2012 Trading Update

28 February 2013

KAZAKHMYS PLC TRADING UPDATE FOR THE YEAR ENDED 31 DECEMBER 2012

This statement provides operational and unaudited financial results for Kazakhmys' managed businesses. The statement excludes the contribution from ENRC PLC, in which Kazakhmys has a 26% shareholding. The consolidated preliminary full year results of Kazakhmys, including the contribution from ENRC, will be released on 26 March 2013.

OPERATIONAL HIGHLIGHTS

o Production of major metals in line with targets set at the beginning of 2012

·; Copper cathode production of 294 kt for the full year

·; Copper cathode production from own concentrate of 292 kt

·; Zinc, silver and gold production ahead of guidance

o Ekibastuz GRES-1 completed refurbishment and commissioning of 6th turbine

·; Capacity increased from 2,500 MW to 3,000 MW

·; Power generation increased by 13% from prior year

o Maintaining good progress on growth projects

·; Bozshakol development on track with delivery of major equipment in 2013

·; Aktogay moving to on-site development in March 2013

FINANCIAL HIGHLIGHTS

o Copper price declined 10% during 2012, relatively strong performance given the weak economic conditions

o Segmental EBITDA (excluding special items and share of associate ENRC) of $1,364 million

·; Revenues reduced by lower copper price and sales volumes

·; Higher mining costs driven by labour and transportation

o Net cash costs in line with guidance at 174 USc/lb

·; Assisted by firm by-product prices and volumes

·; Rate of cost inflation is reducing and cost efficiency remains a key management priority

o Balance sheet remains in robust position to deliver growth projects

·; $4.2 billion of long-term funding secured for growth projects

·; Replaced existing pre-export credit facility with new $1 billion facility

o Assessing likely impairment of investment in ENRC

·; To be announced at preliminary full year results

o Final dividend of 8.0 US cents per share ($42 million)

·; Reflecting the reduction in profits and high level of capital investment in new projects

·; Resulting in full year dividend of 11.0 US cents per share ($58 million)

2013 STRATEGY AND OUTLOOK

o Focus on key priorities and delivery of strategy

·; Continue to make improvements in health and safety

·; Raise operational efficiency to offset increase in cost base

·; Maintain progress on growth projects

o Copper production in 2013 anticipated to be in line with 2012

1 From continuing operations only.

2 In 2012, EBITDA (excluding special items) was redefined. For the definition of EBITDA (excluding special items) please refer to the Financial Review.

All references to $ refer to US dollars unless otherwise stated.

Oleg Novachuk, Chief Executive of Kazakhmys PLC, said: "Against a weak economic backdrop, the copper market again proved resilient in 2012, reflecting its attractive demand and supply fundamentals. In 2013 we anticipate producing a similar volume of copper to 2012, but our operations must be more efficient in order to offset the inflationary trend in costs, and we must also see further progress in health and safety. Our value accretive growth projects continue to make good progress, and as they move towards production we look towards a transformed group, dominated by large, lower cost, open pit mines. I look forward to reporting on our progress through the year."

For further information please contact:

REGISTERED OFFICE 6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL, United Kingdom.

NOTES TO EDITORS

Kazakhmys PLC is a leading international natural resources group with significant interests in copper, gold, zinc, silver and power generation.

It is the largest copper producer in Kazakhstan and one of the top worldwide with 16 operating mines, 10 concentrators and 2 copper smelters. Kazakhmys Mining's operations are fully integrated from mining ore through to the production of finished copper cathode and rod. Total copper cathode equivalent produced in 2012 from own ore was 292 kt. Production is backed by a captive power supply and significant rail infrastructure.

Kazakhmys Mining produces significant volumes of other metals, including zinc, silver and gold. In 2012, it produced 152 kt of zinc in concentrate. The Group is amongst the largest silver producers in the world with 12.6 Moz produced in 2012.

Kazakhmys Power has a 50% interest in the coal fired Ekibastuz GRES-1 plant, the largest in Kazakhstan. The plant is undergoing a modernisation programme to take current capacity of 3,000 MW to its nameplate capacity of 4,000 MW. Kazakhmys Power also operates the captive power stations which supply electricity to Kazakhmys Mining.

The Group is part of the FTSE-100 index of companies listed on the London Stock Exchange and is also listed on the Kazakhstan Stock Exchange (KASE) and Hong Kong Stock Exchange (HKSE). It had revenues from continuing operations of $3.4 billion in 2012 with Segmental EBITDA of $1.4 billion. The Group employs around 60,000 people, principally in Kazakhstan. The Group's strategic aim is to optimise its current operations, deliver its major growth projects and to diversify and participate in the development of the significant natural resource opportunities in Central Asia.

FORWARD-LOOKING STATEMENT

Certain statements included in these results contain forward-looking information concerning Kazakhmys' strategy, business, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which Kazakhmys operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within Kazakhmys' control or can be predicted by Kazakhmys.

Although Kazakhmys believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements.

No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in Kazakhmys PLC, or any other entity, and shareholders are cautioned not to place undue reliance on the forward-looking statements. Except as required by the Rules of the UK Listing Authority and applicable law, Kazakhmys undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

TRADING UPDATE

This trading update covers the production and selected unaudited financial results of the Kazakhmys Group for the year ended 31 December 2012. A full consolidated preliminary results announcement will be made on 26 March 2013, after ENRC PLC has announced their results for 2012. The Group has a holding of 26% of ENRC PLC and the final results for Kazakhmys will include a proportionate share of ENRC's earnings, on an equity accounting basis. The results in this statement do not include any share of ENRC's earnings.

CHAIRMAN'S STATEMENT

In May 2012, I announced my intention to step down as Chairman of Kazakhmys by the time of our 2013 Annual General Meeting. After eight years as Chairman and with the major growth projects now firmly in progress, I believe this is the right time to handover to a new Chairman. I will of course maintain my involvement with Kazakhmys, as executive chairman of Kazakhmys Corporation LLC, and as a major shareholder and a non-executive Director of Kazakhmys PLC.

In 2005, we became the first company from Kazakhstan to obtain a primary listing on the London Stock Exchange. Since Listing we have aimed to balance the needs of different stakeholders, acknowledging our obligations to shareholders, employees, and the wider community in Kazakhstan, where our resources are based. Our Listing has allowed us to compare ourselves to the best peer group of international mining companies and has helped drive higher expectations of ourselves.

The successful raising of finance, both through our Listing and the subsequent debt facilities, has enabled us to bring our growth projects to reality. In 2012 we announced the approval of Aktogay, and together with the development of Bozshakol we are now moving towards a new Kazakhmys, which will be dominated by large scale, open pit mines, producing higher volumes of copper at a relatively low operating cost. This growth will transform the Group, taking copper cathode output from around 300 kt to over 500 kt, and will ensure a globally competitive future for copper mining in Kazakhstan. A key focus for the Board is to ensure the successful delivery of these major projects and the subsequent generation of future projects.

Our first obligation is to ensure the personal welfare of our workforce. The approach to health and safety has changed markedly over the last eight years, but clearly has some distance to go until we reach our core target of zero fatalities. In 2012 there were 19 fatalities, compared to 24 in 2011 and 33 in 2005. Safety is a key indicator of operational performance and operational management have to make safety their first priority. All fatalities are both unacceptable and avoidable and the Board will continue to demand continuous and significant improvement in health and safety.

The economic backdrop remained uncertain throughout 2012, but there is some basis for optimism. Europe continues to be held back by structural problems, but there has been improvement in the US, as it moves on from the trough of the financial crisis and benefits from low energy prices. Growth in China moderated during 2012, although it has shown some tangible signs of acceleration since the start of 2013.

Copper traded relatively well given the economic backdrop. The average LME price in 2012 was $7,949 per tonne, a 10% decline on the previous year, but this was the best performance of any base metal and amongst all major metals, second only to gold. Copper is supported by restricted supply and continuous demand from a wide range of applications and it remains our favoured metal.

Costs have continued to rise with pressure from a variety of sources including lower grade as our existing mines mature. The combination of lower copper prices and rising costs squeezed profitability and improving efficiency is a key strategic focus for the Board.

We continue to hold 26% of ENRC, which had a market value of $1,546 million at the end of 2012, compared to $3,289 million at the end of 2011. In light of the significant difference for over a year between our carrying value of the ENRC investment and its market value, we are reviewing the carrying value of the holding as required by accounting standards. Any impairment that is to be recognised can only be determined following the announcement of ENRC's full year results on 20 March 2013 and will be reported on in our preliminary full year results on 26 March 2013.

The major asset in our power division is our 50% holding in Ekibastuz GRES-1, which again performed well, benefiting from continued investment in the power station and rising demand for power in Kazakhstan. We have announced that we are in discussions regarding our holding in Ekibastuz GRES-1. It is an excellent business and we remain committed to having captive power for our operations, but the Board believes that the value of this asset, which is the largest power station in Kazakhstan, is inadequately reflected in our share price.

I am delighted that Simon Heale has agreed to take on the role of Chairman. Simon joined the Board in 2007 and has served as Chairman of the Audit Committee for five years. His knowledge of the Group will assist him greatly in his new role and I will support Simon as required. Michael Lynch-Bell will be standing for election as a new non-executive Director at the Annual General Meeting and will become Chairman of the Audit Committee. Michael has extensive experience in the sector.

