Final Results

30th Mar 2006 07:03

Kazakhmys PLC30 March 2006 Kazakhmys PLC Audited results for the year ended 31 December 2005 Highlights • Revenues up 106.2% from $1,259.5 million to $2,597.5 million on the strength of rising copper prices and acquisition of MKM • EBITDA excluding special items for the year increased by 35.6% from $791.4 million to $1,073.5 million • Profit before taxation excluding negative goodwill of $111.3 million recognised in 2004, increased by 53.2% to $848.1 million • EPS based on Underlying Profit increased by 40.9% to $1.31 per share • Average realised copper price increased from $2,527 per tonne to $3,794 per tonne representing a 50.1% rise against an average increase in LME copper price of 28.3% • Expansionary and new project capital expenditure of $190 million, representing significant investment for future growth • Completion of Artemyevskoe underground mine well ahead of schedule and within budget • Construction of new Zhaman-Aybat mine on schedule with completion expected in 2006 • Successfully listed on LSE raising net proceeds of $491.2 million in October 2005 and entered FTSE 100 index in December 2005 • Inaugural post-Listing dividend proposed of 36.0 US cents per share in respect of full year 2005 earnings Financial highlights for year ended 31 December 2005------------------------------------------------------------------------------ Year ended Year ended 31 December 31 December % ($million, unless stated) 2005 2004 change ------------------------------------------------------------------------------Revenues 2,597.5 1,259.5 106.2% Earnings: Profit before taxation, finance items and 842.5 578.5 45.6% negative goodwill Profit before taxation excluding 848.1 553.7 53.2% recognition of negative goodwill EBITDA excluding special items (1) 1,073.5 791.4 35.6% Underlying Profit (3) 549.8 376.1 46.2% EPS: Basic and diluted ($) 1.29 1.06 21.7% Based on Underlying Profit (2) ($) 1.31 0.93 40.9% Free Cash Flow (3) 450.2 405.4(4) 11.1% ROCE (3) (%) 31.5% 30.2% 4.3% Cash cost of copper after by-product 997 616 61.9% credits (3) ($/tonne) ----------------------------------------------------------------------------- Kazakhmys' Chairman Vladimir Kim commented: "Following our Listing in October 2005, our maiden set of results demonstratesthe underlying strength of the business with Underlying Profit up 46.2% at$549.8 million. We are delighted to propose a dividend of 36.0 US cents pershare in respect of full year 2005 earnings. We continue to make progress on ourstrategy of building a world-class metals and mining company and creatingshareholder value for the future." (1) Reconciliation of EBITDA excluding special items to profit before taxation, finance items and negative goodwill is found in note 2(a) to the financial information. (2) Reconciliation of EPS based on Underlying Profit to Basic and Diluted EPS is found in note 6 to the financial information. (3) Refer to Glossary on page 46 for definition of these key financial indicators. (4) Inclusive of expansionary and new project capital expenditure and sustaining capital expenditure of $162.2 million. 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 CHAIRMAN'S STATEMENT I am delighted to present Kazakhmys PLC's first set of financial results for theyear ended 31 December 2005. There is no doubt that 2005 will always be alandmark year in the history of Kazakhmys. We started the year as a long-life,low-cost mining company based in Kazakhstan, little known outside of thecountry. By the year end, we had successfully launched our shares on the LondonStock Exchange raising $491.2 million in net proceeds and, within three monthsof Listing and at the first opportunity for inclusion, we entered the FTSE 100Index - becoming the first CIS business to do so. As a result of our successful Listing, Kazakhmys is now well placed to pursueits long term goals. Our strong share price performance illustrates the appetitefrom institutional investors for Kazakhmys as the price rose from £5.40 by 43%to reach £7.74 at the end of December 2005. We believe that the success of our Listing also reflects the fundamentalattraction of our business and Kazakhstan, with its current political stability,growing economy and exceptionally rich natural resources. Less than six months have passed since our Listing and the production of ourfirst set of financial results as a listed company. In this period, a great dealhas already been achieved. We retained our business focus throughout the Listingprocess and in 2005 we have seen production figures at levels comparable withprevious years, which, when combined with high copper and other metal prices,resulted in strong financial results. In 2005, the Group's revenues for the yearrose to $2,597.5 million, a 106.2% increase on 2004. One of our key measures forcomparing underlying trading performance between years, EBITDA excluding specialitems, increased by 35.6% to $1,073.5 million. On the back of these results, theBoard has proposed an inaugural final dividend equivalent to 36.0 US cents pershare in respect of full year earnings in line with our guidance at the time ofthe IPO. Our strategic objective for the future is to maintain and strengthen ourposition as a leading copper producer and achieve a world class reputation. Wewill combine our strong focus on copper with diversification into othercommodities within our region whilst continuing to maximise operationalefficiencies and deliver organic growth. With virtually no debt and strong cashflows from our operations, we are well placed to make acquisitions where we findvalue-adding opportunities. On 14 March 2006 we announced that the independent members of the Board ofKazakhmys PLC had granted permission to me (in a personal capacity) to acquire a25% interest in ENRC Kazakhstan Holding B.V. ('EKH'), the holding company forcertain assets of the Eurasia Natural Resources group's metals and miningbusiness, which primarily operates in Kazakhstan, on the basis that the Companyis given the benefit of a call option in respect of my shareholding in EKH. Anydecision to exercise the call option would be taken by an independent committeeof the Board. While I pledged certain shares to facilitate this transaction, Iremain a fully committed long-term shareholder of Kazakhmys PLC. I continue to remain bound by all of the terms of my employment contract withKazakhmys PLC and, in particular, the obligations in that contract not tocompete, directly or indirectly, with Kazakhmys PLC. As a newly-floated company on the London Stock Exchange, my Board colleagues andI are firmly committed to delivering high standards of corporate governance. Webelieve that the combination of strong management and independent Directors willplay a decisive role in the strategic development of the Group. The quality andindustry knowledge of our Board members will strengthen and complement theskills and experience of our management team. Our employees are a fundamental part of the business and we remain committed toimproving the safety environment across our asset portfolio. The Group hasestablished a Health, Safety & Environment ('HSE') committee chaired by DavidMunro, an independent non-executive Director, to monitor the Group's progress inraising HSE standards and performance. We are also delivering on our commitmentto the broader community within which we operate. Looking ahead, supply and demand fundamentals suggest continued copper pricestrength throughout 2006. We anticipate that the lower production levels in thefirst two months of 2006 will not be representative of the expected coppercathode production for the whole of 2006. We anticipate that 2006 production ofcopper cathode will be moderately higher than 2005, driven by a higher level ofproduction from own concentrate. We will continue to maintain our tight focus oncost control and seek further growth opportunities. I would also like to take this opportunity to thank all our employees,management team and advisors, who contributed to Kazakhmys' success in 2005.Their dedication and commitment are crucial in delivering these results andcreating further shareholder value in the future. REVIEW OF OPERATIONS Summary of operational performance Over the last year we have seen copper cathode production at levels comparablewith previous years and improving production in zinc and precious metals, which,when combined with high copper and other metal prices, has resulted in strongfinancial results. The copper market was buoyant in 2005 with average prices on the London MetalExchange of $3,681 per tonne compared to $2,868 per tonne in 2004, a rise of28.3% (Source: Brook Hunt). Exceptional demand from China has continued drivingmetal prices up to new higher levels. In 2005, Chinese copper consumptionincreased by 7% compared to 2004. We are a fully integrated copper producer andtherefore benefit from any strengthening in the copper price. The main end-usermarket for copper in 2005 remained the global construction industry. In 2005 we completed the construction of the underground mine, Artemyevskoe,within budget and ahead of schedule so that the Group now comprises twelveunderground and five open pit mines, nine concentrators and two copper smelter/refineries, a zinc smelting plant, a precious metals refinery and a copper rodplant, and a fabricated products subsidiary, located in Germany. At the beginning of 2005, we experienced a more challenging operatingenvironment, which included temporary mining stoppages at several mines and aslope failure at the Nikolaevskoe open pit mine in the first quarter of 2005,which was fully resolved in the second quarter with the mine returning to fullcapacity. Furthermore, in accordance with our mining plan, we extracted andprocessed lower grade ores at some of our mines so that 2005 actual averagecopper content in ore was 21% below 2004 levels. Zinc content in ore was 20%above 2004 grade reflecting increasing extraction of zinc-rich ores in ourproduction profile. In addition, productivity in early 2005 was affected byunusually cold weather in Kazakhstan and some delays in equipment supply.Nonetheless, by the end of May 2005, the Group had recovered from theseoperational challenges and ore output was satisfactory. Due to anticipated lower copper content in the ores mined, we increased oreextraction volumes by 11.5% up compared to 2004, procuring an additional 268ktof concentrate from third parties and producing around 10kt of copper cathodethrough tolling arrangements. In spite of the operating challenges, we were able to sustain our production ataround 400kt of copper cathode and increase zinc metal production to 51kt,demonstrating that the Group can consistently produce large quantities ofcopper, maintaining our position as one of the world's leading copper producers. Copper For the year ended 31 December 2005, we produced 397kt of copper cathode,processing 1,985kt of copper concentrate. Included in the 397kt of coppercathode produced was 10kt of copper produced through tolling arrangements. The Zhezkazgan Complex produced 235kt of copper cathode, which produced 9kt ofcopper rod. The Balkhash Complex produced 162kt of copper cathode, of which 10kt wereproduced under tolling arrangements. At the East Region we produced 592kt of copper concentrate and 202kt of zincconcentrate in 2005 with additional 29kt processed for us by third parties. As part of our maintenance programme, we carried out planned shutdowns at theZhezkazgan copper smelter in the third quarter of 2005 and at the Balkhashcopper smelter in the fourth quarter. These shutdowns resulted in slightly lowerproduction volumes in the corresponding quarters, but did not significantlyaffect the overall production performance for the year. During 2005, the Group produced 1,416kt of copper concentrate, of which 44ktwere processed by a third party and a further 268kt of copper concentrate werepurchased from third parties to better charge the Group's refining capacity. At present, the Group has insufficient concentrator capacity to handle the orefrom the recently constructed Artemyevskoe mine so this concentrate is currentlybeing processed by third parties. To address this issue, we are upgradingoperating capacity at a number of our concentrators. The annual productioncapacity of the Karagaily concentrator is being upgraded from 1,000kt to1,500kt, and the Nikolaevsky concentrator from 2,000kt to 2,500kt due to grinderreconstruction. The work began in 2005 and once the Nikolaevsky upgrade is completed, all of theconcentrate from the Artemyevskoe mine will be processed internally. As stated at the time of our Listing, we are currently developing severalorganic growth projects. The majority of these projects are anticipated to comeon line in the short to medium term and include both new sites and continuationsof existing mines. New site projects include Aktogay, the Group's primaryproject, where feasibility studies continue to be undertaken and Zhaman-Aybat,which is expected to enter production during 2006. Recently completed projectsinclude Stepnoy, which is currently ramping up to full capacity andArtemyevskoe, which was completed in 2005 ahead of schedule and within budgetand is preparing to ramp up to full capacity in 2007. Zinc We continue to make progress with the implementation of our growth plans in thezinc business, although our zinc smelter ramp-up is progressing at a slower ratethan originally anticipated. In 2005, we