TIDMKAZ
RNS Number : 1094J
KAZ Minerals PLC
15 August 2019
KAZ MINERALS PLC
6(TH) FLOOR
CARDINAL PLACE
100 VICTORIA STREET
LONDON SW1E 5JL
Tel: +44 (0) 20 7901 7800
============================
15 August 2019
Kaz minerals PLC HALF-YEARLY REPORT
FOR THE PERIODED 30 June 2019
FINANCIAL HIGHLIGHTS
-- Revenues of $1,052 million (H1 2018: $1,098 million)
- Production-driven 3% increase in copper sales volumes, offset by 11% lower LME copper price
-- EBITDA(1) of $620 million representing a 59% margin (H1 2018: $690 million, 63% margin)
-- Operating profit of $410 million (H1 2018: $464 million)
-- Industry leading first quartile net cash cost(1) of 80 USc/lb (H1 2018: 82 USc/lb)
OPERATIONAL HIGHLIGHTS
-- Copper production(2) increased by 6% to 147.6 kt (H1 2018: 139.6 kt)
-- Aktogay achieved record first half production of 74.1 kt (H1 2018: 60.5 kt)
-- On track to achieve full year guidance for main products of copper and gold
FINANCIAL POSITION
-- Net debt(1) increased to $2,560 million at 30 June 2019 (31 December 2018: $1,986 million)
- $436 million cash consideration paid for acquisition of Baimskaya copper project in H1 2019
- $332 million invested into growth projects, principally the Aktogay expansion
-- Borrowings of $3,299 million at 30 June 2019 (31 December 2018: $3,453 million)
-- Gross liquid funds(1) of $739 million at 30 June 2019 (31 December 2018: $1,467 million)
- $480 million to be drawn in 2019-20 under new $600 million DBK
facility for Aktogay expansion project
-- Interim dividend of 4.0 US cents per share declared
GROWTH PROJECTS
-- Completed the acquisition of the Baimskaya copper project in
Russia, a globally significant deposit, on 22 January 2019
- Feasibility study on track to be completed in H1 2020
- Government funded road and power infrastructure progressed in period
- Capital expenditure guidance for 2019 increased to $150
million, including $80 million approved for pioneer works and
on-site infrastructure in second half of 2019
-- Aktogay expansion project on schedule and on budget ($1.2 billion)
- Concentrator and crusher structural works underway, new mining
equipment commencing operations
- Capital expenditure timing rephased, 2019 guidance now $500 million
OUTLOOK
-- Short term copper market outlook more cautious due to
continuing trade pressures and China slowdown concerns, but long
term outlook remains robust
-- Full year copper production guidance maintained at c. 300 kt
-- Low cost asset base creates strong platform for growth
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
------------------------------------------------------------- ---------- ----------
Revenues 1,052 1,098
EBITDA(1) 620 690
Operating profit 410 464
Profit before tax 289 355
Profit for the period 227 276
Ordinary EPS and EPS based on Underlying Profit(1) - basic
($) 0.48 0.62
Ordinary EPS and EPS based on Underlying Profit(1) - diluted
($) 0.47 0.62
Net cash flows from operating activities 236 350
Free Cash Flow(1) 182 308
Gross cash cost(1) (USc/lb) 144 145
Aktogay 101 109
Bozshakol 157 127
East Region and Bozymchak 236 250
Net cash cost(1) (USc/lb) 80 82
Aktogay 96 107
Bozshakol 42 55
East Region and Bozymchak 103 77
Borrowings 3,299 3,705
Cash and cash equivalents 739 1,653
Net debt(1) 2,560 2,052
------------------------------------------------------------- ---------- ----------
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 APMs section on page 49.
2 Payable metal in concentrate and copper cathode from Aktogay
oxide ore.
Andrew Southam, Chief Executive Officer, said: "KAZ Minerals
recorded EBITDA of $620 million in the first half of 2019,
delivering increased production and maintaining the Group's
industry leading low cost position. The Group's near and long term
growth projects at Aktogay and Baimskaya are both on track, with
the primary crusher, sulphide concentrator and mining fleet upgrade
progressing well at Aktogay and pioneer works at Baimskaya approved
to commence in the second half of 2019."
For further information please contact:
KAZ Minerals PLC
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Chris Bucknall Investor Relations, London Tel: +44 20 7901 7882
Anna Mallere Investor Relations, London Tel: +44 20 7901 7814
Maksut Zhapabayev Corporate Communications, Tel: +7 727 244 03
Almaty 53
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Brunswick Group
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Carole Cable, Charlie Pretzlik Tel: +44 20 7404 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, Russia and Kyrgyzstan. 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. In January 2019, the Group
acquired the Baimskaya project in the Chukotka region of Russia,
one of the world's most significant undeveloped copper assets with
the potential to become a large scale, low cost, open pit copper
mine.
The Group's new operations at Bozshakol and Aktogay have
delivered industry leading production growth 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 0.36% (oxide) and 0.33%
(sulphide). Aktogay commenced production of copper cathode from
oxide ore in December 2015 and copper in concentrate from sulphide
ore in February 2017. The operating sulphide concentrator has an
annual ore processing capacity of 25 million tonnes and the
sulphide processing capacity will be doubled to 50 million tonnes
with the addition of a second concentrator by the end of 2021.
Aktogay is competitively positioned on the global cost curve and
will produce an average of 100 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 2024.
The Peschanka deposit within the Baimskaya licence area in
Russia has 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
construction is $5.5 billion and the project is currently at
feasibility study stage. The Group expects the project to generate
a significant NPV uplift and an attractive IRR at analyst consensus
copper prices. The development of 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 15,000 people,
principally in Kazakhstan.
AVAILABILITY OF THIS ANNOUNCEMENT
Copies of the half-yearly report will not be mailed to
shareholders but the report is available on the KAZ Minerals
website (www.kazminerals.com) or you may request a copy from the
Corporate Communications department at the Company's registered
office.
SHAREHOLDER INFORMATION
The Company declares dividends in US dollars. The default
currency for receipt of dividends is US dollars although
shareholders can elect to receive their dividends in UK pounds
sterling. For those shareholders who wish to receive their
dividends in UK pounds sterling, currency election forms or a CREST
message should be sent to the Company's registrar, Computershare
Investor Services PLC, so as to arrive no later than 5.00pm on 7
October 2019.
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 GBP0.8258 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
this half-yearly results announcement.
The ex-dividend date for the interim dividend is 3 October 2019
for ordinary shareholders, the record date is 4 October 2019 and
the dividend is payable on 25 October 2019.
CAUTIONARY NOTICE CONCERNING FORWARD-LOOKING STATEMENTS
This half-yearly report includes certain forward-looking
statements. All statements other than historical facts are
forward-looking statements. Examples of forward-looking statements
include those regarding the business, strategy and plans of KAZ
Minerals and its current goals, assumptions and expectations
relating to its future financial condition, performance and
results, commodity demand and trends in commodity prices, growth
opportunities and any assumptions underlying or relating to any of
the foregoing. Forward-looking statements are sometimes but not
always identified by words such as "aim", "intend", "anticipate",
"estimate", "plan", "believe", "expect", "may", "should" or in each
case their negative and similar expressions. By their nature,
forward-looking statements involve known and unknown risks,
assumptions and uncertainties and other factors which are
unpredictable as they relate to events and depend on circumstances,
that will occur in the future, which may cause actual results,
performance or achievements of KAZ Minerals to be materially
different from those expressed or implied in these forward-looking
statements. Principal risk factors that could cause KAZ Minerals'
actual results, performance or achievements to differ materially
from those in the forward-looking statements include (without
limitation) health and safety, community and labour relations,
employees, environmental compliance, business interruption, new
project construction and commissioning, reserves and resources,
political risk, legal and regulatory compliance, commodity prices,
foreign exchange and inflation, exposure to China, acquisitions and
divestments, liquidity and such other risk factors disclosed in KAZ
Minerals' 2018 Annual Report and Accounts, which can be found at
www.kazminerals.com. Forward-looking statements should therefore be
construed in light of such risk factors. These forward-looking
statements should not be construed as a profit forecast.
No part of this half-yearly report constitutes, or shall be
taken to constitute, an invitation or inducement to invest in KAZ
Minerals, or any other entity, and shareholders are cautioned not
to place undue reliance on the forward-looking statements. Except
as required by the Listing Rules and applicable law, rule or
regulation, KAZ Minerals does not undertake any obligation to
publicly update or change any forward-looking statements, to
reflect events or new information occurring after the date of this
half-yearly report.
CHIEF EXECUTIVE OFFICER'S REVIEW
KAZ Minerals delivered growth and low costs in the first half of
2019, with copper production increasing by 6% to 148 kt (H1 2018:
140 kt) and net cash costs of 80 USc/lb (H1 2018: 82 USc/lb) firmly
within the first quartile of the industry cash cost curve. EBITDA
of $620 million (H1 2018: $690 million) was recorded on revenues of
$1,052 million (H1 2018: $1,098 million), as increased copper
production partially offset the reduction in commodity prices in
the period and the Group maintained its competitive cost position.
The Group's Bozshakol and Aktogay open pit mines processed 26
million tonnes of ore in the first half (H1 2018: 23 million
tonnes) and increased their combined copper production by 10%, with
both main sulphide concentrators operating at design capacity over
the period. The Group is on track to achieve its annual production
guidance for its main products of copper and gold.
During the first half of 2019 the Group progressed its copper
growth strategy, completing the acquisition of the Baimskaya
licence area in the Chukotka region of Russia in January and
proceeding with the near term brownfield project to expand sulphide
processing capacity at Aktogay.
Health and safety
No fatal accidents occurred at any of the Group's operations
during the first half of 2019 and the Group's open pit mines of
Bozshakol, Aktogay and Bozymchak have operated with zero fatalities
since the commencement of operations at each site. However, it is
with sadness I report that two fatalities occurred at the East
Region in July, one at Orlovsky and one at Artemyevsky.
The Group has improved the safety performance of its underground
mining operations in recent years with fatalities on a long term
downward trend. In the first half of 2019, Total Recordable
Injuries reduced to 21 (H1 2018: 33). This represents a 50% fall in
the Total Recordable Injury Frequency Rate from the prior year
comparative period, to 0.99 (H1 2018: 2.00). The improvement in the
injury rate has been broad-based, with a general reduction in the
number of injuries across all causes. The specific circumstances
leading to the fatalities in July are being investigated by the
Group and measures are being taken to prevent their recurrence.
During the first half of the year the Group launched a major new
safety initiative, "Goal Zero", which includes a target to
eliminate fatal incidents and lost time injuries. The programme
seeks to unite employees, supervisors and management behind the
common aim of reducing health, safety and environmental incidents
to zero. KAZ Minerals is committed to implementing the robust
safety management systems, training and risk management processes
necessary to achieve zero fatalities.
Operational performance
Copper production in the first half increased by 6% to 148 kt
(H1 2018: 140 kt) as the Aktogay sulphide concentrator ramped up
output during the period. The Bozshakol and Aktogay sulphide
concentrators both recorded strong throughput levels in the first
half, completing scheduled SAG mill relinings in the second quarter
efficiently. At the beginning of April, the Nikolayevsky
concentrator in the East Region resumed normal operations following
planned idling in the first quarter, and upgrade works to the
process water and reclaim systems at the Bozshakol clay plant were
completed in May. The Group is on track to achieve its annual
copper production guidance of c. 300 kt.
The Group's gold production of 88 koz in the first half (H1
2018: 90 koz) is on track to achieve full year guidance of 170-185
koz, following strong output from Bozymchak for the period and
higher volumes expected from the Bozshakol mine over the remainder
of the year.
Group silver production of 1,552 koz (H1 2018: 1,637 koz) at the
half year was in line with full year guidance of c. 3,000 koz.
Zinc in concentrate production recovered in the second quarter
after output in the first quarter was impacted by low grades and
planned concentrator idling, with first half production of 18.4 kt
(H1 2018: 24.9 kt). Zinc is a by-product in the East Region and
volumes are expected to remain variable as the region's two main
mines experience some fluctuation in grades and challenging
geological conditions in 2019, with full year guidance now set at
40-45 kt.
Financial performance
Continued copper sales growth partially offset lower commodity
prices in the first half of 2019, resulting in revenues of $1,052
million (H1 2018: $1,098 million). The Group's competitive unit
cost position delivered a strong EBITDA margin of 59% (H1 2018:
63%) and EBITDA of $620 million (H1 2018: $690 million).
Group gross cash costs were broadly unchanged at 144 USc/lb (H1
2018: 145 USc/lb) and net cash costs were also in line with the
first half of 2018, at 80 USc/lb (H1 2018: 82 USc/lb). Unit costs
benefited from a weaker exchange rate between the Kazakhstan tenge
and the US dollar, which averaged 379 KZT/$ during the first half
(H1 2018: 327 KZT/$).
Growing production at Aktogay helped to reduce gross cash costs
to 101 USc/lb (H1 2018: 109 USc/lb), with net cash costs of 96
USc/lb (H1 2018: 107 USc/lb). 2019 gross cash cost guidance for
Aktogay is maintained at 105-125 USc/lb, with lower output expected
in the second half due to scheduled mill maintenance.
At Bozshakol, the 26 koz of gold bar inventory brought forward
from 2018 was sold in the first half of the year to the National
Bank of Kazakhstan, as guided in the Group's 2018 full year
results. The production costs associated with the sale of this
material increased gross cash costs in the period by 13 USc/lb, to
157 USc/lb (H1 2018: 127 USc/lb) and generated additional
by-product credits of 34 USc/lb, contributing to a highly
competitive net cash cost for Bozshakol of 42 USc/lb in the period
(H1 2018: 55 USc/lb). Gross cash cost guidance for Bozshakol in
2019 is maintained at 130-150 USc/lb, as higher copper production
in the second half is expected to result in lower unit costs. The
Group's net cash cost of 80 USc/lb in the first half benefited from
a net by-product credit of 7 USc/lb from the sale of gold bar
inventory brought forward from the prior year at Bozshakol.
The East Region and Bozymchak gross cash cost of 236 USc/lb (H1
2018: 250 USc/lb) benefited from a weaker KZT to US dollar exchange
rate and from cost control measures taken by management. The net
cash cost increased to 103 USc/lb (H1 2018: 77 USc/lb), mainly due
to a lower average zinc price and temporarily lower zinc in
concentrate output of 18.4 kt (H1 2018: 24.9 kt). Zinc production
is expected to be higher in the second half of the year with
guidance set at 40-45 kt for 2019. Following the stronger than
anticipated gross cash cost performance in the first half, the full
year gross cash cost guidance range for the East Region and
Bozymchak is revised to 230-250 USc/lb.
Operating profit decreased to $410 million from $464 million in
the first half of 2018, whilst profit before tax reduced by 19% to
$289 million from $355 million in the half year period to 30 June
2018. Profit for the period was $227 million, a decrease of 18%
from the $276 million reported in the first half of 2018. Earnings
per share based on Underlying Profit decreased by 23% to $0.48 from
$0.62 in the first half of 2018, partly due to the issuance of 22.3
million consideration shares to the Vendor of the Baimskaya copper
project.
Capital expenditure on expansionary projects totalled $332
million during the first half (H1 2018: $325 million) and
sustaining capital expenditure was $66 million (H1 2018: $39
million) against full year guidance of $150 million.
Financial position
Net cash flows from operating activities of $236 million (H1
2018: $350 million) supported investment into the Group's near and
long term growth pipeline. Following the payment of $436 million of
cash consideration to the Vendor of the Baimskaya copper project in
January 2019 and capital expenditure of $223 million on the
construction of the Aktogay expansion project over the first half
of the year, net debt increased to $2,560 million (31 December
2018: $1,986 million).
The Group continued to make scheduled capital repayments against
its long dated debt facilities, with $272 million repaid during the
first half. Gross debt reduced from $3,453 million at the 2018 year
end to $3,299 million at 30 June 2019, as $120 million was also
drawn under the new $600 million DBK facility agreed on 14 June
2019. Cash and cash equivalents and current investments decreased
to $739 million at 30 June 2019 from $1,469 million at the 2018
year end. A further $480 million remains to be drawn against the
new DBK facility, to fund capital spending on the Aktogay expansion
project.