Since Listing, our non-executive Directors have provided continuous support and advice and I should like to thank the Board for their assistance during my time as Chairman. Each of our Directors has skills relevant to our business, which combined with their personal commitment has led to invaluable input. The non-executive Directors make regular visits to our operations and interact with operational management, which has helped maximise benefit for all concerned.

The Directors recommend the payment of a final dividend of 8.0 US cents per share or $42 million. This payment, together with the interim dividend of 3.0 US cents per share, represents 11.0 US cents per share, or $58 million for the year as a whole. In the first few months of 2012 we repurchased 6.1 million shares, at a cost of $88 million, which completed the share buy-back programme, amounting to $166 million, announced in September 2011. As I mentioned last year, it was likely that the Board would seek to moderate our payout level as we are entering a period of high capital expenditure, which is in keeping with our flexible dividend policy. The lower dividend also reflects the lower level of earnings. Once the first of our major projects is commissioned in 2015, the Board anticipates increasing our payout level, subject to market conditions.

It should be noted that after this final dividend we will have returned a total of $1,776 million to shareholders, compared to $491 million raised at the time of Listing. Our cash returns compared to our market capitalisation are amongst the highest in the sector.

Over the past three years, with the support of the China Development Bank, we have raised $4.2 billion in debt for our major growth projects. In 2012 we replaced our other existing corporate debt facility with a $1 billion pre-export facility from a consortium of banks. Our debt is generally long dated, but the Board is mindful of ensuring that the Group's financial strength is maintained.

Copper remains an attractive metal, with a favourable demand and supply balance. With both of our major growth projects now funded and in development we have a clear route to transform our business over the next few years. The Board will remain focused on the delivery of these projects, improving the efficiency of our existing assets and ensuring the personal welfare of our employees.

CHIEF EXECUTIVE'S REVIEW

For the fifth consecutive year we have met our annual production targets. The major challenge during 2012 came from rising costs at our current operations and improving operational efficiency in order to reduce costs remains a key focus for management. In 2012, we made significant progress on our major growth projects, which are central to the development and transformation of Kazakhmys.

In 2012, we produced 292 kt of copper cathode from own material, a reduction of 2% on the previous year. As anticipated, our output was derived from a 12% increase in mined ore, which had an average copper grade of 0.95% compared to 1.01% in the previous year. The reduction in grade was largely due to the recommissioning of Konyrat, a relatively low grade open pit mine. The processing of additional material along with inflation in salaries and higher transportation costs led to a sharp increase in operating costs. There was some rebuild of inventory during 2012, so that sales declined by 4% to 282 kt.

The average LME price of copper over the year was $7,949 per tonne, 10% below 2011. The performance of copper was considerably better than most non-precious metals, and is testament to its strong demand and supply fundamentals, even in weak economic conditions. The decline in the copper price, lower copper sales volumes and a rise in costs led to a 36% fall in EBITDA (excluding special items) at our Mining Division to $1,160 million.

In 2013, we anticipate that output of finished copper will be similar to 2012. Copper grades are likely to decline modestly, in line with our medium term mine plan, but will be offset by higher ore volumes. By-product output will be marginally lower across all metals. The rate of inflation has moderated, although there are still cost pressures in the industry. We will continue with our optimisation projects to raise recovery rates at our processing plants, improve the throughput and handling of materials and obtain greater labour efficiency. We believe that there is much more to be done in all of these areas, with the strategic aim of ensuring adequate cash generation for the maintenance and extension of our existing asset base.

Meeting our production targets has been to the credit of all my colleagues, and I should like to thank them for their combined efforts. We have seen further improvement in our management of health and safety issues, however it is clear that we still have considerable work to do in promoting and ensuring the safety of our workforce.

The Power Division is dominated by Ekibastuz GRES-1, the largest power station in Kazakhstan, in which Kazakhmys has a 50% share. The Division has continued to perform well, assisted by the commissioning of a further unit at Ekibastuz GRES-1 during December 2012. Total power generated at Ekibastuz GRES-1 increased by 13% to 14,368 GWh, which along with a 12% rise in the average realised tariff led to an 18% increase in the Power Division's EBITDA (excluding special items) to $189 million.

When Kazakhmys first purchased a stake in Ekibastuz GRES-1 in 2008, we set out plans for a $1 billion refurbishment programme, self-funded from the plant's operating cash flows. $483 million has been invested to date, including $38 million on environmental improvements. Two of the original eight 500 MW turbines are still to be refurbished, which will then restore Ekibastuz GRES-1 to its nameplate capacity of 4,000 MW. The refurbishment programme remains on schedule and is due to be completed in 2016. In 2013 we will be continuing work on the rehabilitation of the seventh turbine, which will be commissioned in 2014.

In 2012 we made excellent progress on our growth projects. Bozshakol moved into development and a significant part of the site preparation and infrastructure foundations was completed during the year. In 2013, we look forward to the delivery and installation of the major processing equipment. Hiring and training the operational staff is now well underway and will be critical for successful commissioning in 2014. Bozshakol remains on track for first production in 2015 and in line with the budget of $1,900 million.

The Aktogay feasibility study was approved in December 2012 and initial development work will start in early 2013 with first production from the main ore body in 2016. Bozymchak, the gold and copper project in Kyrgyzstan, has been affected by the availability of materials and skilled labour during its early development, but good progress is now being made and first output will be produced in 2013.

We continue to work on several mid-sized copper projects, largely based around our existing operations. These projects include Akbastau and Kosmurun, Zhomart and South East Nurkazgan. The projects have considerable potential, but the speed of progress will partly be influenced by the availability of funding, while we deliver our major growth projects.

In 2012 we spent $624 million on sustaining capital expenditure in the Mining Division, significantly higher than 2011, including around $180 million on projects relating to new mine developments and concentrator upgrades. In 2013, we anticipate that sustaining capital expenditure will reduce to between $450 million and $550 million, including around $150 million on new mine developments and concentrator upgrades.

The major growth projects are backed by $4.2 billion of long-term funding, lent by the China Development Bank. The nature of the funding gives a high level of certainty to our delivery of the projects. Gearing will increase as the spending on the projects rises, but the long dated maturity of the debt reduces strain on our cash flows and allows prudent management of our balance sheet.

In 2012, 65% of our copper sales were to China. Most of our customers have been with us for many years, and I thank them for their continued support.

Our Chief Financial Officer, Matthew Hird, has decided that he wishes to step down in May 2013, but will remain with Kazakhmys until the end of the year to ensure a smooth transition. I should like to thank him for his exceptional input over the past eight years. Matthew joined Kazakhmys before Listing and he led the creation of a strong finance function which enabled us to put in place the debt facilities necessary to deliver our growth projects and to meet high standards of reporting. Andrew Southam, the current Deputy Chief Financial Officer, will become Chief Financial Officer from May 2013.

The outlook for copper remains the most attractive of any industrial metal. By managing our existing assets efficiently and delivering our growth projects we believe that we can transform Kazakhmys over the medium term, so that by 2018 around 80% of our ore output will be from open pit mines, dominated by five large and low cost operations and taking us to production of over 500 kt per annum. I look forward to reporting on our progress in 2013 as we continue to invest in and grow our business.

OPERATING REVIEW

Review of Kazakhmys Mining

The Kazakhmys Mining Division incorporates the Group's mining, concentrating, smelting and auxiliary operations in Kazakhstan and the sales operation in the United Kingdom. The Division's key products are copper cathode and rod, zinc in concentrate, silver granule and bar along with gold bar and doré. These products are sold to customers in Europe, the CIS, China and other countries in Asia based on pricing which is referenced to the LME and LBMA metal exchanges.

Kazakhmys Mining production summary

Copper production

1 Excludes output from the Central Mukur gold mine in 2011 and 2012.

2 Includes cathode converted into rod.

Kazakhmys Mining increased ore extraction volumes in 2012 to 37,507 kt, 12% above the prior year. The growth in ore output was achieved mainly due to higher production volumes from the Central Region with production from the East and Zhezkazgan Regions broadly consistent with the prior year.

In the Central Region, output rose strongly with the re-opening of the Konyrat mine in June 2012. The mine will be ramping up to its designed capacity of 7 MT of ore per annum throughout 2013 as the operating capacity of the nearby Balkhash concentrator is increased. Production volumes in the region also benefited from a full year of output from the Akbastau open pit mine which recommenced production in September 2011 after operations were suspended in 2008.

Ore production in the East Region was consistent with the prior year, as the reconstruction work on the Artemyevsky mine's backfill plant in 2011 enabled higher output. Improved availability of equipment supported higher extraction volumes at the Yubileyno-Snegirikhinsky mine. Operations at the Nikolayevsky mine were suspended in August 2012 as the mine's economics deteriorated. Equipment and personnel from the mine were transferred to support other mines in the region.

In the Zhezkazgan Region, ore volumes were marginally lower than in 2011. The region benefited from increased output from the North mine, with operations commencing at the Itauz open pit in October 2012. Output fell at the maturing Annensky mine where some sections were permanently closed in July 2012. To improve operational efficiencies, the Annensky mine was incorporated into the East mine and some sections of the East mine moved to the West mine. Zhomart, the region's largest mine by copper metal in ore extracted, maintained ore output at 3.7 MT but at a slightly reduced copper grade of 1.35%.