increased the output of zinc metal inconcentrate to 82kt from 66kt in 2004. Production of zinc metal increased from18kt in 2004 to 51kt in 2005. Over the course of 2006 we will continue fine-tuning our operating performanceat the Balkhash zinc plant complex. The zinc rich concentrate from the recentlycompleted Artemyevskoye mine should contribute to improving the quality ofconcentrate and ensure zinc metal production volumes are more consistent in2006. Precious metals Our precious metals refinery, located in the Balkhash region, recovers gold andsilver from the slimes from all of the Group's operations. We also treat slimesfrom third parties on a tolling basis. Our precious metals output rose during the year as the Abyz and Artemyevskoemines started production of their silver- and gold-rich ores. In 2005 the Groupproduced 21 million ounces of silver, of which 90 thousand ounces of silver wereproduced on a tolling basis. We produced 146 thousand ounces of gold of which 45thousand ounces were produced on a tolling basis. MKM production MKM is a fabricating subsidiary of the Group, located in Germany. MKM producesand sells copper and copper alloy semi-finished products predominantly in theEuropean Union for various applications. MKM is organised into three businessunits: wire products, tubes and bars, flat products (strips, plates and sheets). In 2005, MKM's total production was 219kt. The wire products business unitproduced 120kt of wire products. Total tubes and bars production was 40kt in2005, of which tubes production was 19kt and bars production was 21kt. The flatproducts business unit produced 59kt of flat products, of which 5kt werepre-rolled flats, 12kt were sheets, and 42kt were strips. MKM invested $13.5 million in asset optimisation and production expansion in thelast year, with the main emphasis on the expansion of the tube productioncapacity from 19kt to 28kt. Production bottlenecks were eliminated with aninvestment of $7.2 million for new drawing lines as well as upgrades of existingequipment. In 2005, MKM's capabilities to produce de-oxidised copper were improved byinvestment in related equipment. As a result, an extended product range can beproduced starting in 2006, allowing MKM to target additional market segments. During 2005, MKM was also able to achieve improvement in the utilisation of theContiM(R) equipment. MKM operates some of the most advanced ContiM(R) equipmentworldwide. In 2005, production volumes for this equipment were increased by morethan 200%, primarily driven by good market demand for wire products. Other production We also generate power for the needs of our business. In Kazakhstan, the Groupowns and operates a power plant located at Karaganda, a combined heat and powerand a power plant located at Zhezkazgan and a heat and power plant in Balkhash.In 2005, the Group generated 6,441 MJ of electricity and 4,013 KHcal of heatingpower, most of which was used by our operations. FINANCIAL REVIEW Summary of the year Revenues for the year amounted to $2,597.5 million, a 106.2% increase from 2004.Profit before taxation, finance items and negative goodwill rose by 45.6% to$842.5 million and our key performance measure for earnings, EBITDA excludingspecial items, was $1,073.5 million, a 35.6% increase compared to 2004. Theimproved earnings were attributable to rising commodity prices during 2005 andthe acquisition of MKM on 15 December 2004. These results translated to an increased profit attributable to equityshareholders of $538.8 million, compared to $429.8 million in the prior year, arise of 25.4%. As negative goodwill of $111.3 million arose during the prioryear, a more informed measure of the Group's financial performance on a post-taxand minority interest level is Underlying Profit, which removes special items.An increase of 46.2% to $549.8 million was reported by this performance measure. Basic and diluted EPS increased by 21.7% to $1.29 per share. EPS based onUnderlying Profit, was $1.31 per share compared to $0.93 per share reported in2004, an improvement of 40.9%. The Directors recommend a final dividend of 36.0 US cents per share. Dividendcover for the final dividend is over three times, and provides a solid platformto ensure a stable dividend flow in future years, subject to the performance ofthe business and continued growth in earnings. The following review of the Group's financial performance analyses the twobusiness segments separately given their distinct nature. Revenues Kazakh Mining Revenues for Kazakh Mining increased from $1,259.5 million to $1,740.9 million,a 38.2% 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 metal and silver. Revenues from the sale of copper cathodes were $1,377.2 million, or 79.1% of thetotal revenues of the Kazakh Mining business. Although production volumes,excluding tolling, were 5% lower than the previous year, sales volumes of coppercathodes were flat as 48kt of 2004 production was utilised in the manufacture ofcopper rods in that year, compared to 8kt during 2005. The increase in revenuesof 51.1% between years was primarily driven by an improvement in the averagerealised copper price to $3,794 per tonne compared to $2,527 per tonne for 2004,an increase of 50.1%. As the commissioning of the Balkhash zinc smelter continued to ramp-up, zincmetal production increased by 183%, which contributed to an 11-fold rise in zincmetal revenues. Average realised zinc prices increased by 34.7%, which also hada positive impact on revenues. However, zinc metal sales volumes were slightlydisappointing as the ramp-up of the zinc smelter is taking longer thananticipated. In addition, production was lower than expected due to the use oflow grade ores as a consequence of technical problems experienced in the firsthalf of the year. Zinc concentrate sales volumes decreased by 3%, although revenues increased by61.8% to $15.0 million as a result of higher zinc prices enjoyed during 2005. Silver sales volumes were similar to production volumes. Revenues improved by27.8% compared to the prior year assisted by an increase in production volumesas a result of the commencement of operations at the Abyz mine, which has arelatively higher grade of silver, and a rise in realised silver prices of 11.6%compared to 2004. Gold sales volumes from own ore were 17% less than production volumes due to theinternal use of gold within the jewellery factory. There was a 162.1%improvement in gold revenues from own production due to the commencement ofoperations at the Abyz mine and higher realised gold prices of 30.5% compared tothe prior year. Gold tolling revenues were $3.1 million compared to $1.2 millionin the prior year due to higher volumes. Copper rod revenues were down by 80.3% following an 83% decrease in salesvolumes. The fall in copper rod sales followed a combination of weak customerdemand and the decreased amount of refined copper being allocated to copper rodproduction in order to fulfil export contracts for copper cathodes. Other revenues of $66.4 million compared to $59.0 million in the prior year, andrelated to the sale of surplus electricity, heating and coal, as well as thesales of other minor by-products, such as lead and rhenium. MKM For the year ended 31 December 2005, MKM reported revenues of $856.6 million, anincrease of over 75% from the prior year's revenue figure of $486.9 million. Thetwo key factors behind this growth were increased sales volumes, up by over 70%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 approximately 85% of sales price. Contractual arrangements withcustomers ensure the input price of copper cathodes is passed on in full. Withthe increase in the purchased component of copper increasing by 29% in valueterms compared to the prior year, this contributed to approximately $140 millionof the total growth in revenues. There were strong performances in the sales of wire rods, up eight-fold, drawnwire, up by 10%, and strips, up by 12%, compared to the prior year. As wirerods, drawn wire and strips account for 40%, 14% and 19%, respectively, of totalsales by volume, these were the main contributors to the overall growth in salesvolumes. Earnings Profit before taxation, finance items and negative goodwill increased from$578.5 million to $842.5 million, an increase of 45.6%, split between $820.8million for the Kazakh Mining business and $21.7 million for MKM. Depreciation,depletion and amortisation amounted to $219.6 million in 2005, an increase of40.2% compared to $156.7 million in 2004, as a result of increased capitalexpenditure and the acquisition of MKM. 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 non-recurring orvariable items in nature which do not impact the underlying trading performanceof the business. These latter items were particularly significant in the prioryear. During 2004, these non-recurring or variable items related to the loss ondisposal of fixed assets of $25.9 million and the write off of fixed assets of$30.3 million, which compared to $4.6 million and $6.8 million, respectively,for these categories in 2005. Overall, the margin at the level of EBITDA beforespecial items decreased from 62.8% to 41.3%, primarily as a result of theacquisition of MKM. For 2005, MKM reported a margin based on EBITDA excludingspecial items of 4.6% compared to a margin of 59.4% for the Kazakh Miningbusiness. Kazakh Mining The margin at the level of EBITDA excluding special items was slightly depressedfrom 62.8% in 2004 to 59.4% in 2005. Although average realised copper pricesincreased by 50.1% from 2004 to 2005, the reduction in mined ore grade from1.30% to 1.03% and the resulting increased proportion of copper cathodesproduced from purchased concentrate (less than 1% of total copper cathodeproduction in 2004 to 12.4% of total copper cathode production in 2005,excluding tolling), acted to offset the impact of rising copper prices on theprofit margin. Purchases of copper concentrate increased in monetary terms from around $32million in 2004 to $166 million in 2005. This significant increase reflects thehigher volumes of purchased concentrate amounting to 268kt during 2005 comparedto 14kt in the prior year. The impact of rising copper prices also increased thecost of purchased concentrate compared to the prior year. Costs associated with the transportation of purchased concentrate also increasedfrom the prior year by approximately $9.5 million or 77%, which was attributableto the increased volumes of purchased concentrate. Other factors which contributed to the lower profit margin included an increasein fuel costs of 50%, which accounted for 15% of cost of sales, and an increaseof approximately 27% in wages and salaries, which accounted for around 27% oftotal operating costs, excluding depreciation, depletion, amortisation andspecial items. The captive power stations in the Kazakh Mining business produce sufficientelectricity and heat for the business' own requirements. However, rising dieselprices adversely impact running costs for plant and equipment operating in themines. Wages and salaries increased by approximately $41 million or 27% from 2004 to2005 due to the new Abyz and Artemyevskoe mines entering production, a wageincrease agreed in November 2005 in Kazakhstan and the inception of a headoffice in London. Competition amongst mining companies, together with a stronglyperforming economy in Kazakhstan, contributed to wage pressures. Legal and professional fees increased over three-fold to approximately $24million, largely as a result of the Listing, and additional professional feesincurred in the London head office. Selling and distribution costs were $7.6million or 42% higher as a greater proportion of the Group's sales were made toEuropean customers which involve higher transportation costs. Depreciation and depletion increased by 26.4% from $155.6 million to $196.7million. Of the increase, approximately $30 million arose from the Balkhash zincsmelter, with the remainder arising from higher levels of capital expenditureduring 2005. MKM MKM's cost of sales includes the purchase price of copper cathode, and hastherefore risen at approximately the same rate as the increase in revenues.Gross profit margins are therefore largely unaffected by increases in copperprices. Despite the growth in sales volumes, the change in product mix, towards lowermargin wire rods, adversely impacted margins during 2005. Margins also cameunder pressure through product substitution in certain key market segments. Within profit before taxation and finance items of $21.7 million, a contributionof approximately $25 million arose from an increased stock valuation as a resultof rising copper prices. This favourable impact on earnings did not translateinto operating cash flows. If copper prices decline in future, this willconversely have a negative impact on earnings. Depreciation remained in line with 2004 levels at around $21 million. Net financing items Net financing income was $5.6 million during 2005, which contrasted with the netfinancing cost of $24.9 million that arose in the prior year. A foreign exchange loss of $11.0 million is included within net financingincome, compared to a loss of $29.5 million that was recognised during 2004. Theforeign exchange loss mostly arose within Kazakhmys LLC as a result of the lossarising on the Euro denominated loan extended by Kazakhmys LLC to MKM due to thestrengthening of the Kazakhstan Tenge against the Euro. This loss was partlyoffset by the gains arising on the US dollar denominated deposits as a result ofthe strengthening of the US dollar against the Kazakhstan Tenge. Net financing income, other than foreign exchange losses, included a financecost of $8.8 million which related to interest payable on the short term creditlines within Kazakhmys LLC and the $100.0 million loan to Citibank which wasrepaid in November 2005. Unwinding of long term provisions and employee benefitsalso gave rise to an interest charge of $5.2 million. Finance income primarily relates to interest earned from fixed term US dollarand Kazakhstan Tenge denominated deposits placed with banks in Kazakhstan, andthe proceeds raised from the Listing which remained in the UK until the yearend. Income tax The effective tax rate for the year was 35.1% compared to a rate of 33.6% in theprior year. The rate was split between a current tax rate of 35.4% and adeferred tax credit of 0.3%. Income tax in absolute terms increased by $73.5million or approximately 33%, primarily due to higher earnings within the KazakhMining business compared to 2004. The effective tax rate increased since the prior year principally due to therecognition of non-taxable negative goodwill arising during 2004 on theacquisition of MKM, and additional levels of excess profits tax being accruedduring 2005 as a result of higher profits within certain profitable subsoilcontracts. Excess profits tax added 3.8% to the effective tax rate during 2005which compared to an incremental 2.1% during 2004. The higher German effective tax rate for MKM was reduced during 2005 from 38.13%to 35.98% which marginally reduced the overall effective rate by 0.3% asdeferred tax balances within MKM were recalculated using the lower rate. Withholding taxes of $11.9 million were accrued during 2005 on profits arisingwithin Kazakhmys LLC which either have been or will be remitted to the UK fordividend purposes. These withholding taxes added an additional 1.4% to theeffective tax rate. 