TIDMKAZ
RNS Number : 5323D
KAZ Minerals PLC
20 February 2020
20 February 2020
KAZ MINERALS PLC AUDITED RESULTS
FOR THE YEARED 31 DECEMBER 2019
FINANCIAL HIGHLIGHTS
-- Revenues increased by 5% to $2,266 million (2018: $2,162
million) as higher production and sales offset lower copper
prices
- Full year copper sales volumes of 317 kt (2018: 296 kt) and
gold sales of 225 koz (2018: 169 koz)
- Average LME copper price in 2019 reduced by 8% to $6,000/t (2018: $6,526/t)
-- EBITDA (1) of $1,355 million at an EBITDA margin of 60% (2018: $1,310 million)
- Operating profit increased by 8% to $923 million (2018: $851 million)
-- Industry leading net cash cost (1) of 77 USc/lb (2018: 85 USc/lb)
- Gross cash costs (1) reduced to 140 USc/lb (2018: 144 USc/lb)
driven by increased contribution from Aktogay and cost efficiencies
at the East Region
- Gold by-product revenues rose by 50% to $318 million (2018:
$212 million) driven by 10% increase in production, 10% higher
average LBMA gold price and the sale of inventory
- Structural factors of economies of scale, competitive energy
and transport costs, and low strip ratios continue to support the
Group's low cost position
-- Net debt (1) $2,759 million (2018: $1,986 million)
- 2019 investments include $436 million cash consideration for
the Baimskaya acquisition and $718 million of expansionary capital
expenditure (2018: $530 million)
- Gross liquid funds (1) of $541 million at 31 December 2019 (2018: $1,467 million)
- $1.0 billion of committed facilities undrawn as at 28 January
2020, following amendment of PXF
-- Final dividend of 8 US cents per ordinary share recommended
- Total 2019 dividend of 12 US cents per ordinary share,
including the interim dividend of 4 US cents per ordinary share
paid on 25 October 2019
OPERATIONAL HIGHLIGHTS
-- Copper production (2) of 311 kt and gold production (3) of
201 koz (+6% and +10% compared with 2018)
- 2020 copper production (2) guided at 280-300 kt as grades are
expected to decline at Aktogay while East Region output is limited
by low grades and challenging geological conditions
POSITIONED FOR GROWTH
-- Strong performance from producing assets supports investment in near and long term growth
- Aktogay expansion on track for completion in 2021, $1.2 billion project budget unchanged
- Baimskaya feasibility study ongoing, expected to be completed
later in the first half of 2020
$ million (unless otherwise stated) 2019 2018
----------------------------------------- ----- -----
Revenues 2,266 2,162
EBITDA(1) 1,355 1,310
Operating profit 923 851
Profit before tax 726 642
Underlying Profit(1) 571 530
Ordinary EPS - basic ($) 1.21 1.14
Ordinary EPS - diluted ($) 1.17 1.14
Net cash flows from operating activities 512 673
Free Cash Flow(1) 411 585
Gross cash cost(1) (USc/lb) 140 144
Aktogay 102 106
Bozshakol 137 129
East Region & Bozymchak 234 244
Net cash cost(1) (USc/lb) 77 85
Aktogay 98 103
Bozshakol 31 58
East Region & Bozymchak 104 94
Gross borrowings 3,300 3,453
Gross liquid funds(1) 541 1,467
Net debt(1) 2,759 1,986
----------------------------------------- ----- -----
1 Alternative Performance Measures ("APMs") are used to assess
the performance of the Group and are not defined or specified under
IFRS. For further information on APMs, including justification for
their use, please refer to the APMs section on page 54.
2 Payable metal in concentrate and copper cathode from Aktogay
oxide ore.
3 Payable metal in concentrate.
Andrew Southam, Chief Executive Officer, said: "In 2019 KAZ
Minerals has continued to build on its operational track record,
delivering further growth in copper production and maintaining its
industry leading cost position. Our large scale operations in
Kazakhstan achieved record levels of production and our proven, low
cost asset base provides a strong platform for investment into
value-accretive growth projects. The Aktogay expansion project is
on budget and on track to commence production in 2021. We look
forward to releasing further details of our plans for Baimskaya
when the bankable feasibility study is completed."
For further information please contact:
KAZ Minerals PLC
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Chris Bucknall Investor Relations, London Tel: +44 20 7901
7882
Tel: +44 20 7901
Anna Mallere Investor Relations, London 7814
Maksut Zhapabayev Tel: +7 727 244 03
Corporate Communications, Almaty 53
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Brunswick Group
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Carole Cable, Charlie Tel: +44 20 7404
Pretzlik 5959
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REGISTERED OFFICE
6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL,
United Kingdom.
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
Aktogay and Bozshakol open pit copper mines in the East Region and
Pavlodar region of Kazakhstan, three underground mines and
associated concentrators in the East Region of Kazakhstan and the
Bozymchak copper-gold mine in Kyrgyzstan. In 2019, total copper
production was 311 kt with by-products of 201 koz of gold, 3,382
koz of silver and 38 kt of zinc in concentrate. The Group acquired
the Baimskaya project in the Chukotka region of Russia in January
2019, 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 Aktogay and Bozshakol have
delivered industry leading production growth and transformed KAZ
Minerals into a company dominated by world class, open pit copper
mines.
Aktogay is a large scale, open pit mine similar to Bozshakol,
with a remaining mine life of around 25 years (including the
expansion project) at an average copper grade of 0.35% (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.
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 c.40 years at an average copper grade of
0.36%. 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.
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. The parameters of the project will be
confirmed on completion of the feasibility study. 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 16,000 people,
principally in Kazakhstan.
CAUTIONARY NOTICE CONCERNING forward-looking statements
These results include 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 projects 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' most recent
Annual Report and Accounts. Forward-looking statements should
therefore be construed in light of such risk factors. These
forward-looking statements should not be construed as a profit
forecast.
No part of these results constitutes, or shall be taken to
constitute, an invitation or inducement to invest in KAZ Minerals
PLC, or any other entity, and shareholders are cautioned not to
place undue reliance on the forward-looking statements. Except as
required by the Listing Rules and applicable law, 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 these
results.
SHAREHOLDER INFORMATION
The Company declares dividends in US dollars. The default
currency for payment of dividends is US dollars, although
shareholders can elect to receive their dividends in UK pounds
sterling. Those shareholders who wish to receive their dividend in
UK pounds sterling should contact the Company's registrar to
request a currency election form.
For those shareholders who have elected to receive their
dividends in UK pounds sterling, the currency conversion rate to
convert the dividend into UK pounds sterling will be GBP0.7692 to
the US dollar. The conversion rate is based on the average exchange
rate for the five business days ending two days before the date of
the annual results announcement.
Subject to the approval of shareholders at the Annual General
Meeting on 30 April 2020, the final dividend in US dollars and UK
pounds sterling will be paid on Friday 22 May 2020 to shareholders
on the register at the close of business in the UK on the record
date, Friday 24 April 2020. The ex-dividend date is Thursday 23
April 2020.
ANNUAL GENERAL MEETING
The 2020 Annual General Meeting will be held at 12.15pm on
Thursday 30 April 2020 at Linklaters LLP, One Silk Street, London
EC2Y 8HQ, United Kingdom.
The 2019 Annual Report and Accounts and details of the business
to be conducted at the Annual General Meeting will be mailed to
shareholders and displayed on the Company's website (
www.kazminerals.com ) in late March 2020.
CHAIR'S STATEMENT
Since its formation in 2014, KAZ Minerals has focused on the
construction of large scale copper mining projects in the CIS
region. We have successfully applied modern technology to develop
copper deposits, building a portfolio of highly profitable mines
with low operating costs.
Our decision to invest in copper growth projects is based on a
positive long term view of the copper market. Millions of tonnes of
additional copper production are required to provide the world with
the copper it needs to replace depletion of existing mines, to
raise living standards in developing economies, to transition away
from energy systems reliant on fossil fuels and to improve energy
efficiency.
In 2019, the Group's operating assets in Kazakhstan performed
well, with both Bozshakol and Aktogay delivering quarterly
production records during the year. We also took steps towards
establishing the next phase of growth for the Group, progressing
the expansion project at our Aktogay mine in Kazakhstan and
completing the acquisition of the Baimskaya copper project in
Chukotka, Russia. The Aktogay expansion project will add to our
existing world class asset base and provide a strong platform to
support our investment in the Baimskaya project, which is one of
the world's largest undeveloped copper deposits.
The acquisition of Baimskaya is aligned with our high growth,
low cost strategy and the Group has a proven track record for the
successful delivery of large scale mining projects. Baimskaya has
the potential to approximately double the Group's copper production
and triple gold output when it commences processing of ore from
around 2026. The feasibility study for this project is progressing
and the details are expected to be published later in the first
half of 2020.
Copper and climate change
Focus on the issue of climate change has increased and investors
and the wider public are demanding action from companies,
governments and individuals. We recognise the significance that a
transition to a lower carbon economy will have for the copper
market and securing additional supplies of copper will be essential
for facilitating a reduction in global CO(2) emissions. Renewable
energy generation is many times more copper intensive than power
generated from conventional energy sources. Additional supplies of
copper will also be required to support the growing adoption of
electric vehicles, which require more copper than internal
combustion vehicles.
Our values and purpose
KAZ Minerals' corporate purpose is to invest sustainably in
increasing its copper production. This has clear benefits for
society due to the wide range of applications for copper in our
everyday lives and the importance of copper for future energy and
transportation technologies. Whilst growing our business, we seek
to minimise the impact of our operations on the environment and we
support national and local social projects which benefit host
communities. We conduct our business in line with five corporate
values which we use to guide our decision making: Safety, Long Term
Efficiency, Teamwork, Professional Development and Integrity. By
adhering to these values we will be able to deliver sustainable
growth which benefits all stakeholders.
Health and safety
It is with regret that I report two employee fatalities occurred
at our operations during 2019, and one in January 2020. Any
fatality is unacceptable to us and as a Group we have invested
significant time, effort and funding to improve our safety
performance. Whilst we have achieved a long term reduction in the
number and frequency of fatalities over the last few years, we will
continue to devote our resources to eliminate fatalities and
injuries at our operations.
Consultation and diversity
KAZ Minerals strongly believes in the benefits of regular
consultation with its employees. Each year I host a 'Direct Line'
forum to take questions from employees. Over the years we have made
many improvements from acting upon feedback gained from these
events, as well as through normal management reporting channels.
Our Deputy Chair, Michael Lynch-Bell also meets with employee and
labour union representatives and provides further feedback to the
Board.
KAZ Minerals has amongst the highest female representation in
its workforce of any of its mining peer group, at 22%. This level
of female representation is consistent across all levels of
employees and management. Excluding roles which are restricted by
law in Kazakhstan from being carried out by female workers, the
proportion of female workers is 39%.
Our workforce benefits from a broad diversity of nationalities
and ethnic backgrounds. In Kazakhstan and Kyrgyzstan we prioritise
recruitment and training for local workers and around 98% of our
employees are nationals of those countries. Our expatriate
employees bring mining experience to the Group from all over the
world.
Dividends
The Group's dividend policy, established at the time of Listing,
is for the Board to consider the cash generation and financing
requirements of the business before recommending a suitable
dividend. This maintains flexibility, which is appropriate given
the underlying cyclicality of a commodity business and the Group's
growth ambitions.
The Group's largest assets in Kazakhstan, Aktogay and Bozshakol,
are highly cash generative and have contributed to further growth
in production and earnings in the year. The Group has also
continued to invest in its growth pipeline, with $436 million paid
in respect of the Baimskaya acquisition and $111 million incurred
on feasibility study and pioneer works. Further capital investments
of $607 million were made, mainly in the Aktogay expansion
project.
Taking into account the performance of the Group's producing
assets in 2019 and the outlook for 2020, the Board has recommended
a final dividend of 8.0 US cents per share. Combined with the
interim dividend of 4.0 US cents per share, the dividend in respect
of the 2019 financial year is 12.0 US cents per share.
The future financing requirements of the Baimskaya project will
be announced with the results of the bankable feasibility study,
following which the Board will further review the Group's
allocation of capital.
Board changes
After nearly nine years as a Director, Charles Watson will
retire from the Board during 2020. We are very grateful for
Charles' contribution over his time with us, which has been a
period of significant change for the Group. Further details of
Charles' departure will be announced at the appropriate time.
Performance and prospects
At KAZ Minerals, we have demonstrated our ability to make
long-term investment decisions: to construct and operate large
scale greenfield copper projects which are today generating
significant cash flows and are amongst the lowest cost copper
mining assets globally.
We will continue to focus on long-term value creation for the
benefit of all stakeholders. The investments we make today at
Aktogay and Baimskaya will enable us to deliver higher returns in
the future. There are few comparable companies with a similar
recent history of success in construction, a growth pipeline of
world class projects and a proven producing asset base, consisting
exclusively of low cost copper mines. KAZ Minerals has built a
strong track record of achievement to date and I look forward to
continued success in the years to come.
CHIEF EXECUTIVE OFFICER'S REVIEW
Delivering growth and value
During 2019 KAZ Minerals continued to build on its operational
track record, delivering further growth in copper production and
maintaining its industry leading cost position. The Group's large
scale assets in Kazakhstan achieved record levels of copper and
gold production, helping the Group to deliver the highest revenues
and EBITDA since the creation of KAZ Minerals in 2014. Our proven,
low cost asset base provides a strong platform for investment into
high-return brownfield and greenfield copper projects. In the near
term, production growth is expected from the Aktogay expansion
project starting in 2021, whilst the Baimskaya deposit in Chukotka,
Russia, offers longer term growth potential and is currently at
feasibility study stage.
Health and safety
We place the highest priority on improving our health and safety
performance. I am saddened to report that there were two fatalities
in our underground mines in the East Region of Kazakhstan during
the year and one in January 2020. We believe that all fatalities
are avoidable and we will continue to implement the necessary
cultural and procedural changes to achieve this outcome. The open
pit mines at Aktogay, Bozshakol and Bozymchak have all operated
without any fatal incidents since they commenced production. The
number of fatalities in the Group's operations has been on a long
term downward trend following targeted investments and initiatives
to improve performance in this critical area over several
years.
Injury rates reduced in 2019, with the Group recording a TRIFR
of 1.38 (2018: 1.74). During the year we launched a new flagship
health and safety programme entitled 'Goal Zero'. The programme
seeks to unite employees, contractors, supervisors, management and
the Board, behind the common aim of reducing health, safety and
environmental incidents to zero.
Our people
I would like to thank all of my colleagues for their
contribution to KAZ Minerals' performance in 2019. We continue to
invest in the training of our workforce in Kazakhstan and our
modern, large scale assets provide exciting professional
development opportunities. Around 250 local recruits started their
apprenticeships at purpose-built facilities at Aktogay during the
year and we are proud to be transferring skills to the next
generation of miners. The construction of the expansion project at
Aktogay will generate further employment and career development
opportunities in the future. KAZ Minerals has one of the highest
levels of female representation in its workforce amongst its mining
peers and we are seeking to increase gender diversity through
equality of opportunity.
Review of operations
The main sulphide concentrators at both Aktogay and Bozshakol
operated at design ore throughput capacity over the year. Following
upgrade works in the first half, the Bozshakol clay plant processed
over 3 Mt of ore in the second half of the year, which on an
annualised basis exceeded the plant's design capacity throughput of
5 Mtpa.
Group copper production of 311 kt (2018: 295 kt) exceeded
guidance of c.300 kt due to a strong performance from Aktogay,
where a high average sulphide copper grade of 0.58% and good
recovery rates were the main drivers of copper production of 146 kt
in 2019. Group gold production of 201 koz (2018: 183 koz) also
exceeded guidance set at the start of the year of 170-185 koz, as
indicated in the third quarter production report, mainly due to
outperformance at Bozshakol and the Bozymchak mine in Kyrgyzstan.
Silver production of 3,382 koz was 13% ahead of guidance whilst
zinc in concentrate output decreased to 38 kt, slightly below
revised guidance of 40-45 kt, due to challenging geological
conditions at the two largest mines in the East Region.
Production guidance
With all of the Group's concentrators now fully ramped up and
operating at design capacity, future output levels will primarily
be determined by average grades and recovery rates, until the
start-up of the new concentrator at Aktogay in 2021. Copper
production for the Group in 2020 is expected to be 280-300 kt.
Aktogay copper production is set at 120-130 kt (2019: 146 kt), as
grades will decline from their previously elevated levels, whilst
higher average copper grades at Bozshakol are expected to result in
copper production increasing to 110-120 kt in 2020 (2019: 110 kt).
In the East Region and Bozymchak, copper production is guided to
reduce to around 50 kt (2019: 55 kt) as grades and processing
volumes remain low at Artemyevsky, during the transition to the
second ore body, and as mining takes place at deeper horizons and
in more challenging geological conditions at Orlovsky. Gold
production guidance is set at 180-200 koz as Bozshakol maintains
the high output levels achieved in 2019 but grades decline at
Bozymchak, in line with the mine plan. Silver and zinc in
concentrate production are expected to remain broadly in line with
2019, at c.3,000 koz and c.40 kt, respectively.
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 and the results of the study are expected
later in the first half of 2020.
The Board approved $80 million of capital expenditure in 2019
for pioneer works on the camp, fuel storage, airfield and site
power infrastructure and for the delivery of construction
equipment. The pioneer works and deliveries proceeded according to
schedule. Total capital expenditure during 2019 on the feasibility
study and pioneer works was $111 million.
Aktogay expansion
The Group's expansion project at Aktogay progressed well during
2019, with the main areas of the concentrator building fully
enclosed and mill installation underway. The Group took delivery of
the first of its new fleet of larger mining vehicles during the
year, which contributed to a 32% increase in ore extraction at
Aktogay to 55,134 kt (2018: 41,911 kt), as mine development works
were undertaken prior to the start of processing at the new
concentrator. The project's $1.2 billion budget and timetable are
both unchanged with the new concentrator expected to commence
operations in 2021.
Koksay
NFC's investment of $70 million for the development of Koksay
and its acquisition of a 19.4% stake in the project 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. Expenditure on study work and drilling
during 2019 was $5 million.
Financial performance
Revenues increased to $2,266 million (2018: $2,162 million),
despite lower average copper prices during the year, due to the
strong production performance with copper and gold sales
respectively 7% and 33% higher than 2018. Copper sales of 317 kt
(2018: 296 kt) exceeded copper production of 311 kt (2018: 295 kt)
due to the sale of finished goods inventory. The average LME copper
price in 2019 was $6,000/t, 8% below the average for 2018 of
$6,526/t.
The Group maintained its competitive position on the industry
cost curve and recorded EBITDA of $1,355 million (2018: $1,310
million), representing an EBITDA margin of 60% (2018: 61%).
Operating profit increased by 8% to $923 million (2018: $851
million), representing an operating margin of 41% (2018: 39%). Free
Cash Flow reduced by 30% to $411 million (2018: $585 million) and
cash flow from operations was $512 million (2018: $673
million).
