Kazakhmys PLC
19 September 2006
Notes to the interim consolidated financial statements
for the six months ended 30 June 2006
1. General information
Kazakhmys PLC (the 'Company', formerly KCC International Plc) is a public
limited company incorporated in the United Kingdom of Great Britain and Northern
Ireland. The Company's registered address is 6th Floor, Cardinal Place, 100
Victoria Street, London, SW1E 5JL, United Kingdom. The Group comprises the
Company and its consolidated subsidiaries as set out below.
The Group's operations are primarily conducted through the Company's principal
subsidiary, Kazakhmys Corporation LLC ('Kazakhmys LLC'), in which the Company
acquired a 97.40% interest as a result of a share exchange representing a
combination of businesses under common control on 23 November 2004. The share
exchange is described in Note 2(b). Subsequent to this share exchange, the
Company's interest in Kazakhmys LLC increased from 97.40% to 98.68% as a result
of a further share exchange with Kinton Trade Limited, a minority shareholder in
Kazakhmys LLC, on 26 September 2005 (refer Note 14(b)). As the result of
additional capital contributions to the charter capital of Kazakhmys LLC during
the six months ended 30 June 2006, the Company's interest in Kazakhmys LLC
increased from 98.68% as at 31 December 2005 to 99.08% as at 30 June 2006 (refer
Note 14(e)).
The Group operates in the mining industry. Its major business is the mining and
processing of copper ore into cathode copper and copper wire, and the refining
and sale of precious metals and other by-products of its copper mining process.
It also provides other services to various external customers.
These interim consolidated financial statements are for the six months ended 30
June 2006. The information for the year ended 31 December 2005 does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985. A copy of the statutory accounts for that year, which were prepared in
accordance with International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB) and interpretations issued by
the International Financial Reporting Interpretations Committee (IFRIC) of the
IASB, as adopted by the European Union up to 31 December 2005, has been
delivered to the Register of Companies. The auditor's report under Section 235
of the Companies Act 1985 in relation to those accounts was unqualified.
2. Basis of preparation
(a) Interim Consolidated Financial Statements
The interim consolidated financial statements have been prepared in accordance
with IAS 34, 'Interim Financial Reporting'. The interim consolidated financial
statements do not include all the information and disclosures required in the
annual financial statements, and should be read in conjunction with the Group's
annual financial statements for the year ended 31 December 2005.
(b) Accounting for the share exchange agreements relating to the acquisition of
Kazakhmys LLC
Pursuant to various share exchange agreements entered into as a result of the
offer made by the Company to shareholders of Kazakhmys LLC, the Company acquired
Kazakhmys LLC on 23 November 2004 in consideration for the allotment of ordinary
shares of £5 each in the Company or for a cash payment. The consideration
offered for each Kazakhmys LLC share was one ordinary share in the Company or a
cash payment of Kazakhstan tenge ('KZT') 4,736. No shareholder elected to take
the cash option and the offer period closed on 7 January 2005.
Pursuant to the share exchange agreements, the Company issued 15,580,210
ordinary shares of £5 each on or around 25 November 2004, a further 568,738
ordinary shares of £5 each were issued in the period 29 December 2004 to 23
August 2005 and an additional 2,000 ordinary shares of 20 pence each were issued
on 29 December 2005 (equivalent to 80 ordinary shares of £5 each prior to the
share split which took place on 23 September 2005 (refer to Note 14) in which
the Company's share capital was redenominated into ordinary shares of 20 pence
each). Immediately after the initial issue of shares pursuant to the share
exchange agreements, the Company's interest in Kazakhmys LLC was 93.96%. This
interest increased to 97.40% upon completion of share allotments relating to the
share exchange agreements.
As this transaction involved the combination of businesses under common control,
the pooling of interests method of accounting has been applied in the
presentation of the interim consolidated financial statements, which present the
results of the Group as if the Company had always been the parent company of
Kazakhmys LLC.
(c) Comparative figures
Where a change in the presentational format of the interim consolidated
financial statements has been made during the period, comparative figures have
been restated accordingly.
3. Significant accounting policies
The interim consolidated financial statements have been prepared under a
historical cost basis, except for certain classes of property, plant and
equipment which have been revalued at 1 January 2002 to determine deemed cost as
part of the first-time adoption of International Financial Reporting Standards
at that date, and derivative financial instruments which have been measured at
fair value. The interim consolidated financial statements are presented in US
dollars ('$') and all monetary amounts are rounded to the nearest million ('$
million') except when otherwise indicated.
The accounting policies adopted are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2005.
In preparing the consolidated financial statements the Group has adopted all the
extant accounting standards issued by the IASB and all the extant
interpretations issued by the IFRIC as at 30 June 2006. The Group has not
applied IFRS 7 'Financial Instruments: Disclosures' and consequential amendments
IAS 1 'Presentation of Financial Statements' which are effective for annual
periods beginning on or after 1 January 2007.
The following foreign exchange rates vs. the US dollar have been used in the
preparation of the interim consolidated financial statements:
30 June 2006 30 June 2005 31 December 2005
-------------- -------------- --------------
Spot Average Spot Average Spot Average
-----------------------------------------------
Kazakhstan tenge 118.69 127.10 135.26 131.20 133.77 132.88
Euro 0.80 0.81 0.84 0.78 0.84 0.80
UK pound sterling 0.55 0.56 0.55 0.53 0.58 0.55
Where applicable, comparatives have been adjusted on the same basis as current
period figures. The material adjustments to the comparatives are the
reclassification within segment information of corporate head office costs,
assets and liabilities from Kazakh Mining to unallocated items.
4. Segment information
Segment information is presented in respect of the Group's primary basis of
segmentation in business segments, which are based on the Group's management and
internal reporting.
Segments results, assets and liabilities include items directly attributable to
a segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise corporate head office assets and liabilities, income
taxes payable, deferred taxes and dividends payable/receivable.
The Group's activities principally relate to:
• Kazakh Mining business which involves the production and sale of:
- Copper cathodes and copper rod;
- Zinc and zinc concentrate;
- Gold and silver; and
- Other by-product metals (lead, rhenium and selenium).
• German copper processing operation.
(a) Business segments
The Kazakh Mining business, which involves the processing and sale of copper and
other metals, is managed as one business segment. The products are subject to
the same risks and returns, exhibit similar long-term financial performance and
are sold through the same distribution channels. The Group mines substantially
all the copper ore it processes and utilises most of the copper concentrate it
processes. The Group has a number of activities that exist solely to support the
mining operations including power generation, coal mining and transportation.
These other activities generate less than 10% of total revenues (both external
and internal) and the related assets are less than 10% of total assets.
The UK operation consists of two functions:
• a trading function responsible for the purchases of products from
the Kazakh Mining operations, application of an appropriate mark-up and then
onward sale to third parties; and
• a corporate head office function.
For the purposes of business segmental reporting, the trading function is
regarded as a sales function on behalf of the Kazakh Mining business and
consequently the assets and liabilities related to those trading operations,
i.e. trade creditors and trade receivables, are included with the Kazakh Mining
business segment. The expenses, assets and liabilities of the corporate head
office function are disclosed separately as unallocated items.
The price at which sales are made to the Company by Kazakhmys LLC is the
prevailing price of commodities as determined by the LME.
At the end of 2004, the Group acquired MKM, which operates from Germany, where
it manufactures copper and copper alloy semi-finished products. MKM faces
different risks to the Group's Kazakh Mining business and, therefore, from 1
January 2005 the Group has operated in two distinct business segments. Segmental
information in respect of these two business segments for the periods ended 30
June 2006, 30 June 2005 and 31 December 2005 is presented below.