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. Minority interests Upon completion of the share exchange agreement with Kazakhmys LLC'sshareholders, the Company's interest in Kazakhmys LLC was 97.40%. As thefinancial statements have adopted a pooling of interests method of accounting,this interest was used in determining the Company's share of Kazakhmys LLC'searnings for all periods presented. On 26 September 2005, the Company issuedadditional shares in consideration for the transfer to it of further units inKazakhmys LLC which resulted in the Company's interest in Kazakhmys LLCincreasing to 98.68%, this being the Company's interest in Kazakhmys LLC at theyear end date. Profit for the year and Underlying Profit Profit for the year attributable to equity shareholders increased from $429.8million to $538.8 million, an increase of 25.4%. Due to the recognition ofnegative goodwill of $111.3 million during 2004, together with the presence ofseveral non-recurring or variable non-trading items during that year, amountingto $56.2 million (before tax and minority interests effects), Underlying Profitis seen as a more informed measure of the performance of the business at apost-tax and minority interest level. Underlying Profit removes non-recurring or variable non-trading items fromattributable profit for the year, and their resulting tax and minority interestimpacts. It provides a more consistent basis for comparing the underlyingtrading performance of the Group between 2004 and 2005. The increase of 46.2% in Underlying Profits principally reflects the favourableimpact of rising copper prices on earnings. Earnings per share Basic EPS based on attributable profit for the year increased from $1.06 pershare to $1.29 per share, despite the recognition of negative goodwill during2004 of $111.3 million, which increased last year's Basic EPS by $0.28 pershare. The increase in the weighted average number of shares in issue arisesmainly from the 58.4 million newly issued shares at the time of Listing. Thereare no differences between Basic and Diluted EPS. Assuming no changes in capital structure during 2006, the weighted averagenumber of shares in issue will increase from 418.1 million shares during 2005 to467.5 million shares during 2006 an increase of 11.8%. Without a correspondingincrease in earnings during 2006, the increased weighted average number ofshares in issue will lower the EPS figure in 2006. EPS based on Underlying Profit increased from $0.93 per share to $1.31 pershare, a 40.9% improvement, principally reflecting the impact of highercommodity prices. Dividends The Board has proposed a final dividend equivalent to 36.0 US cents per share inrespect of the year ended 31 December 2005. The interim dividend paid on 5 July 2005 of $6.81 per ordinary share of £5 each(or equivalent to 27.0 US cents per ordinary share of 20 pence each after theshare split which took place on 23 September 2005) at a total cost of $110.0million was paid out of profits available for distribution as shown in theaccounts of the Company for the year ended 31 December 2004 but was chargedagainst retained earnings during the year ended 31 December 2005 in accordancewith IFRS. The Company intends to adopt a dividend policy which will take into account theprofitability of the business and underlying growth in earnings of the Group,but taking cognisance of the cash flows required to invest in its capitalexpenditure programme. The Directors will also ensure dividend cover isprudently maintained. Interim and final dividends will be paid in theapproximate proportions of one-third and two-thirds of the total annualdividend, respectively. Cash flows Summary of the year During the year, the net liquid funds position of the Group strengthened from$231.9 million to $829.4 million, an increase of almost $600 million. Thismovement was mainly attributable to net proceeds of $491.2 million raised fromthe Listing and the conversion of higher earnings into operating cash flows. Other key cash flows during the year were income tax payments of $333.3 million,capital expenditure of $365.4 million, net repayment of borrowings of $54.7million and payment of dividends of $164.8 million. Free Cash Flow, a key performance indicator of the Group's ability to translateearnings into cash flow available for dividends, and investment and financingpurposes, was $450.2 million, compared to $405.4 million in 2004. The Free CashFlow in 2005 was stated after deducting sustaining capital expenditure of $175.4million (including expenditure on investment in intangible assets and minedevelopment costs), out of the total capital expenditure of $365.4 million. Inrespect of 2004, total capital expenditure of $162.2 million has been includedwithin Free Cash Flow; this has not been separated between sustaining capitalexpenditure and expansionary and new project capital expenditure. The Group's ability to generate continued positive Free Cash Flows providesfunds for additional investment in expanding the Group's existing operations andcapacities, as well as providing flexibility to respond to any opportunisticacquisitions. Operating cash flows Operating cash flows increased by 10.2% from $567.6 million in 2004 to $625.6million in 2005. During the year, the Kazakh Mining business benefited from its payment termswith customers whereby, as a minimum, over 90% of settlements for copper cathodedelivery are paid prior to transfer of title. All settlements are received inadvance of transfer of title for zinc metal, silver and gold sales. These termsensured rapid conversion of increased revenues into cash available for thebusiness. Tight controls over working capital ensured there was no materialchange in the working capital requirements for the Kazakh Mining business. As MKM must pay in advance for its supply of copper cathodes, working capitalrequirements increased substantially in light of rising copper prices. Theincrease in MKM's working capital was the main factor contributing to an overallincrease in the working capital of the Group of around $100 million. If the two businesses are taken together, cash flows from operations beforeincome tax and interest increased by 31.8%, compared to an increase in EBITDAexcluding special items of 35.6%. The lower increase in cash flows fromoperations compared to the equivalent of the cash profits of the Group (beingEBITDA excluding special items) was primarily a result of the adverse workingcapital movements within MKM as noted above. Income tax payments more than doubled from $164.2 million to $333.3 million,principally reflecting improved earnings during 2005, and correspondingly highertax charges. Tax payments in 2005 included around $80 million in respect of taxarising in prior periods. The major component of interest paid related to the interest incurred on the$100.0 million loan payable to Citibank which amounted to $4.7 million. Investing and financing cash flows Of the total interest income of $17.3 million, $4.4 million was received in theUK, largely attributable to the proceeds received on Listing, with the balancearising within Kazakhmys LLC from its funds on deposit. Capital expenditure on mine developments cost, mining licences and property,plant and equipment amounted to $365.4 million, compared to $162.2 million inthe prior year. Major items of capital expenditure were the development of theZhaman-Aybat, Artemyevskoe and Abyz mines, as well as the construction of thesulphuric acid plant at the Balkhash Complex. Sustaining capital expenditure andinvestment in mine development costs were around $144 million and $26 million,respectively. Proceeds from the disposal of property, plant and equipment wereunder $10 million as redundant assets are normally sold for scrap or negligiblevalue. Listing proceeds, net of expenses, amounted to $491.2 million. During the year,dividends of $164.8 million were paid by the Group, representing the 2004interim dividend of $52.2 million payable by Kazakhmys LLC in February 2005 andthe 2005 interim dividend of $110.0 million payable by the Company in July 2005(which was largely funded by the 2004 final dividend paid by Kazakhmys LLC). The major net cash outflow in respect of borrowings was the repayment of the$100.0 million Citibank loan in November 2005. There was a cash inflow of $7.2million relating to an increase in short term borrowings within MKM and $38.8million within Kazakhmys LLC. To maximise returns, the Group invested surplus funds in current investmentswith varying maturities of between one and twelve months. The cash outflow frominvesting in these deposits was $98.8 million compared to a cash inflow of $3.6million arising from liquidation of these funds in the prior year. Balance sheet Summary of movements Shareholders' funds as at 31 December 2005 stood at $2,600 million, an increaseof $833.2 million compared to the balance as at 31 December 2004. The increasewas primarily due to net proceeds received on the Listing of $491.2 million,retained earnings for the year of $538.8 million, offset by currency translationdifferences of $70.4 million and dividends payable of $160.8 million. The currency translation differences largely arose in respect of Kazakhmys LLCdue to the weakening of the Kazakhstan Tenge against the US dollar from a rateof 129.96 KZT/$ as at 1 January 2005 to 133.77 KZT/$ as at 31 December 2005.There was also a depreciation of the Euro against the US dollar in respect ofMKM which contributed to the currency translation difference. Non-current assets and liabilities Property, plant and equipment as at 31 December 2005 was slightly highercompared to the prior year balance, after capital expenditure of $333.7 million,was offset by depreciation of $216.8 million and currency translationdifferences of $67.9 million. Mine stripping costs increased substantially from $16.9 million to $41.8 milliondue to the stripping work at Nurkazgan and Artemyevskoe mines. The liability for employee benefits remained at a similar level to the prioryear. The main component of the liability relates to unfunded post retirementbenefits of $23.1 million for employees in Kazakhmys LLC. It also includes aliability of $5.6 million relating to part-time contracts for older employees atMKM that have been collectively agreed with the employees' trade union. The Group has no pension obligations, other than a contingency in respect of thepayment obligations of the Kazakhmys LLC-sponsored pension fund, termed the'Accumulating Pensions Funds of Kazakhmys LLC Corporation' (the 'Fund'). Certainof Kazakhmys LLC's employees and former employees are beneficiaries. The Fund'srules set out that the payment obligations to fund beneficiaries are based onthe nominal value of contributions made by the beneficiaries, indexed inaccordance with a formula set out in the Fund's rules. In the event that theassets of the Fund are insufficient to cover the payment obligations to thebeneficiaries, the voting shareholders of the Fund (including Kazakhmys LLC) arejointly liable for the shortfall. The last valuation as at 31 December 2005 showed that the payment obligations ofthe Fund were $102.4 million, and the market value of its assets was $119.6million. No deficit has arisen within the Fund at any balance sheet date sinceits inception. Provisions of $45.9 million were in line with the prior year. The mostsignificant provision of $24.5 million relates to site restoration obligationswhich are determined with reference to the requirements of legislation