Unit costs
Higher production volumes from Aktogay and Bozshakol, a weaker
tenge to US dollar exchange rate and successful cost reduction
initiatives undertaken in the East Region resulted in a Group gross
cash cost of 140 USc/lb (2018: 144 USc/lb) and an industry leading
net cash cost of 77 USc/lb (2018: 85 USc/lb). KAZ Minerals
continues to deliver amongst the lowest unit costs of any pure play
copper producer, or copper division of a major diversified
miner.
The gross cash cost at Aktogay reduced to 102 US c/lb (2018: 106
USc/lb) with a net cash cost of 98 USc/lb (2018: 103 USc/lb). The
reduction in unit costs was mainly driven by higher copper
production volumes, which increased by 11% to 146 kt, from 131 kt
in 2018.
Bozshakol's gross cash cost increased to 137 USc/lb (2018: 129
USc/lb), mainly due to the sale of 26 koz of gold bar inventory in
the first half of 2019 that was brought forward from 2018 to the
National Bank of Kazakhstan. The production costs associated with
the sale of this material increased gross cash costs by around 5
USc/lb to 137 USc/lb (2018: 129 USc/lb) and benefited net cash
costs by 9 USc/lb, contributing to a highly competitive net cash
cost for Bozshakol of 31 USc/lb (2018: 58 USc/lb).
In the East Region and Bozymchak, gross cash costs decreased to
234 USc/lb (2018: 244 USc/lb), as the weaker tenge exchange rate
and management-led cost reduction measures, including the
rationalisation of shift schedules and transportation routes, more
than offset lower production volumes and local market inflation in
the price of raw materials and labour. The net cash cost in the
East Region and Bozymchak increased to 104 USc/lb from 94 USc/lb in
2018, as the reduction in gross cash cost was offset by lower zinc
output.
Balance sheet
Net debt increased to $2,759 million (2018: $1,986 million) as
the Group invested in the acquisition and development of its copper
growth project pipeline. The Baimskaya licence area in Russia was
acquired in January 2019, with the $436 million cash component of
the consideration paid during the first half. Expansionary capital
expenditure of $718 million was invested during 2019, mainly at
Aktogay.
The Group made a total of $545 million of scheduled debt
repayments and drew $387 million from new facilities during the
year, resulting in gross borrowings of $3,300 million at 31
December 2019 (31 December 2018: $3,453 million). New debt
facilities were signed with the Development Bank of Kazakhstan for
$600 million in June 2019 and Caterpillar Financial Services
Corporation for $100 million in November 2019. Combined with the
recent $1.0 billion PXF refinancing announced on 28 January 2020,
the Group has raised a total of $1.7 billion of debt facilities
over the last nine months to replace amortising facilities and
provide additional flexibility.
Financial guidance
At Aktogay, gross cash cost guidance for 2020 is set at 110-130
USc/lb, higher than the 102 USc/lb recorded in 2019, as copper
output is guided to reduce to 120-130 kt from 146 kt in the prior
year. At Bozshakol, grades and copper production volumes are
forecast to increase, offsetting general inflation in local wages
and energy prices. Gross cash cost guidance is maintained at
130-150 USc/lb, in line with the range set at the beginning of
2019. At the East Region and Bozymchak, 2020 gross cash costs are
expected to be between 260 and 280 USc/lb (2019: 234 USc/lb) as
sales volumes fall from 62 kt in 2019 to approximately 50 kt, in
line with production guidance.
Sustaining capital expenditure at Bozshakol and Aktogay is
expected to increase to $60 million for each mine, including
construction works relating to tailings capacity. Sustaining
capital expenditure of $50 million is expected in the East Region
and Bozymchak in 2020.
Excluding the Baimskaya copper project, expansionary capital
expenditure in 2020 is expected to be around $495 million. This
comprises $400 million on the Aktogay expansion project, $60
million on ongoing mine development works at Artemyevsky in the
East Region, $15 million to commence development of the underground
phase at Bozymchak and $20 million on Koksay project studies and
other smaller items.
Capital expenditure of $150 million has been approved at
Baimskaya in 2020 to complete the bankable feasibility study and
continue pioneer works. The Group is evaluating whether to make
additional equipment deliveries to Pevek in the 2020 shipping
window and may consider approving additional capital expenditure
later in the year.
Outlook
As hopes for an improvement in international trade relations
increased in the fourth quarter, the price of copper recovered from
its lows in 2019 but was impacted in January 2020 by an outbreak of
the Covid-19 coronavirus. In the short term, the impact of
infection control measures taken in China against the virus and
news of progress on trade negotiations are likely to be key drivers
of the copper market.
The Group maintains its positive view on the medium to long term
outlook for copper, as declining supply from existing mines will
need to be replaced by output from new projects in progressively
more difficult locations and with lower average copper grades. A
material deficit in the copper market is forecast by many analysts
to emerge over this decade, to coincide with the ramp up of output
from the Group's new copper growth projects at Aktogay and
Baimskaya.
KAZ Minerals continues to offer an attractive combination to
investors of growing output from its world class producing assets,
together with amongst the lowest unit cost position of any pure
play copper company globally. We have a strong platform from which
to continue our track record of successful investment in copper
growth projects.
operating review
The Group's operations in 2019 comprised the Aktogay and
Bozshakol open pit copper mines in the East Region and Pavlodar
region of Kazakhstan, three underground mines in the East Region of
Kazakhstan, the Bozymchak copper-gold mine in Kyrgyzstan and their
associated concentrators.
Group production summary
kt (unless otherwise stated) 2019 2018
----------------------------- ----- -----
Copper production 311.4 294.7
Aktogay 145.7 131.4
Bozshakol 110.2 101.6
East Region and Bozymchak 55.5 61.7
Gold production (koz) 201.5 183.4
Silver production (koz) 3,382 3,511
Zinc in concentrate 38.3 49.7
----------------------------- ----- -----
AKTOGAY
Aktogay is a large scale, open pit mine with a remaining mine
life of around 25 years (including the expansion project) at an
average copper grade of 0.35% (oxide) and 0.33% (sulphide). 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.
Production summary
kt (unless otherwise stated) 2019 2018
----------------------------------- ------ ------
Oxide
Ore extraction 19,403 16,104
Copper grade (%) 0.32 0.33
Copper cathode production 22.7 25.7
Sulphide
Ore extraction 35,731 25,807
Ore processed 25,230 20,766
Average copper grade processed (%) 0.58 0.61
Recovery rate (%) 88 87
Copper in concentrate 128.8 110.6
Copper production 123.0 105.7
Total copper production 145.7 131.4
Silver production (koz) 555 489
----------------------------------- ------ ------
At Aktogay total ore extraction increased by 32% to 55,134 kt
(2018: 41,911 kt) to meet the requirements of the sulphide plant
and in preparation for the Aktogay expansion project. Sulphide ore
extraction increased by 38% to 35,731 kt, exceeding processing
volumes due to the removal of low grade material to access high
grade ore for processing in 2019 and for project development works.
A total of 8.9 Mt of lower grade sulphide ore was stockpiled during
the year.
Sulphide ore processing volumes increased to 25,230 kt in 2019
as the sulphide concentrator operated at its design capacity over
the year and benefited from the deferral of mill maintenance from
December 2019 to January 2020. The average copper grade processed
in 2019 reduced, as expected, to 0.58% (2018: 0.61%) but remained
at elevated levels compared to the copper resource grade of 0.33%.
Full year copper production from sulphide ore of 123.0 kt was 16%
higher than the 105.7 kt produced in 2018, mainly due to higher ore
throughput and an increase in recovery rates, which more than
offset the reduction in grade.
The majority of copper production was dispatched as concentrate
to customers in China, with 43.7 kt of copper in concentrate sent
for toll processing at the Balkhash smelter in Kazakhstan where
spare capacity was available on attractive terms.
Copper cathode production from oxide material was 22.7 kt in
2019, 3.0 kt lower than 2018 due to a lower average copper grade.
Following the construction of the second stage of heap leach cells,
first oxide ore was placed on the leach pads in the fourth quarter
of 2019, with leaching due to commence in 2020. Cathode production
of 22.7 kt was consistent with long-term guidance of c.20 ktpa
until 2024.
Aktogay achieved record total copper production of 145.7 kt in
2019, above full year guidance of 130-140 kt and an 11% increase
compared with 2018. These volumes were achieved due to a
combination of high grades, consistent ore throughput and the
deferral of mill maintenance from December 2019 to January 2020.
Sulphide processing grades are forecast to reduce towards the life
of mine grade over the first ten years of operations and the
average grade expected during the period 2019-2021 inclusive is
c.0.50%. Copper production for 2020 is guided at 120-130 kt,
including approximately 20 kt from oxide ore. In addition, Aktogay
is expected to produce around 500 koz of silver in 2020.
Financial summary
$ million (unless otherwise stated) 2019 2018
------------------------------------ ---- ----
Revenues 863 775
Copper sales (kt) 148 130
EBITDA 564 530
Operating profit 381 350
Gross cash costs (USc/lb) 102 106
Net cash costs (USc/lb) 98 103
Capital expenditure 553 514
Sustaining 44 20
Expansionary 509 494
------------------------------------ ---- ----
Revenues
Revenues increased by 11% to $863 million during 2019, resulting
from increased sales volumes following the strong operational
performance in the year. The 18 kt increase in copper sales during
2019 had a $102 million beneficial impact on copper revenues,
partially offset by an $18 million adverse impact from lower
realised copper prices. The average LME copper price decreased by
8% from $6,526/t in 2018 to $6,000/t in 2019, and copper sales were
weighted towards the second half of the year when prices were
lower. Sales included 65 kt of cathode material, comprising 23 kt
produced at the Group's SX/EW plant and 42 kt from copper
concentrate processed at the Balkhash smelter. The higher volume of
material allocated to smelting in 2019 compared with 2018
positively impacts revenues as toll processed metal is recorded as
revenue excluding TC/RCs. Aktogay also recorded $14 million of
by-product revenues, primarily from commercially payable quantities
of silver and gold.
EBITDA
Aktogay's EBITDA increased to $564 million in 2019, benefiting
from the increased revenues in the year. The EBITDA margin remained
highly competitive at 65%.
The gross cash cost is expressed on a unit of copper sales
basis, after adjustment for the copper payable and TC/RCs. Gross
cash costs at Aktogay were 102 USc/lb in 2019, marginally below
market guidance of 105-125 USc/lb. Gross cash costs reduced
compared with 2018, as the operations benefited from economies of
scale from higher output as well as a weaker tenge, which traded at
an average of 383 KZT/USD compared with 345 KZT/USD in the previous
year. In addition, the deferral of scheduled mill maintenance from
December 2019 to January 2020 had the effect of reducing 2019 costs
and increasing throughput. This more than offset the impact of cost
increases for certain inputs including salaries, fuel and
consumables. 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.
The gross cash cost in 2020 is forecast to be 110-130 USc/lb.
The increase compared with 2019 largely reflects the expected
reduction in output arising from lower grades. Costs are also
expected to increase marginally due to the impact of general
inflation, as well as increased maintenance resulting from the mill
shutdown being deferred into January 2020.
Operating profit
Operating profit increased by $31 million to $381 million during
2019, reflecting the strong production and cost performance of the
mine in the year. The $34 million increase in EBITDA was partially
offset by higher MET charges as a greater volume of ore was mined
in preparation for the Aktogay expansion project.
Capital expenditure
Sustaining capital expenditure at Aktogay was $44 million,
consistent with market guidance of $50 million. The increase from
the prior year reflects increased maintenance as the operation
matures, as well as construction works to increase the capacity of
the tailings storage facility. Approximately $20 million was
incurred on the tailings construction in 2019 to provide interim
capacity. The tailings construction will continue during 2020 and
2021 to ensure sufficient capacity in advance of the Aktogay
expansion. Total sustaining capital expenditure of $60 million,
including tailings, is expected in 2020.
The total expansionary capital expenditure at Aktogay of $509
million includes $459 million relating to the Aktogay expansion
project which is progressing in line with expectations. Expenditure
in the year included around $210 million on equipment for the
sulphide concentrator, for which procurement is largely committed.
Construction activities continued, incurring c.$175 million of
expenditure in the year. In addition, approximately $45 million was
incurred to upgrade the mine fleet. In 2020, expenditure of around
$400 million on the Aktogay expansion project is forecast. The
total capital budget for the project is unchanged at $1.2 billion
and first production from the plant is expected in 2021 as
previously guided.
Expansionary capital expenditure in 2019 includes $50 million in
respect of the original Aktogay project, incurred on final
retention payments to contractors and construction of the second
stage of heap leach cells for oxide operations. Work on the first
Aktogay project has been largely concluded, with limited spend
expected in the first half of 2020 to finalise and commission the
new heap leach cells.
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 around 40 years at an average copper grade
of 0.36%. 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
kt (unless otherwise stated) 2019 2018
----------------------------------- ------ ------
Ore extraction 35,693 30,722
Ore processed 29,470 28,454
Average copper grade processed (%) 0.48 0.48
Copper recovery rate (%) 81 79
Copper in concentrate 115.4 106.4
Copper production 110.2 101.6
Average gold grade processed (g/t) 0.27 0.26
Gold recovery rate (%) 60 59
Gold in concentrate (koz) 154.9 136.7
Gold production (koz) 144.8 127.8
Silver production (koz) 803 666
----------------------------------- ------ ------
Ore extracted at Bozshakol increased by 16% to 35,693 kt as
higher volumes of clay ore were extracted in order to access
further sulphide ore. From 2020 it is expected that the amount of
clay ore processed from stockpiles will exceed mined volumes.
Processing volumes of 29,470 kt were 4% higher than in the
previous year (2018: 28,454 kt) and slightly below the design ore
capacity for Bozshakol of 30 Mtpa. The main sulphide concentrator
operated at full design capacity for the year. In the first half of
2019 operations at the clay plant were suspended for around three
months during a programme of upgrades to the water system to
increase recycling rates and reduce the consumption of fresh water,
following which it performed well, processing over 3 Mt of material
in the second half.
The average copper grade processed was 0.48%, consistent with
market guidance and the prior year. The average recovery rate
improved to 81% (2018: 79%), and combined with the higher levels of
ore processed in the second half of the year, resulted in an
increase in total copper production to 110.2 kt compared with 101.6
kt in 2018. Copper production was therefore at the mid-point of
guidance of 105-115 kt.
Gold production of 144.8 koz rose by 13% compared with 2018,
supported by higher average gold grades and improved recovery
rates. Gold production was in excess of guidance of 130-140 koz.
Silver production also increased from 666 koz in 2018 to 803 koz in
2019, ahead of guidance of approximately 700 koz, due to higher
processed grades.
The majority of copper production was dispatched as concentrate
to customers in China, with 13.6 kt of copper in concentrate sent
for toll processing at the Balkhash smelter in Kazakhstan, where
spare capacity on attractive terms was available.
Copper production in 2020 is expected to be 110-120 kt with
by-products of gold and silver guided at 140-150 koz and 700 koz
respectively. Both the sulphide and clay plants are planned to
operate at full design capacity, with a slight increase in copper
grade forecast.
Financial summary
$ million (unless otherwise stated) 2019 2018
------------------------------------ ---- ----
Revenues 851 756
Copper 601 596
Gold 234 144
Silver 13 11
Other 3 5
Sales volumes
Copper sales (kt) 107 102
Gold sales (koz) 165 115
Silver sales (koz) 772 724
EBITDA 585 520
Operating profit 427 361
Gross cash costs (USc/lb) 137 129
Net cash costs (USc/lb) 31 58
Capital expenditure 92 29
Sustaining 55 24
Expansionary 37 5
------------------------------------ ---- ----
Revenues
Revenues increased by $95 million to $851 million in 2019 and
benefited from higher sales volumes for all products compared with
2018, as well as higher realised gold and silver prices. Copper
revenues were broadly in line with the prior year, as the positive
impact of increased sales volumes was offset by a lower realised
price. Copper sales include 10 kt of copper cathode produced from
concentrate processed at the Balkhash smelter. Gold sales volumes
of 165 koz were significantly higher than production, benefiting
from the sale of 25.6 koz of gold bar inventory accumulated at the
end of 2018. Gold revenues increased by 62% to $234 million due to
the higher sales volumes combined with an increase in the average
LBMA price of gold from $1,268/oz in 2018 to $1,393/oz in 2019.
EBITDA
Bozshakol contributed $585 million of EBITDA, an increase of $65
million compared with 2018 as higher revenues were partially offset
by a rise in operating costs. The mine generated a strong EBITDA
margin of 69%, consistent with 2018.
Bozshakol's gross cash cost of 137 USc/lb increased from 129
USc/lb in 2018. The reported figure of 137 USc/lb includes charges
associated with the sale of 25.6 koz of gold bar inventory brought
forward from 2018. The production costs associated with the sale of
this material increased gross cash costs by around 5 USc/lb. The
2019 gross cash cost was towards the lower end of the guidance
range of 130-150 USc/lb, due to a reduction in the consumption of
consumables and a weaker KZT/USD exchange rate. These beneficial
factors were partially offset by higher mill relining expenses and
some cost inflation, which included local salaries.
The net cash cost at Bozshakol, after deducting by-product
credits, was 31 USc/lb. This cash cost incorporates the sale of
gold bar inventory brought forward from 2018 which benefited net
cash costs by 9 USc/lb. This represents an improvement on the prior
year, a result of favourable gold prices and strong gold production
in 2019.
The gross cash cost for 2020 is forecast to be 130-150 USc/lb,
consistent with the guidance for 2019, as the benefit of increased
forecast grades and production is offset by higher costs associated
with the maturing mine, including a deeper pit, longer haulage
distances and further maintenance costs.
Operating profit
Operating profit rose by $66 million to $427 million during
2019, in line with the increase in EBITDA.
Capital expenditure
Sustaining capital expenditure was $55 million during 2019, an
increase in comparison to 2018 when the maintenance requirements
were lower due to the earlier stage of the operations. Expenditure
during the year was mainly associated with the purchase and
overhaul of mining equipment as well as construction work to
increase the storage capacity of the tailings facilities. In 2020
sustaining capital expenditure is expected to be approximately $60
million, reflecting the higher levels of maintenance required as
the operations mature and further tailings work. Going forward
average annual sustaining capital expenditure is expected to be in
the region of $50 million per annum, incorporating periodic works
to increase tailings storage capacity.
Expansionary capital expenditure of $37 million was incurred
during the first half of the year, primarily on final retention
payments made to contractors for work performed in previous
periods.
EAST REGION AND BOZYMCHAK
The Group owns and operates three polymetallic underground mines
and associated concentrators in the East Region of Kazakhstan and
Bozymchak, a copper and gold open pit mine in Kyrgyzstan.
