Final Results

15th Mar 2007 07:05

Kazakhmys PLC15 March 2007 Thursday 15 March 2007 Kazakhmys PLC Audited results for the year ended 31 December 2006 Highlights----------------------------------------------------------------------------------$million (unless otherwise stated) Year ended Year ended 31 December 31 December % 2006 2005 change----------------------------------------------------------------------------------Revenues 5,046.5 2,597.5 94Earnings:Profit before taxation, finance items and 2,071.6 842.5 146negative goodwillProfit before taxation 2,167.8 848.1 156EBITDA excluding special items (1) 2,308.4 1,073.5 115Underlying Profit 1,402.7 549.8 155EPS:Basic and diluted ($) 2.99 1.29 132Based on Underlying Profit (2) ($) 3.00 1.31 129Free Cash Flow (3) 1,327.2 450.2 195ROCE (4) (%) 49.7 31.5 18.2Cash cost of copper after by-product 695 940 (26)credits 5 ($/tonne)---------------------------------------------------------------------------------- (1) Reconciliation of EBITDA excluding special items to profit before taxation, finance items and negative goodwill is found in note 3(a). (2) Reconciliation of EPS based on Underlying Profit is found in note 7(b). (3) Net cash flows from operating activities less sustaining capital expenditure on tangible and intangible assets and investment in mine stripping costs. (4) Profit before interest and taxation over capital employed (borrowings and total equity, including minority interests). (5) Total of operating costs as presented in the income statement less by-product revenues, over the volume of copper cathodes and rods sold. All references to $ refer to US dollars unless otherwise stated. • Solid growth in copper cathode production and buoyant commodity prices increased revenues by over 94% • Total production of copper cathode (excluding tolling concentrate) up 4.7% to 405 kt (2005: 387 kt) • Production of copper cathode from own concentrate up 8.6% to 368 kt (2005:339 kt) • Average realised copper price up over 85% to $7,025 per tonne (2005: $3,794 per tonne) • EBITDA excluding special items up 115% to $2,308.4 million (2005: $1,073.5 million) • EPS based on Underlying Profit up 129% to $3.00 per share (2005: $1.31 per share) • Free Cash Flow up 195% to $1,327.2 million (2005: $450.2 million) • Final dividend of 25.7 US cents per share, giving a total dividend of 38.5 US cents per share, up 7% on a comparable post-Listing basis • Board strengthened with the appointments of a new Chief Executive, a Strategy Director and two new non-executive Directors • Successful ramp-up of Zhomart and Kosmurun mines, and expansion of Karagaily and Nurkazgan concentrators Vladimir Kim, Executive Chairman, commenting on the year's results said: "2006 was the first full financial year for Kazakhmys as a UK listed company,after the primary listing of our shares on the London Stock Exchange in October2005. The past year has seen a solid operational performance and a good set ofresults for the Group. Overall production of copper cathode rose 4.7% whilstproduction of copper cathode from own concentrate rose 8.6% which contributed,along with higher production of by-products and a buoyant pricing environment,to these record financial results. Safety remains a high priority for the Boardand implementation of measures to improve our record in this area is of keyimportance to us. We have strengthened the composition of the Board and remaincommitted to our strategy of delivering shareholder value through organic growthof our business and diversification in natural resources in Kazakhstan and ourregion. Whilst we anticipate that rising labour costs, driven by the burgeoningeconomy in Kazakhstan, will impact our costs, we shall continue to be robust inour cost control. We are confident that 2007 will be another successful year forKazakhmys." For further information please contact: Jinsoo Yang, Head of IR Tel: +44 20 8636 7900Sergei Stephantsov, Deputy Head of IRKazakhmys PLC Andrew Mitchell Tel: +44 20 7251 3801Robin WalkerZoe WattFinsbury Group Results and shareholder value Against a backdrop of exceptionally buoyant commodity prices seen throughout2006, including unprecedented increases in copper and zinc, profitabilityimproved, with pre-tax profits rising by 156% to $2,167.8 million. The increasein our Free Cash Flow to $1,327.2 million was especially encouraging, as this isa key component for the successful execution of our capital expenditure andacquisition strategy. Despite challenging operating conditions during the earlier part of 2006, wedelivered a solid increase in copper cathode production, driven by animprovement in copper production from own concentrate. The performances from ournewly commissioned Artemyevskoe, Kosmurun and Zhomart (formerly Zhaman-Aybat)mines have been particularly pleasing as they continue to ramp-up to their fulloperating capacities. Zinc metal and zinc in concentrate revenues rose on theback of both higher prices and improved production volumes. The reduced proportion of copper production from purchased concentrate ensuredour margins remained strong in the face of challenging cost pressures. Higherinput costs faced across the mining industry, particularly labour costs fornatural resource companies operating in Kazakhstan, show no sign of diminishingand we will vigorously pursue operational efficiencies and maximisation ofby-product credits to address these issues. The proposed final dividend of 25.7 US cents per share results in a 7% increasein the full year dividend to 38.5 US cents per share on a comparable post-Listing basis. This increase reflects the Board's confidence in the outlook forthe business, whilst taking account of our future growth opportunities. Our market capitalisation rose to $10,174 million at the year end, whichcompares to $4,619 million at the time of Listing. The 106% increase in ourshare price since Listing in sterling terms compares to growth of 16% and 45%generated by the FTSE 100 group of companies and FTSE Mining Index,respectively. Strategy for future growth A strategic objective for Kazakhmys is to use the cash flows generated byhistorically high copper prices to acquire other assets in Kazakhstan and theneighbouring regions, so as to diversify our resource base. We continue to review investment opportunities in Kazakhstan, a country thatremains attractive for opportunistic acquisitions within a stable political andeconomic environment. We will only undertake acquisitions if we are confidentthat they create value for our shareholders. At the beginning of March 2007, we announced that agreement had been reached toacquire the East Akzhar petroleum field, an exploration block in westernKazakhstan, which is a first step in delivering on our strategy ofdiversification of the business. Exploration work will be carried out in thecoming year to fully determine the block's potential, and the Board isconsidering a number of options for its future development. As previously announced, the Company has been granted a call option in respectof the 25% shareholding that I presently own in ENRC Kazakhstan Holding B.V., aholding company for certain assets of the Eurasia Natural Resources group.Please refer to the separate report by the Independent Committee of the Board onthis matter. Organic growth of our existing operations is also a strategic goal and, to thisend, our expansionary capital expenditure for the year was $260.1 million.Successful projects during the year included the commissioning of the Zhomartand Kosmurun mines, the construction of an acid plant at the Balkhash complexand expansions of our Karagaily and Nurkazgan concentrators. The economic assessments of our Aktogay and Boschekul projects continue and weexpect to decide which one to fast-track to the feasibility study stage by mid2007. During the latter part of 2006, we secured additional title rightsadjacent to the Boschekul project from the Kazakhstan Government, increasing itsdevelopment potential. Meanwhile, we remain committed to rigorous capitaldiscipline to ensure that only projects which are economically robust throughoutthe commodity cycle are taken forward for execution. Safety and community I am sad to report that last year there were 32 fatalities within ouroperations. This was an improvement on the previous year but is a long way fromour objective of no fatalities. We are working hard at delivering changes withinour working culture and senior operating management have been tasked withembedding best practice safety standards in conjunction with internationalconsultants under the auspices of the Group Health, Safety and EnvironmentCommittee. Continuous management focus is being applied to raise safetystandards within our operations. We remain committed to investing in our workforce and local communities as partof our social responsibilities within Kazakhstan. A new sports complex at atotal cost of $20 million was completed during the year and we also madecharitable donations to the value of $4.4 million, with particular focus onproviding support to the disadvantaged in society. Corporate actions and governance We have made changes to the composition of our Board and it is now in compliancewith the provisions of the Combined Code, with the exception that I was notindependent at the date of my appointment. As announced previously, OlegNovachuk will become Chief Executive with effect from 15 March 2007, taking overthis role from Yong Keu Cha who retired at the end of December 2006. There is a clear division of functions between the new Chief Executive, who isresponsible for the day-to-day management of the Group, and my responsibilityfor the strategic direction of the Group. The Board continues to be of theopinion that it is in the best interests of shareholders for me to serve asExecutive Chairman at the present stage of the Group's development. David Munro joined our executive management team on 1 October 2006, and ismaking a valuable contribution to the development of our strategy. Matthew Hirdwill take over Oleg's current role of Chief Financial Officer. Since 1 January 2006, we have appointed two new independent non-executiveDirectors, Simon Heale and Philip Aiken, both of whom bring significantboardroom and relevant industry experience to the Company. We look forward totheir continuing contributions. We successfully obtained a secondary listing in Kazakhstan at the end of October2006, making a meaningful contribution to the development of Kazakhstan'scapital markets. This listing also provides our Kazakhstan based shareholderswith an effective means through which to participate in our growth. We are also considering the most appropriate means of structuring andimplementing a share for share exchange programme or cash alternative to buy-outthe minority shareholders of the Company's principal operating subsidiary inKazakhstan, Kazakhmys Corporation LLC. At present, 0.92% of the share capital ofKazakhmys Corporation LLC is held by approximately 4,000 individuals inKazakhstan. The intention of the buy-out programme will be to provide thoseindividual shareholders in Kazakhmys Corporation LLC with a more liquidinvestment in the Company or with a cash alternative whilst simultaneouslysimplifying the shareholding structure of the Group. Outlook The global economic outlook for 2007 remains positive, supported by anticipatedeconomic growth coming from Asia, particularly India and China. While itappears unlikely that metals consumption in countries like India and China willcontinue to grow at the exceptional rate experienced in the recent past, in thenext few years we expect demand for metal products to remain at historicallyhigh levels. Although prices in our key commodities recently softened from their all-timehighs, we believe that they will remain above their long-run historic averagesduring 2007, as supply and demand fundamentals suggest continued price strength. Copper cathode production in 2007 is expected to be slightly higher than theoutput achieved in 2006. This increase will be driven by higher levels ofproduction from both own and purchased concentrate. We continue to seek strongproduction of our by-products, with 2007 production expected to be similar to2006 levels. Whilst we anticipate that rising labour costs, driven by theburgeoning economy in Kazakhstan, will impact our costs, we shall continue to berobust in our cost control. We look forward to pursuing new opportunities to grow our business at thisexciting time, leveraging our financial strength and knowledge of Kazakhstan'snatural resources. As always, on behalf of the Board I would like to thank ourmanagement team and all our employees for their significant contribution to arewarding year for Kazakhmys. Their dedication will be invaluable in continuingto deliver value to our shareholders, and we are confident that 2007 will beanother successful year for Kazakhmys. Report by the independent directors This report sets out the background to the call option that has been granted tothe Company in respect of Mr Kim's 25% shareholding in ENRC Kazakhstan HoldingB.V. ("EKH"), and the current position of the independent directors in respectof the exercise of this option. Background to the Company's call option in EKH Early in 2006, the Company was given the opportunity to acquire a 25%shareholding in EKH, the holding company of the Eurasia Natural Resourcesgroup's metals and mining business ("ENRC"), which operates in Kazakhstanproducing, in particular, chrome, iron ore, alumina, coal and power. When this opportunity arose, ENRC was in the process of a significantrestructuring, and the complexity of the group structure meant that adequate duediligence could not have been undertaken in the time available for the Board toreach a decision on such an acquisition. The independent directors of the Boardtherefore concluded that it would not be appropriate for the Company to acquirea stake in EKH at that stage as further work was required to consider whetherthis would be in the interests of all shareholders. To avoid losing the opportunity of acquiring a meaningful stake in EKH, Mr Kimoffered to acquire the interest on his own account but with the proviso thatsuch an interest could be transferable to the Company at a future date. Theindependent directors of the Board gave permission to Mr Kim to acquire thisstake through his own company on the basis that the Company would be given thebenefit of a call option in respect of his shareholding in EKH. The terms of thecall option are set out in note 12(a). As required by the Listing Rules, theexercise of the option will be dependent on the terms of the option beingdetermined by independent advisers to be fair and reasonable so far as theremaining shareholders of the Company are concerned. Current position of the independent directors In the course of the past year, ENRC has undergone a significant restructuringas part of its own efforts to simplify its group structure, as ENRC's managementconsiders options for the strategic direction of the business, including thepossibility of an Initial Public Offering. Following this restructuring, certainminority interests have been eliminated with the result that EKH has a 75.5%direct interest in ENRC, with the remaining shares held by the Government ofKazakhstan. Taking account of the Government's shareholding in ENRC, Mr Kim'sstake in EKH gives him an approximate 18.9% economic interest in the underlyingassets of ENRC. With the consent and cooperation of EKH, production and financial information inrespect of ENRC has been made available to the Company. The Company's advisersare in the advanced stages of performing valuation work on ENRC using thisinformation and the results of an independent technical review. The independent directors have made good progress in considering the informationwhich has been made available to the Company. The independent directors alsohave reviewed the results of valuation work being undertaken on the Company'sbehalf, and requested that this be finalised as soon as practical. When the independent directors judge that it is appropriate and in the bestinterests of all shareholders to