Growth projects
Baimskaya
KAZ Minerals completed the acquisition of the Baimskaya copper
project in January 2019. The licence area contains the Peschanka
deposit, one of the world's most significant undeveloped copper
assets 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.
The Group is currently progressing a bankable feasibility study
of the Baimskaya project with Fluor Corporation as lead contractor.
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.
Infrastructure development in the Chukotka region is continuing
to progress in line with management expectations alongside the
feasibility study. The government funded construction of the 110 kV
power line from Bilibino to Baimskaya is on track to be connected
to the site around the end of 2019, with 90% of the required pylons
now erected. Commissioning of the 110 kV power connection is due to
take place in 2020.
The mobile nuclear power facility, Akademik Lomonosov, has been
fuelled and successfully tested by the operator Rosatom and is due
to depart from Murmansk for the port of Pevek at the end of August
2019. This facility will provide power to the site for construction
activities after the decommissioning of the existing nuclear power
station at Bilibino, which is expected to occur at the end of
2021.
To provide the additional power required for copper production
from 2026, a government financed 220 kV power line is planned to be
constructed to connect the site to existing hydroelectric
facilities in the Magadan region. Financing has been allocated in
the state budget to commence construction of the first phase of
this project.
As part of the existing Omolon-Anadyr highway project, the
Russian government is constructing a new permanent road which will
link Baimskaya with the port of Pevek, a distance of approximately
800 km. The first 100 km section of the road, between Ilirney and
Yarakvaam, has been completed. The next section to be constructed
will be the 250 km route connecting the Baimskaya site to Ilirney.
State funding for this next stage of the road building project has
been provided and construction is expected to commence by the end
of 2019.
At the Baimskaya site, the Board has approved $80 million of
capital expenditure to be incurred in the second half of 2019 which
will enable pioneer works to commence on the camp, fuel storage,
airfield and site power infrastructure and accelerate the delivery
of necessary construction equipment. Combined with the $70 million
of capital expenditure already guided for the Baimskaya feasibility
study this year, total capital expenditure for Baimskaya in 2019 is
now expected to be around $150 million. Capital expenditure on the
Baimskaya project incurred in the first six months of 2019 was $23
million.
Aktogay expansion
The Group has continued to make good progress with the expansion
project at Aktogay, where a second concentrator is under
construction to double sulphide ore processing capacity.
Foundations for grinding and flotation equipment were successfully
laid in the first quarter of 2019 and the erection of structural
steel is now largely complete. The Group has taken delivery and put
into operation the first of the new larger mining fleet vehicles,
including Caterpillar 793 mine haul trucks and 994 loaders, which
will deliver the increased ore extraction volumes required for the
second concentrator. Further mining fleet deliveries are scheduled
for the second half of 2019.
During the first half of the year, approximately 200 new
apprentices were recruited locally to commence training at new
facilities at the Aktogay site. The apprenticeship scheme is part
of the recruitment programme to enable the Group to scale up its
activities at Aktogay once the second concentrator commences
operations. The programme also creates employment opportunities for
Kazakh nationals and transfers skills to local workers.
Copper production from the second concentrator is expected to
commence in 2021.
Following the agreement of a new $600 million debt facility to
fund the project with DBK in June 2019, the Group has rephased $100
million of capital expenditure into 2019 to further de-risk the
delivery of the project. This change to the timing of capital
expenditure results in revised guidance for the Aktogay expansion
in 2019 of $500 million from the previous $400 million, with $400
million of expenditure expected in 2020 and the final $100 million
in 2021. The project budget remains unchanged at $1.2 billion.
Koksay
The agreement for NFC to invest $70 million into the Koksay
project to acquire a 19.4% stake, originally announced on 8 June
2018, was completed on 3 July 2019. A feasibility study has
commenced, the results of which will be reviewed by the Board
before assessing how and when to proceed with the project. The
Group's capital expenditure guidance for Koksay in 2019 remains
unchanged, at around $20 million.
Dividend
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.
KAZ Minerals continued to deliver strong operational and
financial results in the first half of 2019, increasing copper
output by 6% compared to the same period in 2018, whilst
maintaining net cash costs at a low level. However, the outlook for
the copper market has weakened in the near term and the Group is
now undergoing a period of significant capital investment.
Taking into account these factors and the Group's flexible
dividend policy, the Board has declared an interim dividend of 4.0
US cents per share in respect of the first half of 2019.
The financing requirements of the Baimskaya project including
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 short term, a more negative outlook for global demand has
driven copper prices lower. However, the medium term outlook for
copper prices remains positive, with limited projects in
development and significant execution challenges faced by copper
producers seeking to deliver new output into the market. Demand for
copper into the next decade is forecast to remain strong, as the
traditional drivers of economic development and urbanisation are
supplemented by new demand from investment in clean energy
generation and the increased adoption of electric vehicles.
We enter the second half of the year well equipped to navigate
copper price fluctuations, with industry leading first quartile
cash costs and our producing assets operating at design capacity.
In the remainder of 2019 the Group will progress construction of
the second concentrator at Aktogay and the feasibility study for
the Baimskaya copper project.
KAZ Minerals is generating strong operating cash flows from its
existing portfolio of modern, large scale mines which supports the
Group's project pipeline, offering unmatched near and long term
growth opportunities in copper.
OPERATING REVIEW
The Group's operations in 2019 include the Bozshakol and Aktogay
open pit copper mines in the Pavlodar and East regions of
Kazakhstan, three underground mines and associated concentrators in
the East Region of Kazakhstan and the Bozymchak copper-gold mine in
Kyrgyzstan.
Group production summary
Six months Six months
ended ended
30 June 30 June
kt (unless otherwise stated) 2019 2018
----------------------------- ---------- ----------
Copper production 147.6 139.6
Aktogay 74.1 60.5
Bozshakol 47.1 49.8
East Region and Bozymchak 26.4 29.3
Zinc in concentrate 18.4 24.9
Gold production (koz) 87.7 89.8
Silver production (koz) 1,552 1,637
----------------------------- ---------- ----------
AKTOGAY
Aktogay is a large scale, open pit mine with a remaining mine
life of 27 years (including the expansion project) at an average
copper grade of 0.36% (oxide) and 0.33% (sulphide). Aktogay
commenced production of copper cathode from oxide ore in December
2015 and copper in concentrate from sulphide ore in February 2017.
The 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
100 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 2024.
Production summary
Six months Six months
ended ended
30 June 30 June
kt (unless otherwise stated) 2019 2018
----------------------------------- ---------- ----------
Oxide
Ore extraction 8,193 8,835
Copper grade (%) 0.32 0.31
Copper cathode production 11.8 11.5
Sulphide
Ore extraction 16,023 10,290
Ore processed 12,733 9,585
Average copper grade processed (%) 0.58 0.62
Recovery rate (%) 89 86
Copper in concentrate 65.2 51.3
Copper production 62.3 49.0
Total copper production 74.1 60.5
Silver production (koz) 288 215
----------------------------------- ---------- ----------
Copper cathode production from oxide ore of 11.8 kt was 3%
higher than the prior year comparative period as the SX/EW plant
achieved incremental efficiency gains in the electrolysis and
automated stripping processes. Production is on track to achieve
guidance of c. 25 kt for the year.
Copper production from the sulphide plant increased by 27% to
62.3 kt due to a 33% increase in processing volumes, with the
sulphide concentrator operating close to design capacity throughout
the period. Production also benefited from an improvement in copper
recovery, to 89%. The average grade of copper processed reduced to
0.58% from 0.62%, in line with the mine plan. Sulphide ore
extraction increased to 16,023 kt, which was above the level
required by the plant as mine development works were carried out in
preparation for the Aktogay expansion project.
Total copper production of 74.1 kt was a record for Aktogay and
22% higher than the prior year comparative period. Full year copper
production guidance is maintained at 130-140 kt as output in the
second half of the year will be impacted by scheduled
maintenance.
Financial summary
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
------------------------------------ ---------- ----------
Revenues 429 389
Copper sales (kt) 71.8 61.3
EBITDA 282 271
Operating profit 191 177
Gross cash costs (USc/lb) 101 109
Net cash costs (USc/lb) 96 107
Capital expenditure 276 321
Sustaining 21 9
Expansionary 255 312
------------------------------------ ---------- ----------
Revenues
Aktogay revenues increased by $40 million, or 10% from the prior
year comparative period. This was due to a 10.5 kt rise in copper
sales volumes, driven by an increase in production during the
period, contributing an additional $62 million of revenues. This
more than offset a reduction in the market price for copper, with
the average LME price reducing from $6,917/t in the prior year
comparative period to $6,165/t during the first half of 2019.
EBITDA
EBITDA of $282 million was $11 million above the prior year
comparative period as the increase in revenues was partially offset
by an increase in cash operating costs. Cash operating costs
increased from $118 million to $147 million, driven by the
additional volumes of sulphide material mined and processed and
certain cost increases for salaries and consumables, including
fuel, as well as higher maintenance expenses. Cash operating costs
include social expenditure of $10 million which has been excluded
from gross cash costs as it is not considered directly attributable
to mining and processing at Aktogay and benefits the wider Group.
Costs also benefited from a weaker tenge and on a volume basis
gross cash costs reduced from 109 USc/lb to 101 USc/lb in the
period, reflecting the increased level of copper sales.
The full year gross cash cost guidance of 105-125 USc/lb remains
unchanged. Gross cash costs are expected to be higher in the second
half of the year as additional shutdowns for maintenance are
planned, which will lower production and increase costs. Net cash
costs, after by-products from commercially payable silver, were 96
USc/lb.
Operating profit
Operating profit increased by $14 million to $191 million. This
reflects the $11 million increase in EBITDA as well as an $8
million decrease in depreciation charges due to the weaker tenge,
partially offset by a $5 million increase in MET charges due to
higher ore extraction.
Capital expenditure
Sustaining capital expenditure increased to $21 million which
was higher than the $9 million recorded in the prior year
comparative period when the newer operations required limited
maintenance. Expenditure in the current period primarily relates to
the maintenance of mining equipment as well as construction work to
increase tailings storage capacity.
In the first half of 2019, total expansionary capital
expenditure was $255 million. $223 million of this expenditure
relates to the Aktogay expansion project and includes approximately
$115 million for the procurement of long lead items required for
the new plant. Construction activities are progressing in line with
the timetable, with the laying of foundations for grinding and
flotation equipment completed in the first quarter and structural
steel for the concentrator building largely erected. Expenditure
also includes amounts to increase the capacity of the mining fleet
to prepare for the expanded operation.
Also included within expansionary capex is $32 million in
respect of the original Aktogay project, mainly for final retention
payments to construction contractors and the second stage expansion
of the heap leach cells for the oxide operations.
Total expansionary capital of around $570 million is forecast in
2019, which includes $70 million in respect of the original Aktogay
project. Following the agreement of a new $600 million debt
facility in June the Group has brought forward $100 million of
capital expenditure into 2019 to further de-risk delivery of the
project. This change to the timing of capital expenditure results
in revised guidance for the Aktogay expansion in 2019 of $500
million from the previous $400 million, with $400 million of
expenditure expected in 2020 and $100 million in 2021. The project
budget remains unchanged at $1.2 billion.
BOZSHAKOL
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.
Production summary
Six months Six months
ended ended
30 June 30 June
kt (unless otherwise stated) 2019 2018
----------------------------------- ---------- ----------
Ore extraction 17,502 15,506
Ore processed 13,248 13,430
Average copper grade processed (%) 0.45 0.49
Copper recovery rate (%) 83 80
Copper in concentrate 49.3 52.1
Copper production 47.1 49.8
Average gold grade processed (g/t) 0.25 0.26
Gold recovery rate (%) 60 60
Gold in concentrate (koz) 63.7 66.7
Gold production (koz) 59.6 62.3
Silver production (koz) 334 340
----------------------------------- ---------- ----------
Ore extraction of 17,502 kt was 13% higher compared to the
15,506 kt mined in the first half of 2018 as additional volumes of
clay material were extracted and stockpiled to gain access to the
sulphide ore.
Processing volumes of 13,248 kt were 1% below the prior year
comparative period as higher ore throughput at the sulphide
concentrator was offset by lower volumes from the clay plant. Clay
plant operations were suspended for around three months to perform
a programme of upgrades to the water system to increase recycling
rates and reduce the consumption of fresh water. The clay plant was
restarted on 12 May and operated at above design capacity during
the month of June.
Copper production of 47.1 kt was 5% lower than the first half of
2018 due to a reduction in average copper grade and slightly lower
processing volumes. This was partially offset by an increase in the
recovery rate at the sulphide plant. The average copper grade
processed in the period reduced to 0.45% from 0.49% but is expected
to be higher in the second half of the year. The average copper
grade processed for the full year is forecast to be close to the
2018 level of 0.48%.
Gold production reduced by 4% to 59.6 koz due to lower
processing volumes and grades. Silver production of 334 koz was
broadly in line with the prior year comparative period.
Full year copper production guidance of 105-115 kt is maintained
with production expected to be weighted towards the second half of
the year due to higher grades and continuous operation of the clay
plant. Gold and silver production is on track to achieve guidance
of 130-140 koz and c. 700 koz respectively.
Financial summary
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
------------------------------------ ---------- ----------
Revenues 372 388
Copper 258 310
Gold 107 72
Silver 5 6
Other 2 -
Sales volumes
Copper sales (kt) 45.0 49.8
Gold sales (koz) 80.6 55.9
Silver sales (koz) 312 365
EBITDA 240 277
Operating profit 164 197
Gross cash costs (USc/lb) 157 127
Net cash costs (USc/lb) 42 55
Capital expenditure 62 15
Sustaining 25 12
Expansionary 37 3
------------------------------------ ---------- ----------
Revenues
Revenues decreased by 4% from the prior year comparative period
to $372 million as lower copper revenues were largely offset by an
increase in gold sales volumes. Copper sales volumes were below the
prior year comparative period due to slightly lower production and
an increase in finished goods inventory at the end of the period.
The reduction in the average LME price for copper negatively
impacted copper revenues by $25 million. Including the impact of
lower sales volumes, copper revenues reduced by a total of $52
million. Gold sales volumes of 80.6 koz were significantly higher
than production, benefiting from the sale of 25.6 koz of gold bar
inventory accumulated at the end of 2018, as previously guided.
This drove a 49% increase in gold revenues in the period to $107
million.
EBITDA
Bozshakol generated an EBITDA of $240 million, a 13% decrease
from the prior year comparative period following a reduction in
revenues and an increase in gross cash costs. Gross cash costs are
expressed on a unit of copper sales basis and the reported figure
of 157 USc/lb in the period includes charges associated with the
sale of 25.6 koz of gold bar inventory accumulated in 2018.
Excluding the gold inventory sales, the underlying gross cash cost
for the first half of 2019 was 144 USc/lb. As expected, the gross
cash cost has increased from the prior year comparative period when
operations benefited from a higher grade in ore processed and lower
maintenance associated with the newer plant, whereas additional
relines of the mills were performed in the current period. In
addition, there was some inflationary impact on costs, including an
increase in local salaries and certain consumables, particularly
fuel. This was partly offset by a weaker tenge, which traded at an
average of 379 KZT/$ versus 327 KZT/$ in the prior year comparative
period. Unit costs in the second half of the year are expected to
trend lower, benefiting from increased production owing to higher
grades, a full period of output from the clay plant and the absence
of charges associated with the sale of prior year gold inventory as
this is now complete. Therefore, the full year guidance for
Bozshakol gross cash costs is unchanged at 130-150 USc/lb.
The net cash cost of 42 USc/lb reflects the sale of gold
by-products and benefits from the sale of the 25.6 koz of gold bar
inventory accumulated in 2018. Excluding these volumes, the
Bozshakol net cash cost would have been 63 USc/lb.