Production summary
Copper
kt (unless otherwise stated) 2019 2018
----------------------------------- ----- -----
Ore extraction 3,879 3,892
Ore processed 3,791 4,030
Average copper grade processed (%) 1.71 1.81
Average recovery rate (%) 90 90
Copper in concentrate 58.7 65.3
Copper production 55.5 61.7
----------------------------------- ----- -----
Copper production in the East Region and Bozymchak of 55.5 kt
was in line with market guidance of around 55 kt, and represents a
6.2 kt (10%) reduction from the prior year. The volume of ore
processed was consistent with ore extraction, but decreased by 6%
to 3,791 kt as the prior year benefited from the processing of
stockpiles. Average copper grades processed in 2019 reduced to
1.71%, mainly a result of lower grades at Orlovsky where difficult
geological conditions prevented access to higher grade zones. The
Bozymchak concentrator operated at full capacity throughout the
year, contributing 7.0 kt of copper production.
Following a strategic review, the Belousovsky concentrator was
closed on 25 October 2019 to improve operational efficiency. Ore
extracted from the Irtyshsky mine was subsequently transported to
the Nikolayevsky concentrator for processing, making use of
available capacity. The Belousovsky concentrator has since been
disposed of.
At Artemyevsky, grades and processing volumes will remain at
around current levels, until extraction commences from the second
ore body, which is expected from 2022. Production from Orlovsky
over the remaining life of the mine is expected to be at or below
current output, as mining takes place in deeper horizons and more
challenging geological conditions. Copper production from the East
Region and Bozymchak is therefore expected to decrease to
approximately 50 kt in 2020.
By-products
kt (unless otherwise stated) 2019 2018
----------------------------- ----- -----
Gold bearing ore processed 3,791 4,030
Gold grade processed (g/t) 0.70 0.73
Gold in concentrate (koz) 57.1 58.5
Gold production (koz) 53.7 55.0
Silver bearing ore processed 3,791 4,030
Silver grade processed (g/t) 29.2 33.4
Silver in concentrate (koz) 2,223 2,590
Silver production (koz) 2,024 2,356
Zinc bearing ore processed 2,767 3,028
Zinc grade processed (%) 2.06 2.42
Zinc in concentrate 38.3 49.7
----------------------------- ----- -----
Production levels for all by-products at the East Region and
Bozymchak reduced in 2019. Zinc in concentrate output of 38.3 kt
was below the guidance of 40-45 kt, impacted by lower than expected
grades. The largest reduction was at the Orlovsky mine, which
produced 11.6 kt in 2019 compared with 24.8 kt in the previous
year. Zinc in concentrate output is similarly impacted by the
factors affecting copper production at Orlovsky and
Artemyevsky.
Full year gold production of 53.7 koz was in excess of the
market guidance range of 45-50 koz and was marginally below the
prior year. This was the result of a strong performance from the
Bozymchak mine, which contributes the majority of gold production
(40.8 koz, 2018: 39.7 koz) and where grades were higher than
expected.
Silver production of 2,024 koz was 12% ahead of market guidance
of 1,800 koz. 2019 output reduced by 332 koz compared with the
prior year as a result of a reduction in silver grades processed,
mainly at Orlovsky.
East Region and Bozymchak is forecast to produce 40-50 koz of
gold and approximately 1,800 koz of silver in 2020, below the
levels achieved in 2019 but consistent with the reduction in copper
volumes. Zinc in concentrate production is expected to be around 40
kt.
Financial summary
$ million (unless otherwise stated) 2019 2018
------------------------------------ ----- -----
Revenues 552 631
Copper 374 417
Gold 80 68
Silver 36 37
Zinc 58 101
Other 4 8
Sales volumes
Copper sales (kt) 62 64
Gold sales (koz) 57 54
Silver sales (koz) 2,211 2,362
Zinc sales (kt) 38 50
EBITDA 230 284
Operating profit 140 165
Gross cash costs (USc/lb) 234 244
Net cash costs (USc/lb) 104 94
Capital expenditure 98 70
Sustaining 42 40
Expansionary 56 30
------------------------------------ ----- -----
Revenues
Revenues in East Region and Bozymchak decreased by 13% in 2019
as a result of reduced sales of all products aside from gold, and
lower average realised prices of copper and zinc. Copper sales
volumes of 62 kt included the sale of finished goods inventory from
the prior year and were above production of 55.5 kt. However,
copper revenues were $43 million below 2018, mainly due to lower
realised prices. Zinc revenues fell by $43 million due to a
reduction in sales volumes and a lower market price for zinc. An
increase in gold prices, combined with sale of stockpiled material,
resulted in higher gold revenue of $80 million.
EBITDA
EBITDA in 2019 was $230 million, a $54 million decrease compared
with 2018 which reflects the lower revenues, partially offset by a
reduction in operating costs. Cash operating costs reduced by $25
million to $322 million, as a result of lower production volumes as
well as favourable cost performance. Management took action to
control costs during the year, including a rationalisation of
concentrator capacity resulting in the closure of the Belousovsky
concentrator, optimisation of shift schedules and transport routes,
and a reduction in warehousing costs. Furthermore, operating costs
in the East Region have a higher exposure to the tenge, which
weakened by 11% (2019: average 383 KZT/USD, 2018: 345 KZT/USD).
These beneficial factors more than offset local inflation on
salaries and certain input costs. Gross cash cost performance was
aided by the sale of 7 kt of finished goods copper inventory. As a
result, the gross cash cost of copper for East Region and Bozymchak
was 234 USc/lb, below the prior year and towards the bottom end of
market guidance of 230-250 USc/lb.
Net cash costs rose to 104 USc/lb, despite the reduction in
gross cash costs, due to the significant decrease in zinc
revenues.
Gross cash costs for 2020 are estimated to increase to 260-280
USc/lb as sales volumes fall from 62 kt in 2019 to approximately 50
kt, a level consistent with planned production in 2020.
Operating profit
Operating profit of $140 million was $25 million lower than the
prior year due to the reduction in EBITDA and the recognition of a
$20 million impairment at Bozymchak in 2018.
Capital expenditure
Sustaining capital expenditure of $42 million was in line with
the prior year and related primarily to mine development works in
the underground mines, the expansion of tailings facilities and the
purchase and overhaul of mining equipment. In 2020, the planned
sustaining capital expenditure for East Region and Bozymchak is
approximately $50 million, including some works deferred from 2019.
This expenditure includes construction of a new in-pit tailings
storage facility close to the Nikolayevsky concentrator which will
reduce the Group's tailings footprint.
Expansionary capital expenditure of $56 million in 2019 was
below the guidance of $70 million, as spend on the Artemyevsky
extension and Bozymchak underground mine was partially deferred
into 2020. 2019 expenditure was focused on the Artemyevsky
development, where initial works on the ventilation shaft continued
and surface fans were installed.
Approximately $75 million is expected to be incurred on
expansionary capital expenditure in 2020. As previously guided, the
Artemyevsky project is expected to require $60 million of
expenditure per annum from 2020 to 2023, with limited spend
thereafter. Initial works at the project in 2020 will include
sinking shafts, commencing underground construction and capital
mining works. Over the period from 2020 to 2024 a further $15
million per annum will be required for the development of the
underground phase at Bozymchak, which will extend the mine
life.
Baimskaya
During 2019 the Group progressed the bankable feasibility study
for the Baimskaya copper project and commenced pioneer works at the
site, incurring $111 million of capital expenditure during the year
against guidance of $150 million. The bankable feasibility study is
scheduled for completion in the first half of 2020. Capital
expenditure of $150 million has been approved at Baimskaya in 2020
to complete the bankable feasibility study and continue pioneer
works. The Group is evaluating whether to make additional equipment
deliveries to Pevek in the 2020 shipping window and may consider
approving additional capital expenditure later in the year.
Other projects
Following the $70 million investment in the Koksay project by
NFC, study works began in the second half of 2019 with $5 million
of capital expenditure incurred during the year. A feasibility
study to determine the detailed design for mining and processing
operations and the associated capital budget will be carried out in
2020. This will be reviewed by the Board before assessing how and
when to proceed with the project. Approximately $20 million will be
spent on Koksay and other minor projects during the year.
FINANCIAL REVIEW
Basis of preparation
The financial information has been prepared in accordance with
IFRSs, as adopted by the EU, using accounting policies consistent
with those adopted in the condensed consolidated financial
statements for the year ended 31 December 2019, including the
application 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 comparative
information 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:
$ million (unless otherwise stated) 2019 2018
--------------------------------------------------------- ------ ------
Revenues 2,266 2,162
Cash operating costs (911) (852)
--------------------------------------------------------- ------ ------
EBITDA(1) 1,355 1,310
Less: MET and royalties (196) (200)
Less: depreciation, depletion and amortisation (236) (239)
Less: special items - (20)
Operating profit 923 851
Net finance costs (197) (209)
--------------------------------------------------------- ------ ------
Profit before tax 726 642
Income tax expense (155) (132)
--------------------------------------------------------- ------ ------
Profit for the year 571 510
Non-controlling interests - -
Profit attributable to equity holders of the Company 571 510
--------------------------------------------------------- ------ ------
Earnings per share attributable to equity holders of the
Company
EPS based on Underlying Profit(1) - basic ($) 1.21 1.18
EPS based on Underlying Profit(1) - diluted ($) 1.17 1.18
--------------------------------------------------------- ------ ------
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 54.
Revenues
Revenues for 2019 were $2,266 million, an increase of $104
million from the prior year, principally due to higher copper and
gold volumes which more than offset lower copper prices. The
increase in copper sales volumes of 21 kt, mainly from strong
production at Aktogay, contributed additional revenues of $118
million. Incremental by-product volumes added revenues of $53
million, as increased gold sales from higher production and the
sale of gold bar inventory brought forward from 2018 at Bozshakol
was partially offset by lower zinc volumes.
The increase in sales volumes more than offset the negative
impact of lower realised copper prices (-$71 million) as the
average LME price fell from $6,526/t in 2018 to $6,000/t in 2019.
By-product prices benefited revenues by $4 million, as the average
market price for gold (+10%) was offset by lower zinc prices
(-13%).
$ million
--------------------------------------- ------
Revenues - year ended 31 December 2018 2,162
Copper volumes(1) 118
By-product volumes(1) 53
Copper prices(2) (71)
By-product prices(2) 4
--------------------------------------- ------
Revenues - year ended 31 December 2019 2,266
--------------------------------------- ------
1 Change in sales volumes at current year realised prices.
2 Change in realised prices applied to prior year sales
volumes.
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(b) to the condensed consolidated financial statements.
Operating profit and EBITDA
Operating profit for 2019 was $923 million, an increase of $72
million versus the prior year, benefiting from the higher sales
volumes. The Group's operating profit margin, measured as operating
profit divided by revenues, increased to 41% from 39% in 2018 due
to the absence of exceptional impairment charges in the current
year and as operating costs benefited from the weaker average tenge
exchange rate, offsetting the impact of lower commodity prices and
higher administrative expenses. The tenge traded at an average of
383 KZT/$ in 2019, whilst recording an average of 345 KZT/$ in the
prior year.
EBITDA for the Group of $1,355 million was $45 million above the
prior year, with increased copper and by-product volumes
contributing $79 million and $53 million respectively. The
favourable impact of higher volumes was partially offset by lower
copper prices, which reduced revenues by $71 million. In addition,
there was a $20 million reduction in EBITDA due to higher cash
operating costs, largely attributable to Aktogay and Bozshakol
which had previously benefited from lower maintenance costs in the
early years of operations, and additional social expenditure costs.
The Group's EBITDA margin decreased slightly from 61% in 2018 to
60% in 2019.
$ million
------------------------------------- ------
EBITDA - year ended 31 December 2018 1,310
Copper volumes(1) 79
By-product volumes(1) 53
Cost impact(2) (20)
Copper prices(3) (71)
By-product prices(3) 4
------------------------------------- ------
EBITDA - year ended 31 December 2019 1,355
------------------------------------- ------
1 Change in sales volumes at current year margin.
2 Net change in cash costs per tonne.
3 Change in realised prices applied to prior year sales
volumes.
Please refer to the Operating review for a detailed analysis of
EBITDA by operating segment.
Items excluded from EBITDA
The MET and royalties charge in the income statement was $196
million in 2019, below the $200 million recorded in 2018 due to
lower commodity prices which offset higher levels of extraction.
The total MET and royalties incurred was $214 million (2018: $207
million), which additionally includes MET in unsold inventories on
the balance sheet.
Depreciation, depletion and amortisation in 2019 of $236 million
was lower than the $239 million incurred in 2018. The additional
depreciation associated with the increase in property, plant and
equipment was offset by the impact of the weaker average tenge
during the year.
The prior year included a $20 million impairment in respect of
Bozymchak arising from the non-recovery of VAT incurred during
construction of the plant, which was expensed as a special
item.
Net finance costs
Net finance costs include:
$ million 2019 2018
------------------------- ------ ------
Interest income 18 33
Total interest incurred (226) (240)
Interest capitalised 37 4
------------------------- ------ ------
Interest expense (189) (236)
Other finance costs (26) (6)
------------------------- ------ ------
Net finance costs (197) (209)
------------------------- ------ ------
Net finance costs of $197 million were $12 million lower than
the prior year. Total interest incurred of $226 million reduced by
$14 million as the average level of debt during the year reduced
following scheduled repayments. This was partially offset by the
impact of higher US dollar LIBOR rates.
Capitalised interest of $37 million in 2019 related to financing
costs incurred on the DBK-Aktogay expansion facility and the use of
the Group's general borrowings to fund the Aktogay expansion and
Baimskaya capital projects and other qualifying assets (see note 8
on page 44).
Included within other finance costs are net exchange losses of
$20 million (2018: net exchange gains of $3 million), which arose
from a year-on-year appreciation of the tenge at 31 December 2019
compared with 31 December 2018, despite the tenge being on average
weaker during 2019 than the prior year. This resulted in a non-cash
foreign exchange loss on tenge denominated intercompany balances
which was 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.
$ million (unless otherwise stated) 2019 2018
------------------------------------ ---- ----
Profit before tax 726 642
Add: MET and royalties 196 200
Add: special items - 20
Adjusted profit before tax 922 862
------------------------------------ ---- ----
Income tax expense 155 132
Add: MET and royalties 196 200
Adjusted tax expense 351 332
------------------------------------ ---- ----
Effective tax rate (%) 21 21
------------------------------------ ---- ----
All-in effective tax rate(1) (%) 38 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.
The effective tax rate in 2019 was 21%, in line with the prior
year. The all-in effective tax rate decreased marginally to 38%
versus the prior year mainly due to a lower MET and royalties
charge. As MET is determined independently of the profitability of
operations, in periods of higher profitability the all-in effective
tax rate decreases as the impact of MET and royalties is lower.
Conversely, during periods of lower profitability, the MET and
royalties impact on the all-in effective tax rate is elevated.
Profit attributable to 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:
$ million (unless otherwise stated) 2019 2018
--------------------------------------------------------------- ----- -----
Profit attributable to equity holders of the Company 571 510
Special items within operating profit, net of tax - note
7 - 20
Underlying Profit(1) 571 530
--------------------------------------------------------------- ----- -----
Weighted average number of shares in issue (million) - basic 470 447
Potential dilutive ordinary shares, weighted for the period
outstanding (million) 20 -
--------------------------------------------------------------- ----- -----
Weighted average number of shares in issue (million) - diluted 490 447
--------------------------------------------------------------- ----- -----
Ordinary EPS - basic ($) 1.21 1.14
Ordinary EPS - diluted ($) 1.17 1.14
EPS based on Underlying Profit(1) - basic ($) 1.21 1.18
EPS based on Underlying Profit(1) - diluted ($) 1.17 1.18
--------------------------------------------------------------- ----- -----
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 54.
The Group's profit attributable to equity holders of the Company
was $571 million in 2019 compared with $510 million in the prior
year, largely attributable to the increase in the Group's sales
volumes.
EPS and EPS based on Underlying Profit
Basic EPS of $1.21 increased from $1.14 in 2018 due to the
increase in earnings, partially offset by 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 with new ordinary shares (see note 5(a) on page
43). Diluted EPS of $1.17 reported in the current year 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 10 on page 46), which were weighted over
the period they were outstanding, from acquisition on 22 January
2019 to 31 December 2019. Underlying Profit of $571 million was $41
million higher than the prior year and no special items were
included within operating profit (2018: $20 million).
Dividends
KAZ Minerals PLC, the parent company of the Group, is a
non-trading investment holding company and derives its profits from
dividends paid by subsidiary companies.
The Group's dividend policy, established at the time of Listing,
is for the Board to consider the cash generation and financing
requirements of the business before recommending a suitable
dividend. This maintains flexibility, which is appropriate given
the underlying cyclicality of a commodity business and the Group's
growth ambitions.
In October 2019, the Company paid an interim dividend of 4.0 US
cents per share equating to an interim payment of $19 million. The
Board has recommended a final dividend for 2019 of 8.0 US cents per
share, equivalent to a payment of $38 million, recognising the
Group's strong operational and financial performance and its
continued investment in growth at Aktogay and Baimskaya. Combined
with the interim dividend of 4.0 US cents per share, the dividend
in respect of the 2019 financial year is 12.0 US cents per
share.
The financing requirements of the Baimskaya copper project will
be assessed during the feasibility study, following which the Board
will further review the Group's allocation of capital.
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 31 December
2019 were $1,367 million.
Cash flows and movement in net debt
The summary of cash flows below is prepared on a basis
consistent with internal management reporting.
$ million 2019 2018
-------------------------------------------------------------- -------- --------
EBITDA(1) 1,355 1,310
Change in working capital (282) (115)
Interest paid (230) (229)
MET and royalties paid (206) (208)
Income tax paid (92) (95)
Foreign exchange and other movements 8 7
Sustaining capital expenditure (142) (85)
-------------------------------------------------------------- -------- --------
Free Cash Flow(1) 411 585
Expansionary and new project capital expenditure (718) (530)
Acquisition of Baimskaya copper project, net of cash acquired (435) -
Net VAT (paid)/received associated with major growth projects (41) 3
Interest received 20 32
Dividends paid (47) (27)
Other investments 45 10
Other movements (3) (3)
-------------------------------------------------------------- -------- --------
Cash flow movement in net debt (768) 70
Net debt(1) at the beginning of the year (1,986) (2,056)
Other non-cash movements (5) -
-------------------------------------------------------------- -------- --------
Net debt(1) at the end of the year (2,759) (1,986)
-------------------------------------------------------------- -------- --------
Represented by:
Cash and cash equivalents and current investments 541 1,469
Less: restricted cash - (2)
Borrowings (3,300) (3,453)
Net debt(1) at the end of the year (2,759) (1,986)
-------------------------------------------------- -------- --------
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 54.
Summary
Net debt increased from $1,986 million at 31 December 2018 to
$2,759 million at 31 December 2019 as Free Cash Flow from
operations was more than offset by investment in the Group's growth
projects. Cash consideration of $436 million was paid in respect of
the Baimskaya copper project acquisition. Expansionary capital
expenditure of $718 million was incurred, an increase of $188
million over the prior year, mainly on the Aktogay expansion
project and the feasibility study and pioneer works at
Baimskaya.
Free Cash Flow of $411 million reduced by $174 million from the
prior year, as the increase in EBITDA was more than offset by
higher working capital (see working capital section below) and
sustaining capital expenditure. The increase in sustaining capital
represents a normalisation of expenditure, as Aktogay and Bozshakol
had benefited from lower maintenance requirements in prior years as
the operations were newer.