exercise the call option, the independentdirectors will make a recommendation to shareholders in accordance with therelated party rules relevant to the Company. A positive recommendation made bythe independent directors would require the approval of the independentshareholders at an extraordinary general meeting. An announcement setting outthe conclusions of the independent directors will be made in due course. Philip Aiken Simon Heale Lord Renwick James RutlandIndependent non-executive directors MARKET OVERVIEW The copper market was exceptionally strong in 2006, with consumptionoutstripping worldwide supply by about 90 kt, thereby reducing inventories.Higher demand from Asia, in particular China, strong demand fromEurope, and large inflows of investment fund capital into base metal drove upmetal prices. The strength of copper prices in 2006 has led to previously uneconomic projectsbecoming viable, leading to expectations of a worldwide increase in supplycapacity. To this end, a number of new sources of copper supply are expected tocome on-stream in 2007. The likelihood of strikes at major producers has alsobeen reduced. Another factor determining the direction of copper prices goingforward will be the behaviour of investment fund capital. Historically, Kazakhmys has been flexible as to where it sells its copper. Theproximity to China and good infrastructure links to Western Europe gives accessto both markets, with demand in both areas expected to be robust in 2007. Themajority of copper sales are made under annual supply contracts at a fixedpremium, with the remainder sold on the spot market. During 2006, Kazakhmys sawattractive commercial terms with customers in Europe which led to the majorityof copper cathode production being sold to that region, with growing volumesdirected to the Mediterranean markets. Kazakhmys' position in China shouldremain strong and we expect to continue selling significant copper cathodevolumes into the Chinese market, focusing on expanding our relationship withend-user customers. China is the world's main growth driver for copper consumption whose refinedproduction for 2006 was estimated to be 3,050 kt and consumption at 3,967 kt,resulting in an import requirement of 917 kt. In 2007, the forecast importrequirement is expected to reduce slightly. The continued lack of clarityconcerning the Chinese government's policy towards re-exports and tax rebates,and a possible move to global oversupply in 2007, has prompted Chinese customersto put downward pressure on supplier premiums under annual contracts. Total refined copper production in Western Europe in 2006 was estimated to be1,894 kt and consumption 3,884 kt, resulting in an import requirement of 1,990kt. In 2007, the import requirement is forecast to remain broadly unchanged. For2007 supply contracts, European end-users have looked to reduce the volumes theybuy under annual supply contracts, instead seeking to purchase cathodes on amonthly basis on the spot market. COMMODITY PRICE TRENDS Copper As a result of a supply deficit and the influx of capital funds, average LMEprices rose by 83% in 2006 to $6,731 with copper prices hitting historic highs.Producers were unable to expand production to meet the rising global demanddriven in particular by China. Concerns over drawn-out supply disruption fromlabour disputes at major suppliers also led to price spikes during the year. Zinc Physical zinc demand outstripped supply during the first three quarters of 2006giving good fundamental support which, coupled with the increased flow ofinvestment fund capital during the year, led to strong price growth. The averageLME price for zinc was $3,273 per tonne, 137% higher than the 2005 averageprice. Physical stocks reached an all time low late in 2006 and, despite anoutflow in investment fund capital halfway through the year due to concern overinterest rates, investor support returned in the final quarter to drive pricesupwards. Gold and Silver Precious metal prices in 2006 reached highs not seen for 20 years due to risingoil prices, the weakness of the US dollar and the inflow of investment fundcapital. A dip in precious metal prices in June was attributed to astrengthening US dollar and profit taking by the investment funds as there wasgood support from the physical market. The second half of the year saw a stableperiod of pricing. Overall, both gold and silver prices were strong in 2006,with average gold prices increasing by 36% and silver by 58%. SENSITIVITY ANALYSIS ON PRICES AND GRADES Fluctuations in ore grade and commodity prices can have a significant impact onKazakh Mining's revenues and earnings. Any changes in prices have a directeffect on the revenues of the Kazakh Mining business, with consequential impactson earnings and the cash cost of copper resulting from changes in by-productcredits. Any changes in ore grades have a direct effect on the production figures of theKazakh Mining business given that the volume of mined ore remains largelyconstant between years. Revenues and earnings are directly impacted byproduction volumes, as is the cash cost of copper, since certain costs are fixedin nature and some are variable. The approximate effects on profit before taxation, finance items and negativegoodwill resulting from a 10% movement in commodity prices are shown below.Prior year commodity prices and ore grades are also provided to demonstrate thefluctuations in these variables. These sensitivities are based on 2006 figuresand assume that all other variables remain constant. They are estimatedcalculations only. Kazakhh Mining Commodity Price Sensitivity----------------------------------------------------------------------- Average realised price Impact of 10% during year ended 31 December movement on profit* 2006 2005 % movement $ million-----------------------------------------------------------------------Copper ($/tonne) 7,025 3,794 85.2 234Zinc ($/tonne) 3,145 1,231 155.5 33Silver ($/oz) 11.4 7.3 56.2 20Gold ($/oz) 610 449 35.9 4----------------------------------------------------------------------- * Profit before taxation, finance items and negative goodwill, calculated byflexing the 2006 average realised prices. Ore Grade Movement----------------------------------------------------------------------- Average ore grade during year ended 31 December----------------------------------------------------------------------- 2006 2005Copper (%) 1.17 1.03Zinc (%) 4.28 3.28Silver (g/t) 20.69 19.81Gold (g/t) 0.77 0.68----------------------------------------------------------------------- PRODUCTION Kazakh Mining Copper Production-----------------------------------------------------------------------------kt (unless otherwise stated) 2006 2005-----------------------------------------------------------------------------Ore extraction 39,240 39,446Average copper grade 1.17% 1.03%Average zinc grade* 4.28% 3.28% Copper in concentrate 433.5 397.6own concentrate 383.2 345.7purchased concentrate 50.3 51.9 Copper cathodes** 407.0 396.6own concentrate 368.4 338.2purchased concentrate 36.8 48.3tolling concentrate 1.8 10.1Copper rod 28.5 8.7-----------------------------------------------------------------------------* Complex ores only.** Includes copper used to produce copper rod. In 2006, copper cathode production, (excluding copper produced through tollingarrangements) grew by 4.7% to 405.2 kt driven by the 8.9% increase in coppercathode output from the Group's own concentrate to 368.4 kt, as a result ofhigher ore grades. Own copper in concentrate production increased by 10.8% to383.2 kt as the Artemyevskoe, Kosmurun, and Zhomart (formerly Zhaman-Aybat)mines ramped-up production during 2005 and 2006. Copper produced from purchasedconcentrate fell by 23.8% to 36.8 kt and copper produced under tollingarrangements was 82.2% lower at 1.8 kt. Copper rod production more than tripledin 2006, increasing from 8.7 kt to 28.5 kt as more cathodes were allocated forrod production and sold into China. The average copper grade rose 0.14 percentage points over the year to reach a2006 average of 1.17%, mainly as a result of higher grade ore and output fromthe recently commissioned mines in the East and Karaganda Regions. The increase in output of polymetalic ores from the Artemyevskoe, Kosmurun andNurkazgan mines had a positive effect on the production volumes of zinc, goldand silver, the Group's major by-products. In 2006, the Group produced 21.6 million ounces of silver, of which 40 thousandounces were produced on a tolling basis, and 165.4 thousand ounces of gold, ofwhich 58.6 thousand ounces were produced on a tolling basis. COPPER REVIEW BY REGION Zhezkazgan Complex---------------------------------------------------------------------------kt (unless otherwise stated) 2006 2005---------------------------------------------------------------------------Ore extraction 27,676 28,046Average copper grade 0.82% 0.87% Copper concentrate 541.1 598.5Copper in concentrate 199.3 214.7 Copper cathodes* 221.8 235.3of which tolling 0.7 0.1Copper rod 28.5 8.7---------------------------------------------------------------------------* Includes copper used to produce copper rod. The Zhezkazgan Complex produced 71% of the Group's ore output in 2006, unchangedfrom 2005 levels. Ore output was slightly below 2005 production levels at all ofthe region's mines as they reached more mature stages in their operations,except for the recently commissioned Zhomart mine (formerly Zhaman-Aybat mine)whose rapid ramp-up in ore output led to the region being only 1.3% below theore output volume achieved in 2005. Production in the region was negatively affected when temperatures remainedbelow minus 40 degrees centigrade for nearly two weeks at the beginning of 2006 and by a collapse at the Annensky and East mines. Mining operations continue at bothmines and plans are being considered to re-access the areas impacted by thecollapse at a reduced rate. The region's average copper grades in 2006 decreased from 0.87% to 0.82%, mainlydue to decreasing ore grades at the majority of the Zhezkazgan mines as theyreach maturity. As with ore output, the fall in grade was partially offset byproduction from the recently commissioned Zhomart mine, which had an average oregrade of 1.16%. The Zhezkazgan Complex produced 221.8 kt of copper cathodes of which 0.7 kt wereproduced under tolling arrangements. 28.5 kt of copper cathodes were processedinto copper rod. Balkhash Complex-------------------------------------------------------------------------kt (unless otherwise stated) 2006 2005-------------------------------------------------------------------------Ore extraction 4,371 5,626Average copper grade 0.81% 0.71% Copper concentrate* 257.1 180.9Copper in concentrate 43.4 32.9 Copper cathodes 185.2 161.3of which tolling 1.1 10.0Copper rod -- ---------------------------------------------------------------------------* Excludes concentrate processed by third parties. Ore production at the Balkhash Complex fell from 5,626 kt in 2005 to 4,371 kt in2006, as planned additional stripping works in the first and fourth quartersimpacted output at the region's largest mine, Kounrad. The region's ore grade increased from 0.71% to 0.81% due to the fall in outputfrom the low yielding Kounrad mine, whose ore has a grade of only 0.35%. Thiswas partially offset by Shatyrkul and Sayak copper ore grades decreasing by 0.21and 0.08 percentage points, respectively, due to geological conditions. The Balkhash Complex produced 185.2 kt of copper cathodes, including tollingarrangements, 23.9 kt higher than 2005, as increased concentrate output from theEast and Karaganda Regions were processed at Balkhash. East Region---------------------------------------------------------------------------kt (unless otherwise stated) 2006 2005---------------------------------------------------------------------------Ore extraction 4,441 5,082Average copper grade 2.83% 2.33% Copper concentrate* 534.5 476.8copper in concentrate 98.7 87.4 Copper cathodes -- --Copper rod -- -----------------------------------------------------------------------------* Excludes concentrate processed by third parties. Overall, the East Region's metal in ore production rose from 118.5 kt to 125.7kt, despite ore production falling 12.6% to 4,441 kt as higher grade ore wasmined. A major slope failure at the Nikolaevskoe open pit mine in the first quarter ledto a 1,441 kt fall in annual ore output and production being switchedunderground from July onwards. The Artemyevskoe mine, which commenced productionin August 2005, contributed 1,282 kt of ore, up from 379 kt in 2005. The Orlovskoe mine remained the largest copper producing mine in the Group(15.7% of total metal in ore extracted in 2006 and 17.6% in 2005). The Orlovskoemine copper ore grade rose from 4.31% in 2005 to 4.69% in 2006, contributing tothe lifting of the average copper grade in the East region from 2.33% to 2.83%.The region's copper ore grade was also positively impacted by a significantincrease in ore grade at the Yubileyno-Snegirikhinskoe mine from 3.67% to 4.20%. Karaganda Region--------------------------------------------------------------------------kt (unless otherwise stated) 2006 2005--------------------------------------------------------------------------Ore extraction 2,752 692Average copper grade 2.59% 0.83% Copper concentrate 230.8 115.5Copper in concentrate 33.7 3.3 Copper cathodes -- --Copper rod -- ---------------------------------------------------------------------------- Ore extraction volumes in the Karaganda Region grew 297.8% in 2006 from 692 ktto 2,752 kt, primarily due to increased production volumes at the Nurkazgan mineand the opening in March 2006 of the Kosmurun mine. This was achieved despiteoutput at the Abyz mine being suspended from October 2006 for up to two yearswhilst major stripping works are undertaken and at a time when the nearbyKaragaily concentrator is upgraded to improve its gold recovery rate. The region's average copper grade was substantially higher, increasing from0.83% in 2005 to 2.59% in 2006. With average copper grades of 5.53% and 1.17%,the Kosmurun and Nurkazgan mines made up 95% of the region's copper output. REVIEW OF ZINC PRODUCTION Kazakh Mining Zinc Production----------------------------------------------------------------------------kt (unless otherwise stated) 2006 2005----------------------------------------------------------------------------Zinc grade 4.28% 3.28% Zinc in concentrate 129.1 95.1Zinc metal 59.5 50.9---------------------------------------------------------------------------- The average zinc grade in 2006 was substantially higher than in 2005, increasingfrom 3.28% to 4.28% as the Artemyevskoe mine, with a zinc ore grade of 6.91%,increased ore output by 903 kt. Zinc in concentrate production was 129.1 kt, 35.8% above the 95.1 kt ofconcentrate produced in 2005 due to a combination of higher ore output and anincreased zinc grade. Zinc metal production at the Balkhash zinc plant was 59.5 kt, 16.9% higher thanin 2005. On-going technical problems with the coolers have resulted in theannual output capacity being capped at the 2006 production levels. REVIEW OF PRECIOUS METALS PRODUCTION Kazakh Mining Precious Metals Production----------------------------------------------------------------------------------koz (unless otherwise stated) 2006 2005----------------------------------------------------------------------------------Silver grade 20.69g/t 19.81g/tGold grade 0.77g/t 0.68g/t Silver 21,570 20,606own production 21,530 20,517tolling 40 89 Gold 165.5 145.3own production 106.9 100.5tolling 58.6 44.8---------------------------------------------------------------------------------- The Group's precious metals refinery, located in the Balkhash Region, recoversgold and silver from the slimes produced from the electro refining of copper andcarries out toll manufacturing for third parties. The recently commissionedmines in the East and Karaganda regions are particularly rich in gold andsilver, which led to higher production of precious metals in 2006. Own gold production rose 6.4% in 2006, due mainly to increased production at theArtemyevskoe