During 2012, the average copper grade of ore extracted fell to 0.95%, down from 1.01% in 2011. The decline in the copper grade was mainly due to the lower grade in the Central Region, in particular, incremental production from the low grade Konyrat mine, and as the grade at the Orlovsky mine reduced to 3.04%, down from 3.66% in 2011.

The copper in ore mined by Kazakhmys Mining increased by 21 kt or 6% in 2012 as the additional output from the Akbastau and Konyrat mines contributed 28 kt of copper in ore, offsetting the lower volume of copper in ore extracted from the East and Zhezkazgan Regions.

Copper in concentrate production was consistent with the prior year totalling 304 kt in 2012, despite the 6% increase in the volume of copper in ore mined. During 2012 there was additional stockpiling of material in the Zhezkazgan and Central Regions while the processing capacity of the Balkhash concentrator is upgraded. Ore containing copper and zinc, which was extracted as a by-product of mining copper ore at the Akbastau mine was stockpiled whilst technical studies continue to determine if the ore can be processed economically. Copper recovery rates at the concentrators fell slightly with the processing of lower grade material.

While copper in concentrate output from own material was marginally above the prior year, copper cathode production from own concentrate of 292 kt in 2012 was 2% below the prior year. In 2011, copper cathode production benefited from a greater release of copper material at the smelters than in 2012. The Balkhash smelter and refinery produced around 60% of the copper cathode output in the year, while the Zhezkazgan smelter continued to operate with one of its two furnaces held in reserve, and this is expected to continue in 2013.

Copper cathode production from own material is anticipated to be between 285 kt and 295 kt in 2013. This target will be supported by higher ore extraction volumes with a full year of production from the Konyrat mine and Itauz open pit at the North mine, and increased production from some of the existing mines. Copper grades are expected to decline in 2013 mainly due to the additional output from the low grade Konyrat mine.

Copper rod production was slightly below the prior year and is anticipated to reduce further in 2013 due to a decline in demand for imported rod products in China. It is expected that the lower volume of copper rod produced will be mainly sold within the CIS market.

Zinc production

The zinc grade was lower in 2012 with increased production from the Akbastau mine which has a below average zinc grade. This offset the higher grade in the East Region, which produced 88% of the zinc metal in ore extracted by Kazakhmys Mining.

The quantity of zinc metal in ore extracted in 2012 was 17% above the prior year with 47 kt of additional zinc in ore material extracted from the Akbastau, Orlovsky and Artemyevsky mines, mitigating the impact of the closure of the Nikolayevsky mine. During 2012, 9 kt of zinc in ore was stockpiled at Akbastau whilst technical studies continue to determine if it is economic to process the ore. Ore from the Artemyevsky mine was also stockpiled with processing of the ore expected to occur in 2013.

Zinc in concentrate production in 2012 increased by 9% to 152 kt with the higher volume of zinc metal in ore processed due to the higher extraction volumes. In 2013, zinc in concentrate production is expected to decline to approximately 125 kt with lower grades and a decline in zinc bearing ore volumes from mines in the East Region.

Precious metals production

1 Includes slimes from purchased concentrate.

2 Includes a small volume of by-product production from the Central Mukur and Mizek mines.

The decline in the silver grade was offset by higher extraction volumes of silver bearing ore in 2012 with the volume of silver metal in ore extracted increasing by 6% compared to 2011. Production of silver from own material during 2012 was 12,643 koz, 4% below the prior year which benefited from a significant release of work in progress.

The output of silver granule and bar is estimated to be around 11,000 koz in 2013 with a lower silver grade offsetting the higher volume of ore extraction expected.

The volume of ore containing gold extracted in 2012 increased by 15% compared to the prior year with a full year of operation from the Akbastau mine and higher ore production from the Artemyevsky mine. Gold bar production was flat on the prior year as the higher volume of gold metal in ore extracted was offset by the stockpiling of ore in 2012 and as the prior year benefited from a release of work in progress.

Gold doré production fell with the completion of mining at the Central Mukur mine in June 2012 and after the closure of the depleted Mizek mine at the end of 2010. Some processing of previously extracted ore from the mines continued in 2012 and will carry on into 2013.

Total gold bar and doré production from the Mining Division is expected to be 100 koz in 2013, below the current year production of 129 koz with declining gold doré output from the Central Mukur and Mizek mines and lower output of ore containing gold from existing mines. A small contribution of gold in concentrate is also expected from the Bozymchak mine which is due to commence production in the fourth quarter of 2013.

Support services summary

Kazakhmys Mining operates two coal mines which supply the majority of their production to the Group's captive power stations with the balance sold to external third parties. In 2012 the coal mines produced 7.3 MT of coal, consistent with the prior year.

Kazakhmys Mining also owns a rail and road transportation network to move ore, concentrate and cathodes. The road haulage fleets operate principally in the East and Karaganda Regions where there is less railroad infrastructure. The management of railway services and a number of the road haulage routes are outsourced to third party suppliers.

Kazakhmys Mining financial summary

1 Includes a small amount of sales revenue from the Central Mukur and Mizek mines.

2 Capital expenditure excludes major social projects.

Revenues

Kazakhmys Mining's revenues decreased by 5% in 2012 due to lower realised prices and sales volumes for copper products, partially mitigated by the sale of 69 koz of gold inventory from the prior year in March 2012. A temporary export restriction on precious metals sales had prevented gold sales in the second half of 2011, with gold sales resuming in March 2012 to the National Bank of Kazakhstan and continuing monthly thereafter.

Revenue from copper cathodes and rods fell by 11% to $2,275 million in 2012. The average realised price for copper cathode and rod sales reduced by 8% to $8,067 per tonne. The realised price was above the average LME cash price for 2012 of $7,949 per tonne, reflecting the timing of sales and the premiums achieved on copper product sales.

The quantity of copper products sold decreased from 293 kt in the prior year to 282 kt in 2012, a reduction of 4%. The lower sales volumes are due to the decline in copper cathode production volumes and a 10 kt increase in finished goods inventory during the year compared to a 6 kt rise in 2011. Inventory levels rose sharply in the second quarter of 2012 due to logistical issues associated with the shipment of goods to China, however as these issues were resolved, inventory levels reduced in the second half of the year.

The volume of copper rod sales decreased from 28 kt to 23 kt as premiums on sales to China declined and therefore fewer cathodes were converted into rod.

Zinc concentrate revenue of $154 million in 2012 was 13% below the prior year. The realised price for zinc concentrate fell by 16% due to lower LME zinc metal prices which was only partially mitigated by a 3% increase in sales volumes with higher production levels.

Revenue from the sale of silver fell by $65 million in 2012, with the average realised price for silver being 12% below the prior year. Sales volumes of silver were 2% below the prior year due to the lower production volumes in 2012.

Gold product sales volumes were 107 koz above the prior year reflecting the sale of 69 koz of inventory in March 2012 which had been built up in the second half of 2011. Gold revenues also benefited from the 8% increase in the realised price for gold, averaging $1,667 per ounce compared to $1,537 per ounce in 2011 due to stronger LBMA prices in the year.

Sales revenue from gold doré produced from the Mizek and Central Mukur mines was below the prior year due to declining sales volumes partially offset by higher realised prices.

Other revenue includes sales of minor by-products from Kazakhmys Mining's operations such as lead and sulphuric acid, along with coal sales which are made to third parties and the captive power stations. In 2012, revenue from coal sales to the captive power stations totalled $77 million, compared to $49 million in the prior year.

EBITDA (excluding special items)

Kazakhmys Mining's EBITDA decreased by 36% to $1,160 million, as revenues declined by 5% and total cash operating costs rose by 26%.

The Mining Division's cost of sales, excluding depreciation and MET, was higher in 2012. The 12% increase in ore extraction and processing volumes required the usage of additional input materials such as explosives, diesel, tyres and reagents. Prices for key input materials were above 2011 levels but cost inflation was at a more muted rate than in the previous year.

Operational employee costs rose by 35% in 2012, which includes the full year impact of pay awards made to staff in April 2011, as certain categories of workers were moved to a collective pay rate consistent across the Mining Division. The Mining Division's wage structure was also revised in the second quarter of 2012 to recognise workers' skills and experience which resulted in significant salary awards. Demand for skilled and mobile labour in Kazakhstan and the wider natural resources sector in the CIS remained strong throughout 2012 which also put pressure on wage rates.

Inflationary pressures within Kazakhstan were reflected in the increased cost of services and goods provided by third party suppliers. The cost of ore haulage services, which has been largely outsourced to third parties, was higher in 2012 driven by increased railway and auto-transportation tariffs and with the greater volume of ore transported mainly due to the Akbastau mine operating for a full year. Ore from the Akbastau mine is transported 220 km by road to the Karagaily concentrator for processing and the economics of constructing an on-site concentrator are being evaluated.

Repair and maintenance expenditure increased in 2012 with the additional ore volumes processed and inflationary pressures on the costs associated with maintaining underground mining and processing equipment. Utility costs charged to the Mining Division also increased as the tariffs charged by the captive power stations for electricity rose by 23%.