Working capital
The summary of movements in working capital is outlined
below:
$ million 2019 2018
----------------------------------------------------- ------ ------
Change in inventories(1) (128) (138)
Change in prepayments and other current assets(2) (72) (30)
Change in trade and other receivables (51) 4
Change in trade and other payables and provisions(3) (31) 49
Movement in working capital (282) (115)
----------------------------------------------------- ------ ------
1 The $161 million increase in inventory shown in the IFRS based
cash flow statement (see note 17(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.
2 The $113 million increase in prepayments and other current
assets shown in the IFRS based cash flow statement (see note 17(a))
includes net VAT paid on the major growth projects. The cash flow
above contains net VAT (paid)/received associated with major growth
projects as a separate line item.
3 The difference to trade and other payables shown in the IFRS
based cash flow statement (see note 17(a)) is the change in MET and
royalties payable during 2019. The cash flow above contains MET and
royalties paid as a separate line item.
The cash impact of inventory changes in 2019 was $128 million
(2018: $138 million), largely due to the acquisition of consumables
and spare parts to support the Aktogay and Bozshakol operations.
The Group's priority for 2019 was to ensure that the main sulphide
concentrators at these sites operated at full design capacity
throughout the year, hence a conservative approach to the stocking
of such items was taken. 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.
An outflow of $44 million in respect of ore stockpiles and
work-in-progress at Aktogay and Bozshakol was also included in
change in inventories, mainly related to the stockpiling of low
grade sulphide ore at Aktogay (to access high grade areas and in
preparation for the Aktogay expansion) and clay ore at Bozshakol.
From 2020 it is expected that the amount of clay ore processed at
Bozshakol from stockpiles will exceed mined volumes.
Prepayments and other current assets rose by $72 million (2018:
$30 million) mainly due to an increase in VAT receivable at the
Aktogay, Bozshakol and East Region operations. There was also an
increase in VAT receivable relating to major growth projects of $41
million (2018: decrease of $3 million) which is shown separately in
the table above and excluded from Free Cash Flow (see APMs section
on page 54). The increase in VAT receivable was partly due to
higher capital expenditure but was mainly the result of a delay in
the receipt of VAT refunds in the second half of 2019. VAT is being
received in 2020 through a combination of offset and refund.
Trade and other receivables increased by $51 million (2018:
decreased by $4 million) which reflects the timing of sales and
cash receipts. In addition, provisionally priced trade receivables
are marked to market at year end contributing a $19 million
increase at 31 December 2019 compared with the prior year due to
higher forward prices. The Group's higher sales volumes in 2019
have also resulted in an increase in the normal level of trade
receivables. Further details relating to the nature of Group's
customers are given in note 4(b) to the condensed consolidated
financial statements.
Trade and other payables and provisions decreased by $31 million
(2018: $49 million increase) due to a reduction in customer
receipts in advance of product deliveries compared to 31 December
2018. At the end of 2018, the Group had received advance payment
for the dispatch of copper concentrate to European markets which
was subsequently recognised as revenue in 2019.
Interest cash flows
Interest paid of $230 million was consistent with the prior
year. Interest paid is higher than total interest incurred during
the year of $226 million, which led to a reduction in the interest
payable from $71 million at 31 December 2018 to $61 million at 31
December 2019.
Income taxes and MET
Income tax payments decreased to $92 million (2018: $95 million)
despite the higher profit before tax generated, as $11 million of
income tax payments due were offset against VAT refunds in the
second half of 2019. Income tax payments were also below the income
statement charge of $155 million (2018: $132 million) due to
capital allowances and utilisation of available tax losses.
MET and royalties payments of $206 million were consistent with
the prior year (2018: $208 million). At 31 December 2019, MET and
royalties payable was $56 million compared with $48 million at 31
December 2018 following the increase in total MET and royalties
incurred.
Capital expenditure
Sustaining capital expenditure increased to $142 million in 2019
from $85 million in the prior year, primarily due to higher
maintenance spend at Aktogay and Bozshakol.
Expansionary and new project expenditure of $718 million in 2019
primarily relates to the Aktogay expansion project ($459 million).
The first Aktogay and Bozshakol projects also incurred expenditure
of $50 million and $37 million respectively, mainly for final
retention payments, and the heap leach pad expansion at Aktogay.
Following the acquisition of Baimskaya, the Group invested $111
million in the feasibility study and initial pioneer works. In
addition, there was capital investment at East Region and Bozymchak
of $56 million, mainly relating to the Artemyevsky expansion, and
$5 million for the Koksay project. 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 note 5(a) on page
43).
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 13(c)(iii) on page 48),
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 net deferred tax assets and $7
million relating to other non-current assets, income taxes prepaid
and cash and cash equivalents (see note 5(a) on page 43).
Other investments
In 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 note 5(b) on page 43). In 2018, other investing cash flows
included the receipt of $25 million advance consideration in
respect of NFC's equity investment in Koksay and $15 million of
advances paid to fund studies on the Baimskaya copper project.
Movements in equity
Equity attributable to owners of the Company at 31 December 2019
was $2,115 million (2018: $1,050 million), with the increase of
$1,065 million mainly due to Underlying Profit in 2019 of $571
million, the shares issued and Deferred Consideration for the
Baimskaya acquisition of $464 million (see note 5(a) on page 43),
partly offset by dividends paid of $47 million during 2019. There
was also a $65 million increase in the US dollar value of the
Group's foreign currency operations following a 1% increase in the
value of the tenge from 31 December 2018 to 31 December 2019. The
Group's mining assets are largely held within Kazakhstan-based
entities which maintain the tenge as their functional currency. At
the year end, non-monetary net assets are consolidated and reported
in US dollars at the closing exchange rate with the change in value
arising from movements in the tenge exchange rate reflected in
equity and not through the income statement. The Group's external
liabilities, principally bank debt, are mainly US dollar
denominated and are not affected by movements in the KZT/$ exchange
rate.
Movements in borrowings
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 in June 2022, followed by semi-annual
repayments in May and November of each year from November 2022
until the final repayment in 2034. $315 million (net of arrangement
fees) was drawn by 31 December 2019. The facility is guaranteed by
KAZ Minerals PLC.
On 15 November 2019, the Group signed a new credit facility of
up to $100 million with CAT. The facility accrues interest at a
variable margin of between 3.00% and 4.50% above US$ LIBOR,
dependent on the ratio of net debt to EBITDA which will be tested
semi-annually. It is comprised of two sub-facilities of $40 million
and $60 million secured against existing and new Caterpillar
equipment. Quarterly repayments for the existing drawing will
commence in December 2020 until final maturity in 2024. $72 million
(net of arrangement fees) was drawn by 31 December 2019. The
facility is guaranteed by KAZ Minerals PLC.
At 31 December 2019, borrowings (net of unamortised fees) were
$3,300 million, a decrease of $153 million from 31 December 2018 as
a result of the movements set out in the table below:
At At
1 January Other 31 December
$ million 2019 Drawings(1) Repayments movements(2) 2019
------------------------------- ---------- ----------- ---------- ------------- ------------
CDB-Bozshakol and Bozymchak 1,345 - (183) 3 1,165
CDB-Aktogay CNY facility 110 - (12) (1) 97
CDB-Aktogay USD facility 1,221 - (107) 3 1,117
PXF facility 500 - (200) - 300
DBK-Aktogay facility 277 - (43) - 234
DBK-Aktogay expansion facility - 315 - - 315
CAT facility - 72 - - 72
Total 3,453 387 (545) 5 3,300
------------------------------- ---------- ----------- ---------- ------------- ------------
At At
1 January Other 31 December
$ million 2018 Drawings(1) Repayments movements(2) 2018
---------------------------- ---------- ----------- ---------- ------------- ------------
CDB-Bozshakol and Bozymchak 1,524 - (183) 4 1,345
CDB-Aktogay CNY facility 128 - (12) (6) 110
CDB-Aktogay USD facility 1,327 - (107) 1 1,221
PXF facility 600 - (100) - 500
DBK-Aktogay facility 298 - (22) 1 277
Total 3,877 - (424) - 3,453
---------------------------- ---------- ----------- ---------- ------------- ------------
1 Drawings are shown net of arrangement fees, which are netted
off against borrowings in accordance with IFRS 9.
2 Other movements include non-cash amortisation of fees on
borrowings and foreign exchange gains on the CDB-Aktogay CNY
facility.
On 28 January 2020, the Group completed an amendment and
extension of the PXF which includes an increase in facility
commitments to $1.0 billion, an extension of the loan tenor and a
reduction in the facility margin. The amendment represents a net
increase of $700 million above the $300 million outstanding under
the existing facility and the maturity profile is extended by 3.5
years, from June 2021 until December 2024 with two annual extension
options which, if exercised, would extend final maturity of the
facility to December 2025 or December 2026 respectively. The
amended facility accrues interest at a variable margin of between
2.25% and 3.50% above US$ LIBOR (previously between 3.00% and 4.50%
above US$ LIBOR), dependent on the ratio of net debt to EBITDA
which will be tested semi-annually. Monthly repayments will
commence in January 2021, with a final balloon repayment of
one-third of the facility amount ($333 million) in December 2024,
which will be amortised during 2025 and 2026 if the extension
options are exercised. The Group expects to fully draw the facility
in the first quarter of 2020.
Further details of the terms of the Group's borrowings are
included in note 15 of the condensed consolidated financial
statements.
Going concern
The Group manages liquidity risk by maintaining adequate
committed borrowing facilities and working capital funds. The Board
monitors the net debt level 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. Accordingly, it is appropriate to adopt the
going concern basis of accounting in the preparation of these
condensed consolidated financial statements.
PRINCIPAL RISKS
The Group's principal risks are set out below, together with
mitigating actions. There may be other risks, unknown or currently
considered immaterial, which could become material. The risks set
out below are not in order of likelihood of occurrence or
materiality and should be viewed, as with any forward-looking
statements in this document, with regard to the cautionary
statement on page 3.
SUSTAINABILITY RISKS
Health and safety
Impact
Mining is a hazardous industry. Health and safety incidents
could result in harm to people, as well as production disruption,
financial loss and reputational damage.
The Group is in a period of construction activity, increasing
potential health and safety exposures.
Mitigation
The Group's goal is for zero fatalities and to seek to minimise
health and safety incidents. Policies and procedures are designed
to identify and monitor risks and provide a clear framework for
conducting business. This is supported by regular training and
awareness campaigns for employees and contractors.
In June 2019 the Group began its 'Goal Zero' initiative, which
aims to provide safe working conditions for all employees of the
Group. 'Goal Zero' covers industrial safety, occupational safety
and environmental protection.
The HSS Committee reviews and monitors associated risks across
the Group.
Community and labour relations
Impact
The Group operates in areas where it is a major employer, where
employees are represented by labour unions and where it may provide
support to the local community. This may impose restrictions on the
Group's flexibility in taking certain operating decisions. Failure
to identify and manage the concerns and expectations of local
communities and the labour force could affect the Group's
reputation and social licence to operate and could result in
production disruptions and increases in operating costs. Wage
negotiations could be impacted by higher commodity prices, higher
domestic inflation or the continued weakness of the tenge.
Mitigation
The Group engages with community representatives, unions and
employees and aims to address concerns raised by different
stakeholders. Through responsible behaviour, acting transparently,
promoting dialogue and fulfilling its commitments, the Group
minimises potentially negative impacts. Aktogay and Bozshakol are
in remote locations where the community relations risk is reduced.
As part of the initial development of Baimskaya the Group has met
with community representatives in the Chukotka region to understand
local issues and commence a dialogue.
Employees
Impact
The Group is dependent on its ability to attract and retain
highly skilled personnel. Failure to do so could have a negative
impact on operations or the successful implementation of growth
projects and result in higher operating costs to recruit required
staff. The remote location of some operations increases this
challenge.
The Group will be entering a period of increased recruitment to
staff the operational phase of the Aktogay expansion, and relating
to the potential development of Baimskaya.
Mitigation
The Group actively monitors the labour market to remain
competitive in the hiring of staff and provides remuneration
structures and development opportunities to attract and retain key
employees. Key positions are identified at all locations, and
training and succession plans developed. A leadership development
programme is in place to provide a talent pipeline of national
workers for key positions and aid retention.
International workers with appropriate expertise assist during
the initial phase of operations.
Environmental
Impact
Mining operations involve the use of toxic substances and
require the storage of large volumes of waste materials in tailings
dams, which could result in spillages, loss of life and significant
environmental damage. The Group is subject to environmental laws
and regulations which are continually developing, including those
to tackle climate change. Failure to comply with applicable laws
could lead to the suspension of operating licences, the imposition
of financial penalties or costly compliance costs and reputational
damage.
Environmental practices face additional scrutiny as societal
expectations around responsible investing evolve. This could impact
the Group's operations or access to capital.
Mitigation
Policies and procedures are in place to set out required
operating standards and to monitor environmental impacts. The Group
liaises with relevant governmental bodies on environmental matters,
including legislation changes.
During 2019 the Group completed the closure of the
Yubileyno-Snegirikhinsky mine and implemented water conservation
initiatives which resulted in a decrease in the Group's water
intensity per tonne of ore processed from 0.62 m(3) /t in 2018 to
0.38 m(3) /t in 2019. The Group's CO(2) per tonne of ore processed
reduced by 4% in 2019 compared with 2018.
OPERATIONAL RISKS
Business interruption
Impact
Operations are subject to a number of risks not wholly within
the Group's control, including: geological and technological
challenges; weather, pandemic disease or other natural phenomena;
damage to or failure of equipment and infrastructure; information
technology and cyber risks; loss or interruption to key inputs such
as electricity and water; and the availability of key supplies and
services, including the Balkhash smelter.
Any disruption could impact production, may require the Group to
incur unplanned expenditure and negatively impact cash flows.
Mitigation
In-house and third-party specialists are utilised to identify
and manage operational risks and to recommend improvements.
Equipment and facilities are maintained appropriately and regularly
inspected. Property damage and business interruption insurance
programmes provide some protection from major incidents.
Should a significant outage occur at the Balkhash smelter the
Group believes it could sell concentrate directly to other
customers.
New projects and commissioning
Impact
Projects may fail to achieve the desired economic returns due to
an inability to recover mineral resources, design or construction
deficiencies, a failure to achieve expected operating parameters or
because of capital or operating costs being higher than expected.
Failure to manage new projects effectively 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 Baimskaya copper project, including its remote
location, the delivery of government support for infrastructure,
obtaining certain tax incentives and the local weather
conditions.
Mitigation
New projects are subject to rigorous assessment prior to
approval including feasibility or technical studies and capital
appraisal. Specialists are utilised throughout the life cycle of
projects. Project management and capital expenditure planning and
monitoring procedures are in place to review performance against
milestones and budgets. This includes the Projects Assurance
Committee which reports to the Board.
In relation to the Baimskaya copper project, an international
standard pre-feasibility study has been performed by Fluor and the
mine plan is based on a JORC resource. The Group is progressing a
full bankable feasibility study to determine the detailed design of
the mine and the associated capital cost.
Further details of the major growth projects are included in the
Operating review.
Reserves and resources
Impact
The Group's ore reserves are in part based on an estimation
method established by the former Soviet Union. There are numerous
uncertainties inherent in estimating ore reserves, which if
changed, could require the need to restate ore reserves and impact
the economic viability of affected operations and development
projects.
Mitigation
The Group's ore reserves and mineral resources are published
annually in accordance with the criteria of the JORC Code and
reviewed by a Competent Person. This includes mine site visits
where considered appropriate and the conversion from the former
Soviet Union estimation to that prescribed by the JORC Code.
Drilling and exploration programmes are conducted to enhance the
understanding of geological information.
Political
Impact
The Group could be affected by political instability or social
and economic changes in the countries in which it operates. This
could include a change in government, the granting and renewal of
permits and changes to foreign trade or legislation that could
affect the business environment and negatively impact the Group's
business, financial performance and licence to operate.
Further international sanctions on Russia could impact the
development of Baimskaya, as well as the supply of certain goods
and services to the Group's existing operations.
Mitigation
A proactive dialogue is maintained with KAZ Minerals' host
governments across a range of issues. Developments are monitored
closely and lobbying is conducted where appropriate.
Kazakhstan remains one of the most politically stable and
economically developed countries in Central Asia. During 2019,
Nursultan Nazarbayev was succeeded by Kassym-Jomart Tokayev as
President of Kazakhstan. The Board continues to view the political,
social and economic environment within Kazakhstan favourably.
In Russia, the Group maintains an ongoing dialogue with the
government and key stakeholders. The Baimskaya acquisition was
structured with Deferred Consideration to incentivise the Vendor,
as a local partner, to assist in the delivery of the project.
Legal and regulatory compliance
Impact
The Group is subject to various legal and regulatory
requirements across all of its jurisdictions including subsoil
usage rights in Kazakhstan, Kyrgyzstan and Russia and UK governance
rules including related party transactions and anti-bribery and
corruption. Legislation and taxation may be subject to change and
uncertainty of interpretation, application and enforcement. In a
number of jurisdictions around the world governments have been
increasing taxation on resource companies.
Non-compliance with legislation could result in regulatory
challenges, fines, litigation and ultimately the loss of operating
licences. Substantial payments of tax could arise for the Group, or
tax receivable balances may not be recovered as expected.
Mitigation
Management engages with the relevant regulatory authorities and
seeks appropriate advice to ensure compliance with all relevant
legislation and subsoil use contracts. A specialist department is
tasked with monitoring compliance with the terms of subsoil use
contracts in Kazakhstan. Management works closely with the tax
authorities in the review of proposed amendments to legislation.
Appropriate monitoring and disclosure procedures are in place for
related party transactions. Social investments are made in
accordance with a Board approved policy and are overseen by the
Group's Social Investment Committee. The Group's corporate policies
are applied in Russia where a dedicated team is managing legal and
regulatory compliance.
FINANCIAL RISKS
Commodity price
Impact
The Group's results are heavily dependent on the commodity price
for copper and to a lesser extent, the prices of gold, silver and
zinc. Commodity prices can fluctuate significantly and are
dependent on several factors, including global supply and demand
and investor sentiment.
The escalation of trade tensions between the US and China
negatively impacted copper prices in 2019 and, depending on
developments, may continue to do so.
The emergence of the Covid-19 coronavirus in China in December
2019, and the subsequent increase in reported cases has raised
concerns over the economic outlook for China. As the largest
consumer of copper, a reduction in China's economic growth could
have a material adverse impact on the copper price.
Mitigation
The Group regularly reviews its sensitivity to fluctuations in
commodity prices. The Group is not currently and does not normally
hedge commodity prices but may enter into a hedge programme where
the Board determines it is appropriate to provide greater certainty
over future cash flows.
Foreign exchange and inflation
Impact
Fluctuations in rates of exchange or inflation in the
jurisdictions to which the Group is exposed could result in future
increased costs.