mine, whose ore had a gold content of 1.66 g/t, and opening theKosmurun mine with a gold content of 1.87g/t. The higher ore output from thesetwo mines more than offset the impact of the closure of the Abyz mine fromOctober 2006 for stripping works whilst the Karagaily concentrator is upgraded. Own silver production rose by 4.9%, largely due to the rich polymetallic orefrom the Artemyevskoe mine, which has a silver grade of 143.23 g/t. This offsetlower silver output from the Zhezkazgan mines, where the silver grade fell from17.73 g/t to 15.47 g/t. COAL AND POWER DIVISION The Group's principal power plant is located in the Karaganda Region and runs oncoal produced by the Borly mines. It supplies electricity to the Zhezkazgan andBalkhash Complexes through the national grid on a credit system, enabling theGroup to use its own power effectively whilst paying only for the cost oftransmission. The coal-fired power and heating plants at the Zhezkazgan andBalkhash Complexes supplement the electricity provided by the main Karagandaplant, and also produce hot water for local heating. In 2006, the Group produced6,589 GWh of electricity and 4,153 KGcal of heating power, levels comparable tothose in 2005. MKM PRODUCTION MKM is the Group's German manufacturing subsidiary engaged in the production andsale of copper and copper alloy semi-finished products primarily into theEuropean Union. MKM is organised into three business units: wire products, tubesand bars, and flat products (strips, plates and sheets). MKM's total production for 2006 was 273.7 kt, a 24.7% increase compared to 2005levels. As MKM had sufficient working capital available, it was able to respondto higher demand in the market, with the main growth being in the wire productsbusiness unit where output of wire rod rose by 44.5% from 88.9 kt to 128.5 ktand drawn wire where volumes increased by 24.5% from 31.4 kt to 39.1 kt. Total tubes and bars production in 2006 increased by 7.7%. Of this, tubeproduction increased by 8.9% and bar production by 6.5% compared to 2005. Theflat products business unit produced 62.6 kt of products, of which 2.4 kt werepre-rolled strips, 14.8 kt were sheets and 45.4 kt were strips. FUTURE DEVELOPMENTS AND CAPITAL EXPENDITURE In March 2006, the Group commissioned a new open pit mine at Kosmurun and a newunderground mine at Zhomart. Both were opened ahead of the original mining plan. At present, the Group operates nine concentrating plants, with a tenth, theNurkazgan concentrator (Karaganda Region), due to be completed in April 2007.This new concentrator will process all the ore produced by the existing West Pitat the Nurkazgan mine and also from the new North Pit at the mine which beginsoutput in 2007. At present, Nurkazgan mine ore is sent by rail to the Balkhashconcentrator. As the Group has insufficient concentrator capacity to process all the ore fromthe Artemyevskoe mine, with approximately 841 kt of ore from the mine beingprocessed by a third party, the Nikolaevskoe concentrator is being upgraded. Dueto be completed in the third quarter of 2007, the upgraded concentrator willhave sufficient capacity, in combination with the Group's other concentrators,to ensure all ore produced by the Group can be processed internally. New concentrators at Kosmurun and Shatyrkul are planned, with construction dueto begin in 2007. Once complete, these are expected to significantly reduce thecosts of transporting ore from mines to concentrators. Various options are being considered to upgrade the Karagaily concentrator toimprove the recovery rate of gold from the nearby Abyz mine ore. Stripping worksat the Abyz mine will take place in 2007 and 2008 whilst the concentratorupgrade is being carried out. To recover SO2 emissions, the construction of a sulphuric acid plant at Balkhashis expected to be completed in 2007. Also in 2007, a fourth oxygen workshop isplanned at the Balkhash smelter to boost smelting efficiency. The North Nurkazgan open pit mine will commence production in the third quarterof 2007, with an annual output of up to 1,000 ktpa containing 3.8 ktpa ofcopper. There are medium-term mine expansions planned around the Group includingEast Saryoba and Taskura (both at the North Mine in the Zhezkazgan Region) andAkbastau in the East Region. New site projects include Aktogay, one of the Group's primary projects, andBoschekul, where economic assessments and site studies continue. Financial Review Summary of the year Revenues for the year amounted to $5,046.5 million, a 94.3% increase over 2005.Profit before taxation, finance items and negative goodwill rose by 145.9% to$2,071.6 million and our key performance measure for earnings, EBITDA excludingspecial items, was $2,308.4 million, a 115.0% increase compared to 2005. Theimproved earnings were attributable to the increases in commodity prices shownacross all of the Group's main products. These results translated into an increased profit attributable to equityshareholders of $1,399.7 million, compared to $538.8 million in the prior year,an increase of 159.8%. Underlying Profit, a more informed measure of the Group'sfinancial performance, increased by 155.1% from $549.8 million to $1,402.7million. Basic and diluted EPS increased by 131.8% to $2.99 per share. EPS based onUnderlying Profit, was $3.00 per share compared to $1.31 per share reported in2005, an improvement of 129.0%. REVENUES Kazakh Mining Revenues for Kazakh Mining increased from $1,740.9 million to $3,330.4 million,a 91.3% improvement against the prior year. The major contribution to revenueswithin the Kazakh Mining business remained copper cathodes, although there werestrong performances from other commodities, particularly zinc and silver. Revenues from the sale of copper cathodes were $2,389.0 million, or 71.7% of thetotal revenues of the Kazakh Mining business. Although production volumes,excluding tolling, were 4.7% higher than the previous year, sales volumes ofcopper cathodes were down by 6.1% predominantly due to increased sales volumesof copper rod, which increased more than three-fold, as well as some shipmentsto Europe scheduled to take place in December 2006, which took place in thefollowing month as the shipments took longer over the New Year holiday period.The increase in revenue of 91.3% between years was primarily driven by animprovement in the average realised copper price to $7,025 per tonne compared to$3,794 per tonne for 2005, an increase of 85.2%. As the Balkhash zinc smelter continued to ramp-up, zinc metal productionincreased by 17.6%, with zinc metal sales volumes increasing by 23.1% during theyear, which contributed to a 213.1% increase in zinc metal revenues. However,the main factor behind the increase in zinc metal revenues was the increase inzinc prices with average realised zinc prices increasing by 155.5% from $1,231to $3,145 per tonne during the year. Sales volumes of zinc metal remaineddisappointing though due to the continuing issues associated with the coolingsystems of the zinc smelter. Zinc in concentrate sales volumes increased by 294.1% and revenues increasedfrom $15.0 million to $128.0 million partially as a result of higher zinc pricesenjoyed during 2006, but mainly due to increased sales volumes arising from theramp-up of production from the Artemyevskoe mine following the commencement ofproduction in August 2005. Silver sales volumes were similar to production volumes. Revenues increased by62.3% compared to the prior year predominantly due to a rise in realised silverprices of 56.2% compared to 2005. Gold sales volumes from own ore were 21.5% less than production volumes due tothe internal use of gold within our jewellery factory. There was a 35.8%improvement in gold revenues from own production primarily due to higherrealised gold prices of 35.9% compared to the prior year. Copper rod revenues were up from $26.5 million to $196.1 million following anear three-fold increase in sales volumes. The increase in copper rod sales,where sales volumes more than tripled from 8 kt in 2005 to 28 kt in 2006, wasdue to stronger market demand arising out of China. Other revenues of $118.3 million compared to $66.4 million in the prior year,and related to the sale of surplus electricity, heating and coal, as well as thesales of other minor by-products, such as lead and rhenium. This increase of78.2% was largely as a result of higher utility tariffs being obtained on thesale of surplus electricity, heating and coal as well as a greater volume ofminor by-products arising from the production process. MKM For the year ended 31 December 2006, MKM generated revenues of $1,716.1 million,an increase of 100.3% from the prior year's revenue figure of $856.6 million.The two key factors behind this growth were increased sales volumes, up by 25.2%compared to the prior year, and the increase in copper prices during the year. The main component within MKM's revenues is the input value of copper,accounting for 98.0% of sales price. Contractual arrangements with customersensure the input price of copper cathodes is passed on in full. With theincrease in the purchased component of copper increasing by 80.1% in value termscompared to the prior year, this contributed to approximately $630 million ofthe total growth in MKM revenues. There were strong performances in the sales of wire rods, up 141.6%, drawn wire,up by 113.6%, and strips, up by 77.4%, compared to the prior year due toimproved market conditions, a regained reputation in the market and an improvedsales strategy which resulted in increased customer demand. Sales of wire rodsparticularly benefited from the closure of production facilities of a number ofcompetitors as well as increased duties being charged on imported Russian wirerods. As wire rods, drawn wire and strips account for 47.3%, 14.1% and 16.8%respectively of total sales by volume, these were the main contributors to theoverall growth in sales volumes. Earnings Profit before taxation, finance items and negative goodwill increased from$842.5 million to $2,071.6 million, an increase of 145.9%, split between$2,082.1 million for the Kazakh Mining business, $21.6 million for MKM and aloss of $32.1 million for unallocated corporate costs. Depreciation, depletionand amortisation amounted to $225.8 million in 2006, a small increase of 2.8%compared to $219.6 million in 2005, as a result of increased capital expenditurelevels in recent years. Consistent with other international mining companies, EBITDA excluding specialitems has been chosen as the key measure in assessing the underlying tradingperformance of the Group between the current and prior years. This performancemeasure removes depreciation, depletion, amortisation and items that arenon-recurring or variable in nature which do not impact the underlying tradingperformance of the business. During 2006, these non-recurring or variable items related to the loss ondisposal of tangible assets of $9.6 million and the write-off of tangible assetsof $1.4 million, which compared to $4.6 million and $6.8 million, respectively,for these categories in 2005. Overall, the margin at the level of EBITDAexcluding special items increased from 41.3% to 45.7%, primarily as a result ofincreased commodity prices. For 2006, MKM reported a margin based on EBITDAexcluding special items of 2.6% compared to a margin of 68.9% for the KazakhMining business. Kazakh Mining The margin at the level of EBITDA excluding special items increased from 60.5%in 2005 to 68.9% in 2006. The main factors contributing to the higher marginwere average realised copper prices increasing by 85.2% from 2005 to 2006, anincrease in the mined ore grade from 1.03% to 1.17% and a decrease in theproportion of copper cathodes produced from purchased concentrate, from 12.4% in2005 to 9.1% in 2006. Offsetting the positive factors on earnings described above, significant costpressures were faced in Kazakhstan which pushed up cost of sales by 34.2% from$714.4 million to $958.6 million. Purchases of copper concentrate increased inmonetary terms from $166.2 million in 2005 to $305.1 million in 2006, anincrease of 83.6%, which represented 31.6% of the cost of sales of KazakhMining. This was primarily due to the impact of rising copper prices whichincreased the cost of purchased copper concentrate, but was offset to someextent by reduced volumes of copper concentrate being purchased. Wages and salaries increased by 49.0% from $130.9 million to $195.0 million andwere driven by difficult competition in the labour market for natural resourcecompanies operating in Central Asia and general improvements in the standard ofliving in Kazakhstan. The other significant factors which increased operating costs were the openingof new mines (Zhomart and Kosmurun) during the year, together with the ramp-upof the Nurkazgan and Artemyevskoe mines, which resulted in higher costs forspare parts, consumables, repairs and maintenance expenditure. There have alsobeen widespread increases for these items of expenditure seen across the miningsector. The captive power stations in the Kazakh Mining business produce sufficientelectricity and heat for the business' own requirements. However, rising dieselprices adversely impacted running costs for plant and equipment operating in themines, which contributed to a 12.7% rise in fuel costs from $53.5 million to$60.3 million. Transportation costs increased from $36.8 million to $51.3 million, a 39.4%increase primarily due to production at the Kosmurun mine whose ore is sent tothe Karagaily concentrator for processing, a distance of some 220km. It isplanned that a new Kosmurun concentrator will be constructed in due course thatwill mitigate these transport costs. The increased production of the Artemyevskoe mine led to higher processing costsas the processing of zinc concentrate from this mine is outsourced, a situationthat will continue until the concentrator is upgraded, which is due in the thirdquarter of 2007. Selling and distribution costs increased by 88.3% to $51.6 million, reflecting agreater proportion of sales to Europe and the resulting higher transportationcosts. Administration costs rose by 60.5% to $223.7 million. This increase was mainlydue to increases in administrative wages and salaries resulting primarily frommarket pressures in Kazakhstan, a rise in levies and charges due to increases inproperty taxes, and an increase in social responsibility costs representing theincrease in contributions relating to the development of sport, social objectsand regional State social events within Kazakhstan. In addition, the Kazakhstan tenge appreciated against the US dollar by 5.1%,with the average exchange rate strengthening from 132.88 KZT/$ in 2005 to 126.09KZT/$ in 2006. As certain costs are denominated in US dollars, the strengtheningof the Kazakhstan tenge resulted in higher operating costs for the Kazakh Miningbusiness. Depreciation and depletion charges increased slightly from $196.5 million to$200.8 million. This was due to higher levels of capital expenditure on fixedassets during 2006 compared to 2005. Cash cost of copper after by-product credits is a key measure in assessing theability of the Kazakh Mining business to control its production costs andmaximise credits from by-product production. The cash cost of copper afterby-product credits amounted to $695 per tonne compared to $940 per tonne in 2005(restated due to the change in segmental reporting treatment of corporateunallocated costs). The significant increases in by-product revenues and thecost of purchased concentrate offset the underlying rising costs of productionof copper cathode from own mined ore as explained above. The table shown belowprovides a reconciliation of the cash cost of copper after by-product creditsfrom 2005 to 2006, which illustrates the relative importance of the abovefactors. Reconciliation of cash cost of copper (after by-product credits)$-------------------------------------------------------------------------------------Average cash cost for year ended 31 December 2005 (per tonne) 940Increase in purchased concentrate 278Increase in other cost of sales 393Increase in selling and