(i) Income statement information
Six months ended Six months ended Year ended
30 June 2006 30 June 2005 31 December 2005
--------------------- --------------------- -----------------------
Kazakh MKM Total Kazakh MKM Total Kazakh MKM Total
Mining Mining Mining
---------------------------------------------------------------------------------------
$ million
Sales to external 1,520.9 758.9 2,279.8 791.6 410.5 1,202.1 1,740.9 856.6 2,597.5
customers
---------------------------------------------------------------------------------------
Gross profit 1,073.0 53.4 1,126.4 439.0 38.6 477.6 1,024.8 66.1 1,090.9
Operating costs (99.9)(23.4) (123.3)(91.8) (23.0) (114.8) (184.6)(44.3) (228.9)
---------------------------------------------------------------------------------------
Segment results 973.1 30.0 1,003.1 347.2 15.6 362.8 840.2 21.8 862.0
Unallocated (18.6) (3.3) (19.5)
corporate costs
---------------------------------------------------------------------------------------
Profit before 984.5 359.5 842.5
taxation, finance
items and negative
goodwill
Net finance (costs) (35.1) (0.5) 5.6
/income
Recognition of 6.5 - -
negative goodwill
---------------------------------------------------------------------------------------
Profit before 955.9 359.0 848.1
taxation
Income tax expense (317.0) (126.9) (297.3)
---------------------------------------------------------------------------------------
Profit for the 638.9 232.1 550.8
period
---------------------------------------------------------------------------------------
(ii) Balance sheet information
As at 30 June 2006 As at 30 June 2005 As at 31 December 2005
------------------------- -------------------------- ----------------------------
$ million Kazakh MKM Total Kazakh MKM Total Kazakh MKM Total
Mining Mining Mining
------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
ASSETS
Tangible and 1,900.1 167.8 2,067.9 1,465.7 175.3 1,641.0 1,598.1 165.8 1,763.9
intangible assets
Non-current 4.1 3.2 7.3 2.8 3.0 5.8 2.7 3.1 5.8
investments
Operating assets 712.3 387.8 1,100.1 360.9 378.3 739.2 593.1 220.0 813.1
(1)
Current 823.8 - 823.8 313.5 - 313.5 356.5 - 356.5
investments
Cash and cash 96.8 18.6 115.4 14.4 25.8 40.2 13.1 2.6 15.7
equivalents
------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Segment assets 3,537.1 577.4 4,114.5 2,157.3 582.4 2,739.7 2,563.5 391.5 2,955.0
------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Unallocated
assets:
Non-current assets 3.2 0.6 0.8
- Corporate
Current assets - 21.6 112.3 13.3
Corporate
Dividends - - 164.5
receivable -
Corporate
Cash and cash 466.8 128.8 506.3
equivalents -
Corporate
Elimination (194.0) (291.0) (359.9)
------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL ASSETS 4,412.1 2,690.4 3,280.0
------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LIABILITIES
Employee benefits 82.9 8.9 91.8 69.4 10.1 79.5 67.3 7.3 74.6
and provisions
Operating 145.9 20.3 166.2 107.5 36.2 143.7 273.5 29.6 303.1
liabilities (2)
Borrowings - 378.6 378.6 204.2 191.5 395.7 41.6 202.8 244.4
------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Segment 228.8 407.8 636.6 381.1 237.8 618.9 382.4 239.7 622.1
liabilities
------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Unallocated
liabilities:
Other payables - 26.9 119.7 20.1
Corporate
Deferred tax 280.2 232.7 260.9
liability - Group
Income tax payable 285.5 108.8 107.6
- Group
Dividend payable - 1.9 1.1 3.1
Group
Elimination (194.0) (291.0) (359.9)
------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL LIABILITIES 1,037.1 790.2 653.9
------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(1) Operating assets include inventories, trade and other receivables,
prepayments and other current assets and restricted cash.
(2) Operating liabilities include trade and other payables and dividends payable
by Kazakhmys LLC to the Company.
(iii) Earnings before interest, tax, depreciation and amortisation ('EBITDA')
excluding special items (1) by business segments
Six months ended 30 June 2006 Six months ended 30 June 2005
------------------------------------- -----------------------------------
$ million Kazakh MKM Corporate Total Kazakh MKM Corporate Total
Mining unallocated Mining unallocated
------------------- ------- ------- ------- ------- ------- ------- ------- -------
Profit before 973.1 30.0 (18.6) 984.5 347.2 15.6 (3.3) 359.5
taxation, finance
items and negative
goodwill
Special items: - - -
(Less)/add: write (10.2) - - (10.2) 0.3 - - 0.3
(back)/off of
property, plant and
equipment
Add/(less): loss/ 3.6 (0.1) 0.5 4.0 10.6 - - 10.6
(gain) on disposal of
property, plant and
equipment
------------------- ------- ------- ------- ------- ------- ------- ------- -------
Profit before 966.5 29.9 (18.1) 978.3 358.1 15.6 (3.3) 370.4
taxation, finance
items and negative
goodwill excluding
special items
Add: depreciation and 91.4 10.4 0.1 101.9 101.4 10.3 - 111.7
depletion
Add: amortisation 0.9 0.2 - 1.1 0.6 0.1 - 0.7
------------------- ------- ------- ------- ------- ------- ------- ------- -------
EBITDA excluding 1,058.8 40.5 (18.0) 1,081.3 460.1 26.0 (3.3) 482.8
special items
------------------- ------- ------- ------- ------- ------- ------- ------- -------
Year ended 31 December 2005
-------------------------------------------
$ million Kazakh MKM Corporate Total
Mining unallocated
---------------------------- ---------- ---------- ---------- ----------
Profit before taxation, finance items 840.3 21.7 (19.5) 842.5
and negative goodwill
Special items: - -
(Less)/add: write (back)/off of 6.8 - - 6.8
property, plant and equipment
Add/(less): loss/(gain) on disposal 8.6 (4.0) - 4.6
of property, plant and equipment
---------------------------- ---------- ---------- ---------- ----------
Profit before taxation, finance items 855.7 17.7 (19.5) 853.9
and negative goodwill excluding
special items
Add: depreciation and depletion 196.5 21.0 0.2 217.7
Add: amortisation 1.5 0.4 - 1.9
---------------------------- ---------- ---------- ---------- ----------
EBITDA excluding special items 1,053.7 39.1 (19.3) 1,073.5
---------------------------- ---------- ---------- ---------- ----------
(1) EBITDA excluding special items is defined as profit before interest,
taxation, depreciation and amortisation, as adjusted for special items. Special
items are those items which are non-recurring or variable in nature and which do
not impact the underlying trading performance of the business.
(iv) Net liquid funds/(debt) by business segments
As at 30 June 2006 As at 30 June 2005
----------------------------------- ------------------------------------
$ million Kazakh MKM (1) Corporate Total Kazakh MKM (1) Corporate Total
Mining unallocated Mining unallocated
(2)
------------------- ------- ------- ------- ------- ------- ------- ------- -------
Cash and cash equivalents 96.8 18.6 466.8 582.2 14.4 25.8 128.8 169.0
Current investments 823.8 - - 823.8 313.5 - - 313.5
Borrowings - (378.5) - (378.5) (204.2) (191.0) (100.0) (495.2)
Inter-segment borrowings - 194.0 - 194.0 100.0 191.0 - 291.0
(1) (2)
Finance leases - (0.1) - (0.1) - (0.5) - (0.5)
Redeemable preference - - - - - - (0.1) (0.1)
shares
------------------- ------- ------- ------- ------- ------- ------- ------- -------
Net liquid funds/(debt) 920.6 (166.0) 466.8 1,221.4 223.7 25.3 28.7 277.7
------------------- ------- ------- ------- ------- ------- ------- ------- -------
As at 31 December 2005
-------------------------------------------
$ million Kazakh MKM (1) Corporate Total
Mining unallocated
---------------------------- ---------- ---------- ---------- ----------
Cash and cash equivalents 13.1 2.6 506.3 522.0
Current investments 356.5 - - 356.5
Borrowings (41.6) (202.6) - (244.2)
Inter-segment borrowings (1) (2) - 195.4 - 195.4
Finance leases - (0.2) - (0.2)
Redeemable preference shares - - - -
---------------------------- ---------- ---------- ---------- ----------
Net liquid funds/(debt) 328.0 (4.8) 506.3 829.5
---------------------------- ---------- ---------- ---------- ----------
(1) Borrowings of MKM include amounts borrowed from the Kazakh Mining segment.
(2) Borrowings of Kazakh Mining include amounts borrowed from the Corporate head
office as at 30 June 2005.