As the functional currency of the Group's operating entities is
their local currency, fluctuations in exchange rates can give rise
to exchange gains and losses in the income statement and volatility
in the level of net assets recorded on the Group's balance
sheet.
Mitigation
Where possible the Group conducts its business and maintains its
financial assets and liabilities in US dollars. The Group generally
does not hedge its exposure to foreign currency risk in respect of
operating expenses.
Exposure to China
Impact
Sales are made to a limited number of customers in China,
particularly in respect of copper concentrate output. Treatment and
refining charges are dependent upon Chinese smelting capacity and
the level of copper concentrate supply in the region.
China is an important source of financing to the Group with
long-term debt facilities of $2.4 billion at 31 December 2019. In
addition, the Group uses contractors, services and materials from
China.
The Chinese economy and its outlook have been negatively
affected by global trade tensions and the emergence of the Covid-19
coronavirus. Restrictions on the movement of goods, people and
services could impact the Group's operations and projects, the
availability of Chinese credit and its demand for commodities.
Mitigation
Aktogay and Bozshakol produce a copper concentrate that is
attractive to Chinese smelters, being 'clean' and high in sulphur
content. The Group has established good relationships with
strategic customers in China.
The Group maintains relationships with a number of international
lending banks, has facilities in place with the PXF syndicate, DBK
and CAT Financial, and has the flexibility to consider other
sources of capital if required.
Acquisitions and divestments
Impact
The Group may acquire or dispose of assets and businesses which
fail to achieve the expected benefit or value to the Group.
Changing market conditions, incorrect assumptions or deficiencies
in due diligence could result in the wrong decisions being made and
in acquisitions or disposals failing to deliver expected
benefits.
The Restructuring was effected under the laws and regulations of
Kazakhstan which are subject to change and open to interpretation,
including the legal and tax aspects of the Restructuring, which
could give rise to liabilities for KAZ Minerals.
Mitigation
A rigorous assessment process is undertaken to assess all
potential acquisitions and divestments by specialist staff,
supported by external advisers where appropriate. Due diligence
processes are undertaken and material transactions are subject to
Board review and approval, including ensuring the transaction is
aligned with the Group's strategy, consideration of the key
assumptions being applied and the risks identified.
Liquidity
Impact
The Group is exposed to liquidity risk if it is unable to meet
payment obligations as they fall due or is unable to access
acceptable sources of finance. Non-compliance with financial
covenants could result in borrowing facilities becoming uncommitted
and repayable.
Baimskaya is a large-scale project, the development of which
will require additional financing which will increase the debt
levels of the Group.
Failure to manage liquidity risk could have a material impact on
the Group's cash flows, earnings and financial position.
Mitigation
Forecast cash flows are closely monitored and the financing
strategy is set by the Board. Adequate levels of committed funds
are maintained with $541 million cash and cash equivalents and $306
million of undrawn facilities at 31 December 2019. In January 2020,
the Group added further liquidity with a refinancing of its PXF
debt facility, including an increase in facility commitments to
$1.0 billion. The Group's existing operations are highly cash
generative.
The Group has a successful track record of raising finance for
major projects. In respect of Baimskaya, in parallel with the
feasibility study, the Group is continuing discussions with banks
on financing the construction phase and is evaluating the potential
for partnering.
Further details regarding going concern are included in note 2
to the financial statements.
CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME
Year ended 31 December 2019
$ million (unless otherwise stated) Notes 2019 2018
------------------------------------------------------------- ----- -------- --------
Revenues 4(b) 2,266 2,162
Cost of sales (1,124) (1,077)
Gross profit 1,142 1,085
Selling and distribution expenses (91) (94)
Administrative expenses (132) (115)
Net other operating income 9 4
Impairment losses 6 (5) (29)
------------------------------------------------------------- ----- -------- --------
Operating profit 923 851
Analysed as:
Operating profit (excluding special items) 923 871
Special items 7 - (20)
------------------------------------------------------------- ----- -------- --------
Finance income 18 33
Finance costs 8 (195) (245)
Net foreign exchange (loss)/gain (20) 3
Profit before tax 726 642
Income tax expense 9 (155) (132)
------------------------------------------------------------- ----- -------- --------
Profit for the year 571 510
------------------------------------------------------------- ----- -------- --------
Analysed as:
Underlying Profit 10 571 530
Special items 7 - (20)
------------------------------------------------------------- ----- -------- --------
Attributable to:
Equity holders of the Company 10 571 510
Non-controlling interests 14 - -
-----
571 510
------------------------------------------------------------- ----- -------- --------
Other comprehensive income/(expense) for the year after
tax:
Items that may be reclassified subsequently to the
income statement:
Exchange differences on retranslation of foreign operations 64 (427)
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 year 63 (427)
------------------------------------------------------------- ----- -------- --------
Total comprehensive income for the year 634 83
------------------------------------------------------------- ----- -------- --------
Attributable to:
Equity holders of the Company 635 82
Non-controlling interests (1) 1
634 83
------------------------------------------------------------- ----- -------- --------
Earnings per share attributable to equity holders of
the Company
Ordinary EPS - basic ($) 10 1.21 1.14
Ordinary EPS - diluted ($) 10 1.17 1.14
EPS based on Underlying Profit - basic ($) 10 1.21 1.18
EPS based on Underlying Profit - diluted ($) 10 1.17 1.18
------------------------------------------------------------- ----- -------- --------
CONSOLIDATED BALANCE SHEET
At 31 December 2019
$ million Notes 2019 2018
---------------------------------------------- ----- -------- --------
Assets
Non-current assets
Intangible assets 5 6
Property, plant and equipment 2,756 2,130
Mining assets 5(a) 1,457 432
Other non-current assets 12 338 301
Deferred tax asset 40 28
4,596 2,897
---------------------------------------------- ----- -------- --------
Current assets
Inventories 553 439
Prepayments and other current assets 193 90
Income taxes prepaid 7 18
Trade and other receivables 176 127
Current investments 17(c) - 250
Cash and cash equivalents 17(b) 541 1,219
1,470 2,143
---------------------------------------------- ----- -------- --------
Total assets 6,066 5,040
---------------------------------------------- ----- -------- --------
Equity and liabilities
Equity
Share capital 13(a) 177 171
Share premium 5(a) 2,883 2,650
Capital reserves 13(c) (2,158) (2,457)
Retained earnings 1,213 686
Attributable to equity holders of the Company 2,115 1,050
Non-controlling interests 14 59 4
---------------------------------------------- -------- --------
Total equity 2,174 1,054
---------------------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 15 2,755 2,914
Deferred tax liability 110 76
Employee benefits 15 12
Provision for closure and site restoration 74 58
Other non-current liabilities 16 12 7
2,966 3,067
---------------------------------------------- ----- -------- --------
Current liabilities
Trade and other payables 360 320
Borrowings 15 545 539
Income taxes payable 16 11
Employee benefits 2 2
Provision for closure and site restoration - 1
Other current liabilities 16 3 46
926 919
---------------------------------------------- ----- -------- --------
Total liabilities 3,892 3,986
---------------------------------------------- ----- -------- --------
Total equity and liabilities 6,066 5,040
---------------------------------------------- ----- -------- --------
These condensed consolidated financial statements were approved
by the Board of Directors on 19 February 2020.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2019
Restated(1)
$ million Notes 2019 2018
------------------------------------------------------------- ----- -------- -----------
Operating activities
Cash receipts from customers 2,181 2,198
Net proceeds from historical VAT related to construction - 3
Cash payments to employees, suppliers and taxes other
than income tax (1,347) (1,204)
Cash flows from operations before interest and income
taxes paid 17(a) 834 997
Interest paid (230) (229)
Income taxes paid (92) (95)
Net cash flows from operating activities 512 673
------------------------------------------------------------- ----- -------- -----------
Investing activities
Interest received 20 32
Acquisition of Baimskaya copper project, net of cash
acquired 5(a) (435) -
Purchase of intangible assets (1) (2)
Purchase of property, plant and equipment (737) (567)
Investments in mining assets (122) (46)
Net redemption of/(additions to) current investments 17(c) 250 (250)
Other investing activities (2) (18)
Net cash flows used in investing activities (1,027) (851)
------------------------------------------------------------- ----- -------- -----------
Financing activities
Proceeds from borrowings 17(c) 387 -
Repayment of borrowings 17(c) (545) (424)
Dividends paid by the Company 11(a) (47) (27)
Advance consideration for investment in Koksay 5(b) 45 25
Other financing activities (1) -
Net cash flows used in financing activities (161) (426)
------------------------------------------------------------- ----- -------- -----------
Net decrease in cash and cash equivalents 17(c) (676) (604)
Cash and cash equivalents at the beginning of the year 1,219 1,821
Effect of exchange rate changes on cash and cash equivalents 17(c) (2) 2
------------------------------------------------------------- ----- -------- -----------
Cash and cash equivalents at the end of the year 17(b) 541 1,219
------------------------------------------------------------- ----- -------- -----------
1 Advance consideration for investment in Koksay reclassified
from investing activities, see note 2(f).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 201 9
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 2018 171 2,650 (2,029) 203 995 3 998
Profit for the year - - - 510 510 - 510
Exchange differences on retranslation
of foreign operations - - (428) - (428) 1 (427)
Total comprehensive income/(expense)
for the year - - (428) 510 82 1 83
Dividends 11(a) - - - (27) (27) - (27)
-------------------------------------- ------ ---- ------ -------- ------ ------ ---- ------
At 31 December 2018 171 2,650 (2,457) 686 1,050 4 1,054
Profit for the year - - - 571 571 - 571
Exchange differences on retranslation
of foreign operations - - 65 - 65 (1) 64
Actuarial loss on employee
benefits, net of tax - - - (1) (1) - (1)
Total comprehensive income/(expense)
for the year - - 65 570 635 (1) 634
Dividends 11(a) - - - (47) (47) (3) (50)
Shares issued and Deferred
Consideration arising from
acquisition of the Baimskaya
copper project 5(a) 6 233 225 - 464 - 464
Part disposal of subsidiary 5(b) - - 9 2 11 59 70
Share-based payments, net of
taxes - - - 2 2 - 2
-------------------------------------- ------ ---- ------ -------- ------ ------ ---- ------
At 31 December 2019 177 2,883 (2,158) 1,213 2,115 59 2,174
-------------------------------------- ------ ---- ------ -------- ------ ------ ---- ------
1 See note 13(c) for an analysis of 'Capital reserves'.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 December 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 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 East Region and Bozymchak are separate divisions but have been
combined for segmental reporting purposes.
2. Basis of preparation
The condensed consolidated financial statements for the year
ended 31 December 2019 do not constitute statutory accounts as
defined in Sections 435(1) and (2) of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2018 have been
delivered to the Registrar of Companies and those for 2019 will be
delivered following the Company's Annual General Meeting convened
for Thursday 30 April 2020. The auditor has reported on these
accounts; their reports were unqualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis of matter and did not contain a statement under
Sections 498(2) or (3) of the Companies Act 2006.
(a) Going concern
The Group manages liquidity risk by maintaining adequate
committed borrowing facilities and working capital funds. The Board
monitors the net debt level and liquidity position of the Group
taking into consideration the expected outlook of the Group's
financial position, cash flows, future capital expenditure and debt
service requirements.
At 31 December 2019, the Group's net debt was $2,759 million
with gross debt of $3,300 million, gross liquid funds of $541
million and undrawn committed facilities of $306 million. The gross
debt facilities consist of:
-- $1,165 million of the CDB-Bozshakol and Bozymchak facilities,
which amortise over the period to 2025;
-- $1,214 million of the CDB-Aktogay US dollar and Chinese yuan
facilities, which amortise over the period to 2029;
-- $300 million of the PXF facility, which amortises over the period to June 2021;
-- $234 million of the DBK-Aktogay I facility, which amortises over the period to June 2025;
-- $315 million of the DBK-Aktogay II facility, which amortises
over the period from November 2022 to 2034. The remaining $280
million of the committed facility is expected to be drawn by the
end of 2020; and
-- $72 million of the CAT facility, which amortises over the
period to 2024. The remaining $26 million of the committed facility
is expected to be drawn by the end of the first quarter of
2021.
On 28 January 2020, the Group announced that it had completed an
amendment and extension of its PXF facility which includes an
increase in facility commitments to $1.0 billion. The maturity
profile was amended such that the facility will amortise over the
period from January 2021 to December 2024, or to December 2026 if
two annual extension options are exercised.
The Board has considered the Group's cash flow forecasts for the
period to 31 March 2021, including the outlook for commodity
prices, production levels from the Group's operations, its future
capital requirements including the finalisation of the Aktogay
expansion project and initial study and pioneer works at the
Baimskaya copper project, and the principal repayments due under
the Group's debt facilities.
The Board is satisfied that the Group's forecasts, taking into
account reasonably possible downside scenarios, show that the Group
has adequate liquidity to continue in operational existence for the
foreseeable future. Accordingly, it is appropriate to adopt the
going concern basis of accounting in the preparation of these
condensed consolidated financial statements.
(b) Basis of accounting
The condensed consolidated financial statements have been
prepared on a historical cost basis, except for metal-related trade
receivables and derivative financial instruments which have been
measured at fair value. The condensed consolidated financial
statements are presented in US dollars ('$') 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
2019.
None of the new standards or amendments to standards and
interpretations applicable during the year 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 as adopted by the EU.
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 on adoption by the EU through the European
Financial Reporting Advisory Group ('EFRAG'):
Leases
On 1 January 2019, the Group adopted IFRS 16 'Leases', replacing
IAS 17 'Leases'. The new standard has been applied 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, and there
was no impact on opening equity at 1 January 2019. The standard
changes the identification of leases and how they will be
recognised, measured and disclosed by lessees, requiring the
recognition of a right-of-use asset and liability for the future
lease payments on the balance sheet. The 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 related 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)'. The amendment 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', being assets that necessarily take a
substantial period of time to get ready for their intended use or
sale. In the year ended 31 December 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 therefore included in the capitalisation rate
applied to expenditures on qualifying capital projects, such as the
expansion of Aktogay (see note 8).
Income tax
On 1 January 2019, the Group adopted IFRIC 23 'Uncertainty over
Income Tax Treatments'. The interpretation clarifies 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 material impact on the amounts reported
in the Group's condensed consolidated financial statements.
Other
The application of a number of minor amendments, including those
from the 2015-2017 annual improvement cycle which became effective
on 1 January 2019, had no impact on the Group's condensed
consolidated financial statements due to the nature of its
operations. This includes 'Previously Held Interests in a Joint
Operation (Amendments to IFRS 3 and IFRS 11)', 'Income Tax
Consequences of Payments on Instruments Classified as Equity
(Amendments to IAS 12)', 'Prepayment Features with Negative
Compensation (Amendments to IFRS 9)', 'Long-term Interests in
Associates and Joint Ventures (Amendments to IAS 28)', and 'Plan
Amendment, Curtailment or Settlement (Amendments to IAS 19)'.
(c) Basis of consolidation
The condensed consolidated financial statements set out the
Group's financial position as at 31 December 2019 and the Group's
financial performance for the year ended 31 December 2019.
Subsidiaries are those enterprises controlled by the Group.
Control exists when the Group has the power, directly or
indirectly, to direct those activities of an enterprise that most
significantly affect the returns the Group earns from its
involvement with the enterprise. Subsidiaries are consolidated from
the date on which control is transferred to the Group and cease to
be consolidated from the date on which control is transferred out
of the Group. When the Group ceases to have control, any retained
interest in the entity is remeasured to its fair value, with the
change in carrying amount recognised in the income statement. The
fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate,
joint venture or financial asset. In addition, any amounts
previously recognised in other comprehensive income in respect of
that entity are accounted for as if the Group had directly disposed
of the related assets or liabilities. This treatment may mean that
amounts previously recognised in other comprehensive income are
recycled through the income statement. Joint operations are those
arrangements jointly controlled by the Group and one or more
parties with rights to the assets and obligations for the
liabilities relating to the arrangement. Joint operations are
proportionally consolidated from the date on which the Group
obtains joint control and cease to be proportionally consolidated
from the date on which the Group no longer has joint control.
The financial statements of subsidiaries and joint operations
are prepared for the same reporting year as the Company, using
consistent accounting policies. All intercompany balances and
transactions, including unrealised profits arising from intragroup
transactions, are eliminated in full. Unrealised losses are
eliminated in the same way as unrealised gains except that they are
only eliminated to the extent that there is no evidence of
impairment.
(d) Exchange rates
The following foreign exchange rates against the US dollar have
been used in the preparation of the condensed consolidated
financial statements:
31 December 31 December
2019 2018
----------- -----------
Spot Average Spot Average
------------------- ------ ------- ------ -------
Kazakhstan tenge 381.18 382.75 384.20 344.71
Kyrgyzstan som 69.64 69.79 69.85 68.84
UK pounds sterling 0.75 0.78 0.78 0.75
Russian rouble 61.91 64.69 n/a n/a
------------------- ------ ------- ------ -------
During 2019, the appreciation of the tenge at the spot rate
resulted in a non-cash foreign exchange gain of $64 million (2018:
non-cash foreign exchange loss of $427 million) recognised directly
within reserves, arising from the translation on consolidation of
the Group's Kazakhstan based subsidiaries whose functional currency
is the tenge.
(e) Statement of compliance
The condensed consolidated financial statements of the Company,
and financial statements of all its subsidiaries and joint
operations have been prepared in accordance with IFRSs as issued by
the IASB and interpretations issued by the IFRIC of the IASB, as
adopted by the EU and in accordance with the provisions of the
Companies Act 2006.
(f) Comparative information
Where a change in the presentation format of the condensed
consolidated financial statements has been made during the year,
comparative figures have been restated accordingly.
In the condensed consolidated statement of cash flows, the
advance consideration arising on the part disposal of Koksay of $25
million in 2018 has been reclassified to financing activities
(previously shown within investing activities), being proceeds from
changes in ownership interests in subsidiaries that do not result
in loss of control. This restatement increased cash flows from
financing activities and decreased cash flows from investing
activities for the comparative period by $25 million, and is solely
for presentation purposes.
3. Significant accounting judgements and key sources of estimation uncertainty
In the course of preparing these condensed consolidated
financial statements, the Directors make necessary judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources.
Judgements are based on the Directors' best knowledge of the
relevant facts and circumstances having regard to prior experience,
but actual results may differ from the amounts included in the
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.
The following are the critical judgements, key assumptions and
sources of estimation uncertainty concerning the future that arise
mainly from the nature of the Group's mining operations and which
the Directors believe are likely to have the greatest effect on the
amounts recognised in the condensed consolidated financial
statements. However, the Directors do not expect a significant risk
of a material change to the Group's carrying value of the assets
and liabilities affected by these factors in the next 12 months,
within a reasonably possible range, with the exception of
Bozymchak, as discussed below.
The qualitative disclosures regarding these sources of
estimation uncertainty are presented because the Directors consider
these to be relevant to the mining industry and useful in
understanding the condensed consolidated financial statements of
the Group. These disclosures go beyond the minimum requirements of
IAS 1 'Presentation of Financial Statements' which only requires
disclosure of estimation uncertainty where changes in estimates,
within a reasonably possible range, could have a significant risk
of a material effect within the next 12 months on the amounts
recognised in the condensed consolidated financial statements.