distribution expenses 66Increase in administrative expenses 161Decrease in other operating expenses (30)Increase in by-product credits (1,113)-------------------------------------------------------------------------------------Average cash cost for year ended 31 December 2006 (per tonne) 695------------------------------------------------------------------------------------- MKM Although the EBITDA excluding special items margin fell from 4.6% to 2.6%, thiswas primarily as a result of higher revenues. MKM's cost of sales includes thepurchase price of copper cathode, and has therefore risen at approximately thesame rate as the increase in revenues. EBITDA excluding special items increased from $39.1 million in 2005 to $43.9million in 2006, although this measure is significantly impacted by movements instock valuation resulting from copper price fluctuations. Within earnings, acontribution of approximately $24 million (2005: $25 million) arose from anincreased stock valuation as a result of rising copper prices. This favourableimpact on earnings did not translate into operating cash flows. If copper pricesdecline in future, this will conversely have a negative impact on earnings. A more informed trading performance measure of MKM is the 'Gross Value Add'(GVA) margin as MKM is primarily a fabricating downstream business. This measureis commonly used in this industry to measure the 'value add' of the productionprocess to purchased raw materials. The GVA margin rose from $139.2 million to$169.8 million due to a combination of more higher margin products being sold,improved market conditions and greater conversion charges. Depreciation and amortisation remained in line with 2005 levels at $22.2 million. A reconciliation of profit before taxation, finance items and taxation to EBITDAexcluding special items by business segment is set out below. $ million (unless otherwise stated) 2006 2005-------------------------------------------------------------------------------------Kazakh MiningProfit before taxation, finance items and negative 2,082.1 840.3goodwillAdd: loss from special items 10.3 15.4Add: depreciation, depletion and amortisation 203.2 198.0-------------------------------------------------------------------------------------EBITDA excluding special items 2,295.6 1,053.7-------------------------------------------------------------------------------------Revenues 3,330.4 1,740.9-------------------------------------------------------------------------------------EBITDA excluding special items margin 68.9% 60.5%-------------------------------------------------------------------------------------MKMProfit before taxation, finance items and negative 21.6 21.7goodwillAdd/(less):loss/(gain) from special items 0.1 (4.0)Add: depreciation and amortisation 22.2 21.4-------------------------------------------------------------------------------------EBITDA excluding special items 43.9 39.1-------------------------------------------------------------------------------------Revenues 1,716.1 856.6-------------------------------------------------------------------------------------EBITDA excluding special items margin 2.6% 4.6%-------------------------------------------------------------------------------------Unallocated corporate costs excluding special items (31.1) (19.3)-------------------------------------------------------------------------------------Total Revenues 5,046.5 2,597.5Total EBITDA excluding special items 2,308.4 1,073.5-------------------------------------------------------------------------------------Total EBITDA excluding special items margin 45.7% 41.3%------------------------------------------------------------------------------------- Net finance items Net financing income was $89.7 million during 2006, compared to net financingincome of $5.6 million that arose in the prior year. A foreign exchange gain of $26.4 million was included within net financingincome, compared to a loss of $11.0 million that was recognised during 2005. Theforeign exchange gain mostly arose within Kazakhmys LLC as a result of theappreciation of the Kazakhstan tenge against the US dollar which moved from133.77 KZT/$ as at 31 December 2005 to 127.00 KZT/$ at 31 December 2006, a 5.1%movement. Despite this overall appreciation of the tenge over the year, therewere significant fluctuations which gave rise to the exchange gain; the tengeappreciated by 11.3% in the first half of the year to 118.69 KZT/$ at 30 June2006, but then fell back by 7.0% to 127.00 KZT/$ by year end. This relativedepreciation of the tenge in the second half of the year occurred at a time whendollar cash balances and deposits in Kazakhstan were significantly higher thanin the first half, and the net $26.4 million foreign exchange gain arose as aresult. Net financing income, other than foreign exchange gains, includes a finance costof $8.0 million which predominantly related to interest payable on the MKM bankloan. Unwinding of long-term provisions and employee benefits also gave rise toan interest charge of $7.2 million (2005: $5.1 million). Finance income primarily relates to interest earned from fixed term US dollarand Kazakhstan tenge denominated deposits placed with banks in the UK andKazakhstan. Interest income of $78.5 million was considerably higher than the2005 figure of $30.6 million reflecting the increased cash generation of theGroup during the year primarily due to the increased commodity prices, and theeffect of having Listing proceeds invested for a full year. Taxation The effective tax rate for the year was 34.8% compared to a rate of 35.1% in theprior year. The rate was split between a current tax rate of 31.7% and adeferred tax rate of 3.1%. Income tax in absolute terms increased by $457.4million, or approximately 154%, due to higher earnings within the Kazakh Miningbusiness compared to 2005. Although the effective tax rate only decreased by 0.3%, there were significantmovements within the tax charge. A tax benefit of $46.5 million arose from a taxholiday associated with the Balkhash zinc plant, compared with $8.3 million in2005, following improved zinc revenues, which reduced the effective tax rate by2.1%. Management at Kazakhmys LLC re-considered the excess profits taxmethodology following developments in the interpretation of tax legislationprevailing within Kazakhstan and the results of the recent tax audit in thatentity, which resulted in a release of $49.4 million from the excess profits taxliability relating to prior years. This release reduced the effective tax rateby 2.3%, and nets off against the current year excess profits tax charge of$77.3 million, which increased the effective tax rate by 3.6%. Withholding tax of $91.8 million has been recognised in relation to unremittedearnings of Kazakhmys LLC existing as at 31 December 2006 which are expected tobe remitted to the U.K. in due course through dividend distribution. Thewithholding tax on these unremitted earnings increased the effective tax rate by4.2%. The effective tax rate for MKM in Germany remained the same during 2006 at35.98%. The effective tax rate is expected to remain at levels in excess of thestatutory Kazakhstan tax rate of 30% due to excess profits taxes arising onprofitable subsoil contracts at the current time of high commodity prices, andthe additional withholding tax payable on dividend distributions from Kazakhstanto the UK. Profit for the year and Underlying Profit Profit for the year attributable to equity shareholders increased from $538.8million to $1,399.7 million, an increase of 159.8%. Underlying Profit is seen asa more informed measure of the performance of the business as it removes anysignificant non-recurring or variable non-trading items from attributable profitfor the year, and their resulting tax and minority interest impacts. It providesa more consistent basis for comparing the underlying trading performance of theGroup between 2006 and 2005. The increase of 155.1% in Underlying Profits principally reflects the favourableimpact of rising copper prices on earnings. The reconciliation of Underlying Profit from profit attributable to equityshareholders is set out below. Reconciliation to Underlying Profit --------------------------------------------------------------------------------------$ million (unless otherwise stated) 2006 2005 % change--------------------------------------------------------------------------------------Profit attributable to equity shareholders 1,399.7 538.8 159.8of the CompanySpecial items:Recognition of negative goodwill (6.5) -Write-off of tangible assets 1.4 6.8Loss on disposal of tangible assets 9.6 4.6Tax effect of special items (1.5) (0.5)Minority interest effect of special items - 0.1--------------------------------------------------------------------------------------Underlying Profit 1,402.7 549.8 155.1-------------------------------------------------------------------------------------- Earnings per share The income and share data used in the Basic and diluted EPS and EPS based onUnderlying Profit computations is shown below. Basic EPS based on attributable profit for the year increased from $1.29 pershare to $2.99 per share, an increase of 131.8%. There are no differencesbetween basic and diluted EPS. EPS based on Underlying Profit increased from $1.31 per share to $3.00 pershare, a 129.0% improvement, reflecting the impact of higher commodity prices onprofitability. At the time of Listing, 58.4 million shares were issued, and aside from a fewminor share issues in 2005 resulting from share exchange agreements withshareholders of Kazakhmys LLC, this resulted in the weighted average number ofshares in issue increasing from 418.1 million to 467.5 million. If EPS based onUnderlying Profit was calculated for 2005 using the weighted average number ofshares in issue for 2006, then this measure would show an improvement from $1.18per share to $3.00 per share, a rise of 154%. This increase compares to a riseof 129% using the actual weighted number of shares in issue for each year asshown below. Earnings per share data-------------------------------------------------------------------------------------- 2006 2005 % change--------------------------------------------------------------------------------------Weighted average number of shares in issue 467,474,200 418,105,627 11.8--------------------------------------------------------------------------------------Profit attributable to equity shareholders of 1,399.7 538.8 159.8the Company ($ million)Underlying Profit ($ million) 1,402.7 549.8 155.1--------------------------------------------------------------------------------------EPS - basic and diluted ($) 2.99 1.29 131.8--------------------------------------------------------------------------------------EPS based on Underlying Profit ($) 3.00 1.31 129.0-------------------------------------------------------------------------------------- Cash flows During the year, the net liquid funds position of the Group strengthened from$829.5 million to $1,745.3 million, an increase of $915.8 million. This movementwas mainly attributable to the conversion of higher earnings into operating cashflows. A bank loan was taken out by MKM during the year, and the balanceoutstanding as at 31 December 2006 on this loan was $277.3 million. Other key cash flows during the year were income tax payments of $623.3 million,capital expenditure of $345.1 million, net proceeds from borrowings of $208.0million and payment of dividends of $233.4 million. Free Cash Flow, a key performance indicator demonstrating the Group's ability totranslate earnings into cash flow available for dividends, investment andfinancing purposes, was $1,327.2 million, compared to $450.2 million in 2005.The Free Cash Flow in 2006 was stated after deducting sustaining capitalexpenditure of $85.0 million (including expenditure on investment in intangibleassets and mine stripping costs), out of the total capital expenditure of $345.1million compared with $175.4 million and $365.4 million for 2005 respectively. The Group's ability to generate continued positive Free Cash Flows ensures fundsare available for expanding the Group's existing operations and capacities, aswell as providing flexibility to respond to any acquisition opportunities. Capital expenditure on mine stripping costs, mining licences and property, plantand equipment amounted to $345.1 million, compared to $365.4 million in theprior year. Major items of capital expenditure were the development of theZhomart (formerly Zhaman-Aybat) and Kosmurun mines, the costs of the site studyand economic assessments on the Aktogay project, the construction of thesulphuric acid plant at the Balkhash Complex, the new Karagaily and Nurkazganconcentrators as well as the sports complex at Satpaev. Sustaining capitalexpenditure and investment in mine stripping costs were $78.3 million and $6.7million, respectively. This was lower than the 2005 figure of $175.4 million forsustaining capital expenditure due to the significant expenditure incurred inZhezkazgan and Balkhash Complexes on various renewal programmes during 2005which were not repeated in 2006. Proceeds from the disposal of property, plantand equipment were $3.4 million as redundant assets are normally sold for scrapor negligible value. Balance sheet Shareholders' funds as at 31 December 2006 stood at $3,859.9 million, anincrease of $1,260.1 million compared to the balance as at 31 December 2005. Theincrease was primarily due to retained earnings for the year of $1,399.7million, currency translation differences of $80.7 million and dividends payableof $228.1 million. CAPITAL EMPLOYED A summary of capital employed is shown below: Capital employed/ROCE $ million (unless otherwise stated) 2006 2005-------------------------------------------------------------------------------------Equity shareholders' funds 3,859.9 2,599.8Minority interests 31.9 26.3Borrowings 277.3 49.0-------------------------------------------------------------------------------------Capital employed 4,169.1 2,675.1-------------------------------------------------------------------------------------Profit before taxation, finance and negative goodwill 2,071.6 842.5-------------------------------------------------------------------------------------ROCE (%) 49.7% 31.5%------------------------------------------------------------------------------------- Capital employed increased during the year to $4,169.1 million as at 31 December2006, from $2,675.1 million at the prior year end, due to the increasedprofitability of the Group during the year offset by higher working capitalrequirements, largely within the MKM business. ROCE has also shown animprovement from 31.5% to 49.7% reflecting the higher profitability of theGroup. The minority interests balance increased from $26.3 million to $31.9 million. Dividends The Board has proposed a final dividend for the year ended 31 December 2006 of25.7 US cents per share which if approved will be paid to shareholders on 14 May2007 to shareholders on the register at the close of business on 13 April 2007.Together with the interim dividend of 12.8 US cents per share paid toshareholders on 27 October 2006, this brings the total dividend for the year to38.5 US cents. For those shareholders who have elected to receive theirdividends in sterling, the currency conversion rate of 1.9304 to the US dollarwas based on the average foreign currency exchange rate for the five businessdays ending two days before the date of this preliminary results announcement. Dividend cover for the final dividend is over 11 times, and provides a solidplatform to ensure a stable dividend flow in future years, subject to theperformance of the business and the underlying growth in earnings of the Group. The Company intends to maintain a dividend policy which will take into accountthe profitability of the business and underlying growth in earnings of theGroup, as well as its cash flows and growth requirements. The Directors willalso ensure that dividend cover is prudently maintained. Interim and finaldividends will be paid in the approximate proportions of one-third andtwo-thirds of the