Development of the Major Copper Project at Aktogay

6 December 2012

KAZAKHMYS ANNOUNCES DEVELOPMENT OF THE MAJOR COPPER PROJECT AT AKTOGAY

Kazakhmys PLC ("Kazakhmys" or the "Group") announces that the Board has approved the development of Aktogay, its second major copper project, following the successful completion of the feasibility study.

Highlights:

·; Total Measured and Indicated mineral Resource (JORC) of 1,719 million tonnes at an average copper grade of 0.33%

·; Development to start in early 2013, and first production from oxide ore body in 2015 and sulphide ore body in 2016

·; Mine life of over 50 years, with average production of 104 kt copper cathode equivalent in first 10 years

·; Competitive operating cost, in the second global quartile

·; Capital cost of around $2 billion, primarily funded through a $1.5 billion facility from China Development Bank

·; Significant benefit of existing infrastructure including power and transport links

Aktogay is a large open-cast mine in south eastern Kazakhstan, approximately 250 km from the Kazakhstan-China border. It is the Group's second major copper project alongside Bozshakol, which was approved in August 2011 and is already in development.

The project has the advantage of existing infrastructure, including power and transportation links. Aktogay has significant similarities to Bozshakol, and the intention is to enhance value by replicating existing design and engineering work at Bozshakol.

The Aktogay ore body consists of an oxide deposit on top of a larger sulphide deposit, the latter containing some valuable molybdenum which will be extracted as a by-product. The deposit has a Mineral Resource of 1,719 million tonnes, at an average copper grade of 0.33%.

Development of Aktogay will start in early 2013. First production from the oxide deposit will be in 2015. Development of the sulphide plant will be completed in early 2016 with the first ore being processed at the concentrator that year. Average annual output will be 72 kt of copper cathode equivalent during a mine life of over 50 years, although production will average 104 kt for the first 10 years. The project has a capital cost of around $2 billion, and is primarily being funded from a $1.5 billion project specific financing facility signed with the China Development Bank in December 2011. 

At current prices, Aktogay has a competitive operating cost, in the second quartile for copper mines globally.

Aktogay and Bozshakol are the largest mine developments in Kazakhstan by both volume and value. Aktogay will employ just over 3,000 people at peak construction activity, and slightly over 1,500 people when operational. Together, the two projects represent investment of around $4 billion in Kazakhstan.

Oleg Novachuk, Chief Executive Officer of Kazakhmys said: "I am delighted to announce the approval of Aktogay, which allows us to move forward with our second major copper project. The combination of our Bozshakol and Aktogay projects will add around 200 kt of low cost production from new generation open pit mines, which will be transformational for Kazakhmys and also for the mining industry in Kazakhstan. The combined projects represent an investment of around $4 billion creating significant employment and ensuring the continued growth of the copper industry in the country. We are grateful for the continued support of the China Development Bank in providing the financing for the project. I should also like to thank my colleagues for their work in bringing Aktogay to development and I look forward to updating you as the project progresses."

For further information please contact:

REGISTERED OFFICE

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

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 operations are fully integrated from mining ore through to the production of finished copper cathode and rod. Total copper cathode equivalent produced in 2011 from own ore was 299 thousand tonnes. 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 2011, it produced 140 thousand tonnes of zinc in concentrate. The Group is amongst the largest silver producers in the world with 13 million ounces produced in 2011.

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 and is currently commissioning a turbine to take capacity to 3,000 MW, which will ultimately allow the plant to reach its nameplate capacity of 4,000 MW.Kazakhmys Power also operates the captive coal mines and power stations which supply electricity to the Mining Division.

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 $3.6 billion in 2011 with an operating profit of $1.2 billion. The Group employs some 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.

China Development Bank and Aktogay Loan Facility

The China Development Bank Corporation ("CDB") was established in 1994. It is a wholly state-owned commercial bank under the direct leadership of the State Council of the People's Republic of China. It is primarily responsible for providing funding for large infrastructure projects.