Impairment of assets
Significant accounting judgements
The Directors review the carrying value of the Group's assets to
determine whether there are any indicators of impairment such that
the carrying values of the assets may not be recoverable. The
assessment of whether an indicator of impairment or reversal
thereof has arisen requires considerable judgement, taking account
of factors such as future operational and financial plans,
commodity prices and the competitive environment.
For exploration and evaluation assets held by the Group, namely
Koksay and Baimskaya, before the technical feasibility and
commercial viability of extracting a mineral resource is
demonstrable, 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 as
potential 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, its CGUs or exploration and evaluation assets at 31
December 2019 did not identify any indicators of impairment or
reversal thereof at any of the Group's CGUs or exploration and
evaluation assets.
In 2018, adverse court rulings in Kyrgyzstan were received for
the recovery of historical VAT incurred on the construction of the
Bozymchak plant, amounting to $16 million and previously included
within non-current assets. This was considered to be an impairment
indicator at the Bozymchak CGU and an impairment review was
undertaken in the comparative period (see note 6).
Key sources of estimation uncertainty
The preparation of discounted future cash flows used to assess
the recoverable amount of the Group's CGUs, includes management
estimates of commodity prices, future operating costs, economic and
regulatory environments, capital expenditure requirements,
long-term mine plans and other factors including the discount rate.
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 based CGUs. In respect
of the Group's Bozymchak CGU in Kyrgyzstan, which was previously
impaired, a 5% reduction in the forecast copper prices could result
in the carrying value exceeding its recoverable amount by around
$10 million. This is a simple sensitivity on copper prices in
isolation and does not consider any actions which management would
take to mitigate the impact of a fall in commodity prices.
Additionally, a 1% increase in the discount rate could result in an
impairment of around $5 million.
Non-current inventories
Significant accounting judgements
Mining activities may result in the stockpiling of ore. Ore
which is not expected to be processed within 12 months of the
balance sheet date and is considered to fall outside of the normal
operating cycle of the operation is classified as a non-current
asset. The classification of stockpiled ore between non-current and
current assets is based on judgements as to the expected timing of
processing and on future production plans.
Key sources of estimation uncertainty
Stockpiled ore is reported at the lower of cost or net
realisable value, with net realisable value subject to estimates of
further processing, delivery costs and future commodity prices.
Commodity prices applied in assessing the net realisable value fall
within the range of equity analyst commodity price expectations.
Changes to commodity prices in the next 12 months within a
reasonably possible range are not expected to significantly impact
the carrying value of non-current inventories.
Determination of mineral reserves and useful lives of property,
plant and equipment
Key sources of estimation uncertainty
Mineral reserves are estimates of the amount of product that can
be economically and legally extracted from the Group's mining
properties. In order to estimate reserves, assumptions are required
about a range of geological, technical and economic factors,
including quantities, grades, production techniques, recovery
rates, production costs, transport costs, commodity demand,
commodity prices and exchange rates. The Group estimates its
mineral reserves and mineral resources based on information
compiled and reviewed by competent persons as defined in accordance
with KAZRC/JORC.
In assessing the life of a mine for accounting purposes, mineral
reserves are taken into account where there is a high degree of
confidence of economic extraction. Since the economic assumptions
used to estimate reserves change from period to period, and as
additional geological data is generated during the course of
operations, estimates of reserves may change from period to period.
Changes in reported reserves may affect the Group's financial
results and financial position in a number of ways, including the
following:
-- asset recoverable amounts may be affected due to changes in estimated future cash flows;
-- deferral of stripping costs which are determined using a waste to ore stripping ratio;
-- depreciation, depletion and amortisation charged in the
income statement may change where such charges are determined by
the unit of production basis, or where the useful economic lives of
assets change;
-- decommissioning, site restoration and environmental
provisions may change where changes in estimated reserves affect
expectations about the timing or cost of these activities; and
-- the carrying value of deferred tax assets may change due to
revisions in estimates of the likely recovery of tax benefits.
There are numerous uncertainties inherent in estimating mineral
reserves and assumptions that are valid at the time of estimation
which may change significantly when new information becomes
available. Changes in the forecast prices of commodities, exchange
rates, production costs or recovery rates may change the economic
status of reserves and may ultimately result in reserves being
revised. The Directors do not expect significant changes in the
carrying value of the Group's mining properties; property, plant
and equipment; closure liabilities and deferred taxes to arise from
changes in mineral reserve estimates within a reasonably possible
range in the next 12 months. Revisions to mineral reserve estimates
in 2019 did not result in a material change to the carrying value
of these assets and liabilities.
For property, plant and equipment depreciated on a straight-line
basis over its useful economic life, the appropriateness of the
asset's useful economic life is reviewed at least annually and
changes could affect prospective depreciation rates and asset
carrying values.
Decommissioning and site restoration costs
Significant accounting judgements
The Directors use judgement and experience in determining the
expected timing, closure and decommissioning methods, which can
vary in response to changes in the relevant legal requirements or
decommissioning technologies.
Key sources of estimation uncertainty
The ultimate cost of decommissioning and rehabilitation is
uncertain and cost estimates can vary in response to many factors
including the emergence of new restoration techniques and costs of
materials and labour. Therefore, the Group periodically reviews the
closure cost estimate at each operation. The expected timing and
extent of expenditure can also change in response to revisions in
mineral reserve estimates, processing levels and commodity prices
whilst future costs are discounted using forecast discount rates.
Due to the relatively long life of the Group's most significant
assets, changes in estimates within a reasonably possible range in
the next 12 months are not expected to significantly impact the
carrying value of the Group's provisions for decommissioning and
site restoration costs.
Taxes
Significant accounting judgements
The Directors make judgements in relation to the recognition of
various taxes levied on the Group, which are both payable and
recoverable. Judgement applies particularly to corporate income
taxes, transfer pricing, VAT and outcomes of any tax disputes which
would affect the recognition of tax liabilities and deferred tax
assets. Judgement over recognition also applies to taxes which are
recoverable by the Group, principally VAT paid, for which the
recoverability and timing of recovery is assessed. In making
judgements related to taxes, the Directors believe that the tax
positions it adopts are in line with the applicable legislation and
reflect the probable outcome. The tax obligations and receivables,
upon audit by the tax authorities at a future date, may differ as a
result of differing interpretations. These interpretations may
impact the expected timing and quantum of taxes payable and
recoverable and are discussed further in note 19.
Key sources of estimation uncertainty
Estimates may be made to determine the amount of taxes
recoverable, principally VAT and deferred tax assets. The
recognition of deferred tax assets mainly relates to tax losses
which may be utilised in the future, giving consideration to future
profitability, estimates of commodity prices, interest rate and
operating costs and any statute of limitation period. Changes in
these estimates within a reasonably possible range in the next 12
months are not expected to significantly alter the carrying value
of the Group's taxes that are recoverable.
Joint operations
Significant accounting judgements
Joint arrangements are classified as joint operations where the
Group exercises joint control and the parties have the rights to
the assets and obligations for the liabilities relating to the
arrangement. Judgement is required in determining the nature of the
joint arrangement based on the particular facts and circumstances,
the legal form and purpose of the joint arrangement. Industrial
Construction Group LLC ('ICG') is a joint arrangement established
to undertake the engineering and construction of the additional
sulphide processing facility at Aktogay. The Group holds 49% of
voting rights in ICG but exercises joint control as decisions
require unanimous consent. As the output of the joint arrangement
is the construction of the additional processing facilities at
Aktogay and thus benefits the Group, ICG is accounted for as a
joint operation and is therefore proportionally consolidated.
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 (see note 5(a)).
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 processed 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 processed at the Balkhash
smelter 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 the associated 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 54 for further details.
The Treasury department manages the Group's borrowings and
monitors finance income and finance costs at the Group level on a
net basis, rather than by operating segment.
Segmental information is also provided in respect of revenues,
by destination and by product.
(a) Operating segments
(i) Income statement information
Year ended 31 December 2019
---------------------------
East
Region Mining Corporate
$ million Aktogay Bozshakol and Bozymchak Projects Services Total
--------------------------------------- ------- --------- -------------- --------- --------- ------
Revenues 863 851 552 - - 2,266
--------------------------------------- ------- --------- -------------- --------- --------- ------
EBITDA 564 585 230 (4) (20) 1,355
Less: depreciation, depletion and
amortisation(1) (104) (90) (41) - (1) (236)
Less: MET and royalties(1,2) (79) (68) (49) - - (196)
--------------------------------------- ------- --------- -------------- --------- --------- ------
Operating profit/(loss) 381 427 140 (4) (21) 923
Net finance costs and foreign exchange
loss (197)
Income tax expense (155)
--------------------------------------- ------- --------- -------------- --------- --------- ------
Profit for the year 571
--------------------------------------- ------- --------- -------------- --------- --------- ------
Year ended 31 December 2018
----------------------------------------------------
East
Region Corporate
$ million Aktogay Bozshakol and Bozymchak Services Total
-------------------------------------------------- ------- --------- -------------- --------- -----
Revenues 775 756 631 - 2,162
-------------------------------------------------- ------- --------- -------------- --------- -----
EBITDA 530 520 284 (24) 1,310
Special items - note 7 - - (20) - (20)
-------------------------------------------------- ------- --------- -------------- --------- -----
EBITDA (after special items) 530 520 264 (24) 1,290
Less: depreciation, depletion and amortisation(1) (108) (90) (40) (1) (239)
Less: MET and royalties(1,2) (72) (69) (59) - (200)
-------------------------------------------------- ------- --------- -------------- --------- -----
Operating profit/(loss) 350 361 165 (25) 851
Net finance costs and foreign exchange
gain (209)
Income tax expense (132)
-------------------------------------------------- ------- --------- -------------- --------- -----
Profit for the year 510
-------------------------------------------------- ------- --------- -------------- --------- -----
1 Depreciation, depletion and amortisation and MET and royalties
exclude the costs associated with inventories on the balance
sheet.
2 MET and royalties have been excluded from the key financial
indicator of EBITDA. The Directors believe that MET and royalties
are a substitute for a tax on profits, hence their exclusion
provides an informed measure of the operational performance of the
Group.
(ii) Balance sheet information
At 31 December 2019
--------------------------------------------------------------------------
Mining Projects
======= ========= ============== ----------------- ============ =====
East
Region Corporate
$ million Aktogay Bozshakol and Bozymchak Baimskaya Koksay Services(4) Total
============================ ======= ========= ============== ========= ====== ============ =====
Assets
Non-current assets(1) 1,758 1,112 398 1,044 243 6,220 10,775
Current assets excluding cash
and cash equivalents(2) 414 325 173 19 - 1,928 2,859
Cash and cash equivalents 6 6 16 1 64 448 541
Segment assets 2,178 1,443 587 1,064 307 8,596 14,175
Taxes receivable 47
Elimination (8,156)
------------------------------ ------ ------ ---- ------ ---- ------ --------
Total assets 6,066
------------------------------ ------ ------ ---- ------ ---- ------ --------
Liabilities
Non-current liabilities 18 12 64 5 3 2 104
Inter-segment borrowings 845 837 91 146 - - 1,919
Current liabilities(3) 168 56 64 12 1 82 383
Segment liabilities 1,031 905 219 163 4 84 2,406
Borrowings 3,300
Taxes payable 126
Elimination (1,940)
------------------------------ ------ ------ ---- ------ ---- ------ --------
Total liabilities 3,892
------------------------------ ------ ------ ---- ------ ---- ------ --------
At 31 December 2018
--------------------------------------------------------------------
Mining
Projects
------- --------- -------------- --------- ------------ -------
East
Region Corporate
$ million Aktogay Bozshakol and Bozymchak Koksay 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
--------------------------------------------- ------- --------- -------------- --------- ------------ -------
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. Aktogay,
Bozshakol and Koksay (within Mining Projects) segments principally
operate in Kazakhstan. The East Region and Bozymchak segment
includes property, plant and equipment, mining assets and
intangible assets of $303 million relating to the East Region
assets located in Kazakhstan and $52 million of Bozymchak assets
located in Kyrgyzstan (2018: $253 million and $55 million
respectively). The Baimskaya (within Mining Projects) segment
relates to assets located in Russia. Additionally, included within
non-current assets is long-term stockpiled ore of $135 million at
Bozshakol and $42 million at Aktogay (2018: $111 million and $15
million respectively).
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 $6,216 million
of intra-group investments while current assets include $1,919
million of inter-segment loans, which are eliminated within total
assets (2018: $5,309 million and $1,738 million respectively).
(iii) Capital expenditure(1)
Year ended 31 December 2019
--------------------------------------------------------------------------------
Mining Projects
========== ============ ============== -------------------- ========= =====
East
Region Corporate
$ million Aktogay(2) Bozshakol(3) and Bozymchak Baimskaya(4) Koksay Services Total
============================ ========== ============ ============== ============ ====== ========= =====
Property, plant and equipment 549 89 53 45 - 1 737
Mining assets 3 3 45 501 5 - 557
Intangible assets 1 - - - - - 1
------------------------------ ---- --- --- ---- ------
Capital expenditure 553 92 98 546 5 1 1,295
------------------------------ ---- --- --- ---- ------
Year ended 31 December 2018
------------------------------------------------------------------
Mining
Projects
---------- --------- -------------- --------- --------- -----
East
Region Corporate
$ million Aktogay(2) Bozshakol and Bozymchak Koksay Services Total
------------------------------ ---------- --------- -------------- --------- --------- -----
Property, plant and equipment 512 25 29 - 1 567
Mining assets 1 4 40 1 - 46
Intangible assets 1 - 1 - - 2
------------------------------ ---------- --------- -------------- --------- --------- -----
Capital expenditure 514 29 70 1 1 615
------------------------------ ---------- --------- -------------- --------- --------- -----
1 Capital expenditure presented by operating segment reflects
cash paid and is aligned with the Group's internal capital
expenditure reporting. Capital expenditure includes non-current
advances paid for items of property, plant and equipment and mining
assets.
2 Includes the final $19 million (2018: $281 million) settled in
respect of the $300 million NFC deferral (see note 16(c)).
3 Includes $37 million for the payment of final retentions
relating to the construction of the sulphide and clay plants.
4 Includes $436 million paid on 22 January 2019 to acquire the
asset (see note 5(a)).
(b) Information in respect of revenues
Revenues by product to third parties are as follows:
Year ended 31 December 2019
---------------------------
East
Region
$ million Aktogay Bozshakol and Bozymchak Total
------------------------------------------- ------- --------- -------------- ------
Copper cathodes 394 60 374 828
Copper in concentrate 455 541 - 996
Gold 4 49 80 133
Gold in concentrate - 185 - 185
Silver 3 1 36 40
Silver in concentrate 7 12 - 19
Zinc in concentrate - - 58 58
Other revenues including other by-products - 3 4 7
863 851 552 2,266
------------------------------------------- ------- --------- -------------- ------
Year ended 31 December
2018
----------------------
East
Region
$ million Aktogay Bozshakol and Bozymchak Total
------------------------------------------- ------- --------- -------------- -----
Copper cathodes 206 67 417 690
Copper in concentrate 558 529 - 1,087
Gold - - 68 68
Gold in concentrate - 144 - 144
Silver 1 2 37 40
Silver in concentrate 6 9 - 15
Zinc in concentrate - - 101 101
Other revenues including other by-products 4 5 8 17
------------------------------------------- ------- --------- -------------- -----
775 756 631 2,162
------------------------------------------- ------- --------- -------------- -----
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 bar), the month following (for copper cathode and zinc
concentrate) or the second month following (for copper concentrate
including by-products) dispatch to the customer. At 31 December,
the Group's provisionally priced volumes and their respective
average provisional price were as follows:
At 31 December
At 31 December 2019 2018
------------------- --------------
Weighted
average Weighted
Provisionally provisional Provisionally average provisional
priced volumes price priced volumes price
------------------------ --------------- ------------ --------------- --------------------
Copper cathodes 9 kt 5,919 $/t 4 kt 6,244 $/t
Copper in concentrate(1) 32 kt 5,338 $/t 29 kt 5,558 $/t
Gold in concentrate(1) 23 koz 1,502 $/oz 21 koz 1,217 $/oz
Silver in concentrate(1) 184 koz 17 $/oz 113 koz 14 $/oz
Zinc in concentrate(1) 1 kt 1,784 $/t 2 kt 2,102 $/t
------------------------ --------------- ------------ --------------- --------------------
1 Payable metal in concentrate. Typically priced after deduction
of a processing charge.
The final prices for the provisionally priced volumes shown
above will be determined during the quarter after the year end. At
31 December 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 increased
revenue by $12 million (2018: $7 million decrease). The cumulative
commodity pricing adjustments recorded during 2019 between the
final price and the forward price at the expected settlement date,
at the time of the sale, resulted in a $26 million increase (2018:
$17 million reduction) which is included within revenue.
Revenues by destination from sales to third parties are as
follows:
Year ended 31 December 2019
---------------------------
East
Region
$ million Aktogay Bozshakol and Bozymchak Total
---------------------------- ------- --------- -------------- ------
China 836 546 350 1,732
Europe 23 256 103 382
Kazakhstan and Central Asia 4 49 99 152
863 851 552 2,266
---------------------------- ------- --------- -------------- ------
Year ended 31 December 2018
------------------------------------------
East
Region
$ million Aktogay Bozshakol and Bozymchak Total
---------------------------- ------- --------- -------------- ------
China 600 527 298 1,425
Europe 175 229 209 613
Kazakhstan and Central Asia - - 124 124
775 756 631 2,162
---------------------------- ------- --------- -------------- ------
The Group's copper concentrate sales and certain copper cathode
and zinc sales have been contracted to Advaita Trade Private
Limited and its subsidiaries ('Advaita'). Advaita is a metals
trading group with significant experience in marketing metals the
Group produces into China and Europe. Sales from all the Group's
segments to Advaita comprise 87% ($1,971 million) of revenues
(2018: 83% or $1,788 million).
5. Acquisition of the Baimskaya copper project and part disposal of Koksay
(a) Baimskaya copper project
On 22 January 2019, the Group announced the Initial Completion
of the acquisition of the Baimskaya copper project in the Chukotka
region of Russia. The consideration due at Initial Completion was
$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 13(c)(iii)), 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 net 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 copper project for study costs, ahead of Initial
Completion, were also reclassified to mining assets (see note
12).
(b) 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 pending completion of the transaction (see note
16(a)). Following completion, NFC's interest in KAZ Minerals Koksay
B.V. was reflected as a non-controlling interest of $59 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 used solely
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. Impairment losses
$ million 2019 2018(1)
--------------------------------------------------------- ---- -------
Impairment charges against property, plant and equipment 1 16
Impairment charges against mining assets 2 4
Impairment charges against current VAT receivable 2 9
5 29
--------------------------------------------------------- ---- -------
1 In 2018, impairment charges against property, plant and
equipment ($16 million) and mining assets ($4 million) were
considered to be special items for the purposes of determining the
Group's key financial indicators of EBITDA and Underlying Profit
(see note 10).