Operating profit
The $33 million reduction in operating profit to $164 million
reflects the $37 million decrease in EBITDA as well as lower MET
charges owing to the fall in average copper price.
Capital expenditure
Sustaining capital expenditure was $25 million during the
period, an increase from the prior year comparative period when
maintenance requirements for the newer plant were limited.
Expenditure in the period mainly relates to the purchase and
overhaul of mining equipment as well as construction work to
increase the capacity of the tailings storage facilities.
Sustaining capital for the year is estimated to be around $50
million. Expansionary capital expenditure of $37 million mainly
relates to final retention payments made to contractors.
EAST REGION AND BOZYMCHAK
Production summary
Copper
Six months Six months
ended ended
30 June 30 June
kt (unless otherwise stated) 2019 2018
----------------------------------- ---------- ----------
Ore extraction 1,942 1,954
Ore processed 1,793 1,886
Average copper grade processed (%) 1.72 1.84
Average recovery rate (%) 91 89
Copper in concentrate 28.0 31.0
Copper production 26.4 29.3
----------------------------------- ---------- ----------
Ore extraction volumes of 1,942 kt were consistent with the
prior year comparative period. Processing volumes of 1,793 kt were
5% lower than the first half of 2018, limited by lower ore
extraction at Orlovsky and the planned idling of the Nikolayevsky
concentrator for the duration of the first quarter to raise the
utilisation rate of the concentrator over the remainder of the
year. The concentrator restarted operations in early April and
processed 514 kt of ore, including material from Artemyevsky that
was stockpiled during the first quarter.
Copper production of 26.4 kt was 10% below the prior year
comparative period as a result of the lower processing volumes and
a reduction in grades, mainly from Orlovsky and Belousovsky. The
Bozymchak mine in Kyrgyzstan continued to operate at full capacity
and contributed 3.5 kt of copper output, marginally below the 3.7
kt produced in the first half of 2018, due to a reduction in copper
grades. With all concentrators now operating, the East Region and
Bozymchak is on track to achieve full year copper production of c.
55 kt in 2019.
By-products
Six months Six months
ended ended
30 June 30 June
koz (unless otherwise stated) 2019 2018
-------------------------------- ---------- ----------
Zinc bearing ore processed (kt) 1,280 1,381
Zinc grade processed (%) 2.11 2.63
Zinc in concentrate (kt) 18.4 24.9
Gold bearing ore processed 1,793 1,886
Gold grade processed (g/t) 0.73 0.79
Gold in concentrate 28.1 28.9
Gold production 26.4 27.2
Silver bearing ore processed 1,793 1,886
Silver grade processed (g/t) 29.5 34.9
Silver in concentrate 1,022 1,189
Silver production 930 1,082
-------------------------------- ---------- ----------
Consistent with copper production, output of all by-products was
lower than the first half of 2018 due to a reduction in processing
volumes. Zinc production fell by 26% driven by lower than expected
zinc grades at Orlovsky and Belousovsky, as well as the planned
idling of the Nikolayevsky concentrator in the first quarter. Zinc
production improved in the second quarter, almost doubling from 6.2
kt to 12.2 kt after the restart of the Nikolayevsky concentrator.
Full year zinc production is now guided at 40-45 kt for 2019.
The 3% decrease in gold output to 26.4 koz was lower than other
by-products, as the majority of production is supplied from the
Bozymchak mine. Bozymchak gold production increased by 3% versus
the prior year comparative period due to an increase in grades,
with ore processed remaining stable. Silver production of 930 koz
in the period represents a reduction of 14% from the first half of
2018, due to lower processed volumes and grades. Gold production is
well positioned to achieve the top end of guidance of 40-45 koz,
with silver production on track to achieve guidance of around 1,800
koz.
Financial Summary
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
------------------------------------ ---------- ----------
Revenues 251 321
Copper 170 206
Zinc 31 60
Silver 15 17
Gold 33 33
Other 2 5
Sales volumes
Copper sales (kt) 27.6 29.7
Zinc sales (kt) 17.1 26.6
Silver sales (koz) 1,000 1,023
Gold sales (koz) 25.5 25.2
EBITDA 108 155
Operating profit 66 104
Gross cash costs (USc/lb) 236 250
Net cash costs (USc/lb) 103 77
Capital expenditure 35 28
Sustaining 20 18
Expansionary 15 10
------------------------------------ ---------- ----------
Revenues
Revenues generated by East Region and Bozymchak decreased by 22%
to $251 million as sales of all metals other than gold reduced.
Copper revenues decreased by $36 million, mainly a result of a
lower LME price as well as a reduction in sales volumes. Revenues
from by-products reduced by 30% or $34 million. The majority of
this decrease relates to zinc, for which revenues reduced by $29
million following a 16% fall in the market price and lower
production.
EBITDA
EBITDA decreased by $47 million, resulting from the $70 million
fall in revenues partially offset by a reduction in operating
costs. Cash operating costs of $143 million were $23 million lower
than the prior year comparative period, owing to lower production
volumes as well as favourable cost performance. Management took
actions to control costs in the period including a rationalisation
of shift schedules and transportation routes as well as a reduction
in warehousing costs. Operating costs in the East Region have a
higher exposure to the tenge, which weakened by 16%, from an
average of 327 KZT/$ in H1 2018 to 379 KZT/$ in the current period.
In addition, there was a reduction in costs as the first half of
2018 included the processing of stock from prior periods. These
impacts more than offset local market price increases for raw
materials and salaries. Operating costs at the Bozymchak mine were
in line with the prior year comparative period. As a result, gross
cash costs for East Region and Bozymchak improved from 250 USc/lb
to 236 USc/lb, notwithstanding the reduction in copper sales. With
an increase in copper production expected in the second half of the
year, gross cash cost guidance for the full year has been revised
to 230-250 USc/lb.
Net cash costs increased by 26 USc/lb to 103 USc/lb despite the
reduction in gross cash costs, due to the significant reduction in
zinc revenues during the period.
Operating profit
The $38 million decrease in operating profit to $66 million
follows the $47 million decrease in EBITDA, partially offset by a
$6 million decrease in the MET charge resulting from lower prices
and a $3 million reduction in depreciation due to the weaker
tenge.
Capital expenditure
Sustaining capital expenditure of $20 million was in line with
the prior year comparative period and 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 expected to be around $50
million.
Expansionary capital of $15 million mainly relates to initial
works on the Artemyevsky mine extension, including the development
of a ventilation tunnel and installation of site infrastructure.
The principal construction contractor has been mobilised, with an
expected increase in expenditure for the second half of the year.
Expansionary capital in 2019 is forecast at $70 million, with
around $60 million per annum required from 2020 to 2022.
OTHER PROJECTS
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 Group is currently conducting a bankable
feasibility study, with Fluor Corporation appointed as the lead
contractor. The Board has approved approximately $80 million of
capital expenditure on the project to be incurred in the second
half of 2019. This will enable pioneer works to take place on the
camp, fuel storage, airfield and site power infrastructure, and
accelerate the delivery of key construction equipment. Combined
with the $70 million of capital expenditure already guided for the
Baimskaya feasibility study in 2019, total capital expenditure for
Baimskaya in the year is now $150 million. Expenditure in the first
half of the year was $23 million.
On 3 July 2019 the Group transferred a 19.4% equity stake in the
Koksay development project to NFC for total proceeds of $70
million. The $70 million is to be used for the development of
Koksay, including a feasibility study. Approximately $20 million is
expected to be spent during 2019, with limited expenditure of $2
million having been incurred during the first half of 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 consolidated financial statements for the
year ended 31 December 2018, except for the adoption of IFRS 16
'Leases' and 'Borrowing costs eligible for capitalisation
(Amendments to IAS 23)' which were applicable from 1 January 2019.
As the impact of IFRS 16 was not material to the Group, it was
applied without the restatement of the prior year comparative
period and there was no impact on retained earnings at 1 January
2019. The amendment to IAS 23 was applied prospectively from 1
January 2019. Further details are provided in the notes to the
condensed consolidated financial statements on page 33.
Income statement
An analysis of the consolidated income statement is shown
below:
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
------------------------------------------------------------- ---------- ----------
Revenues 1,052 1,098
Cash operating costs (432) (408)
------------------------------------------------------------- ---------- ----------
EBITDA(1) 620 690
Less: MET and royalties (91) (98)
Less: depreciation, depletion and amortisation (119) (128)
Operating profit 410 464
Net finance costs (121) (109)
------------------------------------------------------------- ---------- ----------
Profit before tax 289 355
Income tax expense (62) (79)
------------------------------------------------------------- ---------- ----------
Profit for the period 227 276
Non-controlling interests - -
Profit attributable to equity holders of the Company 227 276
------------------------------------------------------------- ---------- ----------
Earnings per share attributable to equity shareholders of
the Company
Ordinary EPS and EPS based on Underlying Profit(1) - basic
($) 0.48 0.62
Ordinary EPS and EPS based on Underlying Profit(1) - diluted
($) 0.47 0.62
------------------------------------------------------------- ---------- ----------
1 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 49.
Revenues
Revenues for the six months ended 30 June 2019 were $1,052
million, a decrease of $46 million from the prior year comparative
period, as higher copper volumes from Aktogay and gold volumes from
Bozshakol were offset by the impact of lower copper (-11%), gold
(-1%), silver (-9%) and zinc (-16%) prices and lower zinc volumes
(9.5 kt) from the East Region operations.
Copper revenues decreased from $902 million in the first half of
2018 to $849 million in the current period due to the impact of
lower LME prices partly offset by higher copper volumes. The total
copper sold in the first six months of 2019 was 144.4 kt versus
140.8 kt in the prior year comparative period, mainly due to higher
throughput at the Aktogay sulphide plant which operated at near
design capacity during the current half year, whilst achieving 77%
of design capacity in the equivalent period in 2018 when the plant
was ramping up.
The LME copper price averaged $6,165/t during the first half of
2019, below the $6,917/t recorded in the prior year comparative
period. The average realised price of copper fell to $5,881/t from
$6,410/t in the first half of 2018, as the reduction in the LME
average price was partly offset by the sale of a lower proportion
of copper concentrate, which has a lower realised price due to the
deduction of treatment and refining charges. Copper concentrate
contributed 55% of total copper sales volumes compared to 65% in
the prior year comparative period.
Revenues from by-products were $203 million compared to $196
million in the prior year comparative period as the benefit of
higher gold sales from Bozshakol was partially offset by lower zinc
volumes from the East Region and an adverse movement in zinc
prices. Gold revenues of $143 million were above the $105 million
recorded in the first half of 2018, as gold bar inventory at
Bozshakol built-up from prior year production was sold. By-products
comprised 19% of revenues in the first half of 2019 versus 18% in
the prior year comparative period.
Further information on 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
Operating profit for the first half of 2019 was $410 million
versus $464 million in the prior year comparative period, mainly
driven by the decrease in revenues. The Group's operating profit
margin, measured as operating profit divided by revenues, reduced
slightly to 39% in the current half year period from 42% in the
first six months of 2018, as the impact of lower commodity prices
offset the positive effect of a weaker tenge on local operating
costs. The tenge traded at an average of 379 KZT/$ in the first
half of 2019, whilst recording an average of 327 KZT/$ in the prior
year comparative period.
EBITDA for the Group declined by 10% to $620 million due to the
decrease in revenues which was mainly price driven and from higher
cash costs associated with additional volumes, partly offset by the
favourable impact on costs of the weaker tenge versus the prior
year comparative period. The Group's gross cash costs decreased
marginally from 145 USc/lb to 144 USc/lb while the EBITDA margin
decreased from 63% in the first half of 2018 to 59% in the current
half year period mainly from lower prices.
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 was $91
million in the first half of 2019, below the $98 million recorded
in the prior year comparative period, due to lower commodity prices
and reduced copper grades at Bozshakol and the East Region, partly
offset by higher extraction at Aktogay sulphide to support the
expansion project and stockpiling at Bozshakol clay.
The total MET and royalties incurred was $101 million compared
to $106 million in the prior year comparative period. The
difference between the MET and royalties charge in the income
statement and the total incurred reflects MET included in unsold
inventories on the balance sheet.
Depreciation, depletion and amortisation
Depreciation, depletion and amortisation in the first half of
2019 of $119 million was lower than the $128 million incurred in
the prior year comparative period, reflecting the impact of the
weaker tenge on tenge denominated property, plant and
equipment.
Net finance costs
Net finance costs include:
Six months Six months
ended ended
30 June 30 June
$ million 2019 2018
------------------------------------------------------------------- ---------- ----------
Interest income 11 14
------------------------------------------------------------------- ---------- ----------
Total interest incurred (117) (119)
Interest capitalised 12 -
------------------------------------------------------------------- ---------- ----------
Interest expense (105) (119)
Interest on employee obligations and unwinding of discounts (3) (3)
Fair value losses on debt related derivative financial instruments - (1)
Net interest expense (108) (123)
------------------------------------------------------------------- ---------- ----------
Net foreign exchange loss (24) -
------------------------------------------------------------------- ---------- ----------
Net finance costs (121) (109)
------------------------------------------------------------------- ---------- ----------
Net finance costs were $121 million in the first half of 2019
versus $109 million in the prior year comparative period. Total
interest incurred on borrowings of $117 million was $2 million
lower than the $119 million incurred in the first half of 2018, as
the impact of higher US dollar LIBOR rates was offset by the
repayment of debt facilities. Capitalised interest of $12 million
in the current period is due to financing costs incurred on the
Group's general borrowings used to fund the Aktogay expansion
project (see note 6 on page 40).
The net exchange loss of $24 million arose from the impact of
the appreciation of the tenge in the first half of 2019 compared to
31 December 2018 on tenge denominated intercompany balances. The
net loss was non-cash and largely offset by translation gains
recognised within equity.
Taxation
The table below shows the Group's effective tax rate as well as
the all-in effective tax rate which takes into account the impact
of MET and removes the effect of special items (as applicable) on
the Group's tax charge.
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
------------------------------------ ---------- ----------
Profit before tax 289 355
Add: MET and royalties 91 98
Adjusted profit before tax 380 453
------------------------------------ ---------- ----------
Income tax expense 62 79
Add: MET and royalties 91 98
Adjusted tax expense 153 177
------------------------------------ ---------- ----------
Effective tax rate (%) 21 22
------------------------------------ ---------- ----------
All-in effective tax rate (%)(1) 40 39
------------------------------------ ---------- ----------
1 The all-in effective tax rate is calculated as the income tax
expense plus MET and royalties less the tax effect of special items
and other non-recurring items, divided by profit before taxation
which is adjusted for MET and royalties and special items. The
all-in effective tax rate is considered to be a more representative
tax rate on the recurring profits of the Group.
Effective tax rate
The effective tax rate in the first half of 2019 was 21%, a
slight decrease from the 22% recorded in the equivalent period in
2018 and consistent with the effective tax rate for the year ended
31 December 2018 of 21%.
All-in effective tax rate
The all-in effective tax rate increased marginally to 40% from
39% in the prior year comparative period mainly due to the
reduction in operating profit, partly offset by a lower MET and
royalties charge. As MET is determined independently of the
profitability of operations, in periods of lower profitability the
all-in effective tax rate increases as the impact of MET and
royalties is elevated. Conversely, during periods of higher
profitability, the MET and royalties impact on the all-in effective
tax rate decreases.
Net profit attributable to the equity holders of the Company and
Underlying Profit
A reconciliation of Underlying Profit and profit attributable to
equity holders of the Company to EPS and EPS based on Underlying
Profit is set out below:
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
--------------------------------------------------------------- ---------- ----------
Underlying Profit(1) and net profit attributable to equity
holders of the Company 227 276
--------------------------------------------------------------- ---------- ----------
Weighted average number of shares in issue (million) - basic 468 447
Potential dilutive ordinary shares, weighted for the period
outstanding (million) 19 -
Weighted average number of shares in issue (million) - diluted 487 447
--------------------------------------------------------------- ---------- ----------
Ordinary EPS and EPS based on Underlying Profit(1) - basic
($) 0.48 0.62
Ordinary EPS and EPS based on Underlying Profit(1) - diluted
($) 0.47 0.62
--------------------------------------------------------------- ---------- ----------
1 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 49.