total annual dividend, respectively. Annual General Meeting The 2007 Annual General Meeting will be held at 12.15pm on Wednesday 9 May 2007at Claridge's (the Ballroom entrance), Brook Street, Mayfair, London W1K 4HR. The Annual Report and Accounts and details of the business to be conducted atthe Annual General Meeting will be mailed to shareholders in early April 2007. Availability of this announcement This announcement will shortly be available on the Kazakhmys website (www.kazakhmys.com) Consolidated income statementYear ended 31 December 2006 $ million Notes 2006 2005----------------------------------------------------------------------------------------Revenues 3 5,046.5 2,597.5Cost of sales (2,612.4) (1,506.6)----------------------------------------------------------------------------------------Gross profit 2,434.1 1,090.9Selling and distribution expenses (81.4) (55.5)Administrative expenses (280.8) (185.3)Other operating income 44.7 39.0Other operating expenses (35.1) (34.8)Write-offs and impairment losses 4 (9.9) (11.8)----------------------------------------------------------------------------------------Profit before taxation, finance items and negative 2,071.6 842.5goodwillFinance income 5 266.8 87.4Finance costs 5 (177.1) (81.8)Recognition of negative goodwill 6.5 -----------------------------------------------------------------------------------------Profit before taxation 2,167.8 848.1Income tax expense 6 (754.7) (297.3)----------------------------------------------------------------------------------------Profit for the year 1,413.1 550.8----------------------------------------------------------------------------------------Attributable to:Equity shareholders of the Company 1,399.7 538.8Minority interests 13.4 12.0---------------------------------------------------------------------------------------- 1,413.1 550.8----------------------------------------------------------------------------------------Earnings per share attributable to equity shareholders ofthe CompanyBasic and diluted 7 $2.99 $1.29EPS based on Underlying Profit 7 $3.00 $1.31---------------------------------------------------------------------------------------- Consolidated balance sheetAt 31 December 2006 $ million Notes 2006 2005----------------------------------------------------------------------------------------AssetsNon-current assetsIntangible assets 28.9 21.6Tangible assets 1,958.3 1,743.1+---------------------------------------------------------------------------------------+|Property, plant and equipment 1,912.6 1,701.3||Mine stripping costs 45.7 41.8|+---------------------------------------------------------------------------------------+Investments 6.2 5.8---------------------------------------------------------------------------------------- 1,993.4 1,770.5----------------------------------------------------------------------------------------Current assetsInventories 730.6 377.7Prepayments and other current assets 109.6 41.5Trade and other receivables 263.5 210.8Investments 1,237.2 356.5Restricted cash 0.8 1.0Cash and cash equivalents 785.4 522.0---------------------------------------------------------------------------------------- 3,127.1 1,509.5----------------------------------------------------------------------------------------TOTAL ASSETS 5,120.5 3,280.0----------------------------------------------------------------------------------------Equity and liabilitiesShare capital 9(a) 173.3 173.3Share premium 503.4 503.4Foreign currency translation reserve 9(d) 228.6 147.9Reserve fund 9(d) 37.6 9.4Retained earnings 2,917.0 1,765.8----------------------------------------------------------------------------------------Equity attributable to shareholders of the Company 3,859.9 2,599.8Minority interests 31.9 26.3----------------------------------------------------------------------------------------Total equity 3,891.8 2,626.1----------------------------------------------------------------------------------------Non-current liabilitiesDeferred tax liability 347.7 260.9Employee benefits 32.7 28.7Provisions 57.4 44.5Borrowings 277.3 ----------------------------------------------------------------------------------------- 715.1 334.1----------------------------------------------------------------------------------------Current liabilitiesProvisions 1.9 1.4Borrowings - 49.0Trade and other payables 330.4 158.7Dividend payable 4.4 3.1Income tax payable 176.9 107.6---------------------------------------------------------------------------------------- 513.6 319.8----------------------------------------------------------------------------------------Total liabilities 1,228.7 653.9----------------------------------------------------------------------------------------TOTAL EQUITY AND LIABILITIES 5,120.5 3,280.0---------------------------------------------------------------------------------------- Consolidated cash flow statementYear ended 31 December 2006 $ million Notes 2006 2005----------------------------------------------------------------------------------------Cash flows from operating activitiesCash receipts from customers 5,076.6 2,529.4Cash paid to employees and suppliers (3,034.3) (1,561.5)----------------------------------------------------------------------------------------Cash inflow before interest and income taxes paid 2,042.3 967.9Interest paid (6.8) (9.0)Income tax paid (623.3) (333.3)----------------------------------------------------------------------------------------Net cash inflow from operating activities 10 1,412.2 625.6---------------------------------------------------------------------------------------- Cash flows from investing activities Interest received 77.2 17.4 Proceeds from disposal of property, plant and equipment 3.4 7.2 Purchase of property, plant and equipment (338.0) (333.7) Mine stripping costs (6.7) (26.5) Purchase of intangible assets (0.4) (5.2) Licence payments for subsoil contracts (1.6) (0.9) Proceeds from disposal of non-current investments 2.6 0.2 Acquisition of non-current investments (0.7) (3.0) Proceeds from disposal of assets held for trading 1.0 0.5 Acquisition of assets held for trading (50.8) (1.0) Investment in short-term bank deposits, net (784.7) (98.3) Acquisition of subsidiary, net of cash acquired (2.0) - Acquisition of Apro business - (1.0)-----------------------------------------------------------------------------------------Net cash flows used in investing activities (1,100.7) (444.3)----------------------------------------------------------------------------------------- Cash flows from financing activities Proceeds on issue of shares by the Company - 548.4 Proceeds from contribution to charter capital of 1.6 - subsidiary by minority interests Transaction costs associated with issue of shares - (57.2) Receipt of funds from preference shares - 0.1 Redemption of preference shares - (0.1) Proceeds from borrowings 249.5 525.6 Repayment of borrowings (41.5) (580.3) Dividends paid by the Company (230.4) (109.9) Dividends paid by subsidiary to former shareholders - (53.6) Dividends paid by subsidiary to minority interests (3.0) (1.3)-----------------------------------------------------------------------------------------Net cash flows (used in)/from financing activities (23.8) 271.7----------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 287.7 453.0 Cash and cash equivalents at the beginning of the year 522.0 74.1 Effect of exchange rate changes on cash and cash equivalents (24.3) (5.1)----------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the year 785.4 522.0----------------------------------------------------------------------------------------- Consolidated statement of changes in equityYear ended 31 December 2006 Attributable to equity shareholders of the Company ---------------------------------------------------$ million Foreign currency Share Share translation Reserve Retained Minority Total Notes capital premium reserve fund earnings Total interests equity -----------------------------------------------------------------------------------------------------------------At 1 January 2005 151.1 - 218.3 14.8 1,382.4 1,766.6 47.2 1,813.8----------------------------------------------------------------------------------------------------------------- Profit for the year - - - - 538.8 538.8 12.0 550.8Currency translation differences - - (70.4) - - (70.4) (0.4) (70.8)------------------------------------------------------------------------------------------------------------------ - - (70.4) - 538.8 468.4 11.6 480.0Transfer from reserve fund 9(d) - - - (5.4) 5.4 - - -Shares issued pursuant to 9(b) 1.9 32.5 - - - 34.4 (25.9) 8.5Kinton Trade Limited transactionShares issued pursuant to 9(b) 20.3 528.1 - - - 548.4 - 548.4Listing of the CompanyTransaction costs - (57.2) - - - (57.2) - (57.2)associated with issue of sharesEquity dividends paid by 8 - - - - (50.8) (50.8) (1.3) (52.1)subsidiary prior to shareexchange transactionsEquity dividends paid by - - - - - - (5.3) (5.3)subsidiary to minorityshareholdersEquity dividends paid by 8 - - - - (110.0) (110.0) - (110.0)the Company------------------------------------------------------------------------------------------------------------------At 31 December 2005 173.3 503.4 147.9 9.4 1,765.8 2,599.8 26.3 2,626.1------------------------------------------------------------------------------------------------------------------Profit for the year - - - - 1,399.7 1,399.7 13.4 1,413.1Currency translation - - 80.7 - - 80.7 0.4 81.1differences------------------------------------------------------------------------------------------------------------------ - - 80.7 - 1,399.7 1,480.4 13.8 1,494.2------------------------------------------------------------------------------------------------------------------Contribution to charter 9(e) - - - - - - 1.6 1.6capital of subsidiary byminority shareholdersGain from dilution of - - - - 7.8 7.8 (7.8) -minority interest insubsidiaryTransfer to reserve fund 9(d) - - - 28.2 (28.2) - - -Acquisition of minority - - - - - - 1.0 1.0interest in subsidiaryEquity dividends paid by - - - - - - (3.0) (3.0)subsidiary to minorityshareholdersEquity dividends paid by 8 - - - - (228.1) (228.1) - (228.1)the Company------------------------------------------------------------------------------------------------------------------At 31 December 2006 173.3 503.4 228.6 37.6 2,917.0 3,859.9 31.9 3,891.8------------------------------------------------------------------------------------------------------------------ NOTES TO THE FINANCIAL INFORMATION 1. General information Kazakhmys PLC (the 'Company') is a public limited company incorporated in theUnited Kingdom of Great Britain and Northern Ireland. The Company's registeredaddress is 6th Floor, Cardinal Place, 100 Victoria Street, London, SW1E 5JL,United Kingdom. The Group comprises the Company and its consolidatedsubsidiaries as set out below. The figures shown are based on the statutory accounts for the relevant years onwhich the auditors' reports were unqualified but do not constitute statutoryaccounts as definted in section 240 of the Companies Act 1985. The annual reportand accounts for the current year were approved by the Board of Directors on 14May 2007 but have not yet been delivered to the Registrar of Companies. 2. Basis of preparation The financial statements have been prepared using consistent accountingpolicies. The Group has changed the segmental reporting presentation in respectof its operating activities from that disclosed in the 2005 Annual Report.Whilst corporate costs were not material during 2005, the increased size of thehead office following the Listing has resulted in the need to separate corporatecosts and balances from the Kazakh Mining segment. The revised segmentalreporting is consistent with the Group's internal management reportingstructure. (a) Basis of accounting The consolidated financial statements have been prepared on a historical costbasis, except for certain classes of property, plant and equipment which havebeen revalued at 1 January 2002 to determine deemed cost as part of the first-time adoption of International Financial Reporting Standards (IFRS) at thatdate, and derivative financial instruments which have been measured at fairvalue. The consolidated financial statements are presented in US dollars ($) andall monetary amounts are rounded to the nearest million dollars except whenotherwise indicated. (b) Basis of consolidation The consolidated financial statements set out the Group's financial position asat 31 December 2006 and the Group's financial performance for the year ended 31December 2006. Subsidiaries are those enterprises controlled by the Group. Control exists whenthe Group has the power, directly or indirectly, to govern the financial andoperating policies of an enterprise so as to obtain benefits from itsactivities. Subsidiaries are consolidated from the date on which control istransferred to the Group and cease to be consolidated from the date on whichcontrol is transferred out of the Group. On acquisition of a subsidiary, thepurchase consideration is allocated to the assets, liabilities and contingentliabilities on the basis of their fair value at the date of acquisition. Theexcess of the cost of the acquisition over the fair value of the Group's shareof identifiable net assets of the subsidiary acquired is recognised as positivegoodwill. Negative goodwill arises where the fair value of the Group's share ofidentifiable net assets of the subsidiary exceeds the cost of the acquisition.Negative goodwill is recognised directly in the income statement. The financial statements of subsidiaries are prepared for the same reportingyear as the Company, using consistent accounting policies. All intercompanybalances and transactions, including unrealised profits arising from intra-grouptransactions, have been eliminated in full. Unrealised losses are eliminated inthe same way as unrealised gains except that they are only eliminated to theextent that there is no evidence of impairment. Minority interests primarily represent the interests in Kazakhmys LLC not heldby the Company. (c) Statement of compliance The consolidated financial statements of the Company and all its subsidiarieshave been prepared in accordance with IFRS as issued by the InternationalAccounting Standards Board (IASB) and interpretations issued by theInternational Financial Reporting Interpretations Committee (IFRIC) of the IASB,as adopted by the European Union up to 31 December 2006, and in accordance withthe provisions of the Companies Act 1985. (d) Comparative figures Where a change in the presentational format of the consolidated financialstatements has been made during the year, comparative figures have been restatedaccordingly. (e) Changes in accounting policies There have been no changes in accounting policies. The accounting policiesadopted are consistent with those of the previous financial year. The Group adopted new and amended IFRS and IFRIC interpretations during theyear. Adoption of these revised standards and interpretations did not have anysignificant impact on financial statements of the Group. 