An assessment of the key external and internal factors affecting
the Group and its CGUs at 31 December 2019 did not identify any
indicators of impairment or reversal thereof at any of the Group's
CGUs (see note 3). The impairments noted in the table above for
2019 relate to specifically identified assets that are no longer
expected to be utilised and therefore have been impaired to their
estimated recoverable amount.
In 2018, the Bozymchak CGU was subject to an impairment review
following the identification of an impairment indicator, being
adverse court rulings relating to the recovery of VAT incurred on
the construction of the plant. The Bozymchak operation is reflected
within the East Region and Bozymchak segment. A total impairment of
$20 million was recognised, with $16 million recorded against
property, plant and equipment and $4 million against mining assets.
The impairment charge reduced the carrying value of the Bozymchak
operation to its estimated recoverable amount of $84 million at 31
December 2018, which was determined as its fair value less cost to
sell on a discounted cash flow basis. The risk adjusted cash flow
forecasts were discounted at a post tax nominal discount rate of
12%.
The key assumptions and estimates made in determining the cash
flows were the future prices of copper and gold and the discount
rate. The price estimates used were consistent with those applied
by the Directors in considering whether commodity prices were an
indicator of impairment, with reference to a long-term copper price
of $6,700/t (see note 3). The fair value less cost to sell estimate
is a fair value measure that is categorised within Level 3 of the
fair value hierarchy.
7. Special items
Special items are those items which are non-recurring or
variable in nature and which do not impact the underlying trading
performance of the business.
$ million 2019 2018
--------------------------------------------------------- ----- ----
Special items within operating profit
Impairment charges against property, plant and equipment - 16
Impairment charges against mining assets - 4
- 20
--------------------------------------------------------------- ----
Further information on special items is in the Financial review
on page 18.
8. Finance costs
$ million 2019 2018
------------------------------------------------------------------- ----- ----
Interest expense 189 236
Total interest expense 226 240
Less: amounts capitalised to the cost of qualifying assets(1) (37) (4)
------------------------------------------------------------------- ----- ----
Interest on employee obligations 1 1
Unwinding of discount on provisions and other liabilities 5 5
Fair value losses on debt related derivative financial instruments - 3
195 245
------------------------------------------------------------------- ----- ----
1 In 2019, the Group capitalised to the cost of the Aktogay
expansion project $6 million of borrowing costs from the
DBK-Aktogay expansion facility at an average rate of interest of
5.98%. The Group also capitalised to the cost of the Aktogay
expansion and the Baimskaya copper project and other qualifying
assets $31 million of borrowing costs at an average rate of
interest of 6.97% from all other borrowings outstanding during the
year, which are regarded as general borrowings for Group reporting
purposes. This follows the adoption on 1 January 2019 of 'Borrowing
Costs Eligible for Capitalisation (Amendments to IAS 23)', whereby
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 (see note 2(b)). In 2018, the Group capitalised
to the cost of the Aktogay expansion project $4 million of general
borrowing costs from the PXF facility only, at an average rate of
interest of 4.97%. The interest cost on borrowings capitalised to
qualifying assets is deductible for tax purposes against income in
the current year.
Further information relating to finance costs is in the
Financial review on page 18.
9. Income tax expense
Major components of income tax expense are:
$ million 2019 2018
------------------------------------------------------------ ---- ----
Current income tax
Corporate income tax - current period (UK) - -
Corporate income tax - current period (overseas) 117 83
Corporate income tax - prior periods (overseas) 2 1
119 84
------------------------------------------------------------ ---- ----
Deferred income tax
Corporate income tax - current period temporary differences 35 49
Corporate income tax - prior periods temporary differences 1 (1)
36 48
------------------------------------------------------------ ---- ----
155 132
------------------------------------------------------------ ---- ----
A reconciliation of the income tax expense applicable to the
accounting profit before tax at the statutory income tax rate, to
the income tax expense at the effective income tax rate, is as
follows:
$ million 2019 2018
------------------------------------------------------------ ---- ----
Profit before tax 726 642
At UK statutory income tax rate of 19.0% 138 122
Underprovided in prior periods - current income tax 2 1
Under/(over) provided in prior periods - deferred income
tax 1 (1)
Effect of domestic tax rates applicable to individual Group
entities (2) 5
Tax effect of non-deductible items:
Transfer pricing 2 1
Other non-deductible expenses 14 4
155 132
------------------------------------------------------------ ---- ----
Corporate income tax ('CIT') is calculated at 19.0% (2018:
19.0%) of the assessable profit for the year for the Company and
its UK subsidiaries and 20.0% for the operating subsidiaries in
Kazakhstan (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. In Kyrgyzstan, tax authorities
are able to raise additional tax assessments for a period of six
years after the end of the relevant tax period. In Russia, the tax
authorities are able to raise additional tax assessments for a
period of three years prior to the year of review. In all three
jurisdictions, under certain circumstances, historical tax years
may remain open for inspection for longer periods.
Effective tax rate
The effective tax rate was 21% (2018: 21%). Tax charges are
affected by the mix of profits and tax jurisdictions in which the
Group operates. The impact of unrecognised tax losses and
non-deductible items increases the Group's overall effective tax
rate.
The following factors impacted the effective tax rate for the
year ended 31 December 2019:
Other non-deductible expenses
The 2019 non-deductible items are mainly comprised of certain
social responsibility costs, fines and penalties, and other
non-deductible expenses. The 2018 non-deductible items are mainly
comprised of impairment of VAT receivable at the East Region
operations and costs relating to the acquisition of the Baimskaya
copper project.
Further information relating to income taxes and the change in
the effective tax rate is in the Financial review on page 19.
10. Earnings per share
The following reflects the income and share data used in the EPS
computations:
$ million (unless otherwise stated) 2019 2018
------------------------------------------------------------------------ ------------ ------------
Net profit attributable to equity holders of the Company 571 510
Special items net of tax - note 7 - 20
Underlying Profit(1) and net profit attributable to equity holders
of the Company 571 530
------------------------------------------------------------------------ ------------ ------------
Weighted average number of ordinary shares of 20 pence each for
EPS calculation - basic 470,215,553 447,331,406
Potential dilutive ordinary shares, weighted for the period outstanding 19,801,180 -
Weighted average number of ordinary shares of 20 pence each for
EPS calculation - diluted 490,016,733 447,331,406
------------------------------------------------------------------------ ------------ ------------
Ordinary EPS - basic ($) 1.21 1.14
Ordinary EPS - diluted ($) 1.17 1.14
EPS based on Underlying Profit(1) - basic ($) 1.21 1.18
EPS based on Underlying Profit(1) - diluted ($) 1.17 1.18
------------------------------------------------------------------------ ------------ ------------
1 Alternative Performance Measures (APMs) are used to assess the
performance of the Group and are not defined or specified under
IFRS. For further information on APMs, including justification for
their use, please refer to the APMs section on page 54.
Basic EPS (both Ordinary EPS and EPS based on Underlying Profit)
is calculated by dividing net profit or Underlying Profit for the
period attributable to equity holders of the Company by the
weighted average number of ordinary shares of 20 pence each
outstanding during the year. Purchases of the Company's shares by
the Employee Benefit Trust and by the Company under any share
buy-back programmes are held in treasury and treated as own
shares.
For the purposes of calculating diluted EPS, it is assumed that
the $225 million Deferred Consideration arising on the acquisition
of the Baimskaya copper project (see note 5(a)) 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 were weighted
over the period they were outstanding, from acquisition on 22
January 2019 to 31 December 2019, providing an additional
19,801,180 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.
Further information relating to EPS based on Underlying Profit
is in the Financial review on page 19.
11. Dividends
(a) Dividends paid
The dividends paid during the years ended 31 December 2019 and
2018 are as follows:
Per share Amount
US cents $ million
----------------------------------------------------------- --------- ----------
Year ended 31 December 2019
Interim dividend in respect of year ended 31 December 2019 4.0 19
Final dividend in respect of year ended 31 December 2018 6.0 28
----------------------------------------------------------- --------- ----------
Year ended 31 December 2018
Interim dividend in respect of year ended 31 December 2018 6.0 27
----------------------------------------------------------- --------- ----------
The interim dividend of $19 million in respect of the year ended
31 December 2019 and the final dividend of $28 million in respect
of the year ended 31 December 2018 was paid to shareholders on the
register which included the new shares issued in January 2019 as
part settlement of the acquisition of the Baimskaya copper
project.
(b) Dividends declared after the balance sheet date
Per share Amount
US cents $ million
----------------------------------------------------------------- --------- ----------
Recommended by the Directors on 19 February 2020 (not recognised
as a liability at 31 December 2019)
Final dividend in respect of year ended 31 December 2019 8.0 38
----------------------------------------------------------------- --------- ----------
12. Other non-current assets
$ million 2019 2018
----------------------------------------------------------- ---- ----
Non-current inventories(1) 176 127
Advances paid for property, plant and equipment and mining
assets 144 147
Non-current VAT receivable(2) 15 11
Long-term bank deposits(3) 4 3
Other long-term advances(4) - 15
Gross value of other non-current assets 339 303
Provision for impairment (1) (2)
----------------------------------------------------------- ---- ----
338 301
----------------------------------------------------------- ---- ----
1 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 and low grade
sulphide ore at Aktogay.
2 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.
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
related to amounts transferred to the Baimskaya copper project for
study costs which were reclassified to mining assets on Initial
Completion of the Baimskaya copper project (see note 5(a)).
13. 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, 31 December 2018 and 1 January
2019 458,379,033 92 171
Shares issued 22,344,944 4 6
At 31 December 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(a)). The issued share capital
was fully paid.
During the year, 1,859,786 (2018: 1,396,856) treasury shares
were used to satisfy awards under the Company's Save As You Earn
('SAYE'), Long Term Incentive Plans ('LTIP') and Deferred Share
Bonus Plan ('DSBP') schemes. At 31 December 2019, the Company holds
8,287,104 (2018: 10,146,890) ordinary shares in treasury and the
issued share capital of the Company which carries voting rights of
one vote per share, comprised 472,436,873 (2018: 448,232,143)
ordinary shares (excluding treasury shares).
(b) Own shares purchased under the Group's share-based payment plans
The provision of shares to the Group's share-based payment plans
is facilitated by an Employee Benefit Trust (the '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. The Company made no purchases
through the Trust in 2019 or 2018. No shares (2018: 14,565) were
transferred out of the Trust in settlement of share awards granted
to employees that were exercised during the year. Following
approval from shareholders, shares held in treasury will be used to
settle future awards.
At 31 December 2019, the Group, through the Trust, owned 5,162
shares in the Company (2018: 5,162) with a market value of $36
thousand and a cost of $79 thousand (2018: $35 thousand and $79
thousand respectively). The shares held by the Trust represented
less than 0.01% (2018: 0.01%) of the issued share capital at 31
December 2019.
(c) Capital reserves
Currency Capital Deferred
translation redemption Consideration
$ million Notes reserve reserve reserve Total
-------------------------------------- ----- ------------ ----------- -------------- --------
At 1 January 2018 (2,060) 31 - (2,029)
Exchange differences on retranslation
of foreign operations (428) - - (428)
At 31 December 2018 (2,488) 31 - (2,457)
Exchange differences on retranslation
of foreign operations 65 - - 65
Deferred Consideration on acquisition
of the Baimskaya copper project 5(a) - - 225 225
Part disposal of subsidiary 5(b) 9 - - 9
At 31 December 2019 (2,414) 31 225 (2,158)
-------------------------------------- ----- ------------ ----------- -------------- --------
(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 $65
million (2018: decrease of $428 million) follows a 1% increase in
the value of the tenge from 31 December 2018 to 31 December
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(a)). 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.
14. Non-controlling interests
Non-controlling interests that are material to the Group are
reflected in the table below, relating to the transfer of 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
in July 2019. The principal operations of KAZ Minerals Koksay B.V.
relate to the Koksay exploration licence located in Kazakhstan.
Summarised financial information on a 100% basis for Koksay is
as follows:
$ million 2019 2018
-------------------------------------------- ---- -----
Non-current assets 243 236
Current assets(1) 64 25
Non-current liabilities (3) (3)
Current liabilities (1) (25)
Net assets 303 233
-------------------------------------------- ---- -----
Attributable to non-controlling interests 59 -
Attributable to KAZ Minerals PLC 244 233
Loss for the year (1) (1)
Attributable to non-controlling interests - -
Attributable to KAZ Minerals PLC (1) (1)
Net increase in cash and cash equivalents 39 24
Net cash flows used in operating activities (1) -
Net cash flows used in investing activities (5) (1)
Net cash flows from financing activities 45 25
-------------------------------------------- ---- -----
1 Current assets comprise cash and cash equivalents of $64
million (2018: $25 million) which are to be used solely for the
investment into the Koksay project (see note 5(b)).
In addition, non-controlling interests that were not material to
the Group were $4 million at 31 December 2018.
15. Borrowings
Average
interest
rate Currency
during of Current Non-current Total
Maturity the year denomination $ million $ million $ million
------------------------------------ --------- --------- ------------- ---------- ----------- ----------
31 December 2019
CDB-Bozshakol and Bozymchak (US$
LIBOR + 4.50%) 2025 7.06% US dollar 180 985 1,165
CDB-Aktogay facility (PBoC 5 year) 2028 5.42% CNY 12 85 97
CDB-Aktogay facility (US$ LIBOR +
4.20%) 2029 6.69% US dollar 105 1,012 1,117
Pre-export finance facility (US$
LIBOR + 3.00% to 4.50%) 2021 5.30% US dollar 200 100 300
DBK-Aktogay facility (US$ LIBOR +
4.50%) 2025 7.11% US dollar 43 191 234
DBK-Aktogay expansion facility (US$
LIBOR + 3.90%) 2034 5.98% US dollar - 315 315
CAT facility (US$ LIBOR + 3.00% to
4.50%) 2024 4.91% US dollar 5 67 72
545 2,755 3,300
---------------------------------------------- --------- ------------- ---------- ----------- ----------
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% to 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
---------------------------------------------- --------- ------------- ---------- ----------- ----------
CDB-Bozshakol and Bozymchak facilities
At 31 December 2019, $1.2 billion (2018: $1.3 billion) was drawn
under the facility agreements. The facilities accrue interest at
US$ LIBOR plus 4.50% and arrangement fees with an amortised cost at
31 December 2019 of $9 million (2018: $12 million) have been netted
off against these borrowings in accordance with IFRS 9 'Financial
Instruments'. During 2019, $183 million of the borrowing was
repaid, with $180 million due to be repaid 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 consist of a CNY 1.0 billion facility
and a $1.3 billion US dollar facility.
At 31 December 2019, the drawn US dollar equivalent amount under
the CNY facility was $97 million (2018: $110 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
final maturity in 2028. $12 million was repaid in 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 31 December 2019, included within payables, is $12 million
(2018: $12 million).
The US dollar facility accrues interest at US$ LIBOR plus 4.20%.
At 31 December 2019, $1.1 billion (2018: $1.2 billion) was
outstanding under the facility. Arrangement fees with an amortised
cost of $9 million (2018: $11 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 until
final maturity in 2029. During 2019, $107 million was repaid, with
$105 million due to be repaid within 12 months of the balance sheet
date (including $2 million of unamortised debt costs). KAZ Minerals
PLC acts as guarantor of both facilities.
PXF facility
At 31 December 2019, $300 million (2018: $500 million) was drawn
under the PXF facility. The facility accrued interest using a
variable margin of between 3.00% and 4.50% above US$ LIBOR,
dependent on the ratio of net debt to EBITDA tested semi-annually.
Principal repayments commenced in July 2018 and were to continue in
equal monthly instalments over a three-year period until final
maturity in June 2021. During 2019, $200 million of the borrowing
was repaid. At 31 December 2019, $200 million was due to be repaid
within next 12 months. KAZ Minerals PLC, Vostoktsvetmet LLC and KAZ
Minerals Sales Limited act as guarantors of the facility.
On 28 January 2020, the Group completed an amendment and
extension of the PXF which includes an increase in facility
commitments to $1.0 billion, an extension of the loan tenor and a
reduction in the facility margin (see note 21(a)).
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 in accordance with
capital expenditure incurred on certain contracts committed for the
Aktogay expansion project, with $320 million drawn at 31 December
2019. Arrangement fees with an amortised cost of $5 million have
been netted off against these borrowings in accordance with IFRS 9.
The facility extends for a term of 15 years and accrues interest at
a rate of US$ LIBOR plus 3.90%. The facility is repayable in
instalments with the first repayment due in June 2022, followed by
semi-annual repayments in May and November of each year from
November 2022 until the final repayment in 2034.
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 semi-annual
instalments in May and November with a final repayment in 2025. At
31 December 2019, $235 million (2018: $277 million) was drawn under
the facility. Arrangement fees with an amortised cost of $1 million
(2018: $1 million) have been netted off against these borrowings in
accordance with IFRS 9. During 2019, $43 million of the borrowing
was repaid, with $43 million due to be repaid within 12 months of
the balance sheet date.
CAT facility
On 15 November 2019, the Group entered into a credit facility of
up to $100 million with Caterpillar Financial Services (UK) Limited
('CAT'). At 31 December 2019, $74 million was drawn under the
facility. Arrangement fees with an amortised cost of $2 million
have been netted off against these borrowings in accordance with
IFRS 9. The facility accrues interest with a variable margin of
between 3.00% and 4.50% above US$ LIBOR, dependent on the ratio of
net debt to EBITDA which will be tested semi-annually. It is
comprised of two sub-facilities of $40 million and $60 million
secured against existing and new Caterpillar equipment, which will
be drawn between December 2019 and March 2021. Quarterly repayments
for the existing drawing will commence in December 2020 until final
maturity in 2024. KAZ Minerals PLC acts as guarantor of the
facility.
Undrawn facilities
At 31 December 2019, $280 million remained to be drawn under the
DBK-Aktogay expansion facility and $26 million remained to be drawn
under the CAT facility. All other debt facilities were fully drawn
at 31 December 2019 and 2018.
16. Other liabilities
$ million 2019 2018
---------------------- ---- ----
Advance consideration - 25
Payments for licences 7 9
Payables to NFC - 19
Other 8 -
15 53
---------------------- ---- ----
Current 3 46
Non-current 12 7
---------------------- ---- ----
15 53
---------------------- ---- ----
(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 parent company of the entity which holds the
Koksay mining licence in Kazakhstan, as announced in June 2018.
Following completion of the transaction in July 2019, the advance
consideration was reclassified to equity, with NFC's interest in
KAZ Minerals Koksay B.V. reflected as a non-controlling interest of
$59 million, being its share of Koksay's net assets, and the
remaining amount recognised directly within equity and attributed
to the Group's shareholders (see note 5(b)).