The Mining Division's cost of sales in 2012 includes the expenditure incurred in the prior year for the production of 69 koz of gold bar inventory that was sold in the current period. This impact was partially offset by the larger build-up of copper finished goods inventory in 2012.

Selling and distribution costs were consistent with the previous year as higher transportation rates and port charges were mitigated by lower copper cathode and rod sales volumes.

The Mining Division's administration costs, excluding depreciation and special items, were above the prior year. Pay awards were made to administration staff to align their wages and salaries with the local market. This was partially offset by a reduction in social responsibility costs.

The Mining Division's results for the current period also include the release of a provision of $38 million which was recognised in 2011 in respect of environmental levies that the tax authorities were seeking to apply on some of the Group's operations. The provision was released following a favourable court ruling for Kazakhmys and has been credited evenly between cost of sales and administration costs.

During the year, the Group's disability benefits obligation was reassessed to reflect the pay awards made to staff during 2012. The non-cash component of the disability benefits obligation has been excluded from EBITDA and administration costs. Further details can be found in the Financial Review.

Year on year, the average US dollar to tenge rate rose by 2% with an average rate of 149.11 KZT/$ in 2012 compared to a rate of 146.62 KZT/$ in 2011. The depreciation in the average value of the tenge against the US dollar in 2012 marginally reduced the tenge denominated costs such as labour, local services and utilities when stated in US dollar terms.

Cash costs

The gross and net cash cost metrics are used as a measure of the cost efficiency of Kazakhmys Mining's copper production operations and therefore the costs and revenues associated with the Mizek and Central Mukur gold mines are excluded from the calculation. The gross and net cash cost calculations include electricity sourced from the Group's captive power stations at the cost of production.

The gross cash cost of copper rose to 333 US cents per pound in 2012, up from 249 US cents per pound in 2011. The rise in the gross cash cost is attributable to the growth in Kazakhmys Mining's operating cost base with an increase in ore extraction volumes, along with higher salary and transportation costs. The 4% reduction in copper cathode and rod sales volumes in 2012 compared to the prior year also negatively impacted cash costs on a per unit basis.

The gross cash cost excludes the actuarial remeasurement charge recognised in the income statement for the disability benefits obligation but includes the cash payments disbursed in the period. The gross cash cost also includes the recognition of charges related to the sale of gold bar inventory produced in 2011. Excluding these gold inventory sales, the gross cash cost would have been 321 US cents per pound in 2012. In 2013, the gross cash cost of copper is expected to increase by between 8% and 12% from this level.

The net cash cost increased to 174 US cents per pound as the impact of higher gross cash costs outlined above on reduced copper sales volumes was only partially offset by improved by-product credits in 2012 with the sale of the gold bar inventory carried over from 2011.

The net cash cost of copper in 2013 will be impacted by Kazakhmys Mining's rising cost base combined with reduced by-product credits mainly due to lower sales volumes of gold.

Capital expenditure

Capital expenditure was incurred on the annual mining equipment replacement programme and to maintain output at the concentrators, smelters and auxiliary workshops. Funding was allocated for shaft development work to facilitate future extraction at a number of underground mines along with improvements to ventilation systems.

Investments were made into health, safety and environmental protection projects during the year with support equipment purchased to improve working practices. Fire safety enhancements were implemented at a number of facilities and maintenance was conducted on the Balkhash smelter's drainage systems, along with rehabilitating and expanding tailings dams.

The reconstruction of the Nikolayevsky concentrator progressed with orders placed for flotation and milling equipment and design work developed to increase the capacity and recovery rates achieved at the concentrator, which mainly processes ore from the Artemyevsky mine. The reconstruction project at the concentrator is planned to complete in early 2014.

The Konyrat mine and Itauz open pit mines were opened during 2012 to maintain the Mining Division's existing copper cathode production volumes. The recommencement of operations at the Konyrat mine also included increasing the capacity of the Balkhash concentrator to enable the mine to ramp-up to its design capacity of 7 MT of ore per year. Work on the Balkhash concentrator is expected to be completed by the second quarter of 2013.

In 2012, the project to re-open the North Nurkazgan open pit mine progressed. This mine contains a mixture of oxide and sulphide ore and is anticipated to have annual copper cathode production of between 3 kt and 6 kt. The oxide ore will be processed at a SX-EW plant to be constructed on-site. In 2012, design work for the plant was developed and construction of the heap leaching pad initiated. The mine is expected to recommence operations in the second half of 2013.

The West Nurkazgan underground mine commenced operations in February 2009. Mine development work has been conducted to give access to new sections of the ore body and the conveyor systems have been upgraded to enhance production volumes. Design work to improve the performance of the concentrator, which will also be utilised by the North Nurkazgan mine, was conducted during the year. The mine is expected to have annual copper cathode production of around 20 kt over its operational life.

A project to process oxide ore at the Shatyrkul deposit is also being developed and the mine is expected to produce around 3 kt of copper cathode annually. Heap leaching of the oxide ore is anticipated to commence in 2013.

The Abyz open pit mine requires reconstruction to extend its operational life by a further five years. Major stripping work has begun on-site and mining equipment has been ordered. In 2013, the supporting infrastructure at the mine will be upgraded to support production from the mine which is expected to operate until 2017, producing around 35 koz of gold bar and 3 kt of copper cathode annually.

In 2013 the Kazakhmys Mining Division's sustaining capital expenditure, including the above mine development projects and concentrator improvements which will require up to $150 million, is expected to be between $450 million and $550 million.

Kazakhmys Mining also has a number of medium-sized mine projects which are progressing through the project assessment stages.

The development of the Akbastau and Kosmurun deposits and on-site concentrator is at the feasibility stage with studies of processing technologies and some basic engineering undertaken in 2012. In 2013, metallurgical testing and infrastructure surveys will be progressed. The initial ore production from the Akbastau open pit mine is expected in 2016, while first output from Kosmurun is expected in 2018.

The project to expand the capacity and operational life of the Zhomart mine moved to the pre-feasibility study stage at the start of 2012. Evaluation of the mining methods based on data from the geological work completed in 2011 and work on the required infrastructure for the mine took place in 2012. Studies on the project and potential early access works will continue in 2013.

Exploration work continued on the project to extend the operational life of the Artemyevsky mine by a further 13 years. The project is currently at the pre-feasibility stage.

The South East Nurkazgan mine development which will benefit from shared infrastructure with the West Nurkazgan mine is at the scoping study stage. During 2012, geological studies were conducted on the deposit to improve resource estimations. Initial studies were undertaken into the processing plant, power supply and mining options for the deposit. The project is expected to move to the pre-feasibility stage in 2013.

In 2013 the Kazakhmys Mining Division's expansionary capital expenditure, excluding Bozymchak, Aktogay and Bozshakol, is expected to be up to $100 million.

The development of the infrastructure required for the gold-copper deposit, located in Kyrgyzstan, to commence operation progressed during the period. However, due to issues with local contractors and the challenges of operating in Kyrgyzstan, the installation of the processing plant and other key infrastructure ran behind schedule in the first half of 2012.

In the second half of 2012, better progress was made on the project with the appointment of a new contractor to complete the concreting work at the site. Infrastructure such as fuel stations, maintenance workshops, electricity, along with administration and accommodation facilities was either close to completion or completed.

The open pit mine is planned to produce around 1 MT of ore per year. Bozymchak is expected to have an average annual output of 7 kt of copper in concentrate and 35 koz of gold in concentrate over the life of the mine. The initial project development costs, including expenditure to date, are expected to be around $330 million. The first copper and gold concentrate sales from the project are now expected in the last quarter of 2013.

The Bozshakol sulphide ore deposit is located in the north of Kazakhstan and has a JORC resource of 1,173 MT of ore at a copper grade of 0.35% and a production life of over 40 years, including the processing of stockpiled ore for four years.

In 2011, the Board approved the development of the mine and the associated infrastructure, which is expected to cost in the region of $1.9 billion. The project will be fully funded by the $2.7 billion facility obtained in 2010 from the China Development Bank and Samruk-Kazyna.

A 25 MT per annum concentrator is being constructed, producing an average of 87 kt of copper in concentrate per annum until 2030, with gold, silver and molybdenum as by-products. A secondary facility, initially handling material containing clay, will operate alongside the main concentrator processing a further 5 MT of ore per annum and contributing 16 kt of copper in concentrate per annum until 2030. The first copper concentrate from Bozshakol is expected to be produced in 2015.

The Bozshakol project has been in development throughout 2012 with Alsim Alarko Sanayi Tesisleri ('Alarko') appointed in August 2011 as the project's EPC contractor. Good progress was made during 2012 on site preparation work and foundations for infrastructure. The laying of concrete foundations for the main process building is in progress and the erection of initial steelwork has commenced.

The excavation work for the grinding plant, concentrator, primary crusher and tailings thickener has been completed and all major plant and mobile equipment has been ordered. Early construction work on telecommunications, water and electricity supply to the site has been completed.

The long-lead items, namely the mills and drive systems, have already been manufactured and are being held in storage until they are required on site in the summer of 2013. The main construction activities on the concentrator and infrastructure for the mine will be conducted during 2013 ahead of the commencement of pre-production mining in 2014. The project is forecast to require capital expenditure of between $700 million and $800 million in 2013.