inKazakhstan. Working capital Working capital, including inventories, trade and other receivables, prepaymentsand other current assets, restricted cash and trade and other payables,increased by approximately $100 million. Although working capital was tightlycontrolled within the Kazakh Mining business, the effects of higher copperprices caused inventories, trade receivables and other debtors within MKM toincrease from $134.0 million to $220.0 million, an increase of $86.0 million. Ifcopper prices decline during the course of 2006, working capital within MKMshould move back towards levels seen as at 31 December 2004. Net liquid funds Net liquid funds as at 31 December 2005 comprised cash and cash equivalents of$522.0 million, current investments of $356.5 million and borrowings of $49.1million. Cash and cash equivalents include $496.6 million of fixed rate deposits with amaturity of less than three months. Of the total cash and cash equivalentsbalance, the Company held $491.2 million and $15.1 million as fixed ratedeposits and cash, respectively, in the UK. Cash held by MKM was $2.6 million,and the balance of cash and cash equivalents of $13.1 million was held byKazakhmys LLC in Kazakhstan. Current investments include fixed rate deposits of $245.3 million and $111.2million held in US dollars and Kazakhstan Tenge, respectively, within KazakhmysLLC. The maturities of the deposits held in Kazakhmys LLC are of varying periodsup to twelve months. Borrowings decreased from $102.1 million to $49.1 million. During the year, theloan of $100.0 million payable to Citibank was voluntarily repaid in light ofthe Group's strong cash position, leaving short term credit facilities forKazakhmys LLC and MKM of $41.6 million and $7.3 million, respectively. TheKazakhmys LLC facilities are used to fund its working capital depending on cashflow requirements and the maturity profile of bank deposits. Capital employed Capital employed increased in the year to $2,675 million as at 31 December 2005from $1,916 million at the prior year end, primarily due to the proceeds raisedfrom the Listing and retained earnings for the year. ROCE has shown animprovement from 30.2% to 31.5% partly due to a full year's contribution fromMKM, but primarily due to the improved earnings. If the capital employed attributable to MKM was excluded from the Group capitalemployed figure as at 31 December 2004, then ROCE would have been in the regionof 33%. To achieve a like-for-like comparison, if the proceeds raised from theListing are excluded from capital employed as at 31 December 2005, then ROCEwould have been around 39%. The minority interests balance decreased from $47.2 million to $26.3 million asa result of the reduction in minority interest arising from the transaction withKinton Trade Limited, as explained in note 8 to the financial information, whichwas partly offset by increased retained earnings within Kazakhmys LLC. FINANCIAL HIGHLIGHTS ---------------------------------------------------------------------------- Year ended Year ended 31 December 31 December 2005 2004 $'million $'million----------------------------------------------------------------------------Group Revenues 2,597.5 1,259.5 Profit before taxation, finance items and negative 842.5 578.5 goodwill EBITDA excluding special items 1,073.5 791.4 EBITDA excluding special items margin (%) 41.3% 62.8% Net finance items and negative goodwill 5.6 86.5 Profit before taxation 848.1 665.0 Effective tax rate (%) 35.1% 33.6% Profit for the year 550.8 441.3 Equity minority interests (%) 2.2% 2.6% Profit attributable to equity shareholders 538.8 429.8 Underlying Profit 549.8 376.1 EPS: Basic and Diluted ($) 1.29 1.06 EPS based on Underlying Profit ($) 1.31 0.93 Post-Listing dividend per share ($) 0.36 n/a Return on Capital Employed (%) 31.5% 30.2% Free Cash Flow 450.2 405.4 Net liquid funds 829.4 231.9 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Year ended Year ended 31 December 31 December 2005 2004 $'million $'million----------------------------------------------------------------------------Kazakh Mining Revenues 1,740.9 1,259.5 Profit before taxation, finance items and negative 820.8 578.5 goodwill EBITDA excluding special items 1,034.4 791.4 EBITDA excluding special items margin (%) 59.4% 62.8% Net liquid funds 834.3 170.6 Cash cost of copper after by-product revenues ($/tonne) 997.2 615.5 Average $/KZT exchange rate 132.88 135.95 MKM Revenues 856.6 - Profit before taxation, finance items and negative 21.7 - goodwill EBITDA excluding special items 39.1 - EBITDA excluding special items margin (%) 4.6% - Net liquid (debt)/funds (4.9) 61.4 Average $/Euro exchange rate 0.80 0.80 ---------------------------------------------------------------------------- CONSOLIDATED INCOME STATEMENT --------------------------------------------------------------------------------Year ended 31 December Notes 2005 2004 $'million $'million--------------------------------------------------------------------------------Revenues 2 2,597.5 1,259.5Cost of sales (1,506.6) (505.4)--------------------------------------------------------------------------------Gross profit 1,090.9 754.1--------------------------------------------------------------------------------Selling and distribution expenses (55.5) (18.0)Administrative expenses (185.3) (109.4)Other operating income 39.0 48.7Other operating expenses (34.8) (55.0)Write-offs and impairment 3 (11.8) (41.9)losses--------------------------------------------------------------------------------Profit before taxation, finance items and negative goodwill 842.5 578.5Finance income 4 87.4 70.3Finance costs 4 (81.8) (95.1)Recognition of negative goodwill - 111.3--------------------------------------------------------------------------------Profit before taxation 848.1 665.0Income tax expense 5 (297.3) (223.7)--------------------------------------------------------------------------------Profit for the year 550.8 441.3--------------------------------------------------------------------------------Attributable to:Equity shareholders of the parent 538.8 429.8Minority interests 12.0 11.5-------------------------------------------------------------------------------- 550.8 441.3--------------------------------------------------------------------------------Earnings per share attributable to equityshareholders of the parent:Basic and diluted 6 $1.29 $1.06EPS based on Underlying Profit 6 $1.31 $0.93 CONSOLIDATED BALANCE SHEET--------------------------------------------------------------------------------As at 31 December Notes 2005 2004 $'million $'millionAssetsNon-current assetsIntangible assets 21.6 19.3Tangible assets 1,743.1 1,676.9 Property, plant and equipment 1,701.3 1,660.0 Mining stripping costs 41.8 16.9Investments 5.8 5.3-------------------------------------------------------------------------------- 1,770.5 1,701.5--------------------------------------------------------------------------------Current assetsInventories 377.7 289.1Trade and other receivables 210.8 125.4Prepayments and other current assets 41.5 71.4Investments 356.5 259.9Restricted cash 1.0 30.7Cash and cash equivalents 522.0 74.1-------------------------------------------------------------------------------- 1,509.5 850.6--------------------------------------------------------------------------------TOTAL ASSETS 3,280.0 2,552.1-------------------------------------------------------------------------------- Equity and liabilitiesShare capital 8 173.3 151.1Share premium 503.4 -Foreign currency translation reserve 147.9 218.3Reserve fund 9.4 14.8Retained earnings 1,765.8 1,382.4--------------------------------------------------------------------------------Equity attributable to shareholders of 2,599.8 1,766.6the parentMinority interests 26.3 47.2--------------------------------------------------------------------------------Total equity 2,626.1 1,813.8--------------------------------------------------------------------------------Non-current liabilitiesBorrowings - 78.0Employee benefits 28.7 28.4Provisions 44.5 43.5Deferred tax liability 260.9 269.5-------------------------------------------------------------------------------- 334.1 419.4Current liabilitiesTrade and other payables 158.7 144.6Borrowings 49.0 24.1Provisions 1.4 0.3Dividend payable 3.1 0.5Income tax payable 107.6 149.4-------------------------------------------------------------------------------- 319.8 318.9--------------------------------------------------------------------------------Total liabilities 653.9 738.3--------------------------------------------------------------------------------TOTAL EQUITY AND LIABILITIES 3,280.0 2,552.1-------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT--------------------------------------------------------------------------------Year ended 31 December Notes 2005 2004 $'million $'million--------------------------------------------------------------------------------Net cash inflow from operating activities 9 625.6 567.6 Cash flows from investing activitiesInterest received 17.3 13.4Proceeds from disposal of property, plant 7.3 4.1and equipmentPurchase of property, plant and equipment (333.7) (152.8)Mine stripping costs (26.5) (5.2)Purchase of intangible assets (5.2) (4.1)Licence payments for subsoil contracts (0.9) (0.4)Proceeds from disposal of non-current 0.2 -investmentsAcquisition of non-current investments (3.0) -Proceeds from disposal of available for 0.5 87.0sale securitiesAcquisition of available for sale securities (1.0) (1.2)Investment in short term bank deposits, net (98.3) (82.2)Acquisition of subsidiaries, net of cash acquired - 4.5Acquisition of Apro business (1.0) ---------------------------------------------------------------------------------Net cash flows used in investing (444.3) (136.9)activities--------------------------------------------------------------------------------Cash flows from financing activities Proceeds on issue of shares 548.4 - Transaction costs associated with (57.2) - issue of shares Receipt of funds from preference shares 0.1 - Redemption of preference shares (0.1) - Capital transactions between - (161.0) subsidiary and shareholders Proceeds from borrowings 525.6 508.1 Repayment of borrowings (580.3) (661.4) Dividends paid (164.8) (53.7)--------------------------------------------------------------------------------Net cash flows from/(used in) financing activities 271.7 (368.0)-------------------------------------------------------------------------------- Net increase in cash and cash 453.0 62.7 equivalents Cash and cash equivalents at the 74.1 7.7 beginning of the year Effect of exchange rate changes on (5.1) 3.7 cash and cash equivalents--------------------------------------------------------------------------------Cash and cash equivalents at the end of 522.0 74.1the year-------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December Attributable to equity shareholders of the parent Share Share Foreign Reserve Retained Total Minority Total Note capital premium currency fund earnings interests equity translation reserve $'million $'million $'million $'million $'million $'million $'million $'million------------------------------------------------------------------------------------------------------At 31 December 151.1 - 70.3 14.8 1,161.1 1,397.3 37.4 1,434.72003Profit for the - - - - 429.8 429.8 11.5 441.3yearCapital - - - - (156.9) (156.9) (4.2) (161.1)transactionsbetweensubsidiary andshareholdersEquity - - - - (51.6) (51.6) (1.4) (53.0)dividends paidby subsidiaryundertakingprior to shareexchangetransactionsCurrency - - 148.0 - - 148.0 3.9 151.9translationdifferences ------------------------------------------------------------------------------------------------------At 31 December 151.1 - 218.3 14.8 1,382.4 1,766.6 47.2 1,813.82004Profit for the - - - - 538.8 538.8 12.0 550.8yearTransfer from - - - (5.4) 5.4 - - -reserve fundShares issuedpursuant toKinton TradeLimitedtransaction 1.9 32.5 - - - 34.4 (25.9) 8.5Shares issuedpursuant to Listing of the 20.3 528.1 - - - 548.4 - 548.4CompanyTransactioncostsassociated - (57.2) - - - (57.2) - (57.2)with issue ofsharesEquitydividends paidby subsidiaryundertakingprior to shareexchangetransactions - - - - (50.8) (50.8) (1.3) (52.1)Equitydividends paidby subsidiaryundertaking tominority - - - - - - (5.3) (5.3)shareholdersEquitydividends paidby the Company 7 - - - - (110.0) (110.0) - (110.0)Currencytranslationdifferences - - (70.4) - - (70.4) (0.4) (70.8)------------------------------------------------------------------------------------------------------At 31 December 173.3 503.4 147.9 9.4 1,765.8 2,599.8 26.3 2,626.12005------------------------------------------------------------------------------------------------------ NOTES TO THE FINANCIAL INFORMATION 1. Basis of preparation (a) Accounting for the share exchange agreements relating to the acquisition of Kazakhmys LLC Pursuant to various share exchange agreements entered into as a result of theoffer made by the Company to shareholders of Kazakhmys LLC, the Company acquiredKazakhmys LLC on 23 November 2004 in consideration for the allotment of ordinaryshares of £5 each in the Company or for a cash payment. The considerationoffered for each Kazakhmys LLC share was one ordinary share in the Company or acash payment of Kazakhstan Tenge ("KZT") 4,736. No shareholder elected to takethe cash option and the offer period closed on 7 January 2005. Pursuant to the share exchange agreements, the Company issued 