3. Segment information A segment is a distinguishable component of the Group that is engaged either inproviding products or services in a particular business sector (businesssegment), or in providing products or services within a particular economicenvironment (geographical segment), which is subject to risks and rewards thatare different from those of other segments. Segment information is presented inrespect of the Group's primary basis of segmentation in business segments, whichare based on the Group's management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to asegment as well as those that can be allocated on a reasonable basis.Unallocated items comprise corporate head office assets and liabilities,borrowings, income taxes payable, deferred taxes and dividends payable/receivable. The Group's principal operations are based in Kazakhstan, with MKM, a subsidiaryof Kazakhmys LLC, being based in Germany. The Group's activities principally relate to: • Kazakh mining operations which involve the production and sale of: - Copper cathodes and copper rod - Zinc metal and zinc metal in concentrate - Gold and silver - Other by-product metals (lead, rhenium and selenium) • German copper processing operation. Segmental information is also provided in respect of revenues, by destination and by product. (a) Business segments The Kazakh Mining business, which involves the processing and sale of copper andother metals, is managed as one business segment. The products are subject tothe same risks and returns, exhibit similar long-term financial performance andare sold through the same distribution channels. The Group processessubstantially all the copper ore it produces and utilises most of the copperconcentrate it processes. The Group has a number of activities that exist solelyto support the mining operations including power generation, coal mining andtransportation. These other activities generate less than 10% of total revenues(both external and internal) and the related assets are less than 10% of totalassets. The UK operation consists of two functions: • A trading function responsible for the purchases of products from the Kazakh Mining operations, application of an appropriate mark-up and then onward sale to third parties. • A corporate head office function. For the purposes of business segmental reporting, the trading functionis regarded as a sales function on behalf of the Kazakh Mining businessand consequently the assets and liabilities related to those tradingoperations, i.e. trade creditors and trade receivables, are includedwithin the Kazakh Mining business segment. The expenses, assets andliabilities of the corporate head office function are disclosedseparately as unallocated items. The price at which sales are made to the Company by Kazakhmys LLC isbased on the prevailing price of commodities as determined by the LME. At the end of 2004, the Group acquired MKM which operates in Germany,where it manufactures copper and copper alloy semi-finished products.MKM faces different risks to the Group's Kazakh Mining business and,therefore, from 1 January 2005 the Group has operated two distinctbusiness segments. Segmental information in respect of these twobusiness segments for the years ended 31 December 2006 and 2005 ispresented below. i. Income statement information 2006 2005 ---------------------------------------------------- Kazakh MKM Total Kazakh MKM Total$ million Mining Mining-------------------------------------------------------------------------------------Sales to external customers 3,330.4 1,716.1 5,046.5 1,740.9 856.6 2,597.5-------------------------------------------------------------------------------------Gross profit 2,364.5 69.6 2,434.1 1,024.8 66.1 1,090.9Operating costs (282.4) (48.0) (330.4) (184.6) (44.3) (228.9)-------------------------------------------------------------------------------------Segment results 2,082.1 21.6 2,103.7 840.2 21.8 862.0Unallocated corporate costs (32.1) (19.5)-------------------------------------------------------------------------------------Profit before taxation, finance 2,071.6 842.5items and negative goodwillNet finance income 89.7 5.6Recognition of negative goodwill 6.5 --------------------------------------------------------------------------------------Profit before taxation 2,167.8 848.1Income tax expense (754.7) (297.3)-------------------------------------------------------------------------------------Profit for the year 1,413.1 550.8------------------------------------------------------------------------------------- ii. Balance sheet information At 31 December 2006 At 31 December 2005 --------------------------------------------------------$ million Kazakh MKM Total Kazakh MKM Total Mining Mining-------------------------------------------------------------------------------------------AssetsTangible and intangible assets 1,816.1 166.1 1,982.2 1,598.1 165.8 1,763.9Non-current investments 3.5 2.7 6.2 2.7 3.1 5.8Operating assets (1) 713.4 395.2 1,108.6 403.3 220.0 623.3Current investments 1,237.2 - 1,237.2 356.5 - 356.5Cash and cash equivalents 405.0 30.0 435.0 28.2 2.6 30.8-------------------------------------------------------------------------------------------Segment assets 4,175.2 594.0 4,769.2 2,388.8 391.5 2,780.3-------------------------------------------------------------------------------------------Unallocated assetsNon-current assets - Corporate 5.0 0.8Dividend receivable - Corporate 304.5 164.5Current assets - Corporate 6.0 7.7Cash and cash equivalents - Corporate 350.4 491.2Elimination (314.6) (164.5)-------------------------------------------------------------------------------------------Total assets 5,120.5 3,280.0-------------------------------------------------------------------------------------------LiabilitiesEmployee benefits and provisions 85.0 7.0 92.0 67.3 7.3 74.6Operating liabilities (2) 599.5 37.9 637.4 286.2 29.6 315.8-------------------------------------------------------------------------------------------Segment liabilities 684.5 44.9 729.4 353.5 36.9 390.4-------------------------------------------------------------------------------------------Unallocated liabilitiesOther payables - Corporate 12.0 10.5Deferred tax liability - Group 347.7 260.9Borrowings - Group 277.3 49.0Income tax payable - Group 176.9 107.6Elimination (314.6) (164.5)-------------------------------------------------------------------------------------------Total liabilities 1,228.7 653.9------------------------------------------------------------------------------------------- (1) Operating assets include inventories, trade and other receivables, prepayments and other current assets and restricted cash. (2) Operating liabilities include trade and other payables and dividends payable by Kazakhmys LLC. iii. Earnings before interest, tax, depreciation and amortisation (EBITDA) excluding special items* by business segments 2006 2005 ------------------------------------------------------------------------$ million Kazakh Corporate Kazakh Corporate Mining MKM unallocated Total Mining MKM unallocated Total----------------------------------------------------------------------------------------------------------- Profit before taxation, finance 2,082.1 21.6 (32.1) 2,071.6 840.2 21.8 (19.5) 842.5items and negative goodwillSpecial items:Add: write off of property, 1.4 - - 1.4 6.8 - - 6.8plant and equipmentAdd/(less): loss/(gain) on 8.9 0.1 0.6 9.6 8.6 (4.0) - 4.6disposal of property, plant andequipment-----------------------------------------------------------------------------------------------------------Profit before taxation, finance 2,092.4 21.7 (31.5) 2,082.6 855.6 17.8 (19.5) 853.9items and negative goodwillexcluding special itemsAdd: depreciation and depletion 200.8 21.8 0.4 223.0 196.5 21.0 0.2 217.7Add: amortisation 2.4 0.4 - 2.8 1.5 0.4 - 1.9-----------------------------------------------------------------------------------------------------------EBITDA excluding special items 2,295.6 43.9 (31.1) 2,308.4 1,053.6 39.2 (19.3) 1,073.5----------------------------------------------------------------------------------------------------------- * EBITDA excluding special items is defined as profit before interest, taxation,depreciation and amortisation, as adjusted for special items. Special items arethose items which are non-recurring or variable in nature and which do notimpact the underlying trading performance of the business. iv. Net liquid funds/(debt) by business segments At 31 December 2006 At 31 December 2005 ---------------------------------------------------------------------------$ million Kazakh MKM* Corporate Total Kazakh MKM* Corporate Total Mining unallocated Mining unallocated---------------------------------------------------------------------------------------------------------- Cash and cash equivalents 405.0 30.0 350.4 785.4 28.2 2.6 491.2 522.0Current investments 1,237.2 - - 1,237.2 356.5 - - 356.5Borrowings - (359.9) - (359.9) (41.6) (202.5) - (244.1)Inter-segment borrowings * - 82.6 - 82.6 - 195.3 - 195.3Finance leases - - - - - (0.2) - (0.2)----------------------------------------------------------------------------------------------------------Net liquid funds/(debt) 1,642.2 (247.3) 350.4 1,745.3 343.1 (4.8) 491.2 829.5---------------------------------------------------------------------------------------------------------- * Borrowings of MKM include amounts borrowed from the Kazakh Mining segment. v. Capital expenditure, depreciation, write offs and impairment losses by business segments 2006 2005 --------------------------------------------------------------------- Kazakh MKM Corporate Total Kazakh MKM Corporate Total$ million Mining unallocated Mining unallocated--------------------------------------------------------------------------------------------------Property, plant and equipment 328.4 4.4 5.2 338.0 320.7 12.5 0.5 333.7Mine stripping costs 6.7 - - 6.7 26.5 - - 26.5Intangible assets 8.8 0.2 - 9.0 4.2 1.0 - 5.2--------------------------------------------------------------------------------------------------Capital expenditure 343.9 4.6 5.2 353.7 351.4 13.5 0.5 365.4--------------------------------------------------------------------------------------------------Depreciation and depletion 200.8 21.8 0.4 223.0 196.5 21.0 0.2 217.7Amortisation 2.4 0.4 - 2.8 1.5 0.4 - 1.9--------------------------------------------------------------------------------------------------Depreciation, depletion and 203.2 22.2 0.4 225.8 198.0 21.4 0.2 219.6amortisation--------------------------------------------------------------------------------------------------Write offs and impairment 8.3 1.6 - 9.9 11.4 - 0.4 11.8losses-------------------------------------------------------------------------------------------------- (b) Segmental information in respect of revenuesRevenues by product are as follows: $ million 2006 2005-----------------------------------------------------------------------------------------Kazakh MiningCopper cathodes 2,389.0 1,377.2Silver in granules 239.1 147.3Zinc metal 201.3 64.3Copper rods 196.1 26.5Zinc metal in concentrate 128.0 15.0Gold bullion 51.2 37.7Other by-products 38.1 14.5Other revenue 87.6 58.4----------------------------------------------------------------------------------------- 3,330.4 1,740.9----------------------------------------------------------------------------------------- MKMWire 925.8 389.1Sheet steel and steel strips 272.9 252.3Tubes and bars 432.8 167.3Metal trade 84.6 47.9----------------------------------------------------------------------------------------- 1,716.1 856.6-----------------------------------------------------------------------------------------Total revenues 5,046.5 2,597.5----------------------------------------------------------------------------------------- (c) Provisional pricing Almost all copper sales agreements provide for provisional pricing of sales inthe month of sale with final pricing settlement based on the average LME copperprice for the month following the sale. For the year ended 31 December 2006 gains of $49.8 million (2005: $52.4million), relating to the difference between provisional pricing and finalpricing, have been included within revenues. At 31 December 2006, copper sales totalling 4,262 tonnes (2005: 20,881 tonnes)remained to be finally priced and were recorded at that date at an average priceof $6,761 per tonne (2005: $4,342 per tonne) based on provisional invoices. Theloss arising in January 2007 of $4.8 million (2005: gain of $7.9 million)relating to contracts provisionally priced in December 2006 will be recognisedin the financial statements for the year ended 31 December 2007. (d) Revenues by destination Year ended 31 December 2006 ------------------------------------------$ million Europe China Other Total-----------------------------------------------------------------------------------------Sales to third parties 3,770.1 641.8 634.6 5,046.5 Year ended 31 December 2005 ------------------------------------------$ million Europe China Other Total-----------------------------------------------------------------------------------------Sales to third parties 995.1 1,303.0 299.4 2,597.5 4. Write offs and impairment losses $ million 2006 2005-----------------------------------------------------------------------------------------Write off of property, plant and equipment 1.4 6.8Provisions against prepayments and other current assets 0.1 3.8(Release of impairments)/impairment of investments (1.9) 1.8Write off of goodwill - 0.4(Release of provisions)/provisions against trade and other (8.3) 0.3receivablesProvisions against /(release of provisions for) obsolete inventories 18.6 (1.3)----------------------------------------------------------------------------------------- 9.9 11.8 5. Finance income and finance costs $ million 2006 2005-----------------------------------------------------------------------------------------Finance incomeInterest income 78.5 30.6Foreign exchange gains 188.3 56.8-----------------------------------------------------------------------------------------Total finance income 266.8 87.4-----------------------------------------------------------------------------------------Finance costsInterest expense (8.0) (8.9)Interest on employee obligations (3.0) (2.0)Unwinding of discount on provisions (4.2) (3.1)-----------------------------------------------------------------------------------------Finance costs before foreign exchange losses (15.2) (14.0)Foreign exchange losses (161.9) (67.8)-----------------------------------------------------------------------------------------Total finance costs (177.1) (81.8)----------------------------------------------------------------------------------------- 6. Income tax Income statementMajor components of income tax expense for the years presented are: $ million 2006 2005-----------------------------------------------------------------------------------------Current income taxCorporate income tax - current period (UK) 5.2 2.2Corporate income tax - current period (overseas) 653.5 269.8Corporate income tax - prior periods 0.4 1.3Excess profits tax - current period 77.3 27.0Excess profits tax - prior periods (49.4) ------------------------------------------------------------------------------------------ 687.0 300.3-----------------------------------------------------------------------------------------Deferred income taxCorporate income tax - current period 63.0 (8.1)Corporate income tax - prior periods 17.1 -Excess profits tax - current period (12.4) 5.1----------------------------------------------------------------------------------------- 67.7 (3.0)-----------------------------------------------------------------------------------------Income tax expense 754.7 297.3----------------------------------------------------------------------------------------- The tax assessed on the profit for the year is higher than the standard rate ofcorporation tax in the tax jurisdictions in which the Group operates. A reconciliation of income tax expense applicable to accounting profit beforeincome tax at the statutory income tax rate to income tax expense at the Group'seffective income tax rate for the periods presented is as follows: $ million 2006 2005------------------------------------------------------------------------------------------Profit before taxation 2,167.8 848.1At statutory income tax rate of 30% 650.3 254.4Underprovided in previous years - deferred income tax 17.1 -Underprovided in previous years - current income tax 0.4 1.3Unrecognised tax losses 10.4 4.7Effect of higher tax rate in Germany 0.5 1.0Change in the tax rate in Germany - (2.7)Unremitted overseas earnings 91.8 11.9Non-deductible expenses/(non taxable income): Non-taxable income on zinc plant (46.5) (8.3)Recognition of negative goodwill (2.0) -Non-deductible expenses 17.1 2.9Excess profits tax 15.5 32.1------------------------------------------------------------------------------------------At effective income tax rate of 34.8% (2005: 35.1%) 754.7 297.3------------------------------------------------------------------------------------------ Corporate income tax is calculated at 30% of the assessable profit for theperiod for the Company and Kazakhmys LLC. The MKM tax rate is calculated at35.98% (2005: 35.98%) and relates to German corporate income tax and trade tax. Excess profits tax is levied on profitable subsoil contracts where the internalrate of return for the current year exceeds 20%. The effective rate for excessprofits tax for those subsoil contracts liable to this tax is 13% (2005: 14%). 