The total Aktogay Facility of approximately $1.5 billion, signed in December 2011, is comprised of two separate agreements, a USD agreement for up to $1.34 billion and an RMB agreement for up to RMB 1.0 billion (approx $158 million). Both agreements are on essentially similar terms and conditions, except that proceeds drawn under the RMB agreement can only be applied towards payments to suppliers for equipment, materials and services sourced from China.

The loan agreements are available for drawing over a period of three years following the satisfactory completion of a detailed feasibility study. There is a three year grace period commencing from the date of the first drawing, after which repayments commence on a semi-annual repayment profile through to final maturity. The agreements have a final maturity of 15 years from the date of first drawing. The interest rate on the USD facility is linked to USD LIBOR, and the RMB facility is at the applicable benchmark rate published by the People's Bank of China.

The $1.5 billion Aktogay Facility is in addition to the existing $2.7 billion facility, secured in December 2009, which is being used for the development of Bozshakol and a series of mid-sized projects. However, the Aktogay facility is a direct bi-lateral agreement with the CDB, unlike the $2.7 billion facility which was arranged as a back-to-back arrangement through the Joint Stock Company Sovereign Wealth Fund "Samruk-Kazyna". Similar to the $2.7 billion facility, security is provided solely by way of a guarantee from Kazakhmys PLC. In addition, there is an undertaking that Kazakhmys will use commercially reasonable efforts to supply not less than 50% of the off-take from Aktogay to Chinese customers on market terms.

Aktogay Mine, Heap Leach-SX/EW and Sulphide Concentrator Project

Mine location and geology

Aktogay is located on the southern border of East Kazakhstan Oblast (Province) in the eastern part of Kazakhstan. The site is characterized by semi desert vegetation and low hills. Elevation at the site is about 350 metres. A salt pan is located about 10 km to the east of the mine site and there are some minor water areas near the salt pan and also some non perennial stream courses.

Aktogay Township is located 25 km to the west/southwest and is a major rail junction between rail lines from Almaty to the south west, Balkhash, where Kazakhmys has a large industrial complex including a smelter and refinery, and Karaganda to the west and northwest, and Ust Kamenogorsk to the north, with another rail line continuing into China. The population of Aktogay Township is about 7,000 people. Ayagoz, the district centre, is located 150 km to the northeast and has a population of about 35,000.

Copper mineralisation, predominantly chalcopyrite, occurs in quartz-carbonate filled stockwork fractures and as disseminations. It forms a compact body shaped like a flattened goblet within the rocks of the first intrusive phase and the volcanogenic-sedimentary rocks of the Keregetas Formation. The copper mineralisation is spatially associated with small stocks and dykes of porphyritic granodiorites and later granodiorite porphyries. About 70% of the copper-molybdenum mineralisation is hosted by intrusive rocks, mainly diorites and granodiorites, and about 30% by volcanogenic-sedimentary rocks of the Keregetas Formation. The copper mineralisation is accompanied by molybdenite. Gold, silver, rhenium, selenium, tin and tungsten occur at geochemically anomalous levels. On the outer fringes of the hydrothermal system, copper gives way to lead and zinc, several showings of which are known in the area between Aktogay and Aydarly.

Mining

The mining method adopted for the Aktogay mine will be conventional open pit mining using trucks and excavators. The mobile fleet selected is synonymous with the equipment selection for the Bozshakol mine as this synergy will assist in the competitiveness of equipment procurement costs and the ongoing maintenance requirements.

Based on the broad mineralisation zones of the Aktogay deposit, bulk-mining methods (as opposed to selective methods) will be adopted for both ore and waste. The bulk-mining method and preliminary analysis for the equipment selection allow blasting of 10 metre benches for most of the operation (except where topography impacts the height of initial benches), which results in relatively cost effective drilling and blasting operations.