(v) Capital expenditure, depreciation, write (back)/off and impairment losses by
business segments
Six months ended 30 June 2006 Six months ended 30 June 2005
---------------------------------- -----------------------------------
$ million Kazakh MKM Corporate Total Kazakh MKM Corporate Total
------------------- Mining unallocated Mining unallocated
------- ------- ------- ------- ------- ------- ------- -------
Property, plant and 159.0 3.0 3.0 165.0 137.0 7.1 0.5 144.6
equipment
Mine stripping costs 5.9 - - 5.9 7.0 - - 7.0
Intangible assets 0.7 - - 0.7 3.4 - 0.4 3.8
------------------- ------- ------- ------- ------- ------- ------- ------- -------
Capital expenditure 165.6 3.0 3.0 171.6 147.4 7.1 0.9 155.4
------------------- ------- ------- ------- ------- ------- ------- ------- -------
Depreciation and 91.4 10.4 0.1 101.9 101.4 10.3 - 111.7
depletion
Amortisation 0.9 0.2 - 1.1 0.6 0.1 - 0.7
------------------- ------- ------- ------- ------- ------- ------- ------- -------
Depreciation, depletion 92.3 10.6 0.1 103.0 102.0 10.4 - 112.4
and amortisation
------------------- ------- ------- ------- ------- ------- ------- ------- -------
Write (back)/off of (7.0) 1.3 - (5.7) 3.6 - - 3.6
assets and impairment
losses
------------------- ------- ------- ------- ------- ------- ------- ------- -------
Year ended 31 December 2005
-------------------------------------------
$ million Kazakh MKM Corporate Total
---------------------------- Mining unallocated
---------- ---------- ---------- ----------
Property, plant and equipment 320.7 12.5 0.5 333.7
Mine stripping costs 26.5 - - 26.5
Intangible assets 4.2 1.0 - 5.2
---------------------------- ---------- ---------- ---------- ----------
Capital expenditure 351.4 13.5 0.5 365.4
---------------------------- ---------- ---------- ---------- ----------
Depreciation and depletion 196.5 21.0 0.2 217.7
Amortisation 1.5 0.4 - 1.9
---------------------------- ---------- ---------- ---------- ----------
Depreciation, depletion and 198.0 21.4 0.2 219.6
amortisation
---------------------------- ---------- ---------- ---------- ----------
Write (back)/off of assets and 11.4 - 0.4 11.8
impairment losses
---------------------------- ---------- ---------- ---------- ----------
(b) Revenues by product
$ million Six months Six months Year ended
ended ended 30 31
30 June June December
2006 2005 2005
----------------------------- --------- --------- ---------
Kazakh Mining
Copper cathodes 1,060.2 595.5 1,377.2
Silver in granules 117.8 77.2 147.3
Zinc metal 102.4 46.8 64.3
Copper rods 98.6 20.1 26.5
Zinc concentrate 59.1 1.6 15.0
Gold bullion 28.2 14.2 37.7
Other by-products 14.7 10.0 14.5
Other revenue 39.9 26.2 58.4
----------------------------- --------- --------- ---------
1,520.9 791.6 1,740.9
----------------------------- --------- --------- ---------
MKM
Wire 416.5 178.5 389.1
Sheet steel and steel strips 190.6 125.3 252.3
Tubes and bars 119.5 79.4 167.3
Metal trade 32.3 27.3 47.9
----------------------------- --------- --------- ---------
758.9 410.5 856.6
----------------------------- --------- --------- ---------
Total revenues 2,279.8 1,202.1 2,597.5
----------------------------- --------- --------- ---------
Provisional pricing
All copper sales agreements provide for provisional pricing of sales in the
month of sale with final pricing settlement based on the average LME copper
price for the month following the sale.
For the six months ended 30 June 2006 gains of $57.5 million (six months ended
30 June 2005: $8.4 million, year ended 31 December 2005: $52.4 million) relating
to the difference between provisional pricing and final pricing have been
included within revenues.
At 30 June 2006, copper sales totalling 2,496 tonnes (30 June 2005: 15,375
tonnes, 31 December 2005: 20,881 tonnes) remained to be finally priced and were
recorded at that date at an average price of $8,474 per tonne (30 June 2005:
$3,323 per tonne, 31 December 2005: $4,342 per tonne) based on provisional
invoices.
The loss on sales contracts of $1.6 million arising in July 2006 and relating to
contracts previously priced in June 2006, will be recognised in the second half
of the year ended 31 December 2006.
(c) Revenues by destination
Six months ended 30 June 2006
---------------------------------------
$ million Europe China Other Total
---------------------------- ------- ------- ------- -------
Sales to third parties 1,659.2 302.5 318.1 2,279.8
---------------------------- ------- ------- ------- -------
Six months ended 30 June 2005
---------------------------------------
$ million Europe China Other Total
---------------------------- ------- ------- ------- -------
Sales to third parties 607.4 423.3 171.4 1,202.1
---------------------------- ------- ------- ------- -------
Year ended 31 December 2005
---------------------------------------
$ million Europe China Other Total
---------------------------- ------- ------- ------- -------
Sales to third parties 995.1 1,303.0 299.4 2,597.5
---------------------------- ------- ------- ------- -------
5. Write back/(off) of assets and impairment losses
$ million Six months Six months Year ended
ended ended 30 31
30 June June 2005 December
2006 2005
----------------------------- --------- --------- ---------
Write back/(off) of property, plant and 10.2 (0.3) (6.8)
equipment
Release of provisions for/(provisions 1.2 (2.7) (3.8)
against) prepayments and other current
assets
Impairment of investments - - (1.8)
Write-off of goodwill - (0.4) (0.4)
Provisions against trade and other (1.1) (0.2) (0.3)
receivables
(Provisions against)/release of provisions (4.6) - 1.3
for obsolete inventories
----------------------------- --------- --------- ---------
5.7 (3.6) (11.8)
----------------------------- --------- --------- ---------
6. Finance income and finance costs
$ million Six months Six months Year ended
ended ended 30 31
30 June June 2005 December
2006 2005
----------------------------- --------- --------- ---------
Finance income:
Interest income 34.0 10.0 30.6
Foreign exchange gains 28.9 43.8 56.8
----------------------------- --------- --------- ---------
Total finance income 62.9 53.8 87.4
----------------------------- --------- --------- ---------
Finance costs:
Interest expense (1.7) (6.3) (8.8)
Interest on employee obligations (1.0) (0.4) (2.0)
Unwinding of discount on provisions (2.6) (2.1) (3.2)
----------------------------- --------- --------- ---------
Finance costs before foreign exchange losses (5.3) (8.8) (14.0)
Foreign exchange losses (92.7) (45.5) (67.8)
----------------------------- --------- --------- ---------
Total finance costs (98.0) (54.3) (81.8)
----------------------------- --------- --------- ---------
7. Business combination
On 10 February 2006, the Group acquired 90% of ZhREK JSC, a power transmission
company in Kazakhstan, for $2.3 million. The fair value of the net identifiable
assets was $9.7 million, minority interests were $0.9 million and negative
goodwill on acquisition was $6.5 million. Upon acquisition, the Group acquired
cash of $0.3 million.
8. Income tax
(a) Income tax expense
Major components of income tax expense for the periods presented are:
$ million Six months Six months Year ended
ended ended 30 31
30 June June 2005 December
2006 2005
----------------------------- --------- --------- ---------
Current income tax
Corporate income tax - current period (UK) 0.2 1.0 2.2
Corporate income tax - current period 281.0 137.9 269.8
(overseas)
Corporate income tax - prior periods 15.0 1.3 1.3
Excess profits tax 24.3 13.8 27.0
----------------------------- --------- --------- ---------
320.5 154.0 300.3
----------------------------- --------- --------- ---------
Deferred income tax
Corporate income tax - current period (4.5) (26.1) (8.1)
Excess profits tax 1.0 (1.0) 5.1
----------------------------- --------- --------- ---------
(3.5) (27.1) (3.0)
----------------------------- --------- --------- ---------
Income tax expense 317.0 126.9 297.3
----------------------------- --------- --------- ---------
(b) Income tax reconciliation
The tax assessed on the profit for the period is higher than the standard rate
of corporation tax in the tax jurisdictions in which the Group operates.