The Aktogay copper ore deposit is the Group's second major copper project alongside Bozshakol. Following the successful completion of the project's feasibility study in the fourth quarter of 2012, the Board approved the development of the project.

The total construction cost of the project which includes an open pit mine and an on-site concentrator is estimated at $2 billion. The development will be primarily funded from a $1.5 billion project specific financing facility signed with the China Development Bank in December 2011.

The deposit is located in the east of Kazakhstan and has a measured and indicated oxide resource of 121 MT of ore with a 0.37% copper grade, and a sulphide resource of 1,597 MT of ore with a 0.33% copper grade. The deposit also contains some molybdenum by-product.

The project will initially develop the deposit's oxide resource which is located above the sulphide ore body. The detailed engineering on the SX-EW plant is progressing to schedule and first production from the oxide deposit is expected in 2015. Orders for major components of the SX-EW plant have already been made.

Development of the sulphide plant will be completed in early 2016 with the first ore being processed at the concentrator that year. Detail engineering of the sulphide concentrator will continue into 2013 and is expected to be completed by the end of 2013. Average annual output will be 72 kt of copper cathode equivalent during a mine life of over 50 years. Copper cathode equivalent production will average 104 kt for the first 10 years.

The development of Aktogay's sulphide resource will benefit from the work conducted on the Bozshakol project due to the similarities between the two large scale, relatively low grade, open pit mines. The project also benefits from the infrastructure which has been developed at the site with a power transmission line, railway access and camp accommodation already in place.

Alarko, who is the EPC contractor on the Bozshakol project, has also been appointed as Aktogay's EPC contractor for the construction of the processing plant. Some initial equipment orders for long-lead items were made in the fourth quarter of 2012, following a similar strategy adopted for Bozshakol.

In 2013, design engineering will continue on infrastructure required to support the mine's operations including water, railway and electricity supply. Construction equipment will be ordered and delivered to the site and initial earthworks at the site are expected to commence. The project is forecast to require capital expenditure of between $550 million and $650 million in 2013.

Review of Kazakhmys Power

Kazakhmys Power includes the Group's three captive heat and power stations and Ekibastuz GRES-1, in which Kazakhmys has a 50% interest.

The Ekibastuz GRES-1 coal-fired power station currently has a generation capacity of 3,000 MW and a modernisation programme is in progress to return the power station to its nameplate capacity of 4,000 MW. The electricity generated by Ekibastuz GRES-1 is sold to third parties predominantly based in Kazakhstan, with the remaining output exported to Russia.

The Group's three captive power stations are located in Karaganda, Balkhash and Zhezkazgan and have a combined nameplate capacity of 1,025 MW and mainly support the Group's operations. The captive power stations sold around 40% of the net power generated to third parties in 2012.

Kazakhmys Power production summary

Ekibastuz GRES-1 production

1 Based on the Group's 50% non-controlling interest in Ekibastuz GRES-1.

Net power generated in 2012 by Ekibastuz GRES-1 was 13% above the prior year at 14,368 GWh. The growth in net generation volumes was due to strong demand in Kazakhstan with Ekibastuz GRES-1 being capacity constrained at times during the year. Generation volumes in the second half of the year were supported by the ongoing commissioning of Unit 8 following its rehabilitation, adding 500 MW of capacity to the power station by the year end.

The power station's optimisation and modernisation programme continued in 2012 and technical improvements were made to increase the efficiency of the five operating units. The programme to install ESPs on all the turbines progressed with three ESPs installed during the year, thereby reducing emissions and also raising the station's net dependable capacity. There are now four units which have new ESPs installed. As Unit 8 was only officially commissioned at the end of the year, it had a minimal impact on the reported net dependable capacity.

In 2013, Ekibastuz GRES-1 generation volumes are expected to increase by up to 5% with a full year of production from Unit 8 and with rising demand for electricity in the region.

Captive Power Stations production

Net power generated at the captive power stations during 2012 was in-line with the prior year. In 2011, output was impacted by unscheduled outages at three turbines, and in the current year, extensive maintenance work was conducted on the Karaganda power station.

The Mining Division was supplied with 3,464 GWh of the net power generated in 2012, an increase of 8% on the prior year usage of 3,197 GWh. In 2013, the captive power station's generation volumes are expected to be at a similar level as they currently operate at close to their maximum capacity.

Kazakhmys Power financial summary

The financial results for Ekibastuz GRES-1 and the captive power stations are discussed separately below.

Ekibastuz GRES-1

1 Represents 50% of Ekibastuz GRES-1's results.

2 Represents 100% of Maikuben West coal mine's results until 17 May 2011.

Revenues

Electricity generation revenues at Ekibastuz GRES-1 rose by 24% compared to the prior year due to a combination of 13% higher sales volumes and as the weighted average realised tariff grew by 12%. Ekibastuz GRES-1 sells the majority of its production under annual contracts to its customer base of industrial users, traders and electricity wholesalers.

Due to the continued growth in electricity demand in Kazakhstan, Ekibastuz GRES-1 was able to make domestic sales at an average tariff of 6.11 KZT/kWh, close to the ceiling tariff throughout 2012.

Russian sales were made at an average tariff of 4.30 KZT/kWh, below the tariffs realised on domestic sales due to the lower prices in that market and also as the Russian tariffs, in tenge terms, were impacted by the devaluation of the rouble against the tenge.

In the prior year, the coal revenues represent sales by the Maikuben West coal mine until its disposal on 17 May 2011.

EBITDA (excluding special items)

Ekibastuz GRES-1's EBITDA was 22% above 2011 due to the 24% growth in electricity sales revenues, whilst total cash operating costs increased by 22%. Within EBITDA, total cash operating costs were driven higher as expenditure on coal, which comprises more than 50% of Ekibastuz GRES-1's cash costs, rose by 11%. The higher generation volumes led to increased coal consumption. Coal prices, which include transport costs, also rose by 9% from April 2012. Ekibastuz GRES-1 purchases over 90% of its coal requirements from the Bogatyr coal mine, which is located 25 km to the east of the power station, and is 50% owned by Samruk-Kazyna, thereby securing certainty of supply.

The consumption of mazut by the power station rose during the commissioning phase of Unit 8 when the start-ups for testing works were fuelled by mazut. The volume of maintenance work conducted during the year increased to maintain the higher utilisation of the power station.

Employee remuneration rose by 23% following inflationary pay awards made in January 2012, and bonuses were awarded to staff following the strong performance of the power station and the successful commissioning of Unit 8. Headcount at the station also rose with the commissioning of Unit 8 and with the ongoing project to rehabilitate Unit 2. Administration costs, excluding depreciation and employee costs, were 9% above 2011 reflecting an increase in social responsibility costs.

Cash cost

The 22% increase in total cash operating costs at Ekibastuz GRES-1 was partially offset by the growth in generation volumes, resulting in the average cash cost rising by only 11% from the prior year to 2.03 KZT/kWh. The per unit cash cost increase is due to the price rise for coal in April 2012, the rise in employee remuneration and higher administrative expenses.

In 2013, the average cash cost is expected to increase by 5% to 10% with cost inflation for key input materials and regulatory charges, partially mitigated by higher generation volumes.

Capital expenditure

Ekibastuz GRES-1 runs a cyclical maintenance programme for the six 500 MW units operating at the power station. As part of this programme, Unit 4 was overhauled in 2012, thereby extending the unit's operating life by another five years after which a further overhaul will be required. The overhaul included maintenance of the turbine, boiler, auxiliary equipment and the replacement of the control system. Work commenced in 2012 on a major overhaul of Unit 7 which will be completed in 2013. In 2013, Unit 3 will also undergo a major overhaul to modernise and extend the operational life of the unit.

Annual maintenance was conducted in 2012 on units 3, 5, and 6 which required shorter term outages. Maintenance is usually planned to coincide with the summer period when demand levels are lower. Other projects conducted in 2012 included the reconstruction of the ash disposal system, replacing infrastructure at the power station which has been operating for 35 years and the upgrade of the water treatment system.

Ekibastuz GRES-1 has been undergoing a major expansion programme to restore the power station to its nameplate capacity of 4,000 MW by rehabilitating the three units which were dormant when Kazakhmys acquired the business in 2008. The rehabilitation of the first of the dormant units, Unit 8, commenced in 2009 and completed on time and on budget in the second half of 2012. During the year, parts for the unit's boiler, turbine and auxiliary equipment were installed and the control and safety systems were modernised.

The rehabilitation of Unit 2 which started in late 2010 continued in 2012. During the year, large parts of the dormant unit were dismantled and the turbine and generator required for the unit have been manufactured. The capital project is more extensive than that for Unit 8, as most of its parts were cannibalised for other units after it was shut down in 1995. The rehabilitation of the unit remains on schedule to complete in late 2014.

As the outlook for power in Kazakhstan remained positive in 2012, Ekibastuz GRES-1 announced that it would be proceeding with rehabilitation of the final dormant unit, Unit 1.

To improve the environmental footprint of the power station, Ekibastuz GRES-1 is implementing a programme to install ESPs to the plant's generators to reduce ash emissions to international benchmark standards. Under this programme of work, an ESP was successfully commissioned for Unit 5 in September 2010 and Unit 6's ESP was installed in the second half of 2012, along with the ESP for Unit 8.