The Group's net profit attributable to equity holders of the
Company was $227 million in the first half of 2019 compared to $276
million in the first six months of 2018, mainly due to the decrease
in operating profit in the current period.
EPS and EPS based on Underlying Profit
Basic EPS (both Ordinary EPS and EPS based on Underlying Profit)
of $0.48 decreased from $0.62 for the first half of 2018 mainly due
to the reduction in earnings, as well as the increase in the
weighted average number of ordinary shares in issue following the
acquisition of the Baimskaya copper project in January 2019, which
was partly settled through new ordinary shares. Diluted EPS of
$0.47 takes into account the ordinary shares expected to be issued
to settle the Deferred Consideration arising on the acquisition of
the Baimskaya copper project (see note 8 on page 41).
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 respect of the first half of 2019 the Board has declared an
interim dividend of 4.0 US cents per share (H1 2018: 6 US cents per
share).
The final dividend of $28 million in respect of the year ended
31 December 2018 was paid on 17 May 2019.
The distributable reserves of KAZ Minerals PLC at 30 June 2019
were $1.3 billion.
Cash flows
The summary of cash flows below is prepared on a basis
consistent with internal management reporting.
Six months Six months
ended ended
30 June 30 June
$ million 2019 2018
-------------------------------------------------------------- ---------- ----------
EBITDA(1) 620 690
Change in inventories (87) (65)
Change in prepayments and other current assets (22) (9)
Change in trade and other receivables - (12)
Change in trade and other payables and provisions (22) 29
Interest paid (117) (112)
MET and royalties paid (97) (111)
Income tax paid (29) (60)
Foreign exchange and other movements 2 (3)
Net cash flows from operating activities before capital
expenditure and VAT associated with major growth projects(2) 248 347
Sustaining capital expenditure (66) (39)
-------------------------------------------------------------- ---------- ----------
Free Cash Flow(1) 182 308
Expansionary and new project capital expenditure (332) (325)
Acquisition of Baimskaya copper project, net of cash acquired (435) -
Net VAT (paid)/received associated with major growth projects (12) 3
Proceeds from disposal of property, plant and equipment 1 -
Interest received 12 14
Dividends paid (28) -
Other investments 45 -
Other movements (1) (1)
-------------------------------------------------------------- ---------- ----------
Cash flow movement in net debt (568) (1)
-------------------------------------------------------------- ---------- ----------
1 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 49.
2 The difference between 'net cash flow from operating
activities before capital expenditure and VAT associated with major
growth projects' and 'net cash from operating activities' as
reflected on the Group cash flow statement, is the net VAT
(paid)/received on the construction of the major growth
projects.
Summary
Net cash flows from operating activities before capital
expenditure and VAT associated with major growth projects declined
to $248 million due to lower EBITDA, a decrease in trade and other
payables due to reduced customer advances, higher VAT receivable
associated with operations and higher inventory requirements for
consumables and spare parts, partly offset by lower income tax and
MET payments.
Working capital
-- Inventory levels rose by $87 million primarily related to the
acquisition of consumables and spare parts to support the Aktogay
and Bozshakol operations, partly offset by a decrease in finished
goods inventory at Bozshakol and East Region and Bozymchak due to
the timing of sales. 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. The $103 million
increase in inventory shown in the IFRS based cash flow statement
(see note 14(a)) includes MET and depreciation, which are excluded
from the cash flow above as MET paid is reflected separately and
EBITDA is stated before depreciation and amortisation;
-- Prepayments and other current assets rose by $22 million
primarily due to an increase in VAT receivable at the Aktogay and
Bozshakol operations. During the six months ended 30 June 2019, $47
million of VAT was refunded to the East Region, Bozshakol and
Aktogay operations. The $34 million increase in prepayments and
other current assets shown in the IFRS based cash flow statement
(see note 14(a)) includes net VAT paid on the major growth projects
during the first half of 2019;
-- Trade and other receivables were unchanged compared to 31
December 2018 as an increase in copper volumes was offset by
reduced zinc volumes and lower commodity prices; and
-- Trade and other payables and provisions decreased by $22
million due to a decrease of customer receipts in advance of
product deliveries compared to 31 December 2018. The difference to
trade and other payables shown in the IFRS based cash flow
statement (see note 14(a)) reflects the change in MET and royalties
payable over the first half of 2019, if any. The cash flow above
contains MET and royalties payments as a separate line item.
In the first half of 2018, inventory levels rose by $65 million
due to higher consumables needed to support the ramp up of Aktogay
and Bozshakol and from an increase in finished goods due to the
timing of sales. Trade and other receivables increased by $12
million following higher sales volumes at Aktogay, while
prepayments and other current assets increased by $9 million due to
a higher operating VAT receivable at Aktogay and increases in
advances paid for raw materials and smelting services. Trade and
other payables rose by $29 million due to increased credit
purchases of raw materials to support the ramp up to design
capacity at the new operations and higher advance payments received
for inventory delivered to customers.
Interest cash flows
Interest paid during the first half of 2019 was $117 million
compared with $112 million paid in the first half of 2018. Interest
paid is consistent with the borrowing costs incurred during the
current half year period of $117 million. Interest payments are
made semi-annually under the CDB Bozshakol/Bozymchak facility, the
CDB Aktogay USD facility and the DBK Aktogay facility, quarterly
under the CDB Aktogay RMB facility and monthly under the PXF
facility.
Income taxes and MET
Income tax payments of $29 million (H1 2018: $60 million)
include $11 million (H1 2018: $33 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 $62 million (H1 2018: $79 million)
due to capital allowances and utilisation of available tax losses
at Aktogay and Bozshakol and below the prior year comparative
period due to lower profitability. At 30 June 2019, the Group's net
income tax payable was $13 million, compared to $7 million net
income tax receivable at 31 December 2018.
MET and royalties payments decreased to $97 million (H1 2018:
$111 million) as a result of the lower charge in the first half of
2019. At 30 June 2019, MET and royalties payable was $52 million
compared to $48 million at 31 December 2018.
Free Cash Flow
The Group's Free Cash Flow before interest payments on
borrowings was $299 million compared to $420 million in the first
half of 2018, in line with the lower profitability. After interest
payments, Free Cash Flow was $182 million compared to $308 million
in the prior year comparative period.
Capital expenditure
Sustaining capital expenditure increased to $66 million in the
first half of 2019 from $39 million in the prior year comparative
period, primarily due to higher maintenance spend at Bozshakol and
Aktogay.
Expansionary and new project expenditure of $332 million in the
first half of 2019 includes $22 million paid by Aktogay and $37
million paid by Bozshakol to contractors, mainly for final
retention payments to settle construction liabilities; $233 million
invested at Aktogay mainly on the expansion project; $23 million
spent on the Baimskaya copper project; and $15 million incurred in
the East Region and Bozymchak, mainly on the Artemyevsky mine
extension. This compares to $325 million of expansionary capital
expenditure recorded in the first half of 2018, which included $250
million paid in January 2018 in respect of the $300 million Aktogay
NFC deferral (see note 13(c)); $62 million invested in Aktogay,
mainly on the expansion project; and $9 million incurred on the
Artemyevsky mine extension in the East Region. Please refer to the
Operating review for an analysis of the Group's capital expenditure
by operating segment.
Acquisition of the 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
$675 million made up of $436 million in cash and 22.3 million new
KAZ Minerals shares valued at $239 million, which were allotted to
the Vendor. The Initial Cash Consideration of $436 million was
settled during the first half of 2019, partly offset by $1 million
of cash and cash equivalents on acquisition (see Investments
below).
Net VAT (paid)/received associated with major growth
projects
The net VAT paid of $12 million relates mainly to expenditure on
the Aktogay expansion project. The VAT received of $3 million in
the first half of 2018 relates to VAT previously incurred during
the construction of Aktogay and Bozshakol.
Other investments
In the first half of 2019, other investing cash flows relates to
the receipt of the remaining $45 million consideration in respect
of NFC's equity investment in Koksay for $70 million, as announced
in June 2018 (see Investments below).
Balance sheet
Equity attributable to owners of the Company at 30 June 2019 was
$1,775 million (31 December 2018: $1,050 million), an increase of
$725 million primarily due to profit for the period of $227 million
and the shares issued and Deferred Consideration arising from the
acquisition of the Baimskaya copper project of $464 million (see
Investments below). There was also a $61 million increase in the US
dollar value of the Group's foreign currency operations following a
1% increase in the value of the tenge between 31 December 2018 and
30 June 2019. The Group's mining assets are largely held within
Kazakhstan-based entities which maintain the tenge as their
functional currency. At period ends, non-monetary net assets are
consolidated and reported in US dollars at the closing exchange
rate with the change in value arising from movements in the tenge
exchange rate reflected in equity and not through the income
statement. The Group's external liabilities, principally bank debt,
are mainly US dollar denominated and not affected by movements in
the KZT/$ exchange rate.
Net debt
A summary of the Group's net debt position is shown below:
At At
30 June 31 December
$ million 2019 2018
-------------------------------------------------- -------- ------------
Cash and cash equivalents and current investments 739 1,469
Less restricted cash(1) - (2)
Borrowings (3,299) (3,453)
Net debt(2) (2,560) (1,986)
-------------------------------------------------- -------- ------------
1 Cash at bank at 31 December 2018 of $2 million was restricted
by legal or contractual arrangements. These amounts are excluded
from the Group's measure of net debt.
2 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 49.
Cash and cash equivalents and current investments at 30 June
2019 totalled $739 million compared to $1,469 million at 31
December 2018 mainly due to the payment of $436 million of cash
consideration for the acquisition of the Baimskaya copper project,
expansionary and new project expenditure of $332 million, including
amounts invested in the Aktogay expansion project, and repayment of
the Group's debt of $272 million. This was partly offset by Free
Cash Flow of $182 million and drawings made under the new DBK
Aktogay expansion facility for $115 million, net of fees, during
the first half of 2019.
On 14 June 2019, the Group signed a new $600 million credit
facility agreement with DBK relating to the Aktogay expansion
project. The facility accrues interest at US$ LIBOR plus 3.90% with
the first repayment due three years after the date of first
drawing, followed by semi-annual repayments in May and November of
each year from November 2022 until the final repayment in 2034.
$120 million of the new DBK Aktogay expansion facility was drawn by
30 June 2019. The facility is guaranteed by KAZ Minerals PLC.
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 30
June 2019, $588 million of cash and cash equivalents and current
investments were held in the UK and Europe and $151 million in
Kazakhstan and Kyrgyzstan.
At 30 June 2019, borrowings (net of unamortised fees) were
$3,299 million, a decrease of $154 million from 31 December 2018
mainly reflecting principal repayments on existing facilities of
$272 million, comprised of $21 million on the pre-existing $300
million DBK Aktogay facility, $91 million paid under the CDB
Bozshakol/Bozymchak finance facility, $6 million paid under the CDB
Aktogay RMB facility, $54 million paid under the CDB Aktogay USD
facility and $100 million paid in respect of the PXF, offset by the
first drawdown of $115 million under the new DBK Aktogay expansion
facility net of arrangement fees paid. The borrowings (net of
unamortised fees) consisted of $1,255 million under the CDB
Bozshakol/Bozymchak facilities, $1,273 million under the CDB
Aktogay finance facilities, $400 million under the PXF, $256
million under the first DBK Aktogay facility and $115 million under
the new DBK Aktogay expansion facility.
Further details of the terms of the Group's borrowings are
included in note 12 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
$675 million made up of $436 million in cash and 22.3 million new
KAZ Minerals shares valued at $239 million, which were allotted to
the Vendor. 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 Initial Consideration of 22.3 million KAZ Minerals PLC
shares valued at $239 million has been recognised as an increase in
share capital of around $6 million and share premium of $233
million. The Deferred Consideration of $225 million has also been
included within equity (see note 11(c) on page 43), representing
the Group's ability to settle this amount through the issue of 21.0
million shares.
The total consideration for the acquisition was $900 million, of
which around $880 million has been reflected as a mining licence
within mining assets, $13 million in deferred tax assets and $7
million relating to other non-current assets, income taxes prepaid
and cash and cash equivalents (see note 5 on page 39).
In July 2019, the Group transferred a 19.4% equity stake in KAZ
Minerals Koksay B.V., the parent company of the entity which holds
the Koksay mining licence in Kazakhstan, to NFC following
completion of the transaction. The $70 million cash consideration,
which had been received from NFC at 30 June 2019, was reflected as
a current liability at the balance sheet date pending completion of
the transaction. Following completion, NFC's interest in KAZ
Minerals Koksay B.V. will be reflected as a non-controlling
interest of around $58 million, being its share of Koksay's net
assets, with the remaining amount recognised directly within equity
and attributed to the Group's shareholders. The $70 million
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 review the results of the
feasibility study to assess how and when to proceed with the
project.
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 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. In the event of a more severe downside of
sustained lower than expected commodity prices coupled with lower
than expected production, a relatively modest amount of additional
liquidity may be required towards the end of the going concern
period. The Board believes that such additional liquidity could be
achieved through either the deferral of uncommitted capital
investment or from new sources of finance and/or a refinance of
existing debt facilities. Separately, the Group will be seeking to
raise longer term financing in respect of the construction phase of
the Baimskaya project. Accordingly, the Board is satisfied that it
is appropriate to adopt the going concern basis of accounting in
the preparation of these consolidated financial statements.
PRINCIPAL RISKS
Managing our risks
The significant risks identified by KAZ Minerals are those that
could materially affect the Group's financial condition,
performance, strategy and prospects. These risks, together with
their potential impact and the mitigating actions being taken by
management, are set out in the 2018 Annual Report and Accounts,
which is available at www.kazminerals.com.
In the view of the Board, the principal risks contained in the
2018 Annual Report and Accounts continue to reflect the significant
risks and uncertainties for the Group for the remaining six months
of 2019. Taking into account the circumstances of the Group, the
Board does not expect Brexit to have a significant impact on the
Group.
There may be other risks unknown, or currently believed
immaterial by the Group, which might become material. The risks set
out below are not in order of likelihood of occurrence or
materiality and should be viewed, as with any forward-looking
statements in this document, with regard to the cautionary
notice.
SUSTAINABILITY RISKS
Health and safety
Mining is a hazardous industry. Health and safety incidents
could result in harm to people, as well as production disruption,
financial loss and reputational damage.
The Group is in a period of more intense construction activity
in respect of the Aktogay expansion and Artemyevsky extension as
well as the development of Baimskaya, increasing potential health
and safety exposures.
Community and labour relations
The Group operates in areas where it is a major employer, where
employees are represented by labour unions and where it may provide
support to the local community. This may impose restrictions on the
Group's flexibility in taking certain operating decisions. Failure
to identify and manage the concerns and expectations of local
communities and the labour force could affect the Group's
reputation and social licence to operate and 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.
Employees
The Group is dependent on its ability to attract and retain
highly skilled personnel. Failure to do so could have a negative
impact on operations or the successful implementation of growth
projects and result in higher operating costs to recruit required
staff. The remote location of some operations increases this
challenge.
Environmental
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.
OPERATIONAL RISKS
Business interruption
Operations are subject to a number of risks not wholly within
the Group's control, including: geological and technological
challenges; weather and other natural phenomena; damage to or
failure of equipment and infrastructure; 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.
New projects and commissioning
Projects may fail to achieve the desired economic returns due to
an inability to recover mineral resources, design or construction
deficiencies, a failure to achieve expected operating parameters or
because of capital or operating costs being higher than expected.
Failure to effectively manage new projects or a lack of available
financing may prevent or delay completion of projects.
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.
Reserves and resources
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.
Political
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. In March
2019 the long-standing president of Kazakhstan resigned, and a new
president was elected in June 2019.
Following the acquisition of Baimskaya, the Group is 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.