A reconciliation of income tax expense applicable to accounting profit before
income tax at the statutory income tax rate to income tax expense at the Group's
effective income tax rate for the periods presented is as follows:
$ million Six months Six months Year ended
ended ended 30 31
30 June June 2005 December
2006 2005
----------------------------- --------- --------- ---------
Profit before taxation 955.9 359.0 848.1
----------------------------- --------- --------- ---------
At statutory income tax rate of 30% 286.8 107.7 254.4
Underprovided in previous periods 15.0 1.3 1.3
Unrecognised tax losses 5.6 2.4 4.7
Effect of higher tax rate in Germany 1.4 1.0 1.0
Change in the tax rate in Germany - - (2.7)
Unremitted overseas earnings 6.8 4.8 11.9
Non deductible expenses/(non taxable
income):
Non taxable income of zinc plant (26.5) (4.0) (8.3)
Recognition of negative goodwill (2.0) - -
Non deductible expenses 4.6 0.9 2.9
Excess profits tax 25.3 12.8 32.1
----------------------------- --------- --------- ---------
At effective income tax rate of 33.2% 317.0 126.9 297.3
(30.06.05: 35.3%, 31.12.05: 35.1%)
----------------------------- --------- --------- ---------
Corporate income tax is calculated at 30% of the assessable profit for the
period for the Company and Kazakhmys LLC. The MKM tax rate is calculated at
35.98% (30 June 2005 and 31 December 2005: 35.98%) and relates to German
corporate income tax and trade tax. The Directors have estimated the tax expense
for the six months period ended 30 June 2006 based on the projected tax rate for
the Group for the 12 months to 31 December 2006.
Excess profits tax is levied on profitable subsoil contracts where the Internal
Rate of Return for the current period exceeds 20%. The effective rate for excess
profits tax for those subsoil contracts liable to this tax is 36% (30 June 2005:
35%, 31 December 2005: 37%).
9. Earnings per share
The earnings per share ('EPS') calculation has assumed that the number of
ordinary shares issued pursuant to share exchange agreements in relation to the
acquisition of Kazakhmys LLC have been in issue from 1 January 2004 consistent
with the pooling of interests method used to account for combinations of
businesses under common control.
The EPS calculation has also assumed that the share split that occurred on 26
September 2005, in which the Company's share capital was redenominated into
ordinary shares of 20 pence each, was in effect for all prior periods.
The Directors believe that this basis for the EPS calculation provides a more
relevant performance measure of the Group than using an EPS calculation which
reflected shares issued based on the actual date of issue.
(a) Basic and diluted EPS
Basic EPS is calculated by dividing profit for the period attributable to equity
shareholders of the Company by the weighted average number of ordinary shares of
20 pence each outstanding during the period. The Company has no dilutive
potential ordinary shares.
The following reflects the income and share data used in the EPS computations.
$ million Six months Six months Year ended
ended ended 30 June 31 December
30 June 2006 2005 2005
----------------------------- --------- --------- ---------
Net profit attributable to equity 632.7 226.1 538.8
shareholders of the Company
----------------------------- --------- --------- ---------
Six months Six months Year ended
ended ended 30 June 31 December
30 June 2006 2005 2005
No. No. No.
----------------------------- --------- --------- ---------
Number of shares
Weighted average number of ordinary 467,474,200 403,725,750 418,105,627
shares of 20 pence each for EPS
calculation
----------------------------- --------- --------- ---------
EPS - basic and diluted $1.35 $0.56 $1.29
----------------------------- --------- --------- ---------
(b) EPS based on Underlying Profit
The Group's Underlying Profit is the profit for the period after adding back
items which are non-recurring or variable in nature and which do not impact the
underlying trading performance of the business and their resultant tax and
minority interest effects, as shown in the table below. EPS based on Underlying
Profit is calculated by dividing Underlying Profit by the weighted average
number of ordinary shares of 20 pence each outstanding during the period. The
Directors believe EPS based on Underlying Profit provides a more consistent
measure for comparing the underlying trading performance of the Group.
The following shows the reconciliation of Underlying Profit from the reported
profit and the share data used in the computations for EPS based on Underlying
Profit:
$ million Six months Six months Year ended
----------------------------- ended ended 30 June 31 December
30 June 2006 2005 2005
--------- --------- ---------
Net profit attributable to equity 632.7 226.1 538.8
shareholders of the Company
Special items:
Recognition of negative goodwill (6.5) - -
Write (back)/off of property, plant and (10.2) 0.3 6.8
equipment
Loss on disposal of property, plant and 4.0 10.6 4.6
equipment
Tax effect of special items (0.8) (0.2) (0.5)
Minority interest effect of special 0.1 (0.1) 0.1
items
----------------------------- --------- --------- ---------
Underlying Profit 619.3 236.7 549.8
----------------------------- --------- --------- ---------
Six months Six months Year ended
ended ended 30 June 31 December
30 June 2006 2005 2005
No. No. No.
----------------------------- --------- --------- ---------
Weighted average number of ordinary 467,474,200 403,725,750 418,105,627
shares of 20 pence each for EPS based on
Underlying Profit calculation
----------------------------- --------- --------- ---------
EPS based on Underlying Profit - basic $1.32 $0.59 $1.31
and diluted
----------------------------- --------- --------- ---------
10. Dividends paid and proposed
The dividend per share disclosures below have been calculated using the number
of shares in issue at the date of payment after reflecting the share split that
occurred on 26 September 2005 for comparability purposes. The dividends declared
and paid during the six months ended 30 June 2006 and 2005, and the year ended
31 December 2005 are as follows:
Per share Amount
$ $ million
------------------------------------- -------- --------
Six months ended 30 June 2006
Declared by the Company:
Final dividend in respect of year ended 31 December 2005 0.36 168.3
(sourced from 2005 earnings)
------------------------------------- -------- --------
Six months ended 30 June 2005
Declared by Kazakhmys LLC:
Interim dividend payable to former shareholders (sourced 0.13 52.1
from 2004 earnings)
------------------------------------- -------- --------
Year ended 31 December 2005
Declared by the Company:
Interim dividend in respect of year ended 31 December 0.27 110.0
2005 (sourced from 2004 earnings)
Declared by Kazakhmys LLC:
Interim dividend payable to former shareholders (sourced 0.13 52.1
from 2004 earnings)
------------------------------------- -------- --------
0.40 162.1
------------------------------------- -------- --------
The dividends shown above are those that have been declared and paid by the
Company, in respect of the period following the share exchange, and Kazakhmys
LLC for the period prior to the share exchange. This presentation is consistent
with the pooling of interests method used to account for combinations of
businesses under common control.
Dividends declared by Kazakhmys LLC
On 24 February 2005, Kazakhmys LLC paid an interim dividend in respect of the
year ended 31 December 2004 of $52.1 million, which was paid to shareholders on
the register of Kazakhmys LLC as at 31 October 2004. Accordingly, as the share
exchange agreement was not effective until 23 November 2004, these dividends
were paid directly to Kazakhmys LLC's former shareholders, rather than to the
Company. The dividends are shown in the interim consolidated financial
statements as cash outflows for the Group, consistent with the pooling of
interests method of accounting.
Dividends declared by the Company
On 5 July 2005, the Company paid an interim dividend of $110.0 million in
respect of the year ended 31 December 2005 to shareholders on the register as at
1 July 2005. This interim dividend was sourced from 2004 earnings by way of
payment of the final dividend in respect of the year ended by 31 December 2004
by Kazakhmys LLC.
On 26 May 2006 the Company paid the final dividend of $168.3 million in respect
of the year ended 31 December 2005 to shareholders on the register as at 28
April 2006. This final dividend was sourced from 2005 earnings by way of payment
of the interim dividend in respect of the year ended by 31 December 2005 by
Kazakhmys LLC.
Dividend declared by the Company
Per share Amount
$ $ million
------------------------------------ --------- ---------
Declared by Directors on 18 September 2006 (not
recognised as a liability as at 30 June 2006)
Interim dividend in respect of year ended 31 December 0.13 59.8
2006
------------------------------------ --------- ---------
11. Property, plant and equipment
During the six months ended 30 June 2006, the Group acquired assets with a cost
of $165.0 million (30 June 2005: $144.6 million, 31 December 2005: $333.7
million), of which $95.4 million related to new and expansionary projects (30
June 2005: $50.0 million, 31 December 2005: $181.4 million).
Assets with a book value of $4.1 million were disposed of by the Group during
the six months ended 30 June 2006 (30 June 2005: $14.5 million, 31 December 2005
: $11.9 million) resulting in a loss on disposal of $4.0 million (30 June 2005:
$10.6 million, 31 December 2005: $4.6 million).