7. Earnings per share The earnings per share (EPS) calculation has assumed that the number of ordinaryshares issued pursuant to share exchange agreements in relation to theacquisition of Kazakhmys LLC have been in issue from 1 January 2005 consistentwith the pooling of interests method used to account for combinations ofbusinesses under common control. The EPS calculation has also assumed that theshare split that occurred on 23 September 2005, in which the Company's sharecapital was redenominated into ordinary shares of 20 pence each, was in effectfor all prior periods. The Directors believe that this basis for the EPS calculation provides a morerelevant performance measure for the Group than using an EPS calculation whichreflected shares issued based on the actual date of issue. (a) Basic and diluted EPS Basic EPS is calculated by dividing profit for the year attributable to equityshareholders of the Company by the weighted average number of ordinary shares of20 pence each outstanding during the year. The Company has no dilutive potentialordinary shares. The following reflects the income and share data used in the EPS computations: $ million 2006 2005-----------------------------------------------------------------------------------------Net profit attributable to equity shareholders of the Company 1,399.7 538.8----------------------------------------------------------------------------------------- Number 2006 2005-----------------------------------------------------------------------------------------Number of ordinary sharesWeighted average number of ordinary shares of 20 pence each for 467,474,200 418,105,627EPS calculation-----------------------------------------------------------------------------------------EPS - basic and diluted $2.99 $1.29----------------------------------------------------------------------------------------- (b) EPS based on Underlying Profit The Group's Underlying Profit is the profit for the year after adding back itemswhich are non-recurring or variable in nature and which do not impact theunderlying trading performance of the business and their resultant tax andminority interest effects, as shown in the table below. EPS based on UnderlyingProfit is calculated by dividing Underlying Profit by the number of ordinaryshares of 20 pence each outstanding during the year. The Directors believe EPSbased on Underlying Profit provides a more consistent measure for comparing theunderlying trading performance of the Group. The following shows the reconciliation of Underlying Profit from the reportedprofit and the share data used in the computations for EPS based on UnderlyingProfit: $ million 2006 2005-----------------------------------------------------------------------------------------Net profit attributable to equity shareholders of the Company 1,399.7 538.8Special items:Recognition of negative goodwill (6.5) -Write off of property, plant and equipment 1.4 6.8Loss on disposal of property, plant and equipment 9.6 4.6Tax effect of non-recurring items (1.5) (0.5)Minority interest effect of non-recurring items - 0.1-----------------------------------------------------------------------------------------Underlying Profit 1,402.7 549.8----------------------------------------------------------------------------------------- Number 2006 2005-----------------------------------------------------------------------------------------Weighted average number of ordinary shares of 20 pence each for 467,474,200 418,105,627EPS based on Underlying Profit calculation-----------------------------------------------------------------------------------------EPS based on Underlying Profit - basic and diluted $3.00 $1.31----------------------------------------------------------------------------------------- 8. Dividends paid and proposed The dividend per share disclosures below have been calculated using the numberof ordinary shares in issue at the date of payment after reflecting the sharesplit that occurred on 23 September 2005 for comparability purposes. Thedividends declared and paid during the years ended 31 December 2006 and 2005 areas follows: Per share Amount US cents $ million-----------------------------------------------------------------------------------------Year ended 31 December 2006Declared by the Company:Final dividend in respect of year ended 31 December 2005 (sourced 36.0 168.3from 2005 earnings)Interim dividend recognised in year ended 31 December 2006 12.8 59.8(sourced from 2006 earnings)----------------------------------------------------------------------------------------- 48.8 228.1-----------------------------------------------------------------------------------------Year ended 31 December 2005Declared by the Company:Interim dividend recognised in year ended 31 December 2005 27.0 110.0(sourced from 2004 earnings)Declared by Kazakhmys LLC:Interim dividend payable to former shareholders (sourced from 13.0 52.12004 earnings)----------------------------------------------------------------------------------------- 40.0 162.1----------------------------------------------------------------------------------------- The dividends shown above are those that have been paid and proposed by theCompany in respect of the period following the share exchange, and Kazakhmys LLCfor the period prior to the share exchange. This presentation is consistent withthe pooling of interests method used to account for combinations of businessesunder common control. (a) Dividends declared by Kazakhmys LLC On 24 February 2005, Kazakhmys LLC paid an interim dividend in respect of theyear ended 31 December 2004 of $52.1 million, which was paid to shareholders onthe register of Kazakhmys LLC as at 31 October 2004. Accordingly, as the shareexchange agreement was not effective until 23 November 2004, these dividendswere paid directly to Kazakhmys LLC's former shareholders, rather than to theCompany. The dividends are shown in the consolidated financial statements ascash outflows for the Group, consistent with the pooling of interests method ofaccounting. (b) Dividend declared by the Company On 5 July 2005, the Company paid an interim dividend of $110.0 million inrespect of the year ended 31 December 2005 to shareholders on the register as at1 July 2005. This interim dividend was sourced by way of payment of the finaldividend in respect of the year ended 31 December 2004 by Kazakhmys LLC. On 26 May 2006 the Company paid the final dividend of $168.3 million in respectof the year ended 31 December 2005 to shareholders on the register as at 28April 2006. This final dividend was sourced by way of payment of the interimdividend in respect of the year ended 31 December 2005 by Kazakhmys LLC. On 27 October 2006, the Company paid an interim dividend of $59.8 million inrespect of the year ended 31 December 2006 to shareholders on the register as at29 September 2006. This interim dividend was sourced by way of payment of thefinal dividend in respect of the year ended 31 December 2005 by Kazakhmys LLC. (c) Dividend declared after the balance sheet date Per share Amount US cents $ million-----------------------------------------------------------------------------------------Proposed by the Directors on 14 March 2007 (not recognised as aliability as at 31 December 2006):Final dividend in respect of the year ended 31 December 2006 25.7 120.1----------------------------------------------------------------------------------------- 9. Share capital and reserves (a) Authorised and allotted share capital A pooling of interests method of accounting has been applied in the presentationof the consolidated financial statements. This method presents the results ofthe Group as if the Company had always been the parent company. Number £ million $ million----------------------------------------------------------------------------------------Authorised - At 31 December 2006 and 31 December 2005Ordinary shares of 20 pence each 750,000,000 150.0 -----------------------------------------------------------------------------------------Allotted and called up share capitalAs at 31 December 2006 467,474,200 93.5 173.3As at 31 December 2005 467,474,200 93.5 173.3---------------------------------------------------------------------------------------- (b) Ordinary shares(i) Rights at general meetings At general meetings of the Company each member present or by proxy has one voteon a show of hands, and on a poll every member who is present in person or byproxy has one vote per ordinary share. (ii) Year ended 31 December 2005 Between 23 November 2004 and 23 August 2005, a total number of 16,148,948ordinary shares of £5 each in the Company were issued and a further 2,000ordinary shares of 20 pence each were issued on 29 December 2005 (equivalent to80 ordinary shares of £5 each prior to the share split) pursuant to shareexchange agreements in relation to the acquisition of Kazakhmys LLC. Pursuant to a special resolution passed on 23 September 2005 it was resolvedinter alia to: • Divide the £50,000 nominal amount of authorised share capital of the Company formerly divided into 50,000 redeemable preference shares of £1 each into 10,000 ordinary shares of £5 each. • Subdivide each ordinary share of £5 each in the capital of the Company into 25 ordinary shares of 20 pence each. • Increase the authorised share capital of the Company from £100,050,001 to £150,000,001 by the creation of 249,750,000 ordinary shares of 20 pence each. On 26 September 2005, the Company issued 5,314,425 ordinary sharesof 20 pence each in consideration for the transfer to it of 127,546,200 units in Kazakhmys LLC from Kinton Trade Limited. This was an exchange rateequivalent to that applied pursuant to the share exchange offer made by theCompany in November 2004 when it first acquired units in Kazakhmys LLC. On 12 October 2005, the Company's ordinary shares were admitted to the OfficialList of the Financial Services Authority and to trading on the London StockExchange. Following the exercise of an over-allotment option, the global offercomprised 140,849,373 ordinary shares of 20 pence each at a price of £5.40, ofwhich 58,434,025 new ordinary shares of 20 pence each were issued by the Companyand 82,415,348 ordinary shares of 20 pence each were sold by existing shareholders. Gross proceeds of $548.4 million (£315.5 million) were receivedby the Company following the issue of the new ordinary shares. (c) Special share At 31 December 2005 the Company had 1 special share of £1 as part of itsauthorised share capital. The special share was cancelled by specialresolution at the Company's Annual General Meeting on 23 May 2006. (d) Reserves(i) Reserve fund In accordance with legislation of the Republic of Kazakhstan the reserve fundcomprises proscribed transfers from retained earnings amounting to 15% ofKazakhmys LLC's charter capital. During the year ended 31 December 2006, thereserve fund was increased by $28.2 million as a result of the contributions tothe charter capital of Kazakhmys LLC (see note 9(e)). During the year ended 31December 2005, the reserve fund was reduced by $5.4 million to match a reductionin Kazakhmys LLC's capital. (ii) Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differencesarising from the translation of the financial statements of Kazakhmys LLC andMKM into US dollars. (e) Capital contributions to charter capital of Kazakhmys LLC Between 31 January 2006 and 14 March 2006, the Company made contributions of $186.8 million to its subsidiary, Kazakhmys LLC. Minority shareholders contributeda further $1.6 million to the charter capital. As the Company took up the rightsof minority shareholders who did not subscribe to the initial capitalcontribution, the Company's interest in Kazakhmys LLC increased from 98.68% at31 December 2005 to 99.08% at 31 December 2006. 10. Reconciliation of profit before taxation to net cash inflow from operating activities $ million 2006 2005-----------------------------------------------------------------------------------------Profit before taxation 2,167.8 848.1Interest income (78.5) (30.6)Interest expense 8.0 8.9Depreciation and depletion 223.0 217.7Amortisation 2.8 1.9Recognition of negative goodwill (6.5) -Write off and impairment losses 9.9 11.8Unrealised foreign exchange loss (39.2) 0.2Loss on disposal of property, plant and equipment 9.6 4.6-----------------------------------------------------------------------------------------Operating cash flows before changes in working capital and 2,296.9 1,062.6provisionsIncrease in inventories (339.2) (97.1)(Increase)/decrease in prepayments and other current assets (65.0) 18.0Increase in trade and other receivables (11.1) (69.5)Decrease in restricted cash 0.2 29.0Increase in employee benefits 2.3 1.1Increase in provisions 2.1 3.5Increase in trade and other payables 156.1 20.3-----------------------------------------------------------------------------------------Cash flows from operations before income taxes and interest 2,042.3 967.9Interest paid (6.8) (9.0)Income taxes paid (623.3) (333.3)-----------------------------------------------------------------------------------------Net cash inflow from operating activities 1,412.2 625.6----------------------------------------------------------------------------------------- 11. Movement in net liquid funds $ million At Net Other At 1 January exchange non-cash 31 December 2006 Cash flow translation movements* 2006 --------------------------------------------------------------------------------------------------Cash and cash equivalents 522.0 287.7 (24.3) - 785.4Current investments 356.5 834.5 12.8 33.4 1,237.2Borrowings (48.8) (208.2) (13.8) (6.5) (277.3)Finance leases (0.2) 0.2 - - --------------------------------------------------------------------------------------------------Net liquid funds 829.5 914.2 (25.3) 26.9 1,745.3------------------------------------------------------------------------------------------------- $ million At Net Other At 1 January exchange non-cash 31 December 2005 Cash flow translation movements* 2006 --------------------------------------------------------------------------------------------------Cash and cash equivalents 74.1 453.0 (5.1) - 522.0Current investments 259.9 98.8 (8.5) 6.3 356.5Borrowings (101.0) 54.0 2.6 (4.4) (48.8)Finance leases (1.0) 0.7 0.1 - (0.2)Redeemable preference shares (0.1) 0.1 - - --------------------------------------------------------------------------------------------------Net liquid funds 231.9 606.6 (10.9) 1.9 829.5------------------------------------------------------------------------------------------------- * Other non cash movements comprise foreign exchange losses/gains incurred bythe Company's entities and recognised in the consolidated income statement. 