Legal and regulatory compliance
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. A number of the Group's operating subsidiaries in
Kazakhstan are currently undergoing or expected to undergo routine
tax audits which could give rise to additional tax assessments.
Substantial payments of tax could arise for the Group, or tax
receivable balances may not be recovered as expected.
FINANCIAL RISKS
Commodity price
The Group's results are heavily dependent on the commodity price
for copper and to a lesser extent, the prices of gold, silver and
zinc. Commodity prices can fluctuate significantly and are
dependent on several factors, including world supply and demand and
investor sentiment.
The imposition of trade tariffs between the US and China 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 during the first half of 2019 and
their near-term outlook.
Foreign exchange and inflation
Fluctuations in rates of exchange or inflation in the
jurisdictions to which the Group is exposed could result in future
increased costs. 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.
Exposure to China
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 $2.5 billion at 30 June 2019. In
addition, the Group uses contractors, services and materials from
China.
The imposition of trade tariffs between the US and China 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.
Acquisitions and divestments
The Group may acquire or dispose of assets and businesses which
fail to achieve the expected benefit or value to the Group.
Changing market conditions, incorrect assumptions or deficiencies
in due diligence could result in the wrong decisions being made and
in acquisitions or disposals failing to deliver expected
benefits.
The $900 million acquisition of the Baimskaya copper project
represents a material acquisition for the Group. In July 2019 the
Group completed the partial disposal of Koksay to NFC.
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.
Liquidity
The Group is exposed to liquidity risk if it is unable to meet
payment obligations as they fall due or is unable to access
acceptable sources of finance. Non-compliance with financial
covenants could result in borrowing facilities becoming uncommitted
and repayable. During the first half of 2019 the Group successfully
completed a new $600 million loan facility with DBK for the
expansion of Aktogay.
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.
DIRECTORS' RESPONSIBILITY STATEMENT
Each Director confirms to the best of his or her knowledge that
this condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by
the EU and that the half-yearly report includes a fair review of
the information required by:
-- DTR 4.2.7R being an indication of important events that have
occurred during the first six months of the financial year, and
their impact on this condensed set of financial statements, and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
-- DTR 4.2.8R being material related party transactions that
have taken place in the first six months of the current financial
year and any material changes in the related party transactions
described in the KAZ Minerals 2018 Annual Report and Accounts.
The Directors of KAZ Minerals PLC are listed on the Company's
website at www.kazminerals.com.
ANDREW SOUTHAM
CHIEF EXECUTIVE OFFICER
14 August 2019
INDEPENT REVIEW REPORT TO KAZ MINERALS PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2019 which comprises the consolidated
statement of total comprehensive income, consolidated balance
sheet, consolidated statement of cash flows, consolidated statement
of changes in equity and the related explanatory notes 1 to 18.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with IAS 34 'Interim Financial Reporting' as adopted by the EU and
the Disclosure Guidance and Transparency Rules (the 'DTR') of the
UK's Financial Conduct Authority ('the UK FCA').
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the UK. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The Directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Juliette Lowes
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square,
Canary Wharf,
London
E14 5GL
14 August 2019
CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME
(UNAUDITED)
Six months ended 30 June 2019
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) Notes 2019 2018
------------------------------------------------------------- ----- ---------- ----------
Revenues 4(b) 1,052 1,098
Cost of sales (533) (533)
Gross profit 519 565
Selling and distribution expenses (41) (45)
Administrative expenses (69) (58)
Net other operating income 1 2
Operating profit 410 464
Finance income 11 14
Finance costs 6 (108) (123)
Net foreign exchange loss (24) -
Profit before tax 289 355
Income tax expense 7 (62) (79)
------------------------------------------------------------- ----- ---------- ----------
Profit for the period 227 276
------------------------------------------------------------- ----- ---------- ----------
Attributable to:
Equity holders of the Company 227 276
Non-controlling interests - -
227 276
------------------------------------------------------------- ----- ---------- ----------
Other comprehensive income/(expense) for the period
after tax:
Items that may be reclassified subsequently to the
income statement:
Exchange differences on retranslation of foreign operations 61 (77)
Items that will never be reclassified to the income
statement:
Actuarial losses on employee benefits, net of tax (1) -
Other comprehensive income/(expense) for the period 60 (77)
------------------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the period 287 199
------------------------------------------------------------- ----- ---------- ----------
Attributable to:
Equity holders of the Company 287 200
Non-controlling interests - (1)
287 199
------------------------------------------------------------- ----- ---------- ----------
Earnings per share attributable to equity shareholders
of the Company
Ordinary EPS and EPS based on Underlying Profit - basic
($) 8 0.48 0.62
Ordinary EPS and EPS based on Underlying Profit - diluted
($) 8 0.47 0.62
------------------------------------------------------------- ----- ---------- ----------
CONSOLIDATED BALANCE SHEET (UNAUDITED)
At 30 June 2019
At At At
30 June 31 December 30 June
$ million Notes 2019 2018 2018
---------------------------------------------- ----- -------- ------------ --------
Assets
Non-current assets
Intangible assets 6 6 7
Property, plant and equipment 2,380 2,130 2,394
Mining assets 5 1,382 432 446
Other non-current assets 10 355 301 216
Deferred tax asset 46 28 62
4,169 2,897 3,125
---------------------------------------------- ----- -------- ------------ --------
Current assets
Inventories 519 439 421
Prepayments and other current assets 128 90 89
Income taxes prepaid 11 18 17
Trade and other receivables 128 127 143
Current investments 14(c) - 250 -
Cash and cash equivalents 14(b) 739 1,219 1,653
1,525 2,143 2,323
---------------------------------------------- ----- -------- ------------ --------
Total assets 5,694 5,040 5,448
---------------------------------------------- ----- -------- ------------ --------
Equity and liabilities
Equity
Share capital 11(a) 177 171 171
Share premium 5 2,883 2,650 2,650
Capital reserves 11(c) (2,171) (2,457) (2,105)
Retained earnings 886 686 480
Attributable to equity holders of the Company 1,775 1,050 1,196
Non-controlling interests 1 4 2
---------------------------------------------- -------- ------------ --------
Total equity 1,776 1,054 1,198
---------------------------------------------- ----- -------- ------------ --------
Non-current liabilities
Borrowings 12 2,759 2,914 3,187
Deferred tax liability 94 76 92
Employee benefits 14 12 13
Provision for closure and site restoration 73 58 64
Other non-current liabilities 13 7 7 7
2,947 3,067 3,363
---------------------------------------------- ----- -------- ------------ --------
Current liabilities
Trade and other payables 332 320 304
Borrowings 12 540 539 518
Income taxes payable 24 11 12
Employee benefits 2 2 2
Provision for closure and site restoration 1 1 -
Other current liabilities 13 72 46 51
971 919 887
---------------------------------------------- ----- -------- ------------ --------
Total liabilities 3,918 3,986 4,250
---------------------------------------------- ----- -------- ------------ --------
Total equity and liabilities 5,694 5,040 5,448
---------------------------------------------- ----- -------- ------------ --------
These condensed consolidated financial statements were approved
by the Board of Directors on 14 August 2019.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six months ended 30 June 2019
Six months Six months
ended ended
30 June 30 June
$ million Notes 2019 2018
------------------------------------------------------------- ----- ---------- ----------
Operating activities
Cash receipts from customers 1,025 1,099
Net proceeds from historical VAT related to construction - 3
Cash payments to employees, suppliers and taxes other
than income tax (643) (580)
Cash flows from operations before interest and income
taxes paid 14(a) 382 522
Interest paid (117) (112)
Income taxes paid (29) (60)
Net cash flows from operating activities 236 350
------------------------------------------------------------- ----- ---------- ----------
Investing activities
Interest received 12 14
Advance consideration for investment in Koksay 5 45 -
Proceeds from disposal of property, plant and equipment
and mining assets 1 -
Purchase of intangible assets (1) (1)
Acquisition of Baimskaya copper project, net of cash
acquired 5 (435) -
Purchase of property, plant and equipment (352) (340)
Investments in mining assets (45) (23)
Licence payments for subsoil contracts (1) (1)
Net redemption of current investments 14(c) 250 -
Net cash flows used in investing activities (526) (351)
------------------------------------------------------------- ----- ---------- ----------
Financing activities
Proceeds from borrowings 14(c) 115 -
Repayment of borrowings 14(c) (272) (173)
Dividends paid by the Company 9(a) (28) -
Net cash flows used in financing activities (185) (173)
------------------------------------------------------------- ----- ---------- ----------
Net decrease in cash and cash equivalents 14(c) (475) (174)
Cash and cash equivalents at the beginning of the period 1,219 1,821
Effect of exchange rate changes on cash and cash equivalents 14(c) (5) 6
------------------------------------------------------------- ----- ---------- ----------
Cash and cash equivalents at the end of the period 14(b) 739 1,653
------------------------------------------------------------- ----- ---------- ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Six months ended 30 June 2019
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 2019 171 2,650 (2,457) 686 1,050 4 1,054
Profit for the period - - - 227 227 - 227
Exchange differences on
retranslation of foreign
operations - - 61 - 61 - 61
Actuarial losses on employee
benefits, net of tax - - - (1) (1) - (1)
Total comprehensive income
for the period - - 61 226 287 - 287
Dividends declared 9 - - - (28) (28) (3) (31)
Shares issued and Deferred
Consideration arising from
acquisition of the Baimskaya
copper project 5 6 233 225 - 464 - 464
Share-based payments, net
of taxes - - - 2 2 - 2
--------------------------------- ----- -------- -------- ------------ --------- ----- --------------- -------
At 30 June 2019 177 2,883 (2,171) 886 1,775 1 1,776
--------------------------------- ----- -------- -------- ------------ --------- ----- --------------- -------
At 1 January 2018 171 2,650 (2,029) 203 995 3 998
Profit for the period - - - 276 276 - 276
Exchange differences on
retranslation of foreign
operations - - (76) - (76) (1) (77)
Total comprehensive
income/(expense)
for the period - - (76) 276 200 (1) 199
Share-based payments, net
of taxes - - - 1 1 - 1
--------------------------------- ----- -------- -------- ------------ --------- ----- --------------- -------
At 30 June 2018 171 2,650 (2,105) 480 1,196 2 1,198
--------------------------------- ----- -------- -------- ------------ --------- ----- --------------- -------
1 See note 11(c) for an analysis of 'Capital reserves'.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Six months ended 30 June 2019
1. Corporate information
KAZ Minerals PLC (the 'Company') is a public limited company
incorporated in England and Wales. The Company's registered office
is 6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL,
United Kingdom. The Group comprises the Company and its
consolidated divisions as set out below.
The Group operates in the natural resources industry through
five divisions, the principal activities of which during the first
half of 2019 were:
Primary countries
Operating division Principal activity of operations
------------------ ---------------------------------------- ---------------------
Mining and processing of copper and
Aktogay other metals Kazakhstan
Mining and processing of copper and
Bozshakol other metals Kazakhstan
Mining and processing of copper and
East Region(1) other metals Kazakhstan
Mining and processing of copper and
Bozymchak(1) other metals Kyrgyzstan
Mining Projects Development of greenfield metal deposits Kazakhstan and Russia
------------------ ---------------------------------------- ---------------------
1 The East Region and Bozymchak are separate divisions but have
been combined for segmental reporting purposes.
These condensed consolidated financial statements for the six
months ended 30 June 2019 were authorised for issue in accordance
with a resolution of the Board on 14 August 2019. The condensed
consolidated financial statements are unaudited and do not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The information for the year ended 31 December
2018 included in this report was derived from the statutory
accounts for that year, which were prepared in accordance with
International Financial Reporting Standards ('IFRSs') issued by the
International Accounting Standards Board ('IASB') and
interpretations issued by the International Financial Reporting
Interpretations Committee ('IFRIC') of the IASB, as adopted by the
EU up to 31 December 2018, a copy of which has been delivered to
the Registrar of Companies. The auditor's opinion in relation to
those accounts was unqualified, did not draw attention to any
matters by way of emphasis and also did not contain a statement
under Section 498(2) or 498(3) of the Companies Act 2006.
2. Basis of preparation
(a) Condensed consolidated financial statements
The unaudited condensed consolidated financial statements for
the six month period ended 30 June 2019 have been prepared in
accordance with IAS 34 'Interim Financial Reporting' and the
requirements of the DTR in the United Kingdom as applicable to
interim financial reporting. These condensed consolidated financial
statements represent a 'condensed set of financial statements' as
referred to in the DTR. Accordingly, they do not include all the
information and disclosures required for full annual financial
statements, and should be read in conjunction with the Annual
Report and Accounts for the year ended 31 December 2018.
(b) Significant accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, 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 condensed consolidated 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.
In preparing these condensed consolidated financial statements,
significant judgements made by the Directors in applying the
Group's accounting policies and the key sources of estimation
uncertainty used were consistent, in all material respects, with
those applied to the Group's consolidated financial statements for
the year ended 31 December 2018.
Impairment of assets
Significant accounting judgements
Consistent with the approach taken for the year ended 31
December 2018, the Directors reviewed the carrying value of the
Group's assets to determine whether there were any indicators of
impairment such that the carrying values of the assets may not be
recoverable. The assessment of whether an indicator of impairment
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 ('CGU') 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 CGUs at 30 June 2019 did not identify any
indicators of impairment or reversal thereof.
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. As a
sensitivity at Bozymchak, a 5% reduction in the forecast copper
prices could result in the carrying value exceeding its recoverable
amount by around $6 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 is not
expected to result in any material impairment.
Acquisition of the Baimskaya copper project
Significant accounting judgements
In assessing the accounting for the acquisition of Baimskaya,
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
was judged to be an asset and not a business as defined under IFRS
3, with the majority of the value paid being shown as a mining
licence within mining assets.
(c) 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.
In June 2019 the Group completed a new $600 million financing
facility for the Aktogay expansion, of which $120 million was
drawn. At 30 June 2019, the Group's net debt was $2,560 million
with gross debt of $3,299 million and gross liquid funds of $739
million. The gross debt facilities, net of unamortised debt costs,
consist of:
-- $1,255 million of the CDB-Bozshakol and Bozymchak facilities,
which amortise over the period to 2025;
-- $1,273 million of the CDB-Aktogay US dollar and RMB
facilities, which amortise over the period to 2029;
-- $400 million of the PXF facility which amortises over the period to June 2021;
-- $256 million of the DBK Aktogay facility, which amortises over the period to June 2025; and
-- $115 million of the DBK Aktogay expansion facility, which
amortises over the period from 2022 to 2034. The remaining $480
million of the committed facility is expected to be drawn prior to
September 2020.
The Board has considered the Group's cash flow forecasts for the
period to 30 September 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 of around $750 million due
under the Group's debt facilities.
The Board is satisfied that the Group's forecasts, taking into
account reasonably possible downside scenarios, show that the Group
has adequate liquidity to continue in operational existence for the
foreseeable future.
In the event of a more severe downside of sustained lower than
expected commodity prices coupled with lower than expected
production, a relatively modest amount of additional liquidity may
be required towards the end of the going concern period. The Board
believes that such additional liquidity could be achieved through
either the deferral of uncommitted capital investment or from new
sources of finance and/or a refinance of existing debt facilities.
Separately, the Group will be seeking to raise longer term
financing in respect of the construction phase of the Baimskaya
project.
Accordingly, the Board is satisfied that it is appropriate to
adopt the going concern basis of accounting in the preparation of
these consolidated financial statements.
3. Summary of significant accounting policies
(a) Basis of accounting
The condensed consolidated financial statements have been
prepared on a historical cost basis, except for metal-related trade
receivables and derivative financial instruments which have been
measured at fair value. The condensed consolidated financial
statements are presented in US dollars ('$') and all financial
information has been rounded to the nearest million dollars ('$
million'), except where otherwise indicated.
All accounting policies adopted in the preparation of the
condensed consolidated financial statements are consistent with
those followed in the preparation of the Group's annual
consolidated financial statements for the year ended 31 December
2018, except as described below.