In addition to the above additions and disposals, during the six months ended 30
June 2006 property, plant and equipment:
• increased by $216.0 million as a result of foreign exchange movements
on translation;
• increased by $10.2 million as a result of write backs;
• decreased by $100.1 million as a result of depreciation expense.
12. Current investments
Current investments include bank deposits of $823.8 million (30 June 2005:
$313.0 million, 31 December 2005: $355.5 million) and available for sale
securities of nil (30 June 2005: $0.5 million, 31 December 2005: $1.0 million).
Bank deposits are deposits held at ABN Amro Bank, Citibank Kazakhstan, Bank
Turan Alem, HSBC Bank Kazakhstan and Halyk Bank.
13. Cash and cash equivalents
$ million As at As at As at
30 June 30 June 31 December
2006 2005 2005
----------------------------- --------- --------- ---------
Cash deposits with maturities of less than 435.4 - 496.7
three months
Cash at bank 146.6 168.8 25.1
Petty cash 0.2 0.2 0.2
----------------------------- --------- --------- ---------
582.2 169.0 522.0
----------------------------- --------- --------- ---------
Cash deposits are principally held at Credit Suisse First Boston, ABN Amro Bank
and HSBC Bank.
14. Share capital and reserves
(a) Authorised and allotted share capital
As described in the annual financial statements for the year ended 31 December
2005, a pooling of interests method of accounting has been applied in the
presentation of the financial information. This method presents the results of
the Group as if the Company had always been the parent company. This has the
effect that, despite the Company not being incorporated until 15 July 2004, the
ordinary share capital shown throughout the period of the financial information
is that of the Company resulting from the share exchange with the previous
shareholders of Kazakhmys LLC.
On 23 September 2005, a share split took place in which each ordinary share of
£5 was sub-divided into 25 ordinary shares of 20 pence each.
Number £ million $ million
----------------------------- --------- --------- ---------
Authorised
As at 30 June 2006 750,000,000 150.0 -
----------------------------- --------- --------- ---------
Allotted and called up share capital (1)
As at 30 June 2006 467,474,200 93.5 173.3
As at 30 June 2005 403,725,750 80.7 151.1
As at 31 December 2005 467,474,200 93.5 173.3
----------------------------- --------- --------- ---------
(1) Excluding the one special share of £1 each which was cancelled on 23 May
2005 (refer Note 14(c)).
The changes in share capital, including the impact of the share split are shown
below:
Number of Share Share Total
shares capital premium
$ million $ million $ million
------------------------- -------- -------- -------- --------
Ordinary shares of £5 each issued
and fully paid
Issued to initial shareholders 2 - - -
Issued pursuant to share exchange 16,149,028 151.1 - 151.1
agreements (1)
------------------------- -------- -------- -------- --------
At 23 September 2005 16,149,030 151.1 - 151.1
------------------------- -------- -------- -------- --------
Share capital following the share
split:
Ordinary shares of 20 pence each
issued and fully paid
Shares in issue at 23 September 403,725,750 151.1 - 151.1
2005
Issued pursuant to transaction with 5,314,425 1.9 32.5 34.4
Kinton Trade Limited
Issued pursuant to the Company's 58,434,025 20.3 470.9 491.2
Listing
(net of expenses $57.2 million)
------------------------- -------- -------- -------- --------
At 31 December 2005 and 30 June 467,474,200 173.3 503.4 676.7
2006
------------------------- -------- -------- -------- --------
(1) Includes 80 ordinary shares of £5 each which were actually issued on 29
December 2005 as 2,000 ordinary shares of 20 pence each. These shares have been
included in the proforma number of shares issued pursuant to the share exchange
agreements to reflect the pooling of interests method of accounting for the
transaction rather than its legal form.
(b) Ordinary shares
Between 23 November 2004 and 23 August 2005, a total number of 16,148,948
ordinary shares of £5 each in the Company were issued and a further 2,000
ordinary shares of 20 pence each were issued on 29 December 2005 (equivalent to
80 ordinary shares of £5 each prior to the share split) pursuant to share
exchange agreements in relation to the acquisition of Kazakhmys LLC.
Pursuant to a special resolution passed on 23 September 2005 it was resolved
inter alia to:
• divide the £50,000 nominal amount of authorised share capital of
the Company formerly divided into 50,000 redeemable preference shares of £1 each
into 10,000 ordinary shares of £5 each;
• subdivide each ordinary share of £5 in the capital of the Company
into 25 ordinary shares of 20 pence each; and
• increase the authorised share capital of the Company from
£100,050,001 to £150,000,001 by the creation of 249,750,000 ordinary shares of
20 pence each.
On 26 September 2005, the Company issued 5,314,425 ordinary shares of 20 pence
each in consideration for the transfer to it of 127,546,200 units in Kazakhmys
LLC from Kinton Trade Limited. This was at an exchange rate equivalent to that
applied pursuant to the share exchange offer made by the Company in November
2004 when it first acquired units in Kazakhmys LLC.
On 12 October 2005, the Company's ordinary shares were admitted to the Official
List of the Financial Services Authority and to trading on the London Stock
Exchange. Following the exercise of an over-allotment option, the global offer
comprised 140,849,373 ordinary shares of 20 pence each at a price of £5.40, of
which 58,434,025 new ordinary shares of 20 pence each were issued by the Company
and 82,415,348 were ordinary shares of 20 pence each sold by existing
shareholders. Gross proceeds of $548.4 million (£315.5 million) were received by
the Company following the issue of the new ordinary shares.
(c) Special share
At 30 June 2005 and 31 December 2005 the Company had 1 special share of £1 as
part of its authorised share capital. The special share was cancelled by special
resolution at the Company's Annual General Meeting on 23 May 2006.
(d) Reserves
(i) Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences
arising from the translation of the financial statements of Kazakhmys LLC and
MKM into US dollars.
(ii) Reserve fund
In accordance with legislation of the Republic of Kazakhstan the reserve fund
comprises prescribed transfers from retained earnings amounting to 15% of
Kazakhmys LLC's charter capital. During the six months ended 30 June 2006, the
reserve fund was increased by $28.2 million as a result of the contributions to
charter capital of Kazakhmys LLC (see Note 14(e)). During the year ended 31
December 2005, the reserve fund was reduced by $5.4 million to match a reduction
in Kazakhmys LLC's capital.
(e) Capital contributions to charter capital of Kazakhmys LLC
Between 31 January 2006 and 14 March 2006, the Company made capital
contributions of $186.7 million to its subsidiary, Kazakhmys LLC. Minority
shareholders contributed a further $1.6 million to the charter capital. As the
Company took up the rights of minority shareholders who did not subscribe to the
initial capital contribution, the Company's share in Kazakhmys LLC increased
from 98.68% at 31 December 2005 to 99.08% at 30 June 2006.
15. Borrowings
During the period, the Group via its subsidiary MKM, obtained a borrowing
facility from Deutsche Bank. The maximum amount that can be borrowed under the
facility is conditional upon a maximum of 80% of trade debtors plus the market
value of inventory minus the trade creditors for metal purchases but not more
than $250.0 million, of which $184.5 million has been drawn down at 30 June 2006.
The loan bears interest at Euribor +1.45% and is repayable over 4 years. The
loan is secured over the receivables and inventory of MKM. Proceeds of the loan
were used to repay borrowings of $25.4 million from Kazakhmys LLC and support
additional working capital requirements of MKM.