Notes:

Mineral Resource estimated by AMC Consultants at a 0.2% Cu cut-off.

Processing facilities

The processing facilities at the mine will produce both copper cathode from oxide ore and copper in concentrate, which may then be processed to copper cathode at the Group's existing smelting and refining facilities, where there is sufficient spare capacity.

Primary crushed ore will be reclaimed from the concentrator stockpile via underground feeders and transported to the primary and secondary grinding section of the concentrator, where a 12.2 metre diameter, 28 MW gearless drive SAG Mill and two 8.5 metre diameter gearless drive ball mills will process the ore into slurry prior to delivery to the flotation section of the concentrator. Copper concentrate will be gradually separated from the waste tailings as it passes through the flotation process. Molybdenum will be extracted as a separate product at the end of the flotation process. The copper concentrate will then be pumped to the filter facility where it will be de-watered and stockpiled in powder form prior to loading into rail wagons and shipped for smelting. The molybdenum product will also be de-watered, dried and packaged ready for shipment to the designated customer.

Tailings will be thickened and pumped to a starter tailings impoundment approximately 2 km south of the concentrator. The overflow water from the tailings thickeners will be reclaimed and reused in the concentrator process to minimise water consumption, as will the overflow return from the tailings impoundments.

The Aktogay oxide processing facilities will comprise a dump leach facility to produce a copper rich pregnant leach solution (PLS) and a solvent extraction-electrowinning plant to recover dissolved copper from the PLS. Sulphuric acid will be used as the leaching agent and external heating will be used in some stages of the process to prevent the risk of freezing in extreme cold weather.

Infrastructure requirements

Power will be supplied from the 100% owned Karaganda GRES-2 power plant located more than 720 km away in Karaganda to Aktogay Village. The water supply will be provided from a borefield development in the Zhuzagash reservoir. Water will be pumped from the borefield through an underground pipeline to the site, 27 km away. The permanent power supply connections and an upgrade of the water supply for operational purposes will be made as part of the main project construction contract.

Additional onsite new rail spurs and sidings will be built on site to handle transport of commodities to site and cathode copper and concentrate off site.

Phasing of capital expenditure

The capital cost for construction of the mine and associated processing and infrastructure facilities is in the region of $2 billion. This capital cost includes sunk costs of approximately $100 million for site infrastructure and the feasibility study.

Expected production profile

The mine will produce the following equivalent copper and molybdenum during the first 15 years of the mine's life, with the first 10 years of operation receiving an average contribution of 22 kt of copper cathode from the oxide ore. The majority of the copper will be produced in concentrate from the sulphide ore production.

Expected Production Profile Graph

 http://www.rns-pdf.londonstockexchange.com/rns/9172S_-2012-12-6.pdf

Sustaining capital expenditure

Annual operational capital expenditure is estimated to be around $20 million (at current pricing) once the mine is in production.

Health, safety & environment

The HSE policy for the construction phase of the project will be "Zero Harm" with the focus on personnel, assets and the environment. All personnel will receive training in order for them to undertake their duties plus a project specific safety induction/training prior to entering the project site. Refresher courses and further training will continue for the entire duration of the project.

Following recruitment, operations personnel will receive the necessary job and safety training in order to undertake their duties prior to entering their workplace. A policy of continuous improvement for all employees will ensure that safety and job training will maintain their skill levels to international standards.

Environmental monitoring will be undertaken by a dedicated team through all phases of the project.

All Government permits and authorisations will be obtained prior to construction and operation of the plant. Permits to install the construction power and water supplies for early-works have already been obtained from the state authorities.

Employment

The main operational workforce, around 1,500 people, will be recruited from the local region and country-wide for the necessary skills required to operate a modern concentrator applying international standards. An expatriate team of around 80 people will provide leadership to the national workforce for initial training, through project commissioning, ramp up and the first years until full operational capacity is achieved.