None of the new standards or 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 condensed consolidated financial statements,
the Group has adopted all the applicable extant accounting
standards issued by the IASB and all the applicable extant
interpretations issued by the IFRIC and adopted by the EU up to 30
June 2019.
The following accounting standards, amendments and
interpretations, which had no significant impact on these condensed
consolidated financial statements, became effective in the current
reporting period as adopted by the EU through the European
Financial Reporting Advisory Group ('EFRAG'):
Leases
On 1 January 2019, the Group adopted IFRS 16 'Leases' 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. 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 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. In applying the transition
requirements and provisions of the new standard, the Group reviewed
its lease contracts, 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 standard does not apply
to leases to explore for or use natural resources, such as mining
licences and rights.
The Group has elected not to recognise right-of-use assets and
lease liabilities for leases which have low value, or short-term
leases with a duration of 12 months or less. The payments
associated with such leases are charged directly to the income
statement on a straight-line basis over the lease term.
In assessing the application of IFRS 16, the Group considered
the following practical expedients:
-- the previous determination of whether a contract is, or
contains, a lease pursuant to IAS 17 'Leases' and IFRIC 4
'Determining whether an Arrangement contains a Lease' has been
maintained for existing contracts;
-- right-of-use assets or lease liabilities for leases where the
lease term ends within 12 months of the date of initial application
have not been recognised;
-- initial direct costs from right-of-use assets have been excluded; and
-- hindsight was used when assessing the lease term.
Borrowing costs
On 1 January 2019, the Group adopted 'Borrowing costs eligible
for capitalisation (Amendments to IAS 23)' which requires that
project specific borrowings are included as general borrowings once
those assets are operating as intended and therefore the associated
interest will become available for capitalisation on other
'qualifying assets'. In 2019 this amendment brought the CDB
Bozshakol and Bozymchak, the CDB Aktogay, and the first DBK Aktogay
loan borrowed specifically for the construction of the respective
capital projects into general borrowings. The interest on these
loans is included in the capitalisation rate applied to
expenditures on qualifying capital projects such as the expansion
of Aktogay. In the six months to 30 June 2019, interest costs were
capitalised to the Aktogay expansion at an average interest rate of
7.1% (see note 6).
Income tax
IFRIC 23 'Uncertainty over Income Tax Treatments' clarified that
income tax and deferred tax assets and liabilities should be
measured reflecting the uncertainty of any positions adopted under
IAS 12 'Income Taxes', where acceptance of such position by the tax
authorities is considered as less than probable. The application of
this interpretation had no significant impact on the amounts
reported in the Group's condensed consolidated financial
statements.
(b) Exchange rates
The following foreign exchange rates against the US dollar have
been used in the preparation of the condensed consolidated
financial statements:
30 June 2019 31 December 30 June 2018
2018
--------------- --------------- ---------------
$ million Spot Average Spot Average Spot Average
------------------- ------ ------- ------ ------- ------ -------
Kazakhstan tenge 380.53 379.14 384.20 344.71 341.08 326.49
Kyrgyzstan som 69.49 69.79 69.85 68.84 68.18 68.50
UK pounds sterling 0.79 0.77 0.78 0.75 0.76 0.73
Russian rouble 63.08 65.23 n/a n/a n/a n/a
------------------- ------ ------- ------ ------- ------ -------
In the six months to 30 June 2019, the appreciation of the tenge
at the spot rate resulted in a non-cash foreign exchange gain of
$61 million (H1 2018: non-cash foreign exchange loss of $77
million) recognised directly within reserves, arising from the
translation on consolidation of the Group's Kazakhstan based
subsidiaries whose functional currency is the tenge.
4. Segment information
Information provided to the Group's Board of Directors for the
purposes of resource allocation and the assessment of segmental
performance is prepared in accordance with the management and
operational structure of the Group. 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:
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 with
some concentrate toll refined at the Balkhash smelter (a related
party) and the cathode output sold to third parties. The smaller
oxide plant was commissioned in the fourth quarter of 2015 and
produces copper cathode. 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.
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 and clay concentrators were commissioned in February
2016 and in the fourth quarter of 2016 respectively. Some
concentrate from both plants is also toll refined at the Balkhash
smelter (a related party) with the output of copper, gold and
silver sold to third parties. The clay plant 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.
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 the similarity of their economic
characteristics and 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 development of greenfield metal
deposits. The segment includes the Koksay deposit in Kazakhstan and
the Baimskaya licence area in the Chukotka region of Russia. Both
of these projects are at the feasibility study stage.
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 49 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
Six months ended 30 June 2019
----------------------------------------------------
East
Region Corporate
$ million Aktogay Bozshakol and Bozymchak Services Total
-------------------------------------------------- ------- --------- -------------- --------- -----
Revenues 429 372 251 - 1,052
-------------------------------------------------- ------- --------- -------------- --------- -----
EBITDA 282 240 108 (10) 620
Less: depreciation, depletion and amortisation(1) (52) (46) (20) (1) (119)
Less: MET and royalties(1,2) (39) (30) (22) - (91)
-------------------------------------------------- ------- --------- -------------- --------- -----
Operating profit/(loss) 191 164 66 (11) 410
Net finance costs and foreign exchange
loss (121)
Income tax expense (62)
-------------------------------------------------- ------- --------- -------------- --------- -----
Profit for the period 227
-------------------------------------------------- ------- --------- -------------- --------- -----
Six months ended 30 June 2018
----------------------------------------------------
East
Region Corporate
$ million Aktogay Bozshakol and Bozymchak Services Total
-------------------------------------------------- ------- --------- -------------- --------- -----
Revenues 389 388 321 - 1,098
-------------------------------------------------- ------- --------- -------------- --------- -----
EBITDA 271 277 155 (13) 690
Less: depreciation, depletion and amortisation(1) (60) (44) (23) (1) (128)
Less: MET and royalties(1,2) (34) (36) (28) - (98)
-------------------------------------------------- ------- --------- -------------- --------- -----
Operating profit/(loss) 177 197 104 (14) 464
Net finance costs and foreign exchange
loss (109)
Income tax expense (79)
-------------------------------------------------- ------- --------- -------------- --------- -----
Profit for the period 276
-------------------------------------------------- ------- --------- -------------- --------- -----
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 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.
(ii) Balance sheet information
At 30 June 2019
----------------------------------------------------------------------------
Mining Projects
------- --------- -------------- ----------------- ------------ -------
East
Region Corporate
$ million Aktogay Bozshakol and Bozymchak Baimskaya Koksay Services(4) Total
---------------------------------- ------- --------- -------------- --------- ------ ------------ -------
Assets
Non-current assets(1) 1,458 1,125 360 938 239 6,215 10,335
Current assets excluding cash
and cash equivalents and current
investments(2) 320 268 209 6 - 1,872 2,675
Cash and cash equivalents and
current investments 97 18 49 - 68 507 739
Segment assets 1,875 1,411 618 944 307 8,594 13,749
Taxes receivable 57
Elimination (8,112)
---------------------------------- ------- --------- -------------- --------- ------ ------------ -------
Total assets 5,694
---------------------------------- ------- --------- -------------- --------- ------ ------------ -------
Liabilities
Non-current liabilities 13 10 68 - 3 - 94
Inter-segment borrowings 833 867 123 41 - - 1,864
Current liabilities(3) 127 59 91 5 71 90 443
Segment liabilities 973 936 282 46 74 90 2,401
Borrowings 3,299
Taxes payable 118
Elimination (1,900)
---------------------------------- ------- --------- -------------- --------- ------ ------------ -------
Total liabilities 3,918
---------------------------------- ------- --------- -------------- --------- ------ ------------ -------
At 31 December 2018
--------------------------------------------------------------------
East
Region Mining Corporate
$ million Aktogay Bozshakol and Bozymchak Projects Services(4) Total
--------------------------------------------- ------- --------- -------------- --------- ------------ -------
Assets
Non-current assets(1) 1,178 1,104 335 236 5,325 8,178
Current assets excluding cash and
cash equivalents and current investments(2) 255 258 1,944 - 1,746 4,203
Cash and cash equivalents and current
investments 55 7 12 25 1,370 1,469
Segment assets 1,488 1,369 2,291 261 8,441 13,850
Taxes receivable 46
Elimination (8,856)
--------------------------------------------- ------- --------- -------------- --------- ------------ -------
Total assets 5,040
--------------------------------------------- ------- --------- -------------- --------- ------------ -------
Liabilities
Non-current liabilities 9 6 59 3 - 77
Inter-segment borrowings 676 941 121 - - 1,738
Current liabilities(3) 94 99 68 25 1,892 2,178
Segment liabilities 779 1,046 248 28 1,892 3,993
Borrowings 3,453
Taxes payable 87
Elimination (3,547)
--------------------------------------------- ------- --------- -------------- --------- ------------ -------
Total liabilities 3,986
--------------------------------------------- ------- --------- -------------- --------- ------------ -------
At 30 June 2018
--------------------------------------------------------------------
East
Region Mining Corporate
$ million Aktogay Bozshakol and Bozymchak Projects Services(4) Total
---------------------------------- ------- --------- -------------- --------- ------------ -------
Assets
Non-current assets(1) 1,174 1,282 364 241 5,326 8,387
Current assets excluding cash and
cash equivalents(2) 255 229 185 - 1,889 2,558
Cash and cash equivalents 40 4 10 1 1,598 1,653
Segment assets 1,469 1,515 559 242 8,813 12,598
Taxes receivable 79
Elimination (7,229)
---------------------------------- ------- --------- -------------- --------- ------------ -------
Total assets 5,448
---------------------------------- ------- --------- -------------- --------- ------------ -------
Liabilities
Non-current liabilities 6 7 68 3 - 84
Inter-segment borrowings 683 1,061 139 - - 1,883
Current liabilities(3) 122 97 70 - 90 379
Segment liabilities 811 1,165 277 3 90 2,346
Borrowings 3,705
Taxes payable 104
Elimination (1,905)
---------------------------------- ------- --------- -------------- --------- ------------ -------
Total liabilities 4,250
---------------------------------- ------- --------- -------------- --------- ------------ -------
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. The
Aktogay and Bozshakol segments principally operate in Kazakhstan.
The East Region and Bozymchak segment includes property, plant and
equipment, mining assets and intangible assets of $277 million
relating to the East Region assets located in Kazakhstan and $53
million of Bozymchak assets located in Kyrgyzstan (31 December
2018: $253 million and $55 million respectively; 30 June 2018: $272
million and $62 million respectively). Within the Mining Projects
segment, Baimskaya is located in Russia and Koksay is located in
Kazakhstan. Additionally, included within non-current assets is
long-term stockpiled ore of $129 million (31 December 2018: $111
million; 30 June 2018: $127 million) at Bozshakol and $25 million
(31 December 2018: $15 million; 30 June 2018: $nil) 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 $6,212 million
of intra-group investments while current assets includes $1,864
million of inter-segment loans and receivables, which are
eliminated within total assets (31 December 2018: $5,309 million
and $1,738 million respectively; 30 June 2018: $5,324 million and
$1,883 million respectively).
(iii) Capital expenditure(1)
Six months ended 30 June 2019
--------------------------------------------------------------------------------
Mining Projects
---------- ------------ -------------- -------------------- --------- -----
East
Region Corporate
$ million Aktogay(3) Bozshakol(4) and Bozymchak Baimskaya(5) Koksay Services Total
--------------------------------- ---------- ------------ -------------- ------------ ------ --------- -----
Property, plant and equipment(2) 275 61 16 - - - 352
Mining assets(2) 1 1 18 458 2 - 480
Intangible assets - - 1 - - - 1
--------------------------------- ---------- ------------ -------------- ------------ ------ --------- -----
Capital expenditure 276 62 35 458 2 - 833
--------------------------------- ---------- ------------ -------------- ------------ ------ --------- -----
Six months ended 30 June 2018
------------------------------------------------------------------
East
Region Mining Corporate
$ million Aktogay(3) Bozshakol and Bozymchak Projects Services Total
--------------------------------- ---------- --------- -------------- --------- --------- -----
Property, plant and equipment(2) 320 12 8 - - 340
Mining assets(2) - 3 20 - - 23
Intangible assets 1 - - - - 1
--------------------------------- ---------- --------- -------------- --------- --------- -----
Capital expenditure 321 15 28 - - 364
--------------------------------- ---------- --------- -------------- --------- --------- -----
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 the first half of 2019
includes the final $19 million (H1 2018: $250 million) settled in
respect of the $300 million NFC deferral (see note 13(c)).
4 Capital expenditure for Bozshakol includes $37 million for the
payment of final retentions relating to the construction of the
sulphide and clay plant.
5 Capital expenditure for Baimskaya includes $436 million paid
on 22 January 2019 to acquire the asset (see note 5).
(b) Information in respect of revenues
Revenues by product to third parties are as follows:
Six months ended 30 June
2019
-----------------------------------------
East
Region
$ million Aktogay Bozshakol and Bozymchak Total
------------------------------------------- ------- --------- -------------- -----
Copper cathodes 200 30 170 400
Copper in concentrate 221 228 - 449
Zinc in concentrate - - 31 31
Gold 3 37 33 73
Gold in concentrate - 70 - 70
Silver 1 1 15 17
Silver in concentrate 4 4 - 8
Other revenues including other by-products - 2 2 4
429 372 251 1,052
------------------------------------------- ------- --------- -------------- -----
Six months ended 30 June
2018
-----------------------------------------
East
Region
$ million Aktogay Bozshakol and Bozymchak Total
------------------------------------------- ------- --------- -------------- -----
Copper cathodes 105 31 206 342
Copper in concentrate 281 279 - 560
Zinc in concentrate - - 60 60
Gold - - 33 33
Gold in concentrate - 72 - 72
Silver 1 1 17 19
Silver in concentrate 2 5 - 7
Other revenues including other by-products - - 5 5
------------------------------------------- ------- --------- -------------- -----
389 388 321 1,098
------------------------------------------- ------- --------- -------------- -----
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 gold and
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 30 June, the
Group's provisionally priced volumes and their respective average
provisional price were as follows:
At 30 June 2019 At 30 June 2018
--------------------------- ---------------------------
Weighted Weighted
Provisionally average Provisionally average
priced provisional priced provisional
volumes price volumes price
------------------------ ------------- ------------ ------------- ------------
Copper cathodes 7 kt 6,077 $/t 1 kt 6,864 $/t
Copper in concentrate(1) 27 kt 5,431 $/t 29 kt 6,284 $/t
Zinc in concentrate(1) 5 kt 2,135 $/t 4 kt 2,334 $/t
Gold in concentrate(1) 16 koz 1,286 $/oz 13 koz 1,320 $/oz
Silver in concentrate(1) 141 koz 14 $/oz 63 koz 17 $/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 period end.
At 30 June 2019, 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 less than $1 million (30 June 2018: $9 million
decrease). The cumulative commodity pricing adjustments recorded
during the first half of 2019 between the final price and the
forward price at the expected settlement date, at the time of the
sale, resulted in a $4 million increase which is included within
revenue.
Revenues by destination from sales to third parties are as
follows:
Six months ended 30 June
2019
-----------------------------------------
East
Region
$ million Aktogay Bozshakol and Bozymchak Total
---------------------------- ------- --------- -------------- -----
China 403 200 143 746
Europe 23 135 61 219
Kazakhstan and Central Asia 3 37 47 87
429 372 251 1,052
---------------------------- ------- --------- -------------- -----
Six months ended 30 June
2018
-----------------------------------------
East
Region
$ million Aktogay Bozshakol and Bozymchak Total
---------------------------- ------- --------- -------------- -----
China 303 280 140 723
Europe 86 108 116 310
Kazakhstan and Central Asia - - 65 65
---------------------------- ------- --------- -------------- -----
389 388 321 1,098
---------------------------- ------- --------- -------------- -----
The Group's copper concentrate sales and certain cathode and
zinc sales have been contracted to Advaita Trade Private Limited
('Advaita'). Advaita is a metals trading group with significant
experience in marketing metals the Group produces into Europe and
China. Sales from all the Group's segments to Advaita comprise 87%
($919 million) of revenues (H1 2018: 85% or $938 million). 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. Acquisition of the Baimskaya copper project and part disposal of Koksay
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
$675 million made up of $436 million in cash and 22.3 million new
KAZ Minerals shares valued at $239 million, which were allotted to
the Vendor. 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.