16. Reconciliation of profit before taxation to net cash inflow from operating
activities
$ million Six months Six months Year ended
ended ended 30 31
30 June June 2005 December
2006 2005
----------------------------- --------- --------- ---------
Profit before taxation 955.9 359.0 848.1
Interest income (34.0) (10.0) (30.6)
Interest expense 1.7 6.3 8.8
Depreciation and depletion 101.9 111.7 217.7
Amortisation 1.1 0.7 1.9
Recognition of negative goodwill (6.5) - -
Write (back)/off and impairment losses (5.7) 3.6 11.8
Loss on disposal of property, plant and 4.0 10.6 4.6
equipment
Unrealised foreign exchange loss 46.5 1.7 0.3
----------------------------- --------- --------- ---------
Operating cash flows before changes in 1,064.9 483.6 1,062.6
working capital and provisions
Increase in inventories (123.0) (42.6) (97.1)
(Increase)/decrease in prepayments and other (31.0) (28.6) 18.0
current assets
Increase in trade and other receivables (7.3) (17.5) (69.5)
(Increase)/decrease in restricted cash (1.7) 27.5 29.0
Increase in employee benefits 0.7 0.1 1.2
(Decrease)/increase in provisions (9.5) 0.3 3.4
(Decrease)/increase in trade and other (25.2) 29.4 20.3
payables
----------------------------- --------- --------- ---------
Cash flows from operations before income 867.9 452.2 967.9
taxes and interest
Interest paid (0.2) (7.1) (9.0)
Income taxes paid (169.2) (190.2) (333.3)
----------------------------- --------- --------- ---------
Net cash inflow from operating activities 698.5 254.9 625.6
----------------------------- --------- --------- ---------
17. Movement in net liquid funds
$ million As at Cash flow Net Other non As at
1 January exchange cash 30 June
2006 adjustments movements 2006
(1)
----------------- --------- --------- --------- --------- ---------
Cash and cash 522.0 81.0 (20.8) - 582.2
equivalents
Current investments 356.5 446.2 73.2 (52.1) 823.8
Borrowings (48.8) (125.7) (10.8) 0.8 (184.5)
Finance leases (0.2) 0.1 - - (0.1)
----------------- --------- --------- --------- --------- ---------
Net liquid funds 829.5 401.6 41.6 (51.3) 1,221.4
----------------- --------- --------- --------- --------- ---------
$ million As at Cash flow Net Other non As at
1 January exchange cash 30 June
2005 adjustments movements 2005
(1)
----------------- --------- --------- --------- --------- ---------
Cash and cash 74.1 99.6 (4.7) - 169.0
equivalents
Current investments 259.9 57.0 (12.6) 9.2 313.5
Borrowings (101.0) (103.6) 6.5 (6.1) (204.2)
Finance leases (1.0) 0.4 0.1 - (0.5)
Redeemable preference (0.1) - - - (0.1)
shares
----------------- --------- --------- --------- --------- ---------
Net liquid funds 231.9 53.4 (10.7) 3.1 277.7
----------------- --------- --------- --------- --------- ---------
(1) Other non cash movements comprise foreign exchange losses/gains incurred by
the Company's subsidiaries and recognised in the consolidated income statement.
$ million As at Cash flow Net Other non As at
1 January exchange cash 31
2005 adjustments movements December
(1) 2005
----------------- --------- --------- --------- --------- ---------
Cash and cash 74.1 453.0 (5.1) - 522.0
equivalents
Current investments 259.9 98.8 (8.5) 6.3 356.5
Borrowings (101.0) 54.0 2.5 (4.3) (48.8)
Finance leases (1.0) 0.7 0.1 - (0.2)
Redeemable preference (0.1) 0.1 - - -
shares
----------------- --------- --------- --------- --------- ---------
Net liquid funds 231.9 606.6 (11.0) 2.0 829.5
----------------- --------- --------- --------- --------- ---------
(1) Other non cash movements comprise foreign exchange losses gains incurred by
the Company's subsidiaries and recognised in the consolidated income statement.
18. Commitments and contingencies
There have been no material changes in commitments and contingencies since 31
December 2005.
19. 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
are disclosed below.
The following table provides the total amount of transactions which have been
entered into with related parties for the relevant financial period:
$ million Sales to Purchases Amounts Amounts
related from owed by owed to
parties related related related
parties parties parties
--------------------- --------- --------- --------- ---------
Apro Limited:
Six months to 30 June 2006 - - - -
Six months to 30 June 2005 20.6 - - -
Year to 31 December 2005 20.6 - - -
--------------------- --------- --------- --------- ---------
HOZU Corporation:
Six months to 30 June 2006 - - - -
Six months to 30 June 2005 - 0.1 13.5 -
Year to 31 December 2005 - 0.2 0.2 -
--------------------- --------- --------- --------- ---------
Companies under trust
management
Six months to 30 June 2006 5.1 4.2 13.7 (1) 2.2
Six months to 30 June 2005 5.5 4.0 14.9 (1) -
Year to 31 December 2005 15.7 7.6 12.4 (1) 1.6
--------------------- --------- --------- --------- ---------
Other companies
Six months to 30 June 2006 7.9 1.3 5.9 0.5
Six months to 30 June 2005 0.2 0.2 - -
Year to 31 December 2005 7.1 7.2 1.8 2.0
--------------------- --------- --------- --------- ---------
(1) A provision of $9.7 million (30 June 2005: $21.2 million, 31 December 2005:
$13.9 million) has been set against the balance.
The Group operates a number of companies under trust management agreements with
local and state authorities. The activities include heating distribution
systems, road maintenance and aviation services. The purpose of these agreements
is to provide public and social services without any material financial benefit
for the Group. Transactions between the Group and these companies are conducted
on an arm's length basis.
(b) Option agreement with Executive Chairman
On 14 March 2006, the Company announced that a vehicle wholly owned by the
Company's Executive Chairman, Mr Kim, had agreed to acquire a 25% stake in ENRC
Kazakhstan Holding B.V. ('EKH'), the holding company for certain assets of the
Eurasia Natural Resources group's metals and mining business. EKH primarily
operates in Kazakhstan producing, in particular, chrome, iron ore and alumina.
The Company has been given the benefit of a call option in respect of Mr Kim's
shareholding in EKH. The terms of the call option allow the Company, at its
absolute discretion, from 1 January 2007 to and until 31 December 2007, to call
for Mr Kim's interest in EKH to be transferred to the Company for a
consideration representing 100% of the initial investment of $751 million plus a
10% margin (reflecting the risk of the initial investment) and the actual
financing and transaction costs incurred by Mr Kim. This is provided that, as
required by the Listing Rules, this consideration and the terms of the option
are determined by an independent adviser to be fair and reasonable so far as the
remaining shareholders of the Company are concerned. Mr Kim is not permitted to
dispose of his interest in EKH before 1 January 2008 without the consent of the
Company. Should the Company exercise the call option, then it will comply with
all class tests and related party rules relevant to the Company. Any such
decision would be taken by an independent committee of the Board.
The accounting treatment of the option is governed by International Accounting
Standard 39 'Financial Instruments: Recognition and Measurement'. IAS 39
contains special accounting requirements for those equity instruments that do
not have a quoted market price in an active market and derivatives that are
linked to, and must be settled by delivery of, such unquoted equity instruments.
Specifically, they should be measured at cost, less impairment, if their fair
value cannot be reliably measured. The Directors have considered the
requirements of IAS 39 in this regard and are of the view that the fair value
cannot be reliably measured on the basis that, to-date, insufficient information
on EKH's financial performance, position and cash flows has been made available
to the Company in order to arrive at a reliable valuation of the option.
Consequently the option is valued at cost, which is nil, due to the fact that no
payment was made by the Company to enter into the option with Mr Kim.
(c) Directors' interests
The interests of the Directors who were in office at 30 June 2006 in the share
capital of the Company were as follows:
30 June 2006 31 December 2005
------------ ------------
Mr Vladimir Kim (1) 186,685,950 186,685,950
Mr Yong Keu Cha (2)(3) 72,946,982 72,946,982
Mr Oleg Novachuk (4) 51,462,545 51,462,545
Mr David Munro 41,211 41,211
Mr Vladimir Ni - -
Mr James Rutland - -
Lord Renwick - -
(1) Mr Kim's interest is represented through a 100% interest in Cuprum Holding
B.V. and a 50% interest in Harper Finance Limited. Additionally, Mr Kim is
registered and beneficial holder of 6,175 ordinary shares (31 December 2005:
6,175).
(2) Mr Cha's interest is represented through a 100% interest in Perry Partners
S.A.
(3) Mr Cha will cease to be a Director effective from 31 December 2006.
(4) Mr Novachuk's interest is represented through a 44.94% interest in Harper
Finance limited. In addition, Mr Novachuk holds a 50% interest in Kinton Trade
Limited, a minority shareholder of the Company, which owns 11,723,045 ordinary
shares.