The installation of an ESP at Unit 4 has been brought forward by 12 months and it was connected to the unit in 2012 instead of 2013. Dismantling work for the installation of ESPs at Units 3 and 7 is ongoing with the ESPs expected to be operational in the second half of 2013.

In 2013 capital expenditure at Ekibastuz GRES-1 is expected to be between $330 million and $370 million.

Captive Power Stations

Revenues

An increase in the weighted average realised electricity tariff to 4.19 KZT/kWh resulted in a $23 million growth in electricity sales revenues in 2012. The third party tariff increase reflects the approval of the 2012 ceiling tariff of 4.55 KZT/kWh. The increase in the intercompany tariff is largely due to changes in the cost of generation at the Balkhash and Zhezkazgan power stations. During the year, management of the Satpayev boiler, from which heat sales to municipalities are made, was transferred out of the captive power stations and has been included in the results of the Mining Division. Heat sales made directly from the three captive stations were $15 million, compared to $37 million in 2011 that includes the Satpayev boiler.

EBITDA (excluding special items)

Excluding the Satpayev boiler, total cash operating costs rose by 14% in 2012, below the rate at which revenues increased. Overall, the captive power stations reported an EBITDA of $19 million, $5 million higher than in 2011 due to the stations higher profitability.

Expenditure on coal rose as the price of coal supplied by the Borly coal mines, included within Kazakhmys Mining, increased. The higher coal prices were partially offset by reduced consumption levels as the captive power stations improved their efficiency. Additionally, in the prior year, mazut had been used to re-start turbines following outages, however in 2012 improved operations led to mazut consumption being reduced by 41%. Employee costs at the captive power stations were higher in 2012 with inflation linked pay increases.

Cash costs

The average cash cost for electricity generation from the captive power stations rose by 21% to 3.33 KZT/kWh compared to 2.76 KZT/kWh in 2011. The rise in the average cost of electricity generation is due to cost inflation for key inputs in the generation process such as coal and fuel, along with employee costs, whilst sales volumes remained flat.

The relatively high cash cost per kWh of the captive power stations compared to Ekibastuz GRES-1 reflects the smaller size of the Balkhash and Zhezkazgan power stations, and the age of the equipment employed at the captive power stations.

Capital expenditure

Prepayments were made in 2012 to acquire three replacement turbines to be installed at Zhezkazgan, Balkhash and Karaganda power stations in 2013. A second-hand turbine was also acquired which will be used for spare parts.

Capital expenditure was invested for the maintenance of the existing boilers and turbines, in particular at the Balkhash and Zhezkazgan power stations, in order to sustain the heat and power plants' existing capacity. In 2013, capital expenditure on the captive power stations is expected to be between $70 million and $90 million.

Review of MKM

MKM is a downstream copper business, which produces and sells copper and copper alloy semi-finished products. Based in Germany, the business is structured in three sections: wire products, flat products and tubes and bars. Kazakhmys previously determined that MKM was not a core business as it was inconsistent with the Group's geographic and strategic focus and classified it as 'held for sale'. At the 2012 year end, the business remains classified as 'held for sale'.

MKM financial summary

1 'GVA' is Gross Value Added which is calculated as turnover less the input cost of copper cathode, i.e. MKM's 'value add'. It is not a statutory reporting measure. The GVA figures are presented in Euros, MKM's operating currency.

GVA

Gross Value Added (GVA) represents the conversion charge that customers pay in excess of the copper cathode cost, and is considered a key performance measure for MKM as it excludes the impact of changes in the price of copper.

MKM's performance in 2012 was impacted by continued economic weakness in a number of European countries, particularly in the second half of the year. GVA was broadly maintained at the prior year level as sales volumes to Germany, MKM's core market, grew and as eastern European and North American sales were successfully expanded.

Within the product groups, the wire section reported wire rod sales volumes almost 9% above the prior year, however due to the focus on raising the proportion of tolling business to control working capital, GVA per tonne was lower. Sales of drawn wire were disappointing due to lower demand from automotive and solar energy manufacturing, which led to the wire section's overall GVA being below the prior year.

The flat section, which represents 51% of GVA, had a strong year as MKM attracted new business for pre-rolled strip, sheets from strips and roofing. Sales of pre-rolled strip increased by 90% in volume, and whilst the GVA per tonne reduced, the additional volumes led to a 71% rise in GVA. The GVA from tubes and bars fell slightly due to weaker demand for industrial tubes, most noticeably in the second half of 2012.

EBITDA (excluding special items)

EBITDA was $48 million, $22 million above the prior year. Costs increased in 2012, with labour costs rising in accordance with union agreements, but other costs remaining broadly consistent with the prior year. Copper price movements are reflected through the IFRS inventory adjustment which had a positive impact on EBITDA of $10 million in 2012, compared to a charge of $14 million in the prior year. Excluding the impact of the IFRS inventory adjustment and expressed in Euros to better reflect underlying performance, MKM's EBITDA was €28 million, in line with the prior year.

Capital expenditure

Capital expenditure in 2012 was $11 million as MKM invested to maintain its production equipment. The principal investments were made in the flat section. The capital expenditure was below 2011 which included a higher level of sustaining capital expenditure on the wire rod line following outages during the year.

CORPORATE RESPONSIBILITY

In 2012, we continued to improve our reporting and monitoring procedures across all segments of our corporate responsibility (CR) activity. As we prepare for the mandatory greenhouse gas reporting next year, we appointed external consultants to review the internal data reporting procedures with the intention of obtaining external assurance in the future.

Health and Safety

The safety and wellbeing of our employees is our absolute priority. In 2012, there were 19 fatalities at our operations, 4 of which were contractors. Although we are beginning to see an improvement on previous years (2011: 24; 2010: 27), we view every fatality as unacceptable and avoidable and our long-term goal remains zero fatalities.

The LTIFR has increased to 1.78, compared to 1.55 in 2011. Evidence shows that this is due to the rise in reporting of incidents by our employees encouraged by the Group-wide health and safety education and awareness programme, which we started in 2012 in cooperation with our consultants DuPont.

We made good progress in standardising our health and safety policies across all Group operations, as well as our approach to contractor safety, and commenced the implementation of Emex, the incident reporting and evaluation programme. The system is expected to be fully rolled out across the Group by the second quarter of 2013.

Environment

In 2012, energy consumed within the Group's operations was 6,255 GWh, 8% less than in the prior year. In the Mining Division, there was a 12% reduction in energy use to 4,580 GWh compared with 5,218 GWh in 2011. The reduction reflects initial energy saving efforts such as the installation of new equipment as well as improved measurement and increased awareness of electricity consumption levels, as we prepare for the implementation of an energy efficiency programme which is currently being developed. In the Power Division, internal energy use at Ekibastuz GRES-1 increased by 13% to 796 GWh, reflecting increased external demand and the commissioning of a new turbine, while power use at our captive power stations (which supply the Mining Division) remained broadly in line with the prior year at 879 GWh.

Power produced at Ekibastuz GRES-1 is sold to third parties and is not used in copper production. Following the increased demand for electricity in Kazakhstan and the commissioning of the new turbine at Ekibastuz GRES-1, both total gross power generated and sold to third parties increased to 21,605 GWh and 16,466 GWh, respectively. This increase resulted in a 15% rise in GHG emissions for the Group compared to 2011, from 24.2 million tonnes of carbon dioxide equivalent (CO2e) to 27.8 million tonnes. Of these emissions, 2.7 million tonnes were generated by the Mining Division and 25.1 million tonnes by the Power Division.

In 2012, SO2 emissions for the Group totalled 258,877 tonnes, broadly in line with 261,587 tonnes produced in 2011. At 103,307 tonnes, the Mining Division produced 16% fewer SO2 emissions in 2012 than the year before, largely driven by uninterrupted operations at our Balkhash sulphuric acid production plant, which experienced some downtime in 2011, as well as slightly lower copper output.

The launch of the new turbine at Ekibastuz GRES-1 and subsequent increase in power generation resulted in higher NOx emissions for our Power Division, where we produced 55,246 tonnes of NOx compared to 46,917 tonnes in the prior year. NOx output for the Mining Division remained broadly in line with the prior year at 1,378 tonnes.

We achieved a 16% reduction in ash emissions for the Group in 2012, to 121,983 tonnes. The Mining Division produced 3,464 tonnes of ash in 2012, compared to 4,025 tonnes in 2011. The reduction is due to the use of better quality coal at the boilers in Zhezkazgan, as well as the installation of new equipment at some of our assets. At 118,519 tonnes, the Power Division achieved a 16% reduction in ash emissions despite a 13% increase in power generated at Ekibastuz GRES-1. This reduction is due to the installation of battery emulsifiers at our captive power plants, as well as the installation of the third electrostatic precipitator at Ekibastuz GRES-1. By 2016, all eight turbines at the power station will be fitted with electrostatic precipitators, which should reduce total ash emissions fivefold compared to 2009 levels, prior to the installation of the first precipitator.

In 2012, the Group used 802,230 megalitres of fresh water, in addition to 2.5 million megalitres of recycled process water. Of the freshwater withdrawn, just 7.4% came from the same water source used by the local community.