12. Related party disclosures Option agreement with Executive Chairman On 14 March 2006, the Company announced that an entity wholly owned by theCompany's Executive Chairman, Vladimir Kim, had agreed to acquire a 25% stake inENRC Kazakhstan Holding B.V. (EKH), the holding company for certain assets ofthe Eurasia Natural Resources group's metals and mining business. EKH primarilyoperates in Kazakhstan producing, in particular, chrome, iron ore and alumina.The Company has been given the benefit of a call option in respect of VladimirKim's shareholding in EKH. The terms of the call option allow the Company, atits absolute discretion, from 1 January 2007 to 31 December 2007, to call forVladimir Kim's interest in EKH to be transferred to the Company for aconsideration representing 100% of the initial investment of $751 million plus a10% margin (reflecting the risk of the initial investment) and the actualfinancing and transaction costs incurred by Vladimir Kim. This is provided that,as required by the Listing Rules, this consideration and the terms of the optionare determined by an independent adviser to be fair and reasonable so far as theremaining shareholders of the Company are concerned. Vladimir Kim is notpermitted to dispose of his interest in EKH before 1 January 2008 without theconsent of the Company. Should the Company exercise the call option, then itwill comply with all class tests and related party rules relevant to theCompany. Any such decision would be taken by an independent committee of theBoard. The accounting treatment of the option is governed by International AccountingStandard 39 'Financial Instruments: Recognition and Measurement'. IAS 39contains special accounting requirements for those equity instruments that donot have a quoted market price in an active market and derivatives that arelinked to, and must be settled by delivery of, such unquoted equity instruments.If the fair value of such equity instruments cannot be reliably measured, theymust be measured at cost, less impairment. To be able to reliably measure theoption, the variability in the range of fair value estimates should not besignificant, and the probabilities of the various estimates within the rangeshould be capable of being reasonably assessed. There currently remainsignificant differences in the fair value estimates being obtained for EKH fromexternal advisers and those estimated by other parties, and the probability ofeach value cannot be reasonably assessed. The Directors have thereforeconsidered the requirements of IAS 39 in this regard and are of the view thatthe fair value of the option cannot be reliably measured on the basis that, todate, insufficient information on EKH's financial performance, position and cashflows has been made available to the Company in order to arrive at a reliablevaluation for the option. Consequently the option is valued at cost, which isnil, due to the fact that no payment was made by the Company to enter into theoption arrangement with Vladimir Kim. 13. Events after the balance sheet date(a) Post year-end dividend The Directors have proposed a final dividend in respect of the year ended 31December 2006 of 25.7 US cents per share. Subject to approval of shareholders atthe Annual General Meeting to be held on 9 May 2007, this dividend shall be paidon 14 May 2007. (b) Acquisition of Dostan-Temir LLP On 7 March 2007, the Group entered into an agreement to acquire Dostan-TemirLLP, a Kazakhstan based company which holds the right to sign a contract withthe Government of Kazakhstan to conduct oil and gas exploration and developmentactivity in the East Akhzar Exploration Block in Western Kazakhstan. Thistransaction, when concluded, is not expected to have a significant impact on theGroup's net asset position. The financial effect of the transaction on theGroup's results will be dependent upon both the nature and extent of future oiland gas exploration and development activity carried out in the East AkhzarBlock. Production and sales figures Summary of significant production and sales figures 2006 2005---------------------------------------------------------------------------------Kazakh MiningOre mined (kt) 39,240 39,446Copper content in ore mined (%) 1.17 1.03---------------------------------------------------------------------------------Copper cathode production (kt)From own concentrate 368 339From purchased concentrate 37 48---------------------------------------------------------------------------------Total Kazakhmys copper cathodes produced (excluding tolling) (kt) 405 387Tolling (kt) 2 10---------------------------------------------------------------------------------Total Kazakhmys copper cathodes produced (including tolling) (kt) 407 397Total Kazakhmys copper cathodes and copper rods sold (kt) 368 370---------------------------------------------------------------------------------MKMWire sales (kt) 167.2 119.4Flat sales (kt) 62.9 57.8Tubes and bars sales (kt) 42.5 40.8---------------------------------------------------------------------------------Total MKM sales (kt) 272.6 218.0--------------------------------------------------------------------------------- MININGMetal Mining Ore mined Copper Zinc Gold Silver------------------------------------------------------------------------------------- 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 kt kt % % % % g/t g/t g/t g/t-------------------------------------------------------------------------------------North 3,143 3,516 0.66 0.77 - - - - 7.36 10.48South 6,818 7,281 0.72 0.82 - - - - 14.08 13.44Stepnoy 3,200 3,481 0.79 0.76 - - - - 16.58 17.27East 5,502 5,776 0.88 0.95 - - - - 19.29 24.26West 2,585 3,185 0.41 0.61 - - - - 14.26 18.25Annensky 4,225 4,807 1.10 1.15 - - - - 23.75 21.67Zhomart 2,203 - 1.16 - - - - - 5.78 -(formerlyZhaman-Aybat)-------------------------------------------------------------------------------------Total 27,676 28,046 0.82 0.87 - - - - 15.47 17.73ZhezkazganComplex-------------------------------------------------------------------------------------Kounrad 2,267 3,508 0.35 0.28 - - - - 1.81 1.62Shatyrkul 441 473 2.03 2.24 - - 0.31 0.37 2.59 2.62Sayak I and 1,663 1,645 1.11 1.19 - - 0.27 0.30 6.12 6.02Sayak III-------------------------------------------------------------------------------------Total Balkhash 4,371 5,626 0.81 0.71 - - 0.28(1)0.32(1) 3.53 2.99Complex-------------------------------------------------------------------------------------Orlovskoe 1,542 1,667 4.69 4.31 3.72 3.91 0.58 0.55 52.35 54.20Belousovskoe 246 247 1.00 0.91 3.52 2.84 0.50 0.45 52.60 46.68Irtyshskoe 449 448 1.26 1.07 2.80 2.74 0.31 0.31 44.10 44.72Nikolaevskoe 578 2,019 1.47 1.06 2.48 2.01 0.26 0.19 24.50 18.37Yubileyno- 344 322 4.20 3.67 3.05 4.26 0.57 0.65 37.41 42.46SnegirikhinskoeArtemyevskoe 1,282 379 1.74 1.72 6.91 6.65 1.66 1.81 143.23 184.78-------------------------------------------------------------------------------------Total East 4,441 5,082 2.83 2.33 4.32 3.23 0.82 0.48 72.98 47.77Region-------------------------------------------------------------------------------------Abyz 210 445 1.67 1.07 3.47 3.90 3.67 4.91 47.89 54.55Nurkazgan 1,670 247 1.17 0.40 - - 0.31 0.15 3.71 1.41Kosmurun 872 - 5.53 - - - 1.87 - 31.97 --------------------------------------------------------------------------------------Total Karaganda 2,752 692 2.59 0.83 3.47(2) 3.90(2)1.06 3.21 16.04 35.56Region-------------------------------------------------------------------------------------Total Kazakhmys 39,240 39,446 1.17 1.03 4.28(3) 3.28(3)0.77(4)0.68(4)20.69 19.81------------------------------------------------------------------------------------- 1 Production only from Shatyrkul and Sayak I and Sayak III mines in Balkhash Complex. 2 Production only from Abyz mine in Karaganda Region. 3 Production only from East Region and Abyz mine in Karaganda Region. 4 Production only from Balkhash Complex (excluding Kounrad mine), East Region and Karaganda Region. Coal mining Coal mined Waste stripped Strip ratio ------------------------------------------- 2006 2005 2006 2005 2006 2005 kt kt kbcm kbcm bcm:t bcm:t-------------------------------------------------------------------------Molodezhny (formerly 6,400 5,745 9,330 6,207 1.46 1.08Borlynskoe)Kuu-Chekinskoe 872 1,262 4,045 4,631 4.64 3.67-------------------------------------------------------------------------Total Kazakhmys 7,272 7,007 13,375 10,838 1.84 1.55------------------------------------------------------------------------- ProcessingCopper processing Copper concentrate produced Copper in concentrate ---------------------------------------------------- 2006 2005 2006 2005 kt kt % %----------------------------------------------------------------------------Zhezkazgan No.1 189 186 40.0 39.8Zhezkazgan No.2 205 234 39.6 39.4Satpaev 147 179 28.8 27.3----------------------------------------------------------------------------Total Zhezkazgan Complex 541 599 36.8 35.9----------------------------------------------------------------------------Balkhash 257 181 16.9 18.2----------------------------------------------------------------------------Total Balkhash Complex 257 181 16.9 18.2----------------------------------------------------------------------------Orlovskoe 309 321 21.1 20.2Belousovskoe 20 12 13.7 14.6Irtyshskoe 26 23 13.4 14.1Nikolaevskoe 179 121 15.1 14.6----------------------------------------------------------------------------Total East Region 534 477 18.5 18.3----------------------------------------------------------------------------Karagaily (Abyz) 47 115 4.0 2.9Karagaily (Kosmurun) 184 - 17.3 -----------------------------------------------------------------------------Total Karaganda Region 231 115 14.6 2.9----------------------------------------------------------------------------Own copper concentrate processed by 33 44 24.6 16.2third party----------------------------------------------------------------------------Total Kazakhmys own 1,596 1,416 24.0 24.4concentrate----------------------------------------------------------------------------Purchased concentrate 214 268 23.5 19.4----------------------------------------------------------------------------Total Kazakhmys own and purchased 1,810 1,684 24.0 23.6concentrate---------------------------------------------------------------------------- Zinc and precious metals processing Zinc Zinc in Silver(1) Gold(1) concentrate concentrate produced 2006 2005 2006 2005 2006 2005 2006 2005 kt kt % % g/t g/t g/t g/t--------------------------------------------------------------------------------------------Zhezkazgan No.1 - - - - 712.5 789.0 - -Zhezkazgan No.2 - - - - 733.5 846.0 - -Satpaev - - - - 636.7 522.3 - ---------------------------------------------------------------------------------------------Total Zhezkazgan Complex - - - - 699.8 731.6 - ---------------------------------------------------------------------------------------------Balkhash - - - - 53.4 55.8 2.7 2.2--------------------------------------------------------------------------------------------Total Balkhash Complex - - - - 53.4 55.8 2.7 2.2--------------------------------------------------------------------------------------------Orlovskoe 88 106 45.3 43.2 101.4 116.8 1.1 1.2Belousovskoe 14 11 41.8 43.6 398.8 553.2 3.7 4.4Irtyshskoe 13 17 39.0 37.3 467.8 472.4 2.2 2.2Nikolaevskoe 55 53 39.5 38.1 157.1 104.7 1.6 0.8YSR (KazZinc) - 15 - 34.4 - 147.2 - 1.8Artemyevskoe (KazZinc) 106 14 51.8 51.1 2,369.5(3) 4,082.5(3)20.8(3)13.4(3)--------------------------------------------------------------------------------------------Total East Region 276 216 42.7(2)41.2(2) 149.3(2) 142.2(2) 1.4(2) 1.2(2)--------------------------------------------------------------------------------------------Karagaily 5 15 33.4 36.0 103.3 123.9 5.4 12.6--------------------------------------------------------------------------------------------Total Karaganda Region 5 15 33.4 36.0 103.3 123.9 5.4 12.6-------------------------------------------------------------------------------------------Total Kazakhmys 281 231 42.4(2) 40.9(2) 317.2(2) 386.5(2) 2.7(2) 3.2(2)-------------------------------------------------------------------------------------------- (1) Grade in grammes per tonne of copper concentrate. (2) Production only from own concentrators within East Region. (3) Includes gold and silver content in gravity concentrate toll processed by KazZinc from Artemyevskoe ore. Copper Smelter/Refinery - copper cathodes production Concentrate Copper in Copper smelted concentrate cathodes--------------------------------------------------------------------------- 2006 2005 2006 2005 2006 2005 kt kt % % kt kt---------------------------------------------------------------------------Own concentrate 632 667 34.0 33.8 215 227Purchased concentrate 26 31 31.1 25.4 6 8Other1 101 192 0.7 3.2 - ----------------------------------------------------------------------------Total Zhezkazgan Complex 759 890 29.5 26.9 221 235---------------------------------------------------------------------------Own concentrate 990 706 16.9 16.5 153 112Purchased concentrate 170 232 22.0 18.5 31 40Other1 27 146 9.6 1.3 - ----------------------------------------------------------------------------Total Balkhash Complex 1,187 1,084 17.4 14.9 184 152---------------------------------------------------------------------------Total Kazakhmys (excluding 1,946 1,974 22.2 20.3 405 387tolling)---------------------------------------------------------------------------Tolling 2 11 73.5 80.6 2 10---------------------------------------------------------------------------Total Kazakhmys (including 1,948 1,985 95.7 100.9 407 397tolling)--------------------------------------------------------------------------- 1 Includes materials recovered (slag, scrap, etc.) reprocessed at both Zhezkazgan and Balkhash Complexes. Copper Smelter/Refinery - copper rod and acid production Copper rod Acid production----------------------------------------------- 2006 2005 2006 2005 kt kt kt kt-----------------------------------------------Zhezkazgan 29 9 202 245-----------------------------------------------Total Kazakhmys 29 9 202 245----------------------------------------------- Zinc Smelter/Refinery - zinc metal production Zinc Zinc in Zinc metal concentrate concentrate smelted--------------------------------------------------------------------------- 2006 2005 2006 2005 2006 2005 kt kt % % kt kt---------------------------------------------------------------------------Total Kazakhmys (all Balkhash 155 186 45.4 41.2 60 51Complex)--------------------------------------------------------------------------- Precious metal production Silver Gold------------------------------------------------------------- 2006 2005 2006 2005 koz koz koz koz-------------------------------------------------------------Kazakhmys 21,530 20,517 107 101Tolling 40 89 59 45-------------------------------------------------------------Total Kazakhmys (including 21,570 20,606 166 146tolling)------------------------------------------------------------- Other Production - Kazakhmys 2006 2005-------------------------------------------------------------Electricity power space (GWh) 6,589 6,441Heating power (KGcal) 4,153 4,013Enamel wire (t) 558 506Lead dust (t) 12,622 13,697-------------------------------------------------------------- Kazakhmys sales 2006 2005------------------------------------------------------------------------ kt(1) kt(1) $ million $ million-------------------------------------------------------------------------Copper cathode 340 2,389.0 362 1,377.2Copper rod 28 196.1 8 26.5-------------------------------------------------------------------------Total copper sales (excluding 368 2,585.1 370 1,403.7tolling)-------------------------------------------------------------------------Zinc metal in concentrate 67 128.0 17 15.0Zinc metal 64 201.3 52 64.3Silver (koz) 20,962 239.1 20,174 147.3Gold (koz) 84 51.2 84 37.7------------------------------------------------------------------------- (1) Kilotonnes unless otherwise stated. Average realised prices 2006 2005---------------------------------------Copper ($/t) 7,025 3,794Zinc ($/t) 3,145 1,231Silver ($/oz) 11.41 7.30Gold ($/oz) 610 449--------------------------------------- MKM production and sales 2006 2005------------------------------------------------ Production Sales Production Sales kt kt kt kt------------------------------------------------Wire rod 128.5 128.8 88.9 88.1Drawn wire 39.1 38.4 31.4 31.3------------------------------------------------Total wire 167.6 167.2 120.3 119.4------------------------------------------------Pre-rolled 2.4 2.5 4.9 4.9Sheets 14.8 14.7 12.2 11.7Strips 45.4 45.7 41.6 41.2------------------------------------------------Total flat 62.6 62.9 58.7 57.8products------------------------------------------------Tubes 20.7 19.9 19.0 19.2Bars 22.8 22.6 21.4 21.6------------------------------------------------Total tubes 43.5 42.5 40.4 40.8and bars------------------------------------------------Total MKM 273.7 272.6 219.4 218.0------------------------------------------------ This information is provided by RNS The company news service from the London Stock Exchange

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