(b) Payments for licences for mining assets
In accordance with its contracts for subsoil use, the Group is
liable to repay the costs of geological information provided by the
Government of Kazakhstan for licenced deposits. Some of these
obligations are payable in tenge while others are payable in US
dollars, depending on the terms of each subsoil use contract. The
total amount payable by the Group is discounted to its present
value using a discount rate of 7.6% for tenge (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
$19 million was settled in 2019. The extended credit terms had been
discounted using a rate of US$ LIBOR plus 4.20% on the estimated
cost of services performed.
17. Consolidated cash flow analysis
(a) Reconciliation of profit before tax to net cash inflow from operating activities
$ million Notes 2019 2018
------------------------------------------------------- ----- ------ ------
Profit before tax 726 642
Finance income (18) (33)
Finance costs 8 195 245
Share-based payments 3 3
Depreciation, depletion and amortisation 251 251
Impairment losses 6 5 29
Unrealised foreign exchange loss/(gain) 20 (8)
Operating cash flows before changes in working capital
and provisions 1,182 1,129
Decrease in non-current VAT receivable - 3
Increase in inventories (161) (158)
Increase in prepayments and other current assets (113) (30)
(Increase)/decrease in trade and other receivables (51) 4
(Decrease)/increase in trade and other payables and
provisions (23) 49
------------------------------------------------------- ----- ------ ------
Cash flows from operations before interest and income
taxes paid 834 997
------------------------------------------------------- ----- ------ ------
(b) Cash and cash equivalents
$ million 2019 2018
---------------------------------------------------- ---- ------
Cash deposits with short-term initial maturities(1) 517 1,157
Cash at bank(2) 24 62
541 1,219
---------------------------------------------------- ---- ------
1 Excludes term deposits with original maturity of greater than
three months classified within current investments. Included within
cash and cash equivalents is $64 million (2018: $25 million) which
is to be used solely for the investment into the Koksay project
(see note 5(b)).
2 At 31 December 2018, cash at bank of $2 million was restricted
by legal or contractual arrangements and was excluded from the
Group's measure of net debt (see note 17(c)).
(c) Movement in net debt
At At
1 January Cash Other 31 December
$ million 2019 flow movements 2019
-------------------------- ---------- ------ ---------- ------------
Cash and cash equivalents 1,219 (676) (2) 541
Less: restricted cash (2) - 2 -
Current investments 250 (250) - -
Borrowings(1) (3,453) 158 (5) (3,300)
Net debt(2) (1,986) (768) (5) (2,759)
-------------------------- ---------- ------ ---------- ------------
At At
1 January Cash Other 31 December
$ million 2018 flow movements 2018
-------------------------- ---------- ------ ---------- ------------
Cash and cash equivalents 1,821 (604) 2 1,219
Less: restricted cash - - (2) (2)
Current investments - 250 - 250
Borrowings(1) (3,877) 424 - (3,453)
Net debt(2) (2,056) 70 - (1,986)
-------------------------- ---------- ------ ---------- ------------
1 The cash flows on borrowings in 2019 reflect repayments on
existing facilities of $545 million (2018: $424 million) and
drawings of $387 million (2018: $nil), net of arrangement fees (see
note 15). Other movements include non-cash amortisation of fees on
borrowings of $6 million (2018: $6 million) and foreign exchange
gains on the CDB-Aktogay CNY facility of $1 million (2018: $6
million).
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 54.
18. Financial instruments
The carrying amounts of financial assets and liabilities by
categories are as follows:
$ million Notes 2019 2018
------------------------------------------------------- ----- -------- --------
Financial assets at amortised cost
Long-term bank deposits 12 4 3
Other long-term advances 12 - 15
Trade and other receivables not subject to provisional
pricing 18 13
Current investments 17(c) - 250
Cash and cash equivalents 17(b) 541 1,219
563 1,500
------------------------------------------------------- ----- -------- --------
Financial assets at fair value through profit or loss
Trade receivables subject to provisional pricing(1) 158 114
------------------------------------------------------- ----- -------- --------
Financial liabilities at amortised cost
Borrowings(2) 15 (3,300) (3,453)
Other liabilities 16 (15) (53)
Trade and other payables(3) (276) (211)
------------------------------------------------------- ----- -------- --------
(3,591) (3,717)
Financial liabilities at fair value through profit
or loss
Derivative instrument(4) (12) (12)
------------------------------------------------------- ----- -------- --------
1 Trade receivables subject to provisional pricing include a $12
million favourable adjustment (2018: $7 million adverse) arising
from the marked to market valuation on provisionally priced
contracts at the year end. These are measured according to quoted
forward prices in a market that is not considered active, which is
a level 2 valuation method within the fair value hierarchy.
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 and interest rate swap, are measured according to inputs
other than quoted prices that are observable for the derivative
financial instrument, either directly or indirectly, which is a
level 2 valuation method within the fair value hierarchy.
The fair values of each category of financial asset and
liability are not materially different from their carrying values
as presented.
19. Commitments and contingencies
(a) Legal claims
In the ordinary course of business, the Group is subject to
legal actions and complaints. The Directors believe that the
ultimate liability, if any, arising from such actions or complaints
will not have a materially adverse effect on the financial
condition or results of operations of the Group. As of 31 December
2019 and 2018, 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. The total commitments for property,
plant and equipment at 31 December 2019 amounted to $537 million
(2018: $724 million). These amounts relate mainly to the Aktogay
expansion, the Artemyevsky expansion and the Baimskaya copper
project, which reflect contractual commitments, not the minimum
cost which would be incurred in the event of delay or
cancellation.
(c) Tax audits
Historical tax years relating to various companies within the
Group remain open for inspection during a tax audit. 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. In Kyrgyzstan, tax authorities are able to
raise additional tax assessments for a period of six years after
the end of the relevant tax period. In Russia, the tax authorities
are able to raise additional tax assessments for a period of three
years prior to the year of review. In all three jurisdictions,
under certain circumstances, historical tax years may remain open
for inspection for longer periods. 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.
20. Related party disclosures
(a) Transactions with related parties
Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation and are not disclosed in this note. Details of
transactions between the Group and other related parties, including
Kazakhmys Holding Group, are disclosed below.
The following table provides the total amount of transactions
which have been entered into with related parties for the relevant
financial year:
Purchases Amounts Amounts
Sales from owed by owed
to related related related to related
$ million parties parties parties(1) parties
------------------------ ----------- --------- ----------- -----------
Kazakhmys Holding Group
2019 1 113 3 4
2018 4 101 3 2
------------------------ ----------- --------- ----------- -----------
1 No provision is held against the amounts owed by related
parties at 31 December 2019 and 2018.
Kazakhmys Holding Group
The related party transactions and balances with companies which
are part of the Kazakhmys Holding Group (a company owned by
Vladimir Kim, a Director of the Company, and Eduard Ogay, a former
Director of the Company) are provided under two Framework Service
Agreements and in accordance with the Relationship Agreements.
These include the provision of smelting and refining of the Group's
copper concentrate at the Balkhash smelter, electricity supply and
certain maintenance functions. Additionally, during 2019 the Group
sold the Belousovsky concentrator and the associated site
restoration obligation to a subsidiary of the Kazakhmys Holding
Group for proceeds of less than $1 million, which resulted in no
material gain or loss on disposal.
At 31 December 2019, the Group's joint operation, ICG, held cash
and cash equivalents of $3 million (2018: $nil) with Bank RBK JSC
(a company majority owned by Vladimir Kim, a Director of the
Company). Joint operations are proportionally consolidated such
that the Group's share of its cash and cash equivalents are
included within the consolidated financial statements.
(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.
21. Post balance sheet events
(a) PXF facility
On 28 January 2020, the Group completed an amendment and
extension of the PXF which includes an increase in facility
commitments to $1.0 billion, an extension of the loan tenor and a
reduction in the facility margin. The amendment represents a net
increase of $700 million above the $300 million outstanding under
the existing facility and the maturity profile is extended by 3.5
years, from June 2021 until December 2024 with two annual extension
options which, if exercised, would extend final maturity of the
facility to December 2025 or December 2026 respectively. The
amended facility accrues interest at a variable margin of between
2.25% and 3.50% above US$ LIBOR (previously between 3.00% and 4.50%
above US$ LIBOR), dependent on the ratio of net debt to EBITDA
which will be tested semi-annually. Monthly repayments will
commence in January 2021, with a final balloon repayment of
one-third of the facility amount ($333 million) in December 2024,
which will be amortised during 2025 and 2026 if the extension
options are exercised. The Group expects to fully draw the facility
in the first quarter of 2020.
(b) Dividends
On 19 February 2020, the Directors of the Company recommended a
final dividend for the year ended 31 December 2019 of 8.0 USc per
share. See note 11(b).
ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measures (APMs) are measures of
financial performance, financial position or cash flows that are
not defined or specified under IFRS. APMs are used by the Directors
internally to assess the performance of the Group and assist in
providing relevant and useful information to users of the Annual
Report and Accounts.
APMs are not uniformly defined by all companies, including those
in the Group's industry. APMs used by the Group may not be
comparable with similarly titled measures and disclosures made by
other companies. APMs should be considered in addition to and not
as a substitute for measures of financial performance, financial
position or cash flows reported in accordance with IFRS.
The Group uses APMs to improve the comparability of information
between reporting periods and segments, either by adjusting for
special items which impact upon IFRS measures or by aggregating or
disaggregating IFRS measures, to aid understanding of the Group's
performance. The definition and relevance of the APMs used by the
Group is set out below, which are consistent with the previous
reporting period.
(a) EBITDA
EBITDA is defined as earnings before interest, taxation,
depreciation, depletion, amortisation, MET and royalties and
special items(1) . EBITDA is a key non-IFRS measure that the
Directors use internally to assess the performance of the Group's
segments and is viewed as relevant to capital intensive industries
with long life assets. The Directors believe that the exclusion of
MET and royalties provides an informed measure of the operational
profitability given the nature of the taxes, as further explained
in the 'Taxation' section on page 19. Special items are excluded to
enhance the comparability of EBITDA and certain other APMs from
period to period. This performance measure is one of the Group's
KPIs, the relevance of which is shown on page 28 of KAZ Minerals'
2018 Annual Report and Accounts. A reconciliation to operating
profit is provided in note 4(a)(i) to 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 19 and
as set out in note 10 to the condensed consolidated financial
statements.
(c) EPS based on Underlying Profit
EPS based on Underlying Profit is profit/loss excluding special
items(1) and their resulting tax and non-controlling interest
effects, divided by the weighted average number of ordinary shares
in issue during the period (see note 10 to the condensed
consolidated financial statements). This is one of the Group's KPIs
for measuring financial performance, the relevance of which is
outlined on page 28 of KAZ Minerals' 2018 Annual Report and
Accounts. A calculation of EPS based on Underlying Profit is
included within note 10 to the condensed consolidated financial
statements.
(d) Gross liquid funds
Gross liquid funds is defined as the aggregate of cash and cash
equivalents and current investments less restricted cash.
$ million 2019 2018
-------------------------- ---- ------
Cash and cash equivalents 541 1,219
Current investments - 250
Less: restricted cash - (2)
Gross liquid funds 541 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 20 and in note 17(c) to 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 20,
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 flows from operating
activities is provided below.
$ million 2019 2018
-------------------------------------------------------------- ------ -----
Net cash flows from operating activities 512 673
Net VAT paid/(received) associated with major growth projects 41 (3)
Less: sustaining capital expenditure (142) (85)
Free Cash Flow 411 585
-------------------------------------------------------------- ------ -----
(g) Gross cash costs
Gross cash costs is defined as cash operating costs, including
pre-commercial production costs, excluding purchased cathode plus
TC/RC on concentrate sales, divided by the volume of own copper
sales. Cash costs are a standard industry measure applied by most
major copper mining companies. The Directors use gross cash costs
to measure the performance of the Group in managing its costs. A
reconciliation from revenues is shown below.
$ million (unless otherwise stated) 2019 2018
---------------------------------------------------------- -------- --------
Revenues 2,266 2,162
Less: EBITDA - see note 4(a)(i) (1,355) (1,310)
---------------------------------------------------------- -------- --------
Cash operating costs 911 852
Less: cash operating costs excluded from gross cash costs
(including corporate) (37) (28)
Add: TC/RC on concentrate sales 104 115
Gross cash costs 978 939
Own copper sales (kt) 316.9 296.1
Gross cash costs ($/t) 3,086 3,171
---------------------------------------------------------- -------- --------
Gross cash costs (USc/lb) 140 144
---------------------------------------------------------- -------- --------
(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.
$ million (unless otherwise stated) 2019 2018
------------------------------------------------------------- ------ ------
Gross cash costs - see note (g) above 978 939
Less: by-product revenues - see note 4(b), excluding tolling
revenues (442) (381)
------------------------------------------------------------- ------ ------
Net cash costs 536 558
Own copper sales (kt) 316.9 296.1
Net cash costs ($/t) 1,691 1,884
------------------------------------------------------------- ------ ------
Net cash costs (USc/lb) 77 85
------------------------------------------------------------- ------ ------
(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.
$ million (unless otherwise stated) 2019 2018
---------------------------------------------------------------- ------ ------
Purchase of intangible assets - cash flow statement 1 2
Purchase of property, plant and equipment - cash flow statement 737 567
Investments in mining assets - cash flow statement 122 46
Less: expansionary and new project capital expenditure -
see Financial review (718) (530)
Sustaining capital expenditure 142 85
Copper production (kt) 311.4 294.7
Maintenance spend per tonne of copper produced ($/t) 456 288
---------------------------------------------------------------- ------ ------
1 Special items are defined as those items which are
non-recurring or variable in nature and do not impact the
under-lying trading performance of the Group. In 2019, there were
no special items (2018: $20 million). Special items are identified
in note 7 in the condensed consolidated financial statements.
GLOSSARY
APMs
Alternative Performance Measures being measures of financial
performance, financial position or cash flows that are not defined
or specified under IFRS but used by the Directors internally to
assess the performance of the Group
Baimskaya copper project
the mining licence covering the Peschanka copper deposit,
located in the Chukotka region of Russia
Board or Board of Directors
the Board of Directors of the Company
Brexit
the UK's departure from the European Union
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
CAT
Caterpillar Financial Services (UK) Limited, a subsidiary of
Caterpillar Financial Services Corporation and Caterpillar Inc.
CDB or China Development Bank
China Development Bank Corporation
CIS
Commonwealth of Independent States, comprising former Soviet
Republics
CIT
corporate income tax
CNY
Chinese yuan, basic unit of the renminbi
CO (2)
carbon dioxide
Committee or Committees
any or all of the Audit; Health, Safety and Sustainability;
Remuneration; Nomination; and Projects Assurance Committees
depending on the context in which the reference is used
Company or KAZ Minerals
KAZ Minerals PLC
Competent Person
a minerals industry professional responsible for preparing
and/or signing off reports on exploration results and mineral
resources and reserves estimates and who is accountable for the
prepared reports. A Competent Person has a minimum of five years'
relevant experience in the style of mineralisation or type of
deposit under consideration and in the activity which that person
is undertaking
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
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
dollar or $ or US$
United States dollar, the currency of the United States of
America
EBITDA
earnings before interest, taxation, depreciation, depletion,
amortisation, MET and royalties and special items. A reconciliation
to operating profit is in note 4(a)(i) of the consolidated
financial statements
EPS
earnings per share
EPS based on Underlying Profit/(Loss)
profit/loss excluding special items and their resulting tax and
non-controlling interest effects, divided by the weighted average
number of ordinary shares in issue during the period (see note 10
of the consolidated financial statements)
EU
European Union
EUR
Euro, the currency of certain member states of the European
Union
Final Completion
completion of the acquisition by KAZ Minerals of the remaining
25 per cent interest in the Baimskaya copper project, which will be
at the earlier of (i) a date shortly after the date of Commercial
Production and (ii) the Long Stop Date
Fluor
Fluor Corporation
Free Cash Flow
net cash flow from operating activities before capital
expenditure and VAT associated with major growth projects less
sustaining capital expenditure (see page 55 for a reconciliation to
the closest IFRS based measure)
g/t
grammes per metric tonne
gross cash costs
cash operating costs, including pre--commercial production
costs, excluding purchased cathode plus TC/RC on concentrate sales,
divided by the volume of own copper sales
gross liquid funds
the aggregate amount of cash and cash equivalents and current
investments less restricted cash
Gross Revenues
sales proceeds from all volumes sold, including pre-commercial
production volumes
the Group
KAZ Minerals PLC and its subsidiary companies
IAS
International Accounting Standard
IASB
International Accounting Standards Board
ICG
Industrial Construction Group LLC
IFRIC
International Financial Reporting Interpretations Committee
IFRS
International Financial Reporting Standard
Initial Cash Consideration
$436 million in cash
Initial Completion
completion of the acquisition by KAZ Minerals of a 75 per cent
interest in the Baimskaya copper project in the first half of 2019,
after obtaining anti-monopoly and other regulatory approvals and
satisfaction of certain other conditions
Initial Consideration
the Initial Cash Consideration and the Initial Equity
Consideration payable at Initial Completion, with a total value of
$675 million (at 31 July 2018)
Initial Equity Consideration
22,344,944 million new KAZ Minerals shares valued at $239
million at 31 July 2018
IRR
internal rate of return
JORC
Joint Ore Reserves Committee
JORC Code
the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves, a professional code of practice
that sets minimum standards for Public Reporting of Minerals
Exploration Results, Mineral Resources and Ore Reserves
Kazakhmys Holding Group
Kazakhmys Holding Group B.V. the entity to which the Disposal
Assets were transferred (formerly Cuprum Netherlands Holding B.V.),
a company owned by Vladimir Kim, a Director of the Company, and
Eduard Ogay, a former Director of the Company
Kazakhstan
the Republic of Kazakhstan
KAZRC
The Kazakhstan Code for the public reporting of Exploration
Results, Mineral Resources and Mineral Reserves, sets out minimum
requirements for public reporting by Kazakhstan mining and
exploration companies
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
Listing Rules
the Listing Rules of the UK Listing Authority
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 Gross revenues, divided by the
volume of own copper sales
net debt
the excess of current and non-current borrowings over gross
liquid funds. A reconciliation of net debt is in note 17(c) of the
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
Restructuring
the transfer, subject to certain consents and approvals, of the
mining, processing, auxiliary, transportation and heat and power
assets of the Group in the Zhezkazgan and Central Regions of
Kazakhstan to Kazakhmys Holding Group, which was approved by
shareholders at the General Meeting on 15 August 2014 and completed
on 31 October 2014. The assets transferred included 12 copper
mines, mine development opportunities, four concentrators, two
smelters, two coal mines and three captive heat and power
stations.
RMB
renminbi, the official currency of the People's Republic of
China
$/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. Special items are set out in note 7 to the consolidated
financial statements
SX/EW
solvent extraction and electrowinning, a two-stage metallurgy
process used for the extraction of copper
t
metric tonnes
TC/RCs
treatment charges and refining charges for smelting and refining
services
UK
United Kingdom
Underlying Profit/(Loss)
profit/loss excluding special items and their resulting tax and
noncontrolling interest effects. Underlying Profit is set out in
note 10 to the 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
FR KKCBDDBKBDBD
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