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 22.3 million KAZ Minerals PLC shares
valued at $239 million has been recognised as an increase in share
capital of around $6 million and share premium of $233 million. The
Deferred Consideration of $225 million has also been included
within equity (see note 11(c)), 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 no non-controlling interest is recognised as
the remaining 25% will be purchased through Deferred
Consideration.
The total consideration for the acquisition was $900 million, of
which around $880 million has been reflected as a mining licence
within mining assets, $13 million in deferred tax assets and $7
million relating to other non-current assets, income taxes prepaid
and cash and cash equivalents ($1 million). Other long-term
advances of $15 million, relating to amounts transferred to the
Baimskaya project for study costs, ahead of Initial Completion,
were also reclassified to mining assets (see note 10).
Koksay
On 8 June 2018, KAZ Minerals announced an agreement for NFC to
invest $70 million for a 19.4% equity stake in the Group's Koksay
project. In July 2019, the Group transferred a 19.4% equity stake
in KAZ Minerals Koksay B.V., the parent company of the entity which
holds the Koksay mining licence in Kazakhstan, to NFC following
completion of the transaction. The $70 million cash consideration
(including $25 million received in December 2018) was reflected as
a current liability at the balance sheet date pending completion of
the transaction (see note 13(a)). Following completion, NFC's
interest in KAZ Minerals Koksay B.V. will be reflected as a
non-controlling interest of around $58 million, being its share of
Koksay's net assets, with the remaining amount recognised directly
within equity and attributed to the Group's shareholders. The $70
million 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 review the results of the
feasibility study to assess how and when to proceed with the
project.
6. Finance costs
Six months Six months
ended ended
30 June 30 June
$ million 2019 2018
------------------------------------------------------------------- ---------- ----------
Interest expense 105 119
Total interest expense 117 119
Less: amounts capitalised to the cost of qualifying assets(1) (12) -
------------------------------------------------------------------- ---------- ----------
Interest on employee obligations 1 1
Unwinding of discount on provisions and other liabilities 2 2
Fair value losses on debt related derivative financial instruments - 1
108 123
------------------------------------------------------------------- ---------- ----------
1 In the first half of 2019, the Group capitalised to the cost
of the Aktogay expansion project $12 million (H1 2018: $nil) of
general borrowings costs at an average rate of interest of 7.1%.
The interest cost on borrowings capitalised to qualifying assets is
deductible for tax purposes against income in the current period.
The interest capitalised to the Aktogay expansion project was
calculated on interest incurred on all borrowings outstanding
during the period, which are regarded as general borrowings for
Group reporting purposes.
Further information relating to finance costs is in the
Financial review on page 17.
7. Income tax expense
Major components of income tax expense are:
Six months Six months
ended ended
30 June 30 June
$ million 2019 2018
------------------------------------------------------------ ---------- ----------
Current income tax
Corporate income tax - current period (UK) - 2
Corporate income tax - current period (overseas) 48 50
Corporate income tax - prior periods (overseas) 1 1
49 53
------------------------------------------------------------ ---------- ----------
Deferred income tax
Corporate income tax - current period temporary differences 13 21
Corporate income tax - prior periods temporary differences - 5
13 26
------------------------------------------------------------ ---------- ----------
62 79
------------------------------------------------------------ ---------- ----------
A reconciliation of the income tax expense applicable to the
accounting profit before tax at the statutory income tax rate to
the income tax expense at the effective income tax rate is as
follows:
Six months Six months
ended ended
30 June 30 June
$ million 2019 2018
----------------------------------------------------- ---------- ----------
Profit before tax 289 355
At UK statutory income tax rate of 19.0% 55 67
Underprovided in prior periods - current income tax 1 1
Underprovided in prior periods - deferred income tax - 5
Unrecognised tax losses - 5
Tax effect of non-deductible items:
Transfer pricing 1 -
Other non-deductible expenses 5 1
62 79
----------------------------------------------------- ---------- ----------
Corporate income tax ('CIT') is calculated at 19.0% (H1 2018:
19.0%) of the assessable profit for the period for the Company and
its UK subsidiaries and 20.0% for the operating subsidiaries in
Kazakhstan (H1 2018: 20.0%) and Russia. 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.
Historical tax years relating to various companies within the
Group remain open for tax audits. The tax authorities in Kazakhstan
are able to raise additional tax assessments for five years after
the end of the relevant tax period.
8. Earnings per share
The following reflects the income and share data used in the EPS
computations.
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
------------------------------------------------------- ----------- -----------
Underlying Profit(1) and net profit attributable to
equity shareholders of the Company 227 276
------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares of 20 pence
each for EPS calculation - basic 468,304,900 446,841,285
Potential dilutive ordinary shares, weighted for the
period outstanding 18,572,352 -
------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares of 20 pence
each for EPS calculation - diluted 486,877,252 446,841,285
------------------------------------------------------- ----------- -----------
Ordinary EPS and EPS based on Underlying Profit(1) -
basic ($) 0.48 0.62
Ordinary EPS and EPS based on Underlying Profit(1) -
diluted ($) 0.47 0.62
------------------------------------------------------- ----------- -----------
1 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 49.
Basic EPS (both Ordinary EPS and EPS based on Underlying Profit)
is calculated by dividing profit or Underlying Profit for the
period attributable to equity shareholders of the Company by the
weighted average number of ordinary shares of 20 pence each
outstanding during the period. Purchases of the Company's shares by
the Employee Benefit Trust and by the Company under any share
buy-back programmes are both held in treasury and treated as own
shares.
For the purposes of calculating diluted EPS, it is assumed that
the Deferred Consideration arising on the acquisition of the
Baimskaya copper project (see note 5) will be settled in 21.0
million shares, reflecting the Group's ability to waive the Project
Delivery Conditions that are not met and settle in shares.
The resulting 21,009,973 potential ordinary shares have been
weighted for the period outstanding from 22 January 2019 to 30 June
2019, providing an additional 18,572,352 shares included in the
calculation of diluted EPS. 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.
9. Dividends
(a) Dividends paid
The dividends paid during the six months ended 30 June 2019 are
as follows:
Per share Amount
US cents $ million
--------------------------------------------------------- --------- ----------
Six months ended 30 June 2019
Final dividend in respect of year ended 31 December 2018 6.0 28
--------------------------------------------------------- --------- ----------
The final dividend of $28 million in respect of the year ended
31 December 2018 was paid on 17 May 2019 to shareholders on the
register as at 23 April 2019, including the new shares issued in
January 2019 as part settlement of the acquisition of the Baimskaya
copper project (see notes 5 and 11(a)).
(b) Dividends declared after the balance sheet date
Per share Amount
US cents $ million
------------------------------------------------------------ --------- ----------
Declared by the Directors on 14 August 2019 (not recognised
as a liability at 30 June 2019)
Interim dividend in respect of the half year ended 30 June
2019 4.0 19
------------------------------------------------------------ --------- ----------
There were no dividends paid nor declared during the six months
ended 30 June 2018.
10. Other non-current assets
At At At
30 June 31 December 30 June
$ million 2019 2018 2018
---------------------------------------------------- -------- ------------ --------
Advances paid for property, plant and equipment and
mining assets 187 147 52
Non-current VAT receivable(1) 12 11 36
Non-current inventories(2) 154 127 127
Long-term bank deposits(3) 3 3 3
Other long-term advances(4) - 15 -
Gross value of other non-current assets 356 303 218
Provision for impairment (1) (2) (2)
---------------------------------------------------- -------- ------------ --------
355 301 216
---------------------------------------------------- -------- ------------ --------
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 of $15 million at 31 December 2018
relates to amounts transferred to the Baimskaya project for study
costs which were reclassified to mining assets on Initial
Completion of the acquisition of the Baimskaya copper project (see
note 5).
11. Share capital and reserves
(a) Allotted share capital
Number GBP million $ million
------------------------------------------------------- ----------- ----------- ---------
Allotted and called up share capital - ordinary shares
of 20 pence each
At 1 January 2018, 30 June 2018 and 1 January 2019 458,379,033 92 171
Shares issued 22,344,944 4 6
At 30 June 2019 480,723,977 96 177
------------------------------------------------------- ----------- ----------- ---------
On 22 January 2019, the Company issued 22,344,944 KAZ Minerals
PLC shares allotted as part of the Initial Consideration for the
Baimskaya copper project (see note 5). The issued share capital was
fully paid.
(b) Own shares purchased under the Group's share-based payment plans
The provision of shares to the Group's share-based payment plans
is facilitated by an Employee Benefit Trust (the 'Trust'). The cost
of shares purchased by the Trust is charged against retained
earnings as treasury shares. The Trust has waived the right to
receive dividends on these shares. In the six months ended 30 June
2019, the Company made no purchases through the Trust in
anticipation of satisfying future awards (H1 2018: no purchases).
No shares were transferred out of the Trust in settlement of share
awards granted to employees that were exercised during the period
(H1 2018: none). Following approval from shareholders, shares held
in treasury will be used to settle future awards.
At 30 June 2019, the Group, through the Trust, owned 5,162
shares in the Company (31 December 2018: 5,162; 30 June 2018:
19,727) with a market value of $40 thousand (31 December 2018: $35
thousand; 30 June 2018: $0.2 million), and a cost of $79 thousand
(31 December 2018: $79 thousand; 30 June 2018: $0.1 million). The
shares held by the Trust represented less than 0.01% (31 December
2018 and 30 June 2018: 0.01%) of the issued share capital at 30
June 2019.
(c) Capital reserves
Currency Capital Deferred
translation redemption Consideration
$ million reserve reserve reserve Total
--------------------------------------------------- ------------ ----------- -------------- --------
At 1 January 2019 (2,488) 31 - (2,457)
Exchange differences on retranslation of foreign
operations 61 - - 61
Deferred Consideration on acquisition of Baimskaya
copper project - - 225 225
At 30 June 2019 (2,427) 31 225 (2,171)
--------------------------------------------------- ------------ ----------- -------------- --------
At 1 January 2018 (2,060) 31 - (2,029)
Exchange differences on retranslation of foreign
operations (76) - - (76)
--------------------------------------------------- ------------ ----------- -------------- --------
At 30 June 2018 (2,136) 31 - (2,105)
--------------------------------------------------- ------------ ----------- -------------- --------
(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 increase in the
US dollar value of the Group's foreign currency operations of $61
million (H1 2018: decrease of $76 million) follows a 1% increase in
the value of the tenge from 31 December 2018 to 30 June 2019.
(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.
(iii) Deferred Consideration reserve
On 22 January 2019, the Group announced the Initial Completion
of the acquisition of the Baimskaya copper project in the Chukotka
region of Russia (see note 5). The Deferred Consideration of $225
million represents the purchase price for the remaining interest in
Baimskaya and 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 Deferred Consideration has been included within equity as a
separate share based payment reserve, representing the Group's
ability to settle this amount through the issue of 21.0 million
shares, measured according to the fair value of the asset acquired
on Initial Completion. If the Group decides not to waive any
outstanding conditions and settle the Deferred Consideration in
cash, the cash payment will be accounted for as the repurchase of
an equity interest.
12. Borrowings
Average
interest
rate Currency
during of Current Non-current Total
Maturity the period denomination $ million $ million $ million
------------------------------------- --------- ----------- ------------- ---------- ----------- ----------
30 June 2019
CDB-Bozshakol and Bozymchak - US$
LIBOR + 4.50% 2025 7.34% US dollar 180 1,075 1,255
CDB-Aktogay facility - PBoC 5 year 2028 5.53% CNY 12 92 104
CDB-Aktogay facility - US$ LIBOR +
4.20% 2029 6.83% US dollar 105 1,064 1,169
Pre-export finance facility - US$
LIBOR + 3.00% - 4.50% 2021 5.49% US dollar 200 200 400
DBK Aktogay facility - US$ LIBOR +
4.50% 2025 7.29% US dollar 43 213 256
DBK Aktogay expansion facility - US$
LIBOR + 3.90% 2034 n/a US dollar - 115 115
540 2,759 3,299
----------------------------------------------- ----------- ------------- ---------- ----------- ----------
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
DBK Aktogay facility - US$ LIBOR +
4.50% 2025 6.70% US dollar 42 235 277
539 2,914 3,453
----------------------------------------------- ----------- ------------- ---------- ----------- ----------
30 June 2018
CDB-Bozshakol and Bozymchak - US$
LIBOR + 4.50% 2025 6.35% US dollar 180 1,255 1,435
CDB-Aktogay facility - PBoC 5 year 2028 4.97% CNY 12 108 120
CDB-Aktogay facility - US$ LIBOR +
4.20% 2029 6.20% US dollar 105 1,169 1,274
Pre-export finance facility - US$
LIBOR + 3.00% - 4.50% 2021 4.76% US dollar 200 400 600
DBK Aktogay facility - US$ LIBOR +
4.50% 2025 6.33% US dollar 21 255 276
518 3,187 3,705
----------------------------------------------- ----------- ------------- ---------- ----------- ----------
CDB-Bozshakol and Bozymchak facilities
At 30 June 2019, $1.3 billion (31 December 2018: $1.3 billion;
30 June 2018: $1.4 billion) was drawn under the facility
agreements. The facilities accrue interest at US$ LIBOR plus 4.50%
and arrangement fees with an amortised cost at 30 June 2019 of $10
million (31 December 2018: $12 million; 30 June 2018: $13 million)
have been netted off against these borrowings in accordance with
IFRS 9 'Financial Instruments'. During the six month period, $91
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 facilities
The CDB-Aktogay facilities consists of a CNY 1.0 billion
facility and a $1.3 billion US dollar facility.
At 30 June 2019, the drawn US dollar equivalent amount under the
CNY facility was $104 million (31 December 2018: $110 million; 30
June 2018: $120 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 of each year until financial maturity in 2028.
$6 million was repaid in the first half of 2019, while $12 million
is due to be repaid within 12 months of the balance sheet date. To
protect the Group from currency risks arising on the CNY
denominated debt, the Group has entered into CNY/US$ 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 30 June 2019, included within payables, is $12 million (31
December 2018: $12 million; 30 June 2018: $10 million).
The US dollar facility accrues interest at US$ LIBOR plus 4.20%.
At 30 June 2019, $1.2 billion (31 December and 30 June 2018: $1.3
billion) was outstanding under the facility. Arrangement fees with
an amortised cost of $10 million (31 December 2018: $11 million; 30
June 2018: $12 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
until final maturity in 2029. During the first half of 2019, $54
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). KAZ Minerals PLC acts as guarantor of the
loans.
PXF facility
In June 2017, the Group completed an amendment and extended the
maturity profile of the PXF 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 the six month
period, $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.
DBK-Aktogay facilities
On 14 June 2019, the Group entered into a $600 million credit
facility agreement with DBK relating to the Aktogay expansion
project. The Group also has an existing $300 million facility with
DBK relating to the original Aktogay project. KAZ Minerals PLC acts
as guarantor of these facilities.
The $600 million facility will be drawn down in accordance with
capital expenditure incurred on certain contracts committed for the
Aktogay expansion project, with $120 million drawn at 30 June 2019.
The facility extends for a term of 15 years and accrues interest at
a rate of US$ LIBOR plus 3.90%. The facility is repayable in
instalments with the first repayment due three years after the date
of first drawing, followed by semi-annual repayments in May and
November of each year from November 2022 until the final repayment
in 2034. Arrangement fees with an amortised cost of $5 million have
been netted off against these borrowings in accordance with IFRS
9.