15,580,210ordinary shares of £5 each on or around 25 November 2004, a further 568,738ordinary shares of £5 each were issued in the period 29 December 2004 to 23August 2005 and an additional 2,000 ordinary shares of 20 pence each were issuedon 29 December 2005, equivalent to 80 ordinary shares of £5 each prior to theshare split which took place on 23 September 2005 in which the Company's sharecapital was redenominated into ordinary shares of 20 pence each. Immediatelyafter the initial issue of shares pursuant to the share exchange agreements, theCompany's interest in Kazakhmys LLC was 93.96%. This interest increased to97.40% upon completion of share allotments relating to the share exchangeagreements. As this transaction involved the combination of businesses under common control,the pooling of interests method of accounting has been applied in thepresentation of the financial information for the two years ended 31 December2005 which present the results of the Group as if the Company had always beenthe parent company of Kazakhmys LLC. The consolidated profit and loss accountfor the year ended 31 December 2004 combines the results of the Company from thedate of incorporation to 31 December 2004 with those of Kazakhmys LLC for theyear then ended. The consolidated balance sheet as at 31 December 2004consolidates the balance sheet of the Company and that of Kazakhmys LLC group asat that date. (b) Basis of accounting The financial information has been prepared on a historical cost basis, exceptfor certain classes of property, plant and equipment which have been revalued at1 January 2002 to determine deemed cost as part of the first-time adoption ofInternational Financial Reporting Standards ("IFRS") at that date, andderivative financial instruments which have been measured at fair value. Thefinancial information is presented in US dollars ("$") and all monetary amountsare rounded to the nearest million ($'million) except when otherwise indicated. (c) Statement of compliance The consolidated financial statements of the Company and all its subsidiarieshave been prepared in accordance with IFRS issued by the InternationalAccounting Standards Board ("IASB") and interpretations issued by theInternational Financial Reporting Interpretations Committee ('IFRIC') of theIASB as adopted by the European Union up to 31 December 2005. Kazakhmys LLC, which previously prepared its financial statements underKazakhstan Accounting Standards, had a transition date to IFRS of 1 January2002. As a result, no reconciliation of equity or results reported underKazakhstan Accounting Standards and equity and results reported under IFRS isreported in the consolidated financial statements. (d) Comparative figures Where a change in the presentational format of the financial information hasbeen made during the year, comparative figures have been restated accordingly. (e) Changes in accounting policies There have been no changes in accounting policies. The accounting policiesadopted are consistent with those of the previous financial years. 2. Segment information A segment is a distinguishable component of the Group that is engaged either inproviding products or services (business segment), or in providing products orservices within a particular economic environment (geographical segment), whichis subject to risks and rewards that are different from those of other segments.Segment information is presented in respect of the Group's business andgeographical segments. From 1 January 2005, the primary format, businesssegments, is based on the Group's management and internal reporting structurefollowing the acquisition by the Group of MKM. 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 mainly income taxes payable, deferred taxes anddividends 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 and zinc concentrate; - gold and silver; and - other by-product metals (lead, rhenium and selenium). • German copper processing operation. Segmental information is also provided in respect of revenues, by destinationand by product. (a) Business segments The Kazakh mining operations, which involve the processing and sale of copperand other metals, is managed as one business segment. The products are subjectto the same risks and returns, exhibit similar long-term financial performanceand are sold through the same distribution channels. The Group mines all thecopper ore it processes and produces substantially all the copper concentrate itprocesses. The Group has a number of activities that exist solely to support themining operations including power generation, coal mining and transportation.These other activities generate less than 10 per cent of total revenues (bothexternal and internal) and the related assets are less than 10 per cent of totalassets. For the purposes of the financial information one business segment is thereforeidentified as a reportable segment in respect of the year ended 31 December2004. From 1 January 2005, the UK operation has primarily purchased its productsfrom the Kazakh mining business and applies an appropriate mark-up prior toonward sale to third party customers. It is therefore regarded as a salesfunction on behalf of the Kazakh mining business and is not considered adistinct business segment. The price at which sales are made to the Company byKazakhmys LLC is the prevailing price of commodities as determined by the LME. At the end of 2004, the Group acquired MKM, which operates from Germany, whereit manufactures copper and copper alloy semi-finished products. MKM facesdifferent risks to the Group's Kazakh mining operations and, therefore, from 1January 2005 the Group operated two distinct business segments. Segmental information in respect of these two business segments for the yearsended 31 December 2005 and 2004 is presented below: Income statement information Year ended 31 December 2005 Year ended 31 December 2004--------------------------------------------------------------------------------------- Kazakh MKM Total Kazakh MKM Total Mining Mining $'million $'million $'million $'million $'million $'million Sales to external 1,740.9 856.6 2,597.5 1,259.5 - 1,259.5customers---------------------------------------------------------------------------------------Gross profit 1,024.8 66.1 1,090.9 754.1 - 754.1Operating costs (204.1) (44.3) (248.4) (175.6) - (175.6)---------------------------------------------------------------------------------------Profit before taxation,finance items andnegative goodwill 820.7 21.8 842.5 578.5 - 578.5---------------------------------------------------------------------------------------Net finance income/(costs) 5.6 (24.8)Recognition of negative - 111.3goodwill---------------------------------------------------------------------------------------Profit before taxation 848.1 665.0Income tax expense (297.3) (223.7)---------------------------------------------------------------------------------------Profit for the year 550.8 441.3--------------------------------------------------------------------------------------- Balance sheet information Year ended 31 December 2005 Year ended 31 December 2004--------------------------------------------------------------------------------------- Kazakh MKM Total Kazakh MKM Total Mining Mining $'million $'million $'million $'million $'million $'million AssetsTangible and intangible 1,598.9 165.8 1,764.7 1,494.1 202.1 1,696.2assetsNon-current investments 2.7 3.1 5.8 2.0 3.3 5.3Operating assets (1) 606.4 220.0 826.4 568.1 134.1 702.2Current investments 356.5 - 356.5 259.9 - 259.9Cash and cash 519.4 2.6 522.0 11.7 62.4 74.1equivalents---------------------------------------------------------------------------------------Segment assets 3,083.9 391.5 3,475.4 2,335.8 401.9 2,737.7---------------------------------------------------------------------------------------Unallocated assets - -Elimination (195.4) (185.6)---------------------------------------------------------------------------------------Total assets 3,280.0 2,552.1---------------------------------------------------------------------------------------LiabilitiesEmployee benefits and 67.3 7.3 74.6 59.8 12.4 72.2provisionsTrade and other payables 129.1 29.5 158.6 102.2 42.4 144.6Borrowings 41.6 202.8 244.4 101.1 186.5 287.6---------------------------------------------------------------------------------------Segment liabilities 238.0 239.6 477.6 263.1 241.3 504.4Unallocated liabilities 371.6 419.4Elimination (195.3) (185.5)---------------------------------------------------------------------------------------Total liabilities 653.9 738.3--------------------------------------------------------------------------------------- (1) Operating assets include inventories, trade and other receivables, prepayments and other current assets and restricted cash. Earnings before interest, tax, depreciation and amortisation ("EBITDA")excluding special items (1) by business segments Year ended 31 December 2005 Year ended 31 December 2004--------------------------------------------------------------------------------------- Kazakh MKM Total Kazakh MKM Total Mining Mining $'million $'million $'million $'million $'million $'million---------------------------------------------------------------------------------------Profit before taxation,finance items andnegative goodwill 820.8 21.7 842.5 578.5 - 578.5Special items:Add: write-off ofproperty, plant andequipment 6.8 - 6.8 30.4 - 30.4Add/less: loss/(gain) ondisposal of property,plant and equipment 8.6 (4.0) 4.6 25.9 - 25.9---------------------------------------------------------------------------------------Profit before taxation,finance items andnegative goodwillexcluding special items 836.2 17.7 853.9 634.8 - 634.8Add: depreciation and 196.7 21.0 217.7 155.6 - 155.6depletionAdd: amortisation 1.5 0.4 1.9 1.0 - 1.0---------------------------------------------------------------------------------------EBITDA excluding special 1,034.4 39.1 1,073.5 791.4 - 791.4items--------------------------------------------------------------------------------------- Net liquid funds/(debt) by business segments Year ended 31 December 2005 Year ended 31 December 2004--------------------------------------------------------------------------------------- Kazakh MKM Total Kazakh MKM Total Mining Mining $'million $'million $'million $'million $'million $'million---------------------------------------------------------------------------------------Cash and cash 519.4 2.6 522.0 11.7 62.4 74.1equivalentsCurrent investments 356.5 - 356.5 259.9 - 259.9Borrowings (2) (41.6) (202.5) (244.1) (101.0) (185.5) (286.5)Inter-segment borrowings(2) - 195.3 195.3 - 185.5 185.5Finance leases - (0.3) (0.3) - (1.0) (1.0)Redeemable preference - - - (0.1) - (0.1)shares---------------------------------------------------------------------------------------Net liquid funds/(debt) 834.3 (4.9) 829.4 170.5 61.4 231.9--------------------------------------------------------------------------------------- (1) EBITDA excluding special items is defined as profit before interest, taxation, depreciation and amortisation, as adjusted for special items. Special items are those items which are non-recurring or variable in nature and which do not impact the underlying trading performance of the business. (2) Borrowings of MKM include amounts borrowed from the Kazakh Mining segment. Capital expenditure, depreciation, write-offs and impairment losses by businesssegments Year ended 31 December 2005 Year ended 31 December 2004--------------------------------------------------------------------------------------- Kazakh MKM Total Kazakh MKM Total Mining Mining $'million $'million $'million $'million $'million $'million---------------------------------------------------------------------------------------Property, plant and 321.2 12.5 333.7 152.8 - 152.8equipmentMine stripping costs 26.5 - 26.5 5.2 - 5.2Intangible assets 4.2 1.0 5.2 4.2 - 4.2---------------------------------------------------------------------------------------Capital expenditure 351.9 13.5 365.4 162.2 - 162.2---------------------------------------------------------------------------------------Depreciation and 196.7 21.0 217.7 155.6 - 155.6depletionAmortisation 1.5 0.4 1.9 1.0 - 1.0---------------------------------------------------------------------------------------Depreciation, depletionand amortisation 198.2 21.4 219.6 156.6 - 156.6Write-offs and 11.8 - 11.8 41.9 - 41.9impairment losses--------------------------------------------------------------------------------------- (b) Segmental information in respect of revenues Revenues by product are as follows: 2005 2004 $'million $'million--------------------------------------------------------------------------------Kazakh MiningCopper cathodes 1,377.2 911.5Silver in granules 147.3 115.2Zinc metal 64.3 5.7Gold bullion 37.7 14.4Copper rods 26.5 134.7Other by-products 14.5 13.5Zinc concentrate 15.0 9.3Tolling from copper 3.4 8.5Tolling from precious metals 3.1 1.2Other revenue 51.9 45.5-------------------------------------------------------------------------------- 1,740.9 1,259.5--------------------------------------------------------------------------------MKMWire 389.1 -Sheet steel and steel strips 252.3 -Tubes and bars 167.3 -Metal trade 47.9 --------------------------------------------------------------------------------- 856.6 ---------------------------------------------------------------------------------Total revenues 2,597.5 