20. Events after the balance sheet date
On 18 September 2006 the Directors declared an interim dividend in respect of
the year ended 31 December 2006 of 12.8 US cents per ordinary share. The
dividend shall be paid on 27 October 2006 to shareholders on the register as at
29 September 2006.
INDEPENDENT REVIEW REPORT TO KAZAKHMYS PLC
Introduction
We have been instructed by Kazakhmys PLC to review the financial information of
Kazakhmys PLC and it subsidiaries ('the Group') for the six months ended 30 June
2006 which comprises the interim consolidated balance sheet and the related
interim consolidated income statement, interim consolidated cash flow statement,
and the interim consolidated statement of changes in equity and related notes 1
to 20. We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of Interim Financial Information' issued by the
United Kingdom Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company, for
our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the interim report in accordance with
International Financial Reporting Standard IAS 34 'Interim Financial Reporting'
('IAS 34'). Our responsibility is to express a conclusion on these interim
consolidated financial statements based on our review.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/
4. A review consists principally of making enquiries of Group management and
applying analytical procedures to the financial information and underlying
financial data, and based thereon, assessing whether the accounting policies and
presentation have been consistently applied unless otherwise disclosed. A review
excludes audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and Ireland
) and therefore provides a lower level of assurance than an audit. Accordingly
we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
Ernst & Young LLP
London, United Kingdom
18 September 2006
Interim dividend
Interim dividend on the Company's ordinary share capital in respect of the six
months ended 30 June 2006 will be paid as follows:
Amount to be paid in US dollars 12.8 US cents per ordinary
---------------------------------- share
--------------------
Currency conversion dates (five business days) 12-18 September 2006
---------------------------------- --------------------
Ex-dividend date 27 September 2006
---------------------------------- --------------------
Record date 29 September 2006
---------------------------------- --------------------
Dividend warrants posted 26 October 2006
---------------------------------- --------------------
Payment date of dividend 27 October 2006
---------------------------------- --------------------
The interim dividend will be paid on 27 October 2006 to shareholders on the
register at close of business on 29 September 2006.
Production and sales figures
for the six months ended 30 June 2006
1. Summary of significant production and sales figures
30 June 30 June
2006 2005
Kazakh Mining:
Ore mined (kt) 20,127 19,458
Copper content in ore mined (%) 1.10 1.03
Copper cathode production (kt):
From own concentrate 169 167
From purchased concentrate 18 26
Total copper cathodes produced (excluding tolling) (kt) 187 193
Tolling (kt) 1 7
Total copper cathodes produced (including tolling) (kt) 188 200
Total copper cathodes and copper rods sold (kt) 178 178
MKM:
Wire sales (kt) 82 59
Flat sales (kt) 31 30
Tubes and Bars sales (kt) 21 20
Total MKM sales (kt) 134 109
2. Mining
Metal Mining
Ore Mined Copper Zinc Gold Silver
---------------- ---------- ------------ ----------- ------------------
30 June 30 June 30 30 30 30 30 30 30 June 30 June
2006 2005 June June June June June June 2006 2005
2006 2005 2006 2005 2006 2005
kt kt % % % % g/t g/t g/t g/t
Zhezkazgan Complex:
North 1,620 1,705 0.67 0.74 - - - - 7.31 10.46
South 3,434 3,541 0.73 0.87 - - - - 12.82 13.45
Stepnoy 1,693 1,769 0.79 0.76 - - - - 17.42 18.50
East 2,886 2,815 0.91 1.01 - - - - 20.04 27.47
West 1,386 1,594 0.40 0.69 - - - - 12.93 22.66
Annensky 2,435 2,328 1.13 1.11 - - - - 22.17 21.26
Zhaman-Aybat 596 - 1.11 - - - - - 5.46 -
TOTAL 14,050 13,752 0.82 0.89 - - - - 15.54 18.99
Balkhash Complex:
Kounrad 1,175 1,828 0.34 0.29 - - - - 1.89 1.62
Shatyrkul 244 217 2.04 2.34 - - 0.29 0.33 2.48 2.65
Sayak I & Sayak III 867 778 1.12 1.21 - - 0.25 0.31 5.95 6.11
TOTAL 2,286 2,823 0.82 0.70 - - 0.26 0.31 3.49 2.94
(1) (1)
East Region:
Orlovskoe 833 833 4.28 4.34 3.90 3.92 0.57 0.54 54.47 53.21
Belousovskoe 132 116 0.91 0.72 3.26 2.40 0.50 0.47 49.85 46.50
Irtyshskoe 252 219 1.19 1.02 2.63 2.45 0.29 0.31 40.02 43.85
Nikolaevskoe 380 1,108 1.06 1.00 2.07 1.84 0.21 0.17 22.04 16.88
Yubileyno-Snegirikhinskoe 189 152 4.32 3.62 3.17 4.97 0.57 0.65 42.74 45.14
Artemyevskoe 532 - 1.68 - 6.85 - 1.75 - 161.32 -
TOTAL 2,318 2,428 2.63 2.30 4.04 2.83 0.75 0.35 70.90 34.96
Karaganda Region:
Abyz 184 233 1.68 0.80 3.47 4.71 3.71 6.38 47.65 62.62
Nurkazgan 1,023 222 1.22 0.35 - - 0.31 0.13 3.76 1.24
Kosmurun 266 - 4.29 - - - 1.53 - 22.7 -
TOTAL 1,473 455 1.83 0.58 3.47 4.71 0.96 3.33 12.67 32.67
(2) (2)
TOTAL KAZAKH MINING 20,127 19,458 1.10 1.03 4.00 2.99 0.70 0.69 20.34 18.97
(3) (3) (4) (4)
(1) Production only from Shatyrkul, and Sayak I & Sayak III mines in Balkhash
Complex.
(2) Production only from Abyz mine.
(3) Production only from East Region and Abyz mine of Karaganda Region.
(4) Production only from Balkhash Complex (excluding Kounrad mine), East Region
and Karaganda Region.
Coal Mining
Coal mined Waste stripped Strip ratio
--------------- --------------- ----------------
30 June 30 June 30 June 30 June 30 June 30 June
2006 2005 2006 2005 2006 2005
kt kt kbcm kbcm bcm:t bcm:t
Borlynskoe 3,231 2,738 4,699 2,874 1.45 1.05
Kuu - Chekinskoe 500 600 2,048 2,352 4.09 3.92
TOTAL 3,731 3,338 6,747 5,226 1.81 1.57
3. Processing
Copper Processing
Copper concentrate Copper in concentrate
produced
--------------------- ------------------------
30 June 30 June 30 June 30 June
2006 2005 2006 2005
kt kt % %
Zhezkazgan Complex:
Zhezkazgan No.1 90 96 39.6 40.3
Zhezkazgan No.2 104 118 39.5 39.6
Satpayev 86 86 28.0 26.9
TOTAL 280 300 36.0 36.2
Balkhash Complex:
Balkhash 133 92 18.3 18.0
TOTAL 133 92 18.3 18.0
East Region:
Orlovskoe 160 158 20.1 20.7
Belousovskoe 6 5 13.5 15.1
Irtyshskoe 13 10 13.4 14.3
Nikolaevskoe 81 68 16.0 14.4
TOTAL 260 241 18.4 18.5
Karaganda Region:
Karagaily (Abyz) 44 39 3.8 2.1
Karagaily (Kosmurun) 27 - 17.3 -
TOTAL 71 39 9.0 2.1
Own copper concentrate processed 17 14 24.2 15.8
by third party
TOTAL (own concentrate) 761 686 24.1 25.2
Purchased concentrate 91 138 21.0 20.1
TOTAL (own and purchased 852 824 23.8 24.3
concentrate)
4. Zinc and Precious Metals Processing
Zinc Zinc in Silver Gold
concentrate concentrate
produced
----------- ------------- --------------- --------------
30 30 30 30 30 June 30 June 30 30
June June June June 2006 2005 June June
2006 2005 2006 2005 2006 2005
kt kt % % g/t g/t g/t g/t
Zhezkazgan Complex:
Zhezkazgan No.1 - - - - 776.6 825.5 - -
Zhezkazgan No.2 - - - - 701.3 939.3 - -
Satpayev - - - - 576.9 488.0 - -
TOTAL - - - - 687.5 772.8 - -
Balkhash Complex:
Balkhash - - - - 54.4 54.8 2.8 2.1
TOTAL - - - - 54.4 54.8 2.8 2.1
East Region:
Orlovskoe 51 54 45.0 42.3 106.7 120.2 1.2 1.2
Belousovskoe 7 5 43.9 43.8 590.8 611.6 5.7 5.8
Irtyshskoe 7 7 38.4 35.9 422.9 460.6 2.3 2.1
Nikolaevskoe 28 27 40.9 35.4 137.2 90.3 1.4 0.7
Yubileyno-Snegirikhinskoe - 8 - 32.0 - 177.5 - 2.0
(KazZinc)
Artemyevskoe (KazZinc) 56 - 51.7 - 2,697.5 - 14.5 -
TOTAL 149 101 43.2 39.9 143.2 135.9 1.4 1.2
Karaganda Region:
Karagaily 5 8 33.8 34.8 124.7 178.9 8.4 18.3
TOTAL 5 8 33.8 34.8 124.7 178.9 8.4 18.3
TOTAL KAZAKH MINING 154 109 42.7 39.5 330.5(1) 411.7 2.9(1) 3.2(1)
(1) (1) (1)
(1) Production from own concentrators within East Region and Karaganda Region.