The $300 million facility with DBK was entered into in December
2016 and was fully drawn at 31 December 2016. The facility extends
for a term of eight and a half years and accrues interest at US$
LIBOR plus 4.50%. 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. Arrangement fees with an
amortised cost of $1 million (31 December 2018: $1 million; 30 June
2018: $2 million) have been netted off against these borrowings in
accordance with IFRS 9. During the first half of 2019, $21 million
of the borrowing was repaid, with $43 million due to be paid within
12 months of the balance sheet date.
Undrawn facilities
Except for the $480 million remaining to be drawn under the DBK
Aktogay expansion facility agreement entered into in June 2019, all
debt facilities were fully drawn at 30 June 2019, 31 December 2018
and 30 June 2018.
13. Other liabilities
At At At
30 June 31 December 30 June
$ million 2019 2018 2018
---------------------- -------- ------------ --------
Advance consideration 70 25 -
Payments for licences 7 9 8
Payables to NFC - 19 50
Other 2 - -
79 53 58
---------------------- -------- ------------ --------
Current 72 46 51
Non-current 7 7 7
---------------------- -------- ------------ --------
79 53 58
---------------------- -------- ------------ --------
(a) Advance consideration
In June 2019, the Group received the remaining $45 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 $70 million cash
consideration was reflected as a current liability at the balance
sheet date pending completion of the transaction. The transaction
completed in July 2019 (see note 5).
(b) Payments for licences for mining assets
In accordance with its contracts for subsoil use, the Group is
liable to repay the costs of geological information provided by the
Government of Kazakhstan for licenced deposits. Some of these
obligations are payable in tenge 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 (2018: 7.6%) and 4.0%
for US dollar (2018: 4.0%) obligations. Under the subsoil use
agreements, the historical cost payments amortise over a 10 year
period and commence with first production.
(c) 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 and the final
$19 million settled in the first half of 2019. The extended credit
terms had been discounted using a rate of US$ LIBOR plus 4.20% on
the estimated cost of services performed.
14. Consolidated cash flow analysis
(a) Reconciliation of profit before tax to net cash inflow from operating activities
Six months Six months
ended ended
30 June 30 June
$ million Notes 2019 2018
------------------------------------------------------- ----- ---------- ----------
Profit before tax 289 355
Finance income (11) (14)
Finance costs 6 108 123
Share-based payments 2 1
Depreciation, amortisation and depletion 124 134
Unrealised foreign exchange loss/(gain) 25 (4)
Other reimbursements 1 -
Operating cash flows before changes in working capital
and provisions 538 595
Decrease in non-current VAT receivable - 3
Increase in inventories (103) (80)
Increase in prepayments and other current assets (34) (9)
Increase in trade and other receivables - (12)
Increase/(decrease) in employee benefits 1 (2)
Decrease in provision for closure and site restoration (1) -
(Decrease)/increase in trade and other payables (19) 27
------------------------------------------------------- ----- ---------- ----------
Cash flows from operations before interest and income
taxes paid 382 522
------------------------------------------------------- ----- ---------- ----------
(b) Cash and cash equivalents
At At At
30 June 31 December 30 June
$ million 2019 2018 2018
---------------------------------------------------- -------- ------------ --------
Cash deposits with short-term initial maturities(1) 475 1,157 654
Cash at bank(2) 264 62 999
739 1,219 1,653
---------------------------------------------------- -------- ------------ --------
1 In 2018, both the Group's major growth projects had achieved
design levels of production, following which it announced the
payment of an interim dividend in the second half of 2018. This
resulted in a change in the purpose of the Group's term deposits
and constituted a change in conditions in accordance with paragraph
16 of IAS 8 'Accounting Policies, Changes in Accounting Estimates
and Errors'. Therefore, from the second half of 2018 the Group has
prospectively classified deposits with original maturity of greater
than three months as current investments.
2 Cash at bank at 30 June 2019 of $nil (31 December 2018: $2
million) was restricted by legal or contractual arrangements. These
amounts were excluded from the Group's measure of net debt (see
note 14(c)). Additionally, included within cash and cash
equivalents is $68 million which is to be solely used for the
investment into the Koksay project (see note 5).
(c) Movement in net debt
At At
1 January Cash Other 30 June
$ million 2019 flow movements(1) 2019
-------------------------- ---------- ------ ------------- --------
Cash and cash equivalents 1,219 (475) (5) 739
Less: restricted cash (2) - 2 -
Current investments 250 (250) - -
Borrowings(2) (3,453) 157 (3) (3,299)
Net debt(3) (1,986) (568) (6) (2,560)
-------------------------- ---------- ------ ------------- --------
At At
1 January Cash Other 30 June
$ million 2018 flow movements(1) 2018
-------------------------- ---------- ------ ------------- --------
Cash and cash equivalents 1,821 (174) 6 1,653
Borrowings(2) (3,877) 173 (1) (3,705)
Net debt(3) (2,056) (1) 5 (2,052)
-------------------------- ---------- ------ ------------- --------
1 Other movements within cash and cash equivalents comprise net
foreign exchange movements. Other movements within restricted cash
reflect the expiration of legal or contractual arrangements against
cash and cash equivalents which were previously 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 period ended 30 June 2019, the $3 million other
movement on borrowings relates to the amortisation of fees on the
Group's financing facilities. For the period ended 30 June 2018,
the $1 million other movement on borrowings consisted of $3 million
of amortisation of fees on the Group's financing facilities and $2
million of foreign exchange gains on the CDB-Aktogay RMB
facility.
2 The cash flows on borrowings reflect repayments on existing
facilities of $272 million (H1 2018: $173 million) with draw downs
of $115 million net of arrangement fees in the six months to 30
June 2019 (H1 2018: none), relating to the new DBK Aktogay
expansion facility (see note 12).
3 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 49.
15. Financial instruments
The carrying amounts of financial assets and liabilities by
categories are as follows:
At At At
30 June 31 December 30 June
$ million Notes 2019 2018 2018
------------------------------------------------------- ----- -------- ------------ --------
Financial assets at amortised cost
Long-term bank deposits 10 3 3 3
Other long-term advances 10 - 15 -
Trade and other receivables not subject to provisional
pricing 6 13 8
Current investments 14(c) - 250 -
Cash and cash equivalents 14(b) 739 1,219 1,653
748 1,500 1,664
------------------------------------------------------- ----- -------- ------------ --------
Financial assets at fair value through profit
or loss
Trade receivables subject to provisional pricing(1) 122 114 135
------------------------------------------------------- ----- -------- ------------ --------
Financial liabilities at amortised cost
Borrowings(2) 12 (3,299) (3,453) (3,705)
Other liabilities 13 (79) (53) (58)
Trade and other payables(3) (247) (211) (219)
------------------------------------------------------- ----- -------- ------------ --------
(3,625) (3,717) (3,982)
Financial liabilities at fair value through profit
or loss
Derivative instrument(4) (12) (12) (10)
------------------------------------------------------- ----- -------- ------------ --------
1 Trade receivables subject to provisional pricing include less
than $1 million adverse adjustment (31 December 2018: $7 million
adverse; 30 June 2018: $9 million adverse) arising from the marked
to market valuation on provisionally priced contracts at the period
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.
2 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.
3 Excludes payments received in advance from customers, other
taxes payable and MET and royalties payable that are not regarded
as financial instruments.
4 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 financial assets and liabilities at amortised
cost are not materially different from their carrying values as
presented.
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 period:
Amounts Amounts
Sales Purchases owed by owed to
to related from related related related
$ million parties parties parties(1) parties
------------------------ ----------- ------------- ----------- --------
Kazakhmys Holding Group
30 June 2019 1 55 5 2
30 June 2018 2 50 5 3
------------------------ ----------- ------------- ----------- --------
1 Amounts owed by related parties primarily relate to advances
paid for the provision of smelting and refining of the Group's
copper concentrate. No provision is held against the amounts owed
by related parties at 30 June 2019 and 2018.
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) and 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. Commitments and contingencies
(a) Legal claims
In the ordinary course of business, the Group is subject to
legal actions and complaints. The Directors believe that the
ultimate liability, if any, arising from such actions or complaints
where they exist will not have a material adverse effect on the
financial condition or results of operations of the Group. As of 30
June 2019, the Group was not involved in any significant legal
proceedings, including arbitration, which may crystallise a
material financial loss for the Group.
(b) Capital expenditure commitments
The Group has capital expenditure commitments for the purchase
of property, plant and equipment as well as commitments under its
mining subsoil agreements. Committed expenditure under the subsoil
agreements typically relates to investments in community-related
projects, and includes investments in social sphere assets,
infrastructure and public utilities. The total commitments for
property, plant and equipment at 30 June 2019 amounted to $700
million (31 December 2018: $724 million, 30 June 2018: $792
million), which relates largely to the Aktogay expansion
project.
(c) Tax audits
Historical tax years relating to various companies within the
Group remain open for inspection during tax audits. The tax
authorities in Kazakhstan are able to raise additional tax
assessments for five years after the end of the relevant tax period
in respect of all taxes. A number of the Group's operating
subsidiaries in Kazakhstan are currently undergoing or expected to
undergo routine tax audits which could give rise to substantial tax
assessments. As such, additional tax payments could arise for the
Group.
18. Post balance sheet events
(a) Koksay
In July 2019, the Group transferred a 19.4% equity stake in KAZ
Minerals Koksay B.V., the parent company of the entity which holds
the mining licence in Kazakhstan, to NFC following the completion
of the transaction (see note 5).
(b) Dividends
On 14 August the Directors of the Company declared an interim
dividend for the half year ended 30 June 2019 of 4.0 USc per share.
See note 9(b).
ALTERNATIVE PERFORMANCE MEASURES (UNAUDITED)
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 half-yearly report.
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 18. 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 28 of KAZ Minerals'
2018 Annual Report and Accounts. A reconciliation to operating
profit is provided on page 16 and 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 18 and
as set out in note 8 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. This is one of the Group's KPIs for
measuring financial performance, the relevance of which is outlined
on page 28 of KAZ Minerals' 2018 Annual Report and Accounts. A
calculation of EPS based on Underlying Profit is included on page
18 and within note 8 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.
At At
30 June 31 December
$ million 2019 2018
-------------------------- -------- ------------
Cash and cash equivalents 739 1,219
Current investments - 250
Less: restricted cash - (2)
Gross liquid funds 739 1,467
-------------------------- -------- ------------
(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 21 and note 14(c) of the condensed consolidated
financial statements.
(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 29 of
the half-yearly report, before capital expenditure and VAT
associated with major growth 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
28 of KAZ Minerals' 2018 Annual Report and Accounts. A
reconciliation from net cash flow from operating activities is
provided below.
Six months Six months
ended ended
30 June 30 June
$ million 2019 2018
-------------------------------------------------------------- ---------- ----------
Net cash flows from operating activities 236 350
Net VAT paid/(received) associated with major growth projects 12 (3)
Less: sustaining capital expenditure (66) (39)
Free Cash Flow 182 308
-------------------------------------------------------------- ---------- ----------
(g) Gross cash costs
Gross cash costs is defined as cash operating 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.
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
---------------------------------------------------------- ---------- ----------
Revenues 1,052 1,098
Less: EBITDA - see note 4(a)(i) (620) (690)
---------------------------------------------------------- ---------- ----------
Cash operating costs 432 408
Less: cash operating costs excluded from gross cash costs
(including corporate) (20) (15)
Add: TC/RC on concentrate sales 47 57
---------------------------------------------------------- ---------- ----------
Gross cash costs 459 450
Own copper sales (kt) 144.4 140.8
Gross cash costs ($/t) 3,179 3,196
---------------------------------------------------------- ---------- ----------
Gross cash costs (USc/lb) 144 145
---------------------------------------------------------- ---------- ----------
(h) Net cash costs
Net cash costs is defined as gross cash costs less by-product
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 29 of KAZ Minerals' 2018 Annual Report
and Accounts. A reconciliation from gross cash costs is shown
below.
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
------------------------------------------------------------- ---------- ----------
Gross cash costs - see note (g) above 459 450
Less: by-product revenues - see note 4(b), excluding tolling
revenues (203) (194)
------------------------------------------------------------- ---------- ----------
Net cash costs 256 256
Own copper sales (kt) 144.4 140.8
Net cash costs ($/t) 1,773 1,818
------------------------------------------------------------- ---------- ----------
Net cash costs (USc/lb) 80 82
------------------------------------------------------------- ---------- ----------
(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 29 of KAZ Minerals' 2018
Annual Report and Accounts. A reconciliation from capital
expenditure included within the consolidated statement of cash
flows is shown below.
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2019 2018
---------------------------------------------------------------- ---------- ----------
Purchase of intangible assets - cash flow statement 1 1
Purchase of property, plant and equipment - cash flow statement 352 340
Investments in mining assets - cash flow statement 45 23
Less: expansionary and new project capital expenditure -
see Financial review (332) (325)
Sustaining capital expenditure 66 39
Copper production (kt) 147.6 139.6
Maintenance spend per tonne of copper produced ($/t) 447 279
---------------------------------------------------------------- ---------- ----------
_____________________________________
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. In the six months
ended 30 June 2019, there were no special items (H1 2018:
none).
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
China
People's Republic of China
CIT
corporate income tax
CNY
Chinese yuan, basic unit of the renminbi
Commercial Production (Baimskaya)
the first commissioned concentrator at the project achieving 70
per cent of nameplate processing capacity for six consecutive
calendar months
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
CREST
an electronic means of settling share transactions and
registering investors on a company's register of members
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
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
Directors
the Directors of the Company
Disposal Assets
the Disposal Assets comprised the mining, processing, auxiliary,
transportation and heat and power assets of the Group in the
Zhezkazgan and Central Regions 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
DTR
Disclosure Guidance and Transparency Rules of the UK Financial
Conduct Authority
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
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 8 of
the condensed consolidated financial statements)
EU
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
Free Cash Flow
net cash flow from operating activities before capital
expenditure and VAT associated with major growth projects less
sustaining capital expenditure (see page 50 for a reconciliation to
the closest IFRS based measure)
g/t
grammes per metric tonne
gross cash costs
cash operating costs excluding purchased cathode plus TC/RC on
concentrate sales, divided by the volume of own copper sales
gross liquid funds
the aggregate of cash and cash equivalents and current
investments less restricted cash
the Group
KAZ Minerals PLC and its subsidiary companies
IAS
International Accounting Standard
IASB
International Accounting Standards Board
IFRIC
International Financial Reporting Interpretations Committee
IFRS
International Financial Reporting Standard
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
KZT or tenge
the official currency of the Republic of Kazakhstan
lb
pound, unit of weight
LBMA
London Bullion Market Association
LIBOR
London Interbank Offered Rate
Listing
the listing of the Company's ordinary shares on the London Stock
Exchange on 12 October 2005
LME
London Metal Exchange
Long Stop Date
31 March 2029
major growth projects
the initial construction of Aktogay, Bozshakol, the Aktogay
expansion project and the Baimskaya copper project
MET
mineral extraction tax
Moz
million ounces
Mt
million metric tonnes
net cash costs
gross cash costs less by-product 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 14(c) of the
condensed consolidated financial statements
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
PBoC
People's Bank of China
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
Recordable Injury
a new occupational injury of sufficient severity that it
requires medical treatment beyond first aid or results in the
worker's inability to perform his or her routine function on the
next calendar day
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
Rosatom
State Atomic Energy Corporation Rosatom
rouble or RUB
the official currency of the Russian Federation
Russia
Russian Federation
$/t or $/tonne
US dollars per metric tonne
special items
those items which are non-recurring or variable in nature and
which do not impact the underlying trading performance of the
Group
SX/EW
solvent extraction and electrowinning, a two-stage metallurgy
process used for the extraction of copper
t
metric tonnes
TC/RCs
treatment charges and refining charges for smelting and refining
services
Total Recordable Injury Frequency Rate
the number of Recordable Injuries occurring per million hours
worked
UK
United Kingdom
Underlying Profit
profit/loss excluding special items and their resulting tax and
non-controlling interest effects. Underlying Profit is set out in
note 8 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
London Stock Exchange. RNS is approved by the Financial Conduct
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
IR LLFVATLISLIA
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