1,259.5-------------------------------------------------------------------------------- Provisional pricing Approximately 50% of sales agreements provide for provisional pricing of salesin the month of sale with final pricing settlement based on average LME copperprice for the month following the sale. For the year ended 31 December 2005 gains of $52.4 million (2004: nil), relatingto the difference between provisional pricing and final pricing, have beenincluded within revenues. At 31 December 2005, copper sales totalling 20,881 tonnes remained to be finallypriced and were recorded at that date at an average price of $4,342 per tonnebased on provisional invoices. The gain arising in January 2006 of $7.9 million(2004: nil) relating to contracts provisionally priced in December will berecognised in the consolidated financial statements for the year ended 31December 2006. Revenues by destination are as follows: Year ended 31 December 2005-------------------------------------------------------------------------------- China Europe Other Total $'million $'million $'million $'million--------------------------------------------------------------------------------Sales to third parties 1,303.0 995.1 299.4 2,597.5-------------------------------------------------------------------------------- Year ended 31 December 2004-------------------------------------------------------------------------------- China Europe Other Total $'million $'million $'million $'million--------------------------------------------------------------------------------Sales to third parties 856.4 143.2 259.9 1,259.5-------------------------------------------------------------------------------- 3. Write-offs and impairment losses 2005 2004 $'million $'million-----------------------------------------------------------------------------------Write off of plant, property and equipment 6.8 30.3Provisions against prepayment and other 3.8 -current assetsImpairment for investments 1.8 -Write off of goodwill 0.4 -Provisions against trade and other receivables 0.3 13.3Release of provisions for obsolete inventories (1.3) (1.7)------------------------------------------------------------------------------------ 11.8 41.9------------------------------------------------------------------------------------ 4. Finance income and finance costs 2005 2004 $'million $'million----------------------------------------------------------------------------------Finance income:Interest income 30.6 13.8Foreign exchange gains 56.8 56.5----------------------------------------------------------------------------------Total finance income 87.4 70.3----------------------------------------------------------------------------------Finance costs:Interest expense (8.8) (4.9)Interest on employee obligations (2.0) (1.6)Unwinding of discount on provisions (3.2) (2.7)----------------------------------------------------------------------------------Finance costs before foreign exchange (14.0) (9.2)lossesForeign exchange losses (67.8) (85.9)----------------------------------------------------------------------------------Total finance costs (81.8) (95.1)---------------------------------------------------------------------------------- 5. Income tax Major components of income tax expense for the years presented are: 2005 2004 $'million $'million----------------------------------------------------------------------------------Current income taxCorporate income tax - current period 281.0 238.0Corporate income tax - prior periods (7.7) -Excess profits tax 27.0 15.9---------------------------------------------------------------------------------- 300.3 253.9----------------------------------------------------------------------------------Deferred income taxCorporate income tax - current period (8.1) (28.6)Excess profits tax 5.1 (1.6)---------------------------------------------------------------------------------- (3.0) (30.2)----------------------------------------------------------------------------------Income tax expense 297.3 223.7---------------------------------------------------------------------------------- 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: 2005 2004 $'million $'million----------------------------------------------------------------------------------Profit before taxation 848.1 665.0 At statutory income tax rate of 30% 254.4 199.5Expenditure not allowable for income tax 8.6 14.0purposesOverprovided in previous years (7.7) -Effect of higher tax rate in Germany 0.7 -Change in the tax rate in Germany (2.7) -Recognition of negative goodwill - (33.4)Transactions with related parties - 23.9Unremitted overseas earnings 11.9 5.4Excess profits tax 32.1 14.3----------------------------------------------------------------------------------At effective income tax rate of 35.1% (2004:33.6%) 297.3 223.7---------------------------------------------------------------------------------- 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% (2004: 38.13%) 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 37% (2004: 18%). 6. Earnings per share The earnings per share ("EPS") calculation has assumed that the number ofordinary shares issued pursuant to share exchange agreements in relation to theacquisition of Kazakhmys LLC have been in issue throughout the two year periodended 31 December 2005 consistent with the pooling of interests method used toaccount for combinations of businesses under common control. The EPS calculationhas also assumed that the share split that occurred on 26 September 2005, inwhich the Company's share capital was redenominated into ordinary shares of 20pence each, was in effect for all prior periods. The Directors believe that this basis for the EPS calculation provides a morerelevant performance measure of the Group than using an EPS calculation whichreflected shares issued based on the actual date of issue. 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. 2005 2004 $'million $'million---------------------------------------------------------------------------------- Net profit attributable to equity shareholders 538.8 429.8of the Company 2005 2004 No. No.Number of sharesWeighted average number of ordinary shares of 418,105,627 403,725,75020 pence each for EPS calculation----------------------------------------------------------------------------------EPS-basic and diluted $1.29 $1.06---------------------------------------------------------------------------------- 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 between 2004 and 2005. The following shows the reconciliation of Underlying Profit from the reportedprofit and the share data used in the computations for EPS based on UnderlyingProfit: 2005 2004 $'million $'million----------------------------------------------------------------------------------Net profit attributable to equity shareholders 538.8 429.8of the CompanySpecial items:Recognition of negative goodwill - (111.3)Write-off of property, plant and equipment 6.8 30.3Loss on disposal of property, plant and 4.6 25.9equipmentTax effect of non-recurring items (0.5) 2.9Minority interest effect of non-recurring 0.1 (1.5)items----------------------------------------------------------------------------------Underlying Profit 549.8 376.1---------------------------------------------------------------------------------- 2005 2004 No. No.Weighted average number of ordinary shares of 418,105,627 403,725,75020 pence each for EPS based on UnderlyingProfit calculation ----------------------------------------------------------------------------------EPS based on Underlying Profit - basic and $1.31 $0.93diluted---------------------------------------------------------------------------------- 7. Dividends paid and proposed The dividend per share disclosures below have been calculated using the numberof shares in issue at the date of payment after reflecting the share split thatoccurred on 26 September 2005 for comparability purposes. The dividends declaredand paid during the years ended 31 December 2005 and 2004 are as follows: Per share Amount $ $'millionYear ended 31 December 2005 Declared by the Company:Interim dividend in respect of year ended 31 December 2005 0.27 110.0Declared by Kazakhmys LLC:Interim dividend in respect of year ended 31 December 2004 0.13 52.2-------------------------------------------------------------------------------- 0.40 162.2-------------------------------------------------------------------------------- Year ended 31 December 2004 Declared by Kazakhmys LLC:Interim dividend in respect of year ended 31 December 2004 0.13 53.0-------------------------------------------------------------------------------- The dividends shown above are those that have been paid and proposed by theCompany, in respect of the period following the share exchange, and KazakhmysLLC for the period prior to the share exchange. This presentation is consistentwith the pooling of interests method used to account for combinations ofbusinesses under common control. Dividend declared by Kazakhmys LLC On 7 September 2004, Kazakhmys LLC paid an interim dividend in respect of theyear ended 31 December 2004 of $53.0 million which was paid to shareholders onthe register of Kazakhmys LLC as at 6 September 2004. On 24 February 2005,Kazakhmys LLC paid an interim dividend in respect of the year ended 31 December2004 of $52.2 million, which was paid to shareholders on the register ofKazakhmys LLC as at 31 October 2004. Accordingly, as the share exchangeagreement was not effective until 23 November 2004, these dividends were paiddirectly to Kazakhmys LLC's former shareholders, rather than to the Company. Thedividends are shown in the financial information as cash outflows for the Group,consistent with the pooling of interests method of accounting. 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. Dividends declared after the balance sheet date Per share Amount $ $'millionProposed by the Directors on 29 March 2006 (notrecognised as a liability as at 31 December2005):Final dividend in respect of the year ended 31 0.36 168.3December 2005 In relation to the dividend proposed by the Directors on 29 March 2006 the UKpounds sterling per share amount is 20.6856 pence. 8. Share capital and reserves (a) Authorised and allotted share capital A pooling of interests method of accounting has been applied in the presentationof the financial information. This method presents the results of the Group asif the Company had always been the parent company. This has the effect that,despite the Company not being incorporated until 15 July 2004, the ordinaryshare capital shown throughout the period of the financial information is thatof the Company resulting from the share exchange with the previous shareholdersof Kazakhmys LLC. In the statutory accounts of the Company for the year ended 31 December 2004,the share capital as at 1 January 2004, resulting from the adoption of thepooling of interests method of accounting, was estimated based on the number ofshare swaps expected to be undertaken pursuant to share exchange agreements. Asthe number of share swaps undertaken was finalised during 2005, the sharecapital as at 1 January 2004 was restated to take account of those additionalshares issued. On 23 September 2005, a share split took place in which each ordinary share of £5 each was sub-divided into 25 ordinary shares of 20 pence each. Number £'million $'million----------------------------------------------------------------------------Authorised - 31 December 2005Ordinary shares of 20 pence each 750,000,000 150.0 -Special share of £1.00 each 1 - -----------------------------------------------------------------------------At 31 December 2005 750,000,001 150.0 -----------------------------------------------------------------------------Allotted and called up sharecapitalAs at 31 December 2004 16,149,030 80.7 151.1----------------------------------------------------------------------------As at 31 December 2005 467,474,200 93.5 173.3---------------------------------------------------------------------------- The changes in share capital, including the impact of the share split are shownbelow: Number of Share Share shares capital premium Total $'million $'million $'million------------------------------------------------------------------------------------Ordinary shares of £5 each issued andfully paid Shares issued to initial shareholders 2 - - -Shares issued pursuant to share exchange 16,149,028 151.1 - 151.1agreements (1)------------------------------------------------------------------------------------Number of shares in issue at 1 January2004, 31 December 2004 and 23 September2005 16,149,030 151.1 - 151.1------------------------------------------------------------------------------------Share capital following the share split: Number of Share Share shares capital premium Total $'million $'million $'million------------------------------------------------------------------------------------Ordinary shares of 20 pence eachissued and fully paidNumber of shares in issue at 23 403,725,750 151.1 - 151.1September 2005Shares issued pursuant to transactionwith Kinton Trade Limited 5,314,425 1.9 32.5 34.4Shares issued pursuant to theCompany's Listing (net of expenses$57.2 million) 58,434,025 20.3 470.9 491.2------------------------------------------------------------------------------------ 467,474,200 173.3 503.4 676.7------------------------------------------------------------------------------------The special share is analysed as follows:Special share of £1.00At 1 January 2004 - - - -Issue of special share 1 - - -------------------------------------------------------------------------------------At 31 December 2004 1 - - -Redemption of special share (1) - - -------------------------------------------------------------------------------------At 31 December 2005 - - - ------------------------------------------------------------------------------------- (1) Includes 80 ordinary shares of £5 each which were actually issued on 29December 2005 as 2,000 ordinary shares of 20 pence each. These shares have beenincluded in the proforma number of shares issued pursuant to the share exchangeagreements to reflect the pooling of interests method of accounting for thetransaction rather than its legal form. (b) Ordinary shares (i) Year ended 31 December 2004 On incorporation, the Company issued one ordinary share of £1 each to each ofthe two subscribers to the Memorandum of Association. On 28 September 2004,eight ordinary shares of £1 each were issued at par. Pursuant to a specialresolution of the Company dated 22 October 2004, all the issued and unissuedordinary shares of £1 each of the Company were consolidated and divided into10,000 ordinary shares of £5 each and the authorised share capital of theCompany was increased to £100,050,000 by the creation of 19,990,000 ordinaryshares of £5 each and 50,000 redeemable preference shares of £1 each. Pursuantto a written resolution dated 19 November 2004, the authorised share capital ofthe Company was increased from £100,050,000 to £100,050,001 by the creation ofone special share of £1. 