New legislation to reduce waste and control its disposal was introduced in 2012 in Kazakhstan, requiring companies to introduce 10 year waste management plans. In response, we developed guidance for our sites on implementing waste management systems. In 2013, different areas of our business will introduce waste management programmes with the aim of reusing and recycling more waste, as well as disposing of it responsibly.

Employees and Social

The Mining Division's social investment decreased to $52 million in 2012. Our programme of transferring ownership of the social facilities the Group inherited with its operations continued, as we ensure a sustainable future for our core business. Some of the approximately 200 social assets were signed over in 2012, and the remaining assets will be transferred in the next few years, mainly into Government ownership. These transfers assisted in the reduction of the Group's social investment.

In 2012, 67% of our goods and services were sourced locally, which amounted to $1.5 billion, compared to 50% and $785 million in 2011. We support local suppliers and small and medium-sized business through a range of initiatives, including the annual forum 'Made in KZ' and regional business associations through which local companies can find new customers and revenue streams, in addition to Kazakhmys. In July 2012 our efforts were recognised with a national award for local content development.

A skilled workforce is critical to the future of our business and we seek to provide our employees with career development and education opportunities, as well as competitive remuneration to ensure we attract and retain the best people in the industry. In 2012, 100 of our most promising employees completed our 'High Potential' programme designed to ensure a succession of future senior management from within the Group.

We seek to employ the majority of our workforce in Kazakhstan locally, using international expertise where necessary to facilitate a transfer of skills and best practice in the longer term. In 2012, 99% of employees within the Mining Division were Kazakhstani nationals. We are pleased to report a continued high level of gender diversity for the mining industry - 36% of our employees in 2012 were women.

FINANCIAL REVIEW

Income statement

A summary of the consolidated income statement is shown below:

Revenues

The Group's revenues of $3,353 million are 6% lower than the $3,563 million achieved in the year ended 31 December 2011, following a decline in the realised price and sales volumes of copper cathode at Kazakhmys Mining. The lower cathode sales volumes were attributable to the decline in production volumes and an increase in finished goods inventory across the year. The fall in copper revenues, the Group's principal product, was partially offset by an increase in by-product revenues, particularly gold, which benefited from the sale of inventory accumulated in the second half of 2011.

EBITDA (excluding special items) by operating segment

EBITDA (excluding special items) has been chosen as the key measure in assessing the underlying trading performance of the Group. This performance measure removes the non-cash component of the disability benefits obligation, depreciation, depletion, amortisation, MET and those items which are non-recurring or variable in nature and which do not impact the underlying trading performance of the Group.

During 2012, EBITDA (excluding special items), a key performance indicator of the Group, has been redefined. The Group considers EBITDA to be a proxy for cash earnings from current trading performance. Consequently, the actuarial remeasurement charge recognised in the income statement in respect of the Group's disability benefits obligation has been excluded from EBITDA and instead, the actual disability benefits payments disbursed during the year have been deducted in arriving at EBITDA. A change in legislation in 2011 significantly increased the level of payments the Group is required to make to disabled current and former employees, and consequently the corresponding provision for the disability benefits obligation also increased. As the disability benefits obligation is remeasured on an ongoing basis and is subject to potential volatility arising from changes to actuarial assumptions, including expectations of future payment levels and the discount rate applied, the actuarial remeasurement charge in any particular period can often be unrepresentative of the cash payable in respect of that period. For the year ended 31 December 2011, the impact of this change is considered insignificant in the context of EBITDA and the consolidated financial statements as a whole, and therefore 2011 has not been restated. For the year ended 31 December 2012, the actuarial remeasurement charge of $190 million has been excluded from EBITDA and cash disbursements of $41 million have been deducted in arriving at EBITDA, such that a net amount relating to the non-cash component of the disability benefits obligation of $149 million has been excluded from EBITDA.

Following the sale of Kazakhmys Petroleum in December 2011, the Group is now managed in three separate business units: Kazakhmys Mining, Kazakhmys Power and MKM.

A reconciliation of Segmental EBITDA (excluding special items) by operating segment is shown below:

1 Kazakhmys Power includes the Group's share of EBITDA (excluding special items) of the joint venture, Ekibastuz GRES-1, and the Group's captive power stations.

2 In the year ended 31 December 2011, Kazakhmys Power included the EBITDA (excluding special items) of the Maikuben West coal mine for the period to 17 May 2011, the date on which it was sold.

Segmental EBITDA (excluding special items) of $1,364 million was 30% lower than the prior year, principally as a decline in revenues and higher costs led to a fall in the EBITDA contribution from Kazakhmys Mining which was $1,160 million in 2012 compared to $1,808 million in the prior year.

The EBITDA contribution of Kazakhmys Power from continuing operations increased to $208 million from $168 million in 2011, due to the growth in revenues, which benefited from higher ceiling tariffs and demand, partially offset by rising input costs at the segment's largest asset, the Ekibastuz GRES-1 coal fired power station.

EBITDA (excluding special items) from discontinued operations increased compared to the prior year, which included the Maikuben West coal mine until 17 May 2011. MKM's contribution improved from $26 million in 2011 to $48 million in 2012, as the results of the business were impacted by a positive IFRS inventory adjustment of $10 million which reflects the movement in copper prices through the year compared with a negative inventory adjustment of $14 million in 2011.

Special items

Special items are non-recurring or variable in nature and do not impact the underlying trading of the Group. The principal special items recognised within continuing operations are:

2012

·; The following impairment charges were recognised in 2012:

- a charge of $162 million was recognised in respect of the Bozymchak gold/copper project in Kyrgyzstan. As a result of operational challenges experienced in Kyrgyzstan, the project is now expected to commence production later than envisaged, capital costs have been revised upwards and the risks associated with the project's execution have been reassessed. Following the impairment charge, which consists of $71 million against mining assets and $91 million against property, plant and equipment, the Bozymchak project has been recognised at its recoverable amount of $106 million as at 31 December 2012. Of the total Bozymchak impairment, $19 million relates to the impairment of capitalised borrowing costs;

- within mining assets, a charge of $7 million was recognised relating to the write-down of the assets attributable to the Nikolayevsky mine which was suspended in August 2012 as it was no longer considered economically viable to operate this mine; and

- a charge of $11 million has been recognised against property, plant and equipment relating to transportation infrastructure owned by the Group following a change in the intended use of the assets and a reassessment of their future cash flows.

·; In early 2012, Kazakhmys Mining disposed of its captive insurance company in Kazakhstan and recognised a loss on the sale of this subsidiary of $8 million.

2011

·; The Government of Kazakhstan enacted new legislation which significantly increased the entitlements payable to current and former employees who suffer a work-related injury. Based on a reassessment of the potential future costs associated with meeting this additional disability benefits obligation, Kazakhmys Mining recognised a charge of $172 million in 2011, of which $146 million related solely to the impact of the changes in the legislation and was treated as a special item; and

·; The following impairment charges were recognised in 2011:

- a charge of $11 million which primarily related to the impairment of administrative land and buildings within Kazakhmys Mining which were not in use;

- a credit of $7 million which mainly related to a reversal of impairment provisions held against mining assets previously considered uneconomic in prior years and which have since been actively prepared for future extraction due to higher commodity prices; and

- a $19 million release of an impairment provision held against minor by-product inventories within Kazakhmys Mining to reflect improved market conditions for those by-products.

Total special items within operating profit for continuing operations in 2012 amounted to $200 million compared to $131 million in 2011. Special items within operating profit in respect of discontinued operations of $30 million (2011: $497 million) principally relate to the impairment charge recognised to reduce MKM's carrying value to the net expected proceeds arising from a prospective sale and the final completion adjustment in respect of the disposal of Kazakhmys Petroleum. In 2011, along with the impairment of MKM, the special items in respect of discontinued operations also included the disposal of Kazakhmys Petroleum and the Maikuben West coal mine, part of Kazakhmys Power. These special items are discussed within the 'Discontinued Operations' section below.

Discontinued operations

The discontinued operations of the Group for the year ended 31 December 2012 include the post-tax results of MKM for the full year, whilst the comparative year also includes Kazakhmys Petroleum which was sold on 23 December 2011, and the Maikuben West coal mine for the period to 17 May 2011, the date on which the business was sold.

Discontinued operations contributed a post-tax profit of $20 million, comprising MKM's profit for the period of $33 million and a $13 million loss representing the final completion price adjustment arising from the disposal of Kazakhmys Petroleum. The prior year post-tax loss of $472 million included the loss recognised on the sale of the Maikuben West coal mine of $20 million, the loss on disposal of Kazakhmys Petroleum of $24 million and the impairment loss of $444 million recognised to remeasure Kazakhmys Petroleum to fair value.

MKM's contribution to the profit for the year from discontinued operations has increased from $12 million in 2011 to $33 million for the year ended 31 December 2012. The improved profit for the year from MKM is principally due to the positive IFRS inventory adjustment of $10 million (2011: negative $14 million) as well as the reversal of an historic tax provision of $9 million relating to the restructuring of the business within the Group in 2007. The provision is no longer considered necessary following the results of the recent tax audits completed for the period 2006 to 2008, inclusive.

