the Long Stop Date,
with a total value of $225 million
Deferred Equity Consideration
up to 21,009,973 million KAZ Minerals shares to be issued to the
Vendor or its nominee at Final Completion, if and to the extent
that the Project Delivery Conditions are satisfied at the date of
Commercial Production
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 of Kazakhstan. 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, MET and royalties and special items. A reconciliation
to operating profit is in note 4(a)(i) of the condensed
consolidated financial statements
EPS
earnings per share
EPS based on Underlying Profit/(Loss)
profit/loss excluding special items and their resulting tax and
non-controlling interest effects, divided by the weighted average
number of ordinary shares in issue during the period (see note 9 of
the condensed consolidated financial statements)
EU
European Union
EUR
Euro, the currency of certain member states of the European
Union
Final Completion
completion of the acquisition by KAZ Minerals of the remaining
25 per cent interest in the Baimskaya copper project, which will be
at the earlier of (i) a date shortly after the date of Commercial
Production and (ii) the Long Stop Date
Fluor
Fluor Corporation
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 (see page 55 for a
reconciliation to the closest IFRS based measure)
g/t
grammes per metric tonne
gross cash cost
cash operating costs, including pre--commercial production
costs, excluding purchased cathode plus TC/RC on concentrate sales,
divided by the volume of own copper sales
Gross EBITDA
earnings, including pre-commercial earnings, before interest,
taxation, depreciation, depletion, amortisation, MET and royalties
and special items. A reconciliation to operating profit is in note
4(a)(i) of the condensed consolidated financial statements
gross liquid funds
the aggregate of cash and cash equivalents and current
investments less restricted cash
Gross Revenues
sales proceeds from all volumes sold, including pre-commercial
production volumes. A reconciliation to revenues is in note 4(a)(i)
of the condensed consolidated financial statements
the Group
KAZ Minerals PLC and its subsidiary companies
HSE
Health, Safety and Environment
IAS
International Accounting Standard
IASB
International Accounting Standards Board
ICG
Industrial Construction Group LLC
IFRIC
International Financial Reporting Interpretations Committee
IFRS
International Financial Reporting Standard
Initial Cash Consideration
$436 million in cash
Initial Completion
completion of the acquisition by KAZ Minerals of a 75 per cent
interest in the Baimskaya copper project in the first half of 2019,
after obtaining anti-monopoly and other regulatory approvals and
satisfaction of certain other conditions
Initial Consideration
the Initial Cash Consideration and the Initial Equity
Consideration payable at Initial Completion, with a total value of
$675 million at 31 July 2018
Initial Equity Consideration
22,344,944 million new KAZ Minerals shares valued at $239
million at 31 July 2018
IRR
internal rate of return
JORC
Joint Ore Reserves Committee
JORC Code
the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves, a professional code of practice
that sets minimum standards for Public Reporting of Minerals
Exploration Results, Mineral Resources and Ore Reserves
Kazakhmys Holding Group
The entity to which the Disposal Assets were transferred
(formerly Cuprum Netherlands Holding B.V.)
Kazakhstan
the Republic of Kazakhstan
koz
thousand ounces
KPI
key performance indicator
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
Listing Rules
the Listing Rules of the UK Listing Authority
LME
London Metal Exchange
Long Stop Date
31 March 2029
major growth projects
Bozshakol and Aktogay
MET
mineral extraction tax
Mt
million metric tonnes
net cash costs
gross cash costs less by-product Gross Revenues, divided by the
volume of own copper sales
net debt
the excess of current and non-current borrowings over gross
liquid funds. A reconciliation of net debt is in note 15(c) of the
condensed consolidated financial statements
New Code
the UK Corporate Governance Code and accompanying Guidance on
Board Effectiveness published in July 2018
NFC
China Non Ferrous Metal Industry's Foreign Engineering and
Construction Co., Ltd
NPV
net present value
ounce or oz
a troy ounce, which equates to 31.1035 grammes
Project Delivery Conditions
conditions to the payment of Deferred Equity Consideration at
Final Completion in lieu of payment of Deferred Cash Consideration
at the Long Stop Date, which relate to state construction of
transport and power infrastructure, confirmation of federal tax
incentives and demonstration of year-round concentrate shipment
from the port of Pevek on agreed terms
PXF
pre-export finance debt facility
Restructuring
the transfer, subject to certain consents and approvals, of the
Disposal Assets to Cuprum Netherlands Holding B.V. (now named
Kazakhmys Holding Group B.V.) which was approved by shareholders at
the General Meeting on 15 August 2014 and completed on 31 October
2014
RMB
renminbi, the official currency of the People's Republic of
China
$/t or $/tonne
US dollars per metric tonne
Speak-Up
the Group's confidential whistleblowing arrangements
special items
those items which are non-recurring or variable in nature and
which do not impact the underlying trading performance of the
Group. Special items are set out in note 6 to the condensed
consolidated financial statements
SX/EW
solvent extraction and electrowinning, a two-stage metallurgy
process used for the extraction of copper
t
metric tonnes
TASED
a territory of accelerated social and economic development
TC/RCs
treatment charges and refining charges for smelting and refining
services
tenge or KZT
the official currency of the Republic of Kazakhstan
TJ
a standard unit of energy, work and heat equal to 10(12)
joules
UK
United Kingdom
Underlying Profit/(Loss)
Profit/loss excluding special items and their resulting tax and
non--controlling interest effects. Underlying Profit is set out in
note 9 to the condensed consolidated financial statements
US
United States of America
USc/lb
US cents per pound
Vendor
Aristus Holdings Limited, a company owned and controlled by a
consortium of individual investors including Roman Abramovich and
Alexander Abramov
This information is provided by RNS, the news service of the
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Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR TMMMTMBATTFL
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