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. (ii) Year ended 31 December 2005 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; and • increase the authorised share capital of the Company from £100,050,001 to £150,000,001 by the creation of 249,750,000 ordinary shares of 20 pence each. On 26 September 2005, the Company issued 5,314,425 ordinary shares of 20 penceeach in consideration for the transfer to it of 127,546,200 units in KazakhmysLLC from Kinton Trade Limited. This was an exchange rate equivalent to thatapplied pursuant to the share exchange offer made by the Company in November2004 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 were ordinary shares of 20 pence each sold by existingshareholders. Gross proceeds of $548.4 million (£315.5 million) were received bythe Company following the issue of the new ordinary shares. (c) Special share On 19 November 2004, a special share of £1 was issued to Perry Partners S.A. inconnection with the refinancing by Credit Suisse First Boston, London Branch, ofdebt owed by Perry Partners S.A. The beneficial owner of the share was PerryPartners S.A. although the holder was Credit Suisse First Boston, London Branch,by way of a pledge agreement. The special share was the sole share of its class,and whilst not giving any form of control over the Company, it gave the holderthe right of veto over a limited number of transactions by the Company. Thespecial share did not qualify for dividends. On the Listing of the Company, theconsent rights attaching to it ceased to apply. The special share was redeemedon 17 November 2005. 9. Reconciliation of profit before taxation to net cash inflow from operatingactivities 2005 2004 $'million $'million--------------------------------------------------------------------------------Profit before taxation 848.1 665.0Interest income (30.6) (13.8)Interest expense 8.8 4.9Depreciation and depletion 217.7 155.6Amortisation 1.9 1.1Recognition of negative goodwill - (111.3)Write off and impairment losses 11.8 41.8Unrealised foreign exchange loss 0.3 13.3Loss on disposal of property, plant and 4.6 25.9equipment--------------------------------------------------------------------------------Operating cash flows before changes in working 1,062.6 782.5capital and provisionsIncrease in inventories (97.1) (28.5)(Increase)/decrease in trade and other (69.5) 79.4receivablesDecrease in prepayments and other current assets 18.0 0.1Decrease/(increase) in restricted cash 29.0 (30.7)Increase/(decrease) in trade and other payables 20.3 (65.1)Increase in employee benefits 1.2 1.1Increase/(decrease) in provisions 3.4 (4.1)--------------------------------------------------------------------------------Cash flows from operations before income 967.9 734.7taxes and interest Income taxes paid (333.3) (164.2) Interest paid (9.0) (2.9)--------------------------------------------------------------------------------Net cash inflow from operating activities 625.6 567.6-------------------------------------------------------------------------------- 10. Movement in net liquid funds At Other non At 1 January Acquisition Net exchange cash 31 December 2004 Cash flow of MKM translation movements 2004 $'million $'million $'million $'million $'million $'million------------------------------------------------------------------------------------------------------Cash and cash 7.7 62.7 - 3.7 - 74.1equivalentsCurrent investments 260.0 (3.6) - 25.4 (21.9) 259.9Borrowings (169.7) 153.3 (82.1) 8.4 (10.9) (101.0)Finance leases - - (1.0) - - (1.0)Redeemable preference - - - - (0.1) (0.1)shares------------------------------------------------------------------------------------------------------Net liquid funds 98.0 212.4 (83.1) 37.5 (32.9) 231.9------------------------------------------------------------------------------------------------------ At Other non At 1 January Net exchange cash 31 December 2005 Cash flow translation movements 2005 $'million $'million $'million $'million $'million-----------------------------------------------------------------------------------------Cash and cash 74.1 453.0 (5.1) - 522.0equivalentsCurrent investments 259.9 98.8 (8.6) 6.4 356.5Borrowings (101.0) 54.0 2.5 (4.4) (48.9)Finance leases (1.0) 0.7 0.1 - (0.2)Redeemable preference (0.1) 0.1 - - -shares-----------------------------------------------------------------------------------------Net liquid funds 231.9 606.6 (11.1) 2.0 829.4----------------------------------------------------------------------------------------- 11. 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 2005 of 20.6856 pence per share (equivalent to 36.0 US cents pershare). Subject to approval of shareholders at the annual general meeting to beheld on 23 May 2006, this dividend shall be paid on 26 May 2006. (b) Capital contribution to Kazakhmys LLC On 31 January 2006, the Company made a capital contribution of $185.7 million toKazakhmys LLC. The offer period for subscribing shareholders to take up theright of minority interests who did not participate in the capital contribution,as permitted by legislation, closed on 14 March 2006. The Company's interest inKazakhmys LLC resulting from this capital contribution increased from 98.68% asat 31 December 2005 to 99.08%. (c) Option agreement with Executive Chairman On 14 March 2006, the Company announced that a vehicle wholly owned by theCompany's executive Chairman, Mr Kim, had agreed to acquire a 25% stake in ENRC Kazakhstan Holding B.V.('EKH'), the holding company for certain assets of the Eurasia Natural Resourcesgroup's metals and mining business. EKH primarily operates in Kazakhstanproducing, in particular, chrome, iron ore and alumina. The Company has beengiven the benefit of a call option in respect of Mr Kim's shareholding in EKH.The terms of the call option allow the Company, at its absolute discretion, from1 January 2007 to and until 31 December 2007, to call for Mr Kim's interest inEKH to be transferred to the Company for a consideration representing 100% ofthe initial investment of $751 million plus a 10% margin (reflecting the risk ofthe initial investment) and the actual financing and transaction costs incurredby Mr Kim. This is provided that, as required by the Listing Rules, thisconsideration and the terms of the option are determined by an independentadviser to be fair and reasonable so far as the remaining shareholders of theCompany are concerned. Mr Kim is not permitted to dispose of his interest in EKHbefore 1 January 2008 without the consent of the Company. Should the Companyexercise the call option, then it will comply with all class tests and relatedparty rules relevant to the Company. Any such decision would be taken by anindependent committee of the Board. 12. Announcement based on audited accounts The financial information set out herein does not constitute the Company'sstatutory accounts for the years ended 31 December 2005 or 2004 but is derivedfrom these accounts. The statutory accounts for the year ended 31 December 2004have been delivered to the Registrar of Companies and those for 2005 will bedelivered following the Company's AGM on 23 May 2006. The auditors have reportedon those accounts and their report was unqualified and did not containstatements under Sections 237(2) or (3) Companies Act 1985. NOTICE OF FINAL DIVIDEND Notice is hereby given that a final dividend on the Company's ordinary sharecapital in respect of the year ended 31 December 2005 is proposed as follows:-------------------------------------------------------------------------------------Amount proposed in UK pounds sterling (subject to approval by 20.6856 pence pershareholders at the AGM) ordinary share-------------------------------------------------------------------------------------Amount to be paid in US dollars (subject to approval by 36.0 US cents pershareholders at the AGM) ordinary share-------------------------------------------------------------------------------------Currency conversion dates 23/24/27/28/29 March 2006-------------------------------------------------------------------------------------Ex-dividend on the London Stock Exchange from the commencement 26 April 2006of trading on -------------------------------------------------------------------------------------Record date 28 April 2006-------------------------------------------------------------------------------------Dividend warrants posted 25 May 2006-------------------------------------------------------------------------------------Payment date of dividend 26 May 2006------------------------------------------------------------------------------------- The Directors propose, subject to the passing of the resolution at the AGMrelating to the adoption of revised Articles of Association, to pay the finaldividend in US dollars at 36.0 US cents per ordinary share. Subject toshareholders approving this recommendation at the AGM, the dividend will be paidon 26 May 2006 to shareholders on the register at close of business on 28 April2006. Shareholders may elect to receive their dividends in UK pounds sterling bycompleting a Currency Election Form, a copy of which may obtained fromComputershare Investor Services PLC, the Company's registrars, and returning itto them by 12 May 2006. By order of the Board Matthew Hird Company Secretary 29 March 2006 PRODUCTION AND SALES FIGURES Historical production and sales figures for the year ended 31 December 2004 aretaken from the Price Range Prospectus without material modification. SUMMARY OF SIGNIFICANT PRODUCTION AND SALES FIGURES ------------------------------------------------------------------------------ 2005 2004 Kazakh Mining: Ore mined (kt) 39,446 35,376 Copper content in ore mined (%) 1.03 1.30 ------------------------------------------------------------------------------Copper cathode production (kt): From own concentrate 339 405 From purchased concentrate 48 3 Total Kazakhmys copper cathodes produced 387 408 (excluding tolling) (kt) Tolling (kt) 10 20 Total Kazakhmys copper cathodes produced 397 428 (including tolling) (kt) ------------------------------------------------------------------------------Total Kazakhmys copper cathodes and copper 370 414 rods sold (kt) ------------------------------------------------------------------------------MKM: ------------------------------------------------------------------------------Wire sales (t) 119,368 - Flat sales (t) 57,866 - Tubes and Bars sales (t) 40,773 - ------------------------------------------------------------------------------Total MKM sales (t) 218,007 - ------------------------------------------------------------------------------- MINING Metal Mining --------------------------------------------------------------------------------------- Ore Mined Copper Zinc Gold Silver 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 kt kt % % % % g/t g/t g/t g/t----------------------------------------------------------------------------------------North 3,516 3,916 0.77 0.76 - - - - 10.48 11.73South 7,281 8,706 0.82 1.03 - - - - 13.44 21.22Stepnoy 3,481 - 0.76 - - - - - 17.27 -East 5,776 4,415 0.95 1.16 - - - - 24.26 26.59West 3,185 3,157 0.61 0.95 - - - - 18.25 23.62Annensky 4,807 4,453 1.15 1.35 - - - - 21.67 20.54---------------------------------------------------------------------------------------TOTAL ZHEZKAZGAN COMPLEX 28,046 24,647 0.87 1.06 - - - - 17.73 20.86---------------------------------------------------------------------------------------Kounrad 3,508 3,626 0.28 0.28 - - - - 1.62 1.68Shatyrkul 473 227 2.24 1.67 - - 0.37 0.34 2.62 2.70Sayak I & Sayak III 1,645 1,213 1.19 1.07 - - 0.30 0.33 6.02 6.09Nurkazgan 247 609 0.40 1.85 - - 0.15 0.33 1.41 2.87---------------------------------------------------------------------------------------TOTAL BALKHASH 5,873 5,675 0.70 0.67 - - 0.30(1)0.33(1) 2.99 2.79COMPLEX ---------------------------------------------------------------------------------------Orlovskoe 