Dividends

The policy established at the time of Listing was for the Company to maintain a dividend policy which took into account the profitability of the business and underlying growth in earnings of the Group, as well as its cash flows and growth requirements. The Directors would also ensure that dividend cover is prudently maintained. Interim and final dividends will be paid in the approximate proportions of one-third and two-thirds of the total annual dividend, respectively. Share buy-backs and special dividends have been used in addition to the ordinary dividend to return surplus funds to shareholders.

In the second half of 2011, the Directors announced a share buy-back programme of up to $250 million, the completion of which was subject to market conditions. In 2011, 5.6 million shares were purchased, with a further 6.1 million purchased in 2012, at a total cost of $166 million, representing 2.2% of the Company's shares in issue at the commencement of the programme. The Company's authority for this share buy-back programme expired in May 2012 and the Company did not seek its renewal.

The Directors recommend a final dividend for 2012 of 8.0 US cents per share, which together with the interim ordinary dividend of 3.0 US cents per share, gives a total full year dividend of 11.0 US cents per share (2011: 28.0 US cents per share), based on the earnings for 2012. The total dividend reflects an approximate 12% payout ratio of the Group's full year Underlying Profits as adjusted for the removal of ENRC's and Ekibastuz GRES-1's equity accounted earnings but including dividends received from these businesses during the year. The decrease in the dividend from the prior year reflects the lower underlying profits of the Group and also acknowledges that in the near future the gearing of the Group is likely to increase given the development of the Group's major projects. The 2011 dividend also included an additional 5.0 US cents per share ($26.5 million) to the 12% payout ratio. The exchange rate to be applied to convert the dividend into UK pounds sterling is £0.65470 to the US dollar and to convert the dividend into Hong Kong dollars is HK$7.75541 to the US dollar. This is based on the average exchange rates for the five business days ending two days before the date of this announcement.

Subject to the approval of the shareholders at the Annual General Meeting to be held on 17 May 2013, the final dividend shall be paid on 21 May 2013.

Cash flows

A summary of cash flows is shown below:

1 Working capital movements exclude any accruals relating to the MET and the movement in non-current VAT receivable incurred on capital expenditure relating to the major projects.

Summary of the year

Net cash flows from operating activities declined following the lower profitability of the Group coupled with higher interest payments and lower dividends received, which were partially offset by lower tax payments and a reduction in working capital requirements over the year.

Dividends received

In 2012 the Group received dividends of $59 million from ENRC and $28 million from the Ekibastuz GRES-1 joint venture compared to $113 million of dividends received from ENRC in 2011. The dividend received from ENRC in 2012 represents the 2011 final dividend and the 2012 interim dividend.

Working capital

The significant working capital movements over the year are explained below:

·; overall inventory levels increased by $40 million as a decrease in the level of inventory at Kazakhmys Mining was offset by a rise in inventory levels at Kazakhmys Power and MKM. Lower finished goods at Kazakhmys Mining principally reflect the sale of 69 koz of gold bar inventory built up in the second half of 2011. All other finished goods, including copper cathode, reported higher inventory levels as production exceeded sales for the year. The finished goods movement was offset by larger raw material inventories which were impacted by higher input prices at Kazakhmys Mining and Kazakhmys Power. MKM's inventory levels reflect larger quantities on hand and the higher copper price compared to the prior year;

·; prepayments and other current assets were $177 million higher in 2012, principally due to a $89 million increase in VAT receivable balances. The major reason for the increase is the delayed VAT refund from the Government due to various technical reasons and also there is a build-up of VAT receivable on the internal restructuring of assets within the Group;

·; receivables decreased at Kazakhmys Mining by $52 million respectively reflecting lower revenues and the timing of receipts; and

·; trade and other payables and employee benefits increased by $278 million in 2012, mainly relating to Kazakhmys Mining. Of this increase, $168 million related to the disability benefits obligation that was reassessed following pay awards granted during the year and $110 million was due to trade and other payables resulting principally from higher payables for auxillary services and equipment purchases.

In the prior year, the working capital movement at Kazakhmys Mining related to an increase in inventory as there was a build-up of gold bar due to no sales taking place in the second half of the year following the restriction on exports imposed by the National Bank in July 2011, the increase in copper finished goods across the year and the impact of inflation on input prices of raw materials. There was also an increase in prepayments and advances paid due to the continued expenditure on the Group's development projects. Lower receivables reflecting the timing of sales and a significant increase in the disability benefits obligation offset the negative impact of the higher inventory, and prepayments and advances paid within Kazakhmys Mining. At MKM, a decrease in inventory levels and trade receivables driven by the lower copper prices experienced in the year were partially offset by lower accounts payable.

Interest cash flows

Interest paid during the year was $85 million, $19 million above the interest paid in 2011 of $66 million, primarily due to the higher average effective interest rate of 4.84% compared to 3.32% in 2011, on an increased level of debt outstanding during the period.

Income taxes and mineral extraction tax

Income tax payments of $142 million were lower than the prior year reflecting the fall in the Group's profitability. The income tax payments were lower than the income statement charge for current tax. At 31 December 2012, the Group's net tax receivable position was $29 million compared to $64 million as at 31 December 2011 as the Group utilised part of the prior year's prepayment against the current year income tax charge.

MET payments of $199 million are lower than the income statement charge of $260 million as a result of past EPT payments of $56 million which the tax authorities agreed to set-off against MET liabilities for the 2012 financial year. At 31 December 2012, the MET payable balance of $71 million was comparable to the balance as at 31 December 2011.

Free Cash Flow

Lower MET and income tax payments and reduced working capital requirements partially offset the impact of lower earnings, higher sustaining capital expenditure and increased interest payments, which resulted in Free Cash Flow of $85 million, a decline from $824 million in the prior year.

Capital expenditure

Capital expenditure on sustaining the current business operations rose to $662 million from $420 million and expansionary expenditure rose by $308 million as the Group invested in Bozshakol, Aktogay and the mid-sized projects. Total capital expenditure incurred in the year was $1,229 million, compared to $679 million for the year ended 31 December 2011.

Major social projects

In 2012, the Group spent $12 million (2011: $36 million) as part of the Group's social development programme on major projects in Kazakhstan.

Investing cash flows

The most significant investing cash flows during 2012 related to the Group's share buy-back programme which commenced in September 2011 and completed in May 2012 and the payment of the Group's final dividend for 2011 and interim dividend for 2012. In addition, during the year the Group disposed of a number of assets for proceeds of $51 million, principally relating to the sale of two corporate aeroplanes for a total of $30 million.

During 2011, proceeds were received from the disposal of non-core businesses, Kazakhmys Petroleum and the Maikuben West coal mine, of $119 million and $3 million respectively. The net proceeds received were $111 million as the cash disposed within these businesses amounted to $11 million.

Balance sheet

Net debt consists of cash and cash equivalents, current investments and borrowings. A summary of the net debt position of continuing operations is shown below:

1 Excludes MKM and Ekibastuz GRES-1.

Cash and short-term deposits of the Group's continuing businesses as at 31 December 2012 were $1,246 million, an increase over the $1,102 million as at 31 December 2011 principally due to the additional draw downs under the CDB/Samruk-Kazyna financing facilities partially being offset by repayments of the principal under the pre-export debt finance facility. Of the cash and cash equivalents and current investments, approximately $1,545 million has been drawn under the CDB/Samruk-Kazyna financing facilities and is intended to be used for the development of the Group's projects under the terms of the individual facility agreements. Current investments are cash deposits with a three to six month maturity profile.

In order to manage counterparty and liquidity risk, surplus funds within the Group are held predominantly in the UK and funds remaining in Kazakhstan are utilised mainly for working capital purposes. The funds within the UK are held primarily with major European and US financial institutions and triple-'A' rated liquidity funds. At 31 December 2012, $1,636 million of cash and short-term deposits were held in the UK, with $125 million being held in Kazakhstan.

Gross borrowings of the Group's continuing operations increased from $1,893 million at 31 December 2011 to $2,468 million at 31 December 2012, following the repayment of the pre-export debt finance facility in full of $614 million being offset by $1,200 million drawn down under the CDB/Samruk-Kazyna financing facilities, less arrangement fees of $18 million. The Group was in a net debt position of $707 million at 31 December 2012 compared to a net funds position of $19 million at 31 December 2011.

Borrowings under the CDB/Samruk-Kazyna financing facilities were $2,468 million compared to $1,281 million at 31 December 2011. Of the $2,500 million, excluding amortised fees, drawn down under the CDB/Samruk-Kazyna financing facilities, $2,000 million is intended for the development of the Bozshakol copper project, $300 million is intended for the development of the Bozymchak deposit in Kyrgyzstan, with $200 million intended for use on certain of the Group's mid-sized development projects. A further $200 million under these financing facilities was drawn down in January 2013, following which the full facility has been drawn down.

As at 31 December 2012, the Group had $300 million of revolving credit facilities available for standby liquidity and general corporate purposes. These facilities have remained undrawn since inception. In addition, in December 2012 the Group signed a five year pre-export finance facility for $1,000 million to be used for general corporate purposes. This facility was undrawn at 31 December 2012 and has an availability period of 12 months. Repayments commence in January 2015 and continue over 36 months. The interest rate for this facility is US$ LIBOR plus 2.80%.