5. Copper Smelter/Refinery - copper cathodes production
Concentrate Copper in Copper cathodes
smelted concentrate
----------------- ----------------- -----------------
30 June 30 June 30 June 30 June 30 June 30 June
2006 2005 2006 2005 2006 2005
kt kt % % kt kt
Zhezkazgan Complex:
Own concentrate 317 316 34.0 34.9 102 108
Purchased concentrate 9 27 26.8 24.7 3 7
Other (1) 71 77 - - 1 3
TOTAL 397 420 28.6 28.7 106 118
Balkhash Complex:
Own concentrate 461 345 16.6 17.1 65 56
Purchased concentrate 83 107 20.1 18.8 15 19
Other (1) 46 79 - - 1 -
TOTAL 590 531 16.0 15.2 81 75
TOTAL KAZAKH MINING 987 951 21.2 21.2 187 193
(excluding tolling)
Tolling - 6 83.0 82.2 1 7
TOTAL KAZAKH MINING 987 957 21.1 21.5 188 200
(including tolling)
(1) Includes materials recovered (slag, scrap, etc.) reprocessed at both
Zhezkazgan and Balkhash Complexes.
6. Copper Smelter/Refinery - copper rod and acid production
Copper rod Acid production
-------------- ---------------------- ---------------------
30 June 2006 30 June 2005 30 June 2006 30 June 2005
-------------- ----------- ----------- ----------- -----------
kt kt kt kt
-------------- ----------- ----------- ----------- -----------
Zhezkazgan 14 6 106 117
-------------- ----------- ----------- ----------- -----------
Balkhash - - - -
-------------- ----------- ----------- ----------- -----------
TOTAL 14 6 106 117
-------------- ----------- ----------- ----------- -----------
7. Zinc Smelter/Refinery - zinc metal production
Zinc concentrate Zinc in Zinc metal
smelted concentrate
---------------- ------------------ ---------------
30 June 30 June 30 June 30 June 30 June 30 June
2006 2005 2006 2005 2006 2005
kt kt % % kt kt
TOTAL (all Balkhash 85 113 45.7 41.1 34 29
Complex)
8. Precious metal production
Silver Gold
--------------- -----------------
30 June 30 June 30 June 30 June
2006 2005 2006 2005
koz koz koz koz
Kazakhmys 10,660 10,593 54 47
Tolling 32 45 24 16
TOTAL (including tolling) 10,692 10,638 78 63
9. Other production - Kazakh Mining
30 June 2006 30 June 2005
---------- -----------
Electricity power space (GWh) 3,358 3,137
Heating power (KGcal) 2,431 2,444
Enamel wire (t) 195 264
Lead dust (t) 7,236 7,443
10. Kazakh Mining sales
30 June 2006 30 June 2005
------------------ ---------------
kt (1) $ million kt (1) $ million
Copper cathode 163 1,060.2 173 595.5
Copper rod 15 98.6 5 20.1
TOTAL COPPER SALES 178 1,158.8 178 615.6
Zinc concentrate 81 59.1 8 1.6
Zinc metal 37 102.4 38 46.8
Silver (koz) 10,835 117.8 10,963 77.2
Gold (koz) 47 28.2 33 14.2
(1) Kilotonne unless stated
11. Average realised prices
30 June 2006 30 June 2005
--------- -----------
Copper ($/t) 6,510 3,458
Zinc ($/t) 2,767 1,231
Silver ($/oz) 10.87 7.04
Gold ($/oz) 600 430
12. MKM production and sales
30 June 2006 30 June 2005
---------------- ------------------
Production Sales Production Sales
kt kt kt kt
Wire rod 62.5 62.2 43.8 43.4
Drawn wire 19.9 19.6 15.4 15.6
Total wire 82.4 81.8 59.2 59.0
Pre-rolled 1.1 1.2 3.8 3.8
Sheets 7.7 7.6 6.3 5.9
Strips 22.7 22.6 20.9 20.6
Total flat 31.5 31.4 31.0 30.3
Tubes 10.1 9.9 9.5 9.3
Bars 11.3 11.1 10.8 10.9
Total tubes and bars 21.4 21.0 20.3 20.2
TOTAL MKM 135.3 134.2 110.5 109.5
Glossary
AGM or Annual General Meeting
The Annual General Meeting of the Company which was held on 23 May 2006.
Apro
Apro Limited, a company incorporated in England, and a related party of the
Group
bcm:t
Bank cubic metres excavated to recover one metric tonne of coal
Board or Board of Directors
The board of directors of the Company
Capital Employed
The aggregate of equity attributable to shareholders, minority interests and
borrowings
Cash cost of copper after by-product credits
The US dollar cash cost of copper per metric tonne after revenues arising from
by-products
CIS
Commonwealth of Independent States.
Company or Kazakhmys
Kazakhmys PLC
Directors
The directors of the Company
Dollar or $
United States dollars, the currency of the United States of America
EBITDA
Earnings before interest, tax, depreciation and amortisation
EKH
ENRC Kazakhstan Holding B.V., the holding company for certain assets of the
Eurasia Natural Resources group's metals and mining business.
EURIBOR
European Inter Bank Offer Rate
EPS
Earnings per share
EPS based on Underlying Profit
Earnings per share based on Underlying Profit is calculated by dividing
Underlying Profit by the weighted average number of ordinary shares of 20 pence
each outstanding during the year.
EPT
Excess profits tax
Free Cash Flow
Net cash flows from operating activities less sustaining capital expenditure on
tangible and intangible assets and investment in mine stripping costs
FTSE 100
Financial Times Stock Exchange top 100 companies
GWh
Gigawatt-hour, one gigawatt-hour represents one hour of electricity consumed at
a constant rate of one gigawatt
g/t
grammes per metric tonne
The Group
Kazakhmys PLC and its subsidiary companies
HSE Committee
Health Safety and Environment Committee
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IFRIC
International Financial Reporting Interpretations Committee
IFRS
International Financial Reporting Standards
Kazakh Mining business
The Kazakh mining operations, which involve the processing and sale of copper
and other metals
Kazakhmys LLC
Kazakhmys Corporation LLC, the Group's principal operating subsidiary in
Kazakhstan
Kazakhstan
The Republic of Kazakhstan
kbcm
Thousand bank cubic metres
KGcal
One thousand Gigacalories, units of heat energy
koz
Thousand ounces
kt
Thousand metric tonnes
Listing
The listing of the Company's ordinary shares on the London Stock Exchange on 12
October 2005
LME
London Metal Exchange
LSE
London Stock Exchange
MKM
Mansfelder Kupfer und Messing GmbH, the Group's operating subsidiary in the
Federal Republic of Germany
ROCE
Return On Capital Employed, defined as profit before taxation, finance items and
negative goodwill over capital employed
$/t , $/tonnes
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 business. Special Items are set
out in note 4(a) to the financial information
t
Metric tonnes
Tenge or KZT
The official currency of the Republic of Kazakhstan
Underlying Profit
Profit for the year after adding back items which are non-recurring or variable
in nature and which do not impact the underlying trading performance of the
business and their resultant tax and minority interest effects
This information is provided by RNS
The company news service from the London Stock Exchange