1,667 1,666 4.31 4.47 3.91 3.76 0.55 0.52 54.20 48.40Belousovskoe 247 293 0.91 0.90 2.84 3.72 0.45 0.58 46.68 52.22Irtyshskoe 448 455 1.07 1.21 2.74 2.64 0.31 0.33 44.72 43.60Nikolaevskoe 2,019 2,002 1.06 2.94 2.01 1.05 0.19 0.20 18.37 17.99Yubileyno - 322 358 3.67 3.82 4.26 4.83 0.65 0.57 42.46 46.18Snegirikhinskoe Artemyvevskoe 379 - 1.72 - 6.65 - 1.81 - 184.78 -Shemonaikhinskoe - 206 - 3.08 - 6.74 - 0.81 - 79.03Abyz 445 74 1.07 0.15 3.90 0.82 4.91 1.51 54.55 17.94---------------------------------------------------------------------------------------TOTAL EAST 5,527 5,054 2.23 3.20 3.28 2.74 0.84 0.41 48.31 36.79REGION ---------------------------------------------------------------------------------------TOTAL KAZAKHMYS 39,446 35,376 1.03 1.30 3.28 2.74 0.68 0.39 19.81 20.23 (2) (2) (3) (3) --------------------------------------------------------------------------------------- (1) Production only from Shatyrkul, Sayak I & Sayak III, and Nurkazgan mines inBalkhash Complex. (2) Production only from East Region. (3) Production only from Balkhash Complex (excluding Kounrad mine) and EastRegions. Coal Mining --------------------------------------------------------------------------- Coal mined Waste stripped Strip ratio 2005 2004 2005 2004 2005 2004 kt kt kbcm kbcm bcm:t bcm:t---------------------------------------------------------------------------Borlynskoe 5,745 5,924 6,207 6,427 1.08 1.08Kuu - Chekinskoe 1,262 1,376 4,631 5,392 3.67 3.92---------------------------------------------------------------------------TOTAL KAZAKHMYS 7,007 7,300 10,838 11,819 1.55 1.62--------------------------------------------------------------------------- PROCESSING Copper Processing -------------------------------------------------------------------------------- Copper concentrate produced Copper in concentrate 2005 2004 2005 2004 kt kt % %--------------------------------------------------------------------------------Zhezkazgan No.1 186 219 39.8 39.9Zhezkazgan No.2 234 238 39.4 38.6Satpaev 179 211 27.3 26.1--------------------------------------------------------------------------------TOTAL ZHEZKAZGAN 599 668 35.9 35.1COMPLEX --------------------------------------------------------------------------------Balkhash 181 175 18.2 17.2--------------------------------------------------------------------------------TOTAL BALKHASH 181 175 18.2 17.2COMPLEX --------------------------------------------------------------------------------Orlovskoe 321 345 20.2 19.5Belousovskoe 12 14 14.6 14.6Irtyshskoe 23 28 14.1 15.7Nikolaevskoe 121 363 14.6 17.4Karagaily 115 - 2.9 ---------------------------------------------------------------------------------TOTAL EAST REGION 592 750 15.3 18.2--------------------------------------------------------------------------------Own copper 44 - 16.2 -concentrate processed by third party --------------------------------------------------------------------------------TOTAL KAZAKHMYS own 1,416 1,593 24.4 25.2concentrate --------------------------------------------------------------------------------Purchased 268 14 19.4 21.4concentrate --------------------------------------------------------------------------------TOTAL KAZAKHMYS own 1,684 1,607 23.6 25.2and purchased concentrate -------------------------------------------------------------------------------- Zinc and Precious Metals Processing ------------------------------------------------------------------------------ Zinc concentrate Zinc in Silver Gold produced concentrate 2005 2004 2005 2004 2005 2004 2005 2004 kt kt % % koz koz koz koz------------------------------------------------------------------------------Zhezkazgan No.1 - - - - - - - -Zhezkazgan No.2 - - - - - - - -Satpaev - - - - - - - -------------------------------------------------------------------------------TOTAL ZHEZKAZGAN - - - - - - - -COMPLEX ------------------------------------------------------------------------------Balkhash - - - - - - - -------------------------------------------------------------------------------TOTAL BALKHASH - - - - - - - -COMPLEX ------------------------------------------------------------------------------Orlovskoe 106 92 43.2 45.5 115.7 101.8 1.1 1.0Belousovskoe 11 18 43.6 42.4 154.5 157.3 1.7 1.4Irtyshskoe 17 15 37.3 40.9 109.7 110.4 0.5 0.7Nikolaevskoe 53 25 38.1 40.2 100.5 93.2 0.7 0.7Karagaily 15 - 36.0 - 194.3 - 16.2 - YSR (KazZinc) 15 - 34.4 - - - - -Artemjevka 14 - 51.1 - - - - -(KazZinc) ------------------------------------------------------------------------------TOTAL EAST REGION 231 150 40.9 43.8 119.0 107.9 2.0 1.0------------------------------------------------------------------------------TOTAL KAZAKHMYS 231 15040.9 (1)43.8 (1) 119.0 107.9 2.0 1.0------------------------------------------------------------------------------ (1) Production from own concentrators within East Region. Copper Smelter/Refinery- copper cathodes production ---------------------------------------------------------------------------------- Concentrate smelted Copper in concentrate Copper cathodes 2005 2004 2005 2004 2005 2004 kt kt % % kt kt----------------------------------------------------------------------------------Own concentrate 667 687 33.8 34.4 227 235Purchased 31 3 25.4 20.5 8 1concentrate Other (1) 192 119 3.2 3.8 - -----------------------------------------------------------------------------------TOTAL ZHEZKAZGAN COMPLEX 890 809 26.9 29.8 235 236----------------------------------------------------------------------------------Own concentrate 706 966 16.5 18.4 112 170Purchased 232 1 18.5 22.3 40 2concentrate Other (1) 146 106 1.3 3.7 - -----------------------------------------------------------------------------------TOTAL BALKHASH 1,084 1,073 14.9 16.9 152 172----------------------------------------------------------------------------------TOTAL KAZAKHMYS (excluding tolling) 1,974 1,882 20.3 22.5 387 408----------------------------------------------------------------------------------Tolling 11 117 - - 10 20----------------------------------------------------------------------------------TOTAL KAZAKHMYS 1,985 1,999 20.3 22.4 397 428(including tolling) ---------------------------------------------------------------------------------- (1) Includes materials recovered (slag, scrap, etc.) reprocessed at bothZhezkazgan and Balkhash. Copper Smelter/Refinery- copper rod and acid production -------------------------------------------------------------------------------- Copper rod Acid production 2005 2004 2005 2004 kt kt kt kt--------------------------------------------------------------------------------Zhezkazgan 9 49 245 259Balkhash - - - ---------------------------------------------------------------------------------TOTAL KAZAKHMYS 9 49 245 259-------------------------------------------------------------------------------- Zinc Smelter/Refinery- zinc metal production ----------------------------------------------------------------------------- Zinc concentrate Zinc in concentrate Zinc metal smelted 2005 2004 2005 2004 2005 2004 kt kt % % kt kt-----------------------------------------------------------------------------TOTAL KAZAKHMYS (all Balkhash) 186 77 41.2 44.6 51 18----------------------------------------------------------------------------- Precious metal production -------------------------------------------------------------------------------- Silver Gold 2005 2004 2005 2004 koz koz koz koz--------------------------------------------------------------------------------Kazakhmys 20,426 17,715 101 54Tolling 90 3 45 32--------------------------------------------------------------------------------TOTAL KAZAKHMYS (including tolling) 20,516 17,718 146 86-------------------------------------------------------------------------------- Other production - Kazakhmys -------------------------------------------------------------------------------- 2005 2004--------------------------------------------------------------------------------Electricity power space (MJ) 6,441 5,966Heating power (KHcal) 4,013 4,014Enamel wire (t) 506 412Lead dust (t) 13,697 13,727-------------------------------------------------------------------------------- KAZAKHMYS SALES -------------------------------------------------------------------------------- 2005 2004 -------------------------------------------------------------------------------- kt (1) $'000 kt (1) $'000--------------------------------------------------------------------------------Copper cathode 362 1,377,199 366 911,523Copper rod 8 26,535 48 134,658--------------------------------------------------------------------------------TOTAL COPPER SALES 370 1,403,734 414 1,046,181--------------------------------------------------------------------------------Zinc metal in 17 14,986 18 9,262concentrate Zinc metal 52 64,326 6 5,724Silver (koz) 20,174 147,267 17,619 115,225Gold (koz) 84 37,722 42 14,393-------------------------------------------------------------------------------- (1) Kilotonne unless stated Average Realised Prices ---------------------------------------------------------------------------------- 2005 2004----------------------------------------------------------------------------------Copper ($/t) 3,794 2,527Zinc ($/t) 1,231 914Silver ($/oz) 7.30 6.54Gold ($/oz) 449 344---------------------------------------------------------------------------------- MKM PRODUCTION AND SALES --------------------------------------------------------------------------------- 2005 --------------------------------------------------------------------------------- Production Sales t t---------------------------------------------------------------------------------Wire rod 88,913 88,047Drawn wire 31,406 31,321---------------------------------------------------------------------------------Total wire 120,319 119,368---------------------------------------------------------------------------------Pre-rolled 4,942 4,907Sheets 12,176 11,695Strips 41,563 41,264---------------------------------------------------------------------------------Total flat 58,681 57,866---------------------------------------------------------------------------------Tubes 19,008 19,151Bars 21,419 21,622---------------------------------------------------------------------------------Total tubes and bars 40,427 40,773---------------------------------------------------------------------------------TOTAL MKM 219,427 218,007--------------------------------------------------------------------------------- Glossary AGM or Annual General Meeting The Annual General Meeting of the Company which is scheduled to be held onTuesday 23 May 2006 at 2.00 pm in the London Marriott Hotel, County Hall,Westminster Bridge Road, London SE1 7PB AproApro Limited, a company incorporated in England, and a related party of theGroup bcm:tBank cubic metres excavated to recover one tonne of coal Board or Board of DirectorsThe board of directors of the Company Capital EmployedThe aggregate of equity attributable to shareholders, minority interests andborrowings Cash cost of copper after by-productsThe US dollar cash cost of copper per tonne after revenues arising fromby-products Company or KazakhmysKazakhmys PLC DirectorsThe directors of the Company Dollar or $United States dollars, the currency of the United States of America EBITDAEarnings before interest, tax, depreciation and amortisation EPSEarnings per share EPS based on Underlying ProfitEarnings per share based on Underlying Profit is calculated by dividingUnderlying Profit by the weighted average number of ordinary shares of 20 penceeach outstanding during the year. EPTExcess profits tax Free Cash FlowNet cash flows from operating activities less sustaining capital expenditure ontangible and intangible assets and investment in mine stripping costs FTSE 100Financial Times Stock Exchange top 100 companies g/tgrammes per tonne The GroupKazakhmys PLC and its subsidiary companies HSE CommitteeHealth Safety and Environment Committee IASBInternational Accounting Standards Board IFRICInternational Financial Reporting Interpretations Committee IFRSInternational Financial Reporting Standards Kazakh Mining businessThe Kazakh mining operations, which involve the processing and sale of copperand other metals Kazakhmys LLCKazakhmys Corporation LLC, the Group's principal operating subsidiary inKazakhstan KazakhstanThe Republic of Kazakhstan kbcmThousand bank cubic metres kozThousand ounces ktThousand tonnes ListingThe listing of the Company's ordinary shares on the London Stock Exchange on 12October 2005 LMELondon Metals Exchange LSELondon Stock Exchange MKMMansfelder Kupfer und Messing GmbH, the Group's operating subsidiary in theFederal Republic of Germany MJMegajoules of electric power ROCEReturn On Capital Employed, defined as profit before taxation, finance items andnegative goodwill over capital employed $/t , $/tonnesUS dollars per tonne Special ItemsThose items which are non-recurring or variable in nature and which do notimpact the underlying trading performance of the business. Special Items are setout in note 2(a) to the financial information ttonnes Tenge or KZTThe official currency of the Republic of Kazakhstan Underlying ProfitProfit for the year after adding back items which are non-recurring or variablein nature and which do not impact the underlying trading performance of thebusiness and their resultant tax and minority interest effects. This information is provided by RNS The company news service from the London Stock Exchange

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