Final Results

20 March 2013

Eurasian Natural Resources Corporation PLC

Announcement of 2012 Preliminary Results

Financial Highlights for 2012

·; Financial performance impacted by poor pricing environment.

·; Revenue declined by 18% to US$6,320 million.

·; Cost of sales up 6% to US$3,723 million, as a result of higher depreciation.

·; Underlying EBITDA fell by 45% to US$1,887 million; Underlying EBITDA margin of 29.9%.

·; Non-cash charges for impairment and an onerous contract provision totalling approximately US$1.5 billion, primarily related to Aluminium of Kazakhstan, the Group's contract with RUSAL, and Boss Mining.

·; Basic loss per share of US 62 cents (2011 earnings per share: US 153 cents); earnings per share (adjusted) of US 41 cents (2011: US 155 cents).

·; No final dividend proposed; full year payout ratio of 16% based on interim dividend of US 6.5 cents.

·; Gross available funds of US$743 million; borrowings of US$5,833 million. US$3,000 million of additional facilities obtained since the start of 2012.

Business Highlights for 2012

·; Solid cash flow generation from assets in Kazakhstan; record production volumes for saleable ferroalloys, coal, electricity and copper.

·; Cost control and productivity enhancing initiatives kept unit costs for key products well below initial guidance in the Ferroalloys and Iron Ore Divisions.

·; Capital expenditure cash flows of US$2,345 million; progressed development of the New Aktobe Ferroalloys Plant, copper oxide expansion, Frontier, Chambishi Metals PLC and the expansion of logistics capacity.

·; Consolidation of African copper assets giving ENRC full control to deliver on its strategy while building stronger corporate governance: Frontier and Roan Tailings Reclamation Project ('RTR') processing plants acquired from First Quantum Minerals ('FQM'), award of the Frontier mining licence by the Government of the Democratic Republic of the Congo ('DRC') and acquisition of the remaining 49.5% of Camrose.

·; Acquisition of the outstanding shares in Shubarkol Komir JSC, a high quality, producing coal asset in Kazakhstan.

Outlook for 2013

·; Capital expenditure cash flows of US$1,747 million planned for 2013; emphasis on three of the Group's five key growth projects, namely the New Aktobe Ferroalloys Plant, the Frontier Mine and RTR.

·; Production expected to be at full available capacity across all Divisions; copper volumes expected to double as Frontier is fully commissioned.

·; Ferrochrome market continues to be fundamentally over-supplied; pricing to be impacted by interplay of chrome exports and power issues in South Africa, and cost push pressures on all producers.

·; Easing of unit cost pressures expected and competitive advantage of low-cost position in Kazakhstan to be maintained.

·; Effective tax rate for the year expected to be around 35% - 37% in 2013; social spend to decline to approximately US$50 million.

"2012 was a challenging year for the Group, with deteriorating prices having materially impacted our earnings. However, management's performance partially countered these declines by containing inflationary pressures and maximising output from our key Divisions in Kazakhstan.

It is disappointing to have to announce write-downs and provisions across a number of the Group's assets, which have resulted in a basic loss per share for the year. Approximately 60% of this charge relates to the Group's alumina business and our onerous contract with RUSAL, which is primarily a reflection of the current state of the aluminium market.

The investment of US$2.3 billion into our assets in 2012 is important to our success as it will support our low cost position in Kazakhstan, bring new copper volumes in 2013 and reinforce our market-leading position in ferrochrome. Having completed our capital expenditure review in November, our investment spend going forward will have an even sharper focus, with emphasis on five core growth projects over the next five years.

The management of our balance sheet remains a priority and we have a firm plan in place to fund our immediate development plans, increase production volumes and reduce debt to a more sustainable level in the medium-term. We will also continue with the implementation of rigorous cost control and productivity enhancing initiatives.

Although volatility around pricing will continue, we expect strong demand for our products in the year ahead."

Felix J Vulis, Chief Executive Officer

RESULTS OF OPERATIONS (Unaudited)

The following table sets out selected financial information of the Group's operations for the twelve months ended 31 December 2012 and 31 December 2011:

The information set out in this announcement relates to the twelve months ended 31 December 2012 and, unless otherwise stated, is compared to the corresponding period of 2011, the twelve months ended 31 December 2011. The Chief Executive Officer's Outlook statement includes an update for the period since 31 December 2012. Where applicable in the document all references to 't' are to metric tonnes, to 'kt' are to thousand metric tonnes, and 'mt' to million metric tonnes unless otherwise stated. Unless stated otherwise, statements relating to market data contained in this announcement are based on external sources, for example research institutes and industry bodies and are derived from actual and/or estimated data relating to 2012 and are prepared in 2012 or early 2013.

Eurasian Natural Resources Corporation PLC ('ENRC') will announce its 2012 Preliminary Results on Wednesday, 20 March 2013. There will be a presentation to investors and analysts, commencing at 09.30 (London time) in the Forum room at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS, United Kingdom. There will be a simultaneous webcast and audiocast on the ENRC website (www.enrc.com).

Forward-looking statements

This announcement includes statements that are, or may be deemed to be, 'forward-looking statements'. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms 'believes', 'estimates', 'plans', 'projects', 'anticipates', 'expects', 'intends', 'may', 'will', or 'should' or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include matters that are not historical facts or are statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial condition, liquidity, prospects, growth, strategies, and the industries in which the Group operates. Forward-looking statements are based on current plans, estimates and projections, and therefore too much reliance should not be placed upon them. Such statements are subject to risks and uncertainties, most of which are difficult to predict and generally beyond the Group's control. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. The Group cautions you that forward-looking statements are not guarantees of future performance and that if risks and uncertainties materialise, or if the assumptions underlying any of these statements prove incorrect, the Group's actual results of operations, financial condition and liquidity and the development of the industry in which the Group operates may materially differ from those made in, or suggested by, the forward-looking statements contained in this announcement. In addition, even if the Group's results of operations, financial condition and liquidity and the development of the industry in which the Group operates are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in future periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in regulation, currency fluctuations, changes in business strategy, political and economic uncertainty. Subject to the requirements of the Prospectus Rules, the Disclosure and Transparency Rules and the Listing Rules or any applicable law or regulation, the Group expressly disclaims any obligation or undertaking publicly to review or confirm analysts' expectations or estimates or to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any changes in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Nothing in this announcement should be construed as a profit forecast. The forward looking statements contained in this document speak only as at the date of this document.

Listing Rules

This 2012 Preliminary Results Announcement has been prepared to meet the requirements of the Listing Rules of the United Kingdom's Financial Services Authority to provide additional information to shareholders and should not be relied on for any other purpose or by any other party.

CHAIRMAN'S STATEMENT

As I enter my second year as Chairman, I grow ever more confident and excited about the transformation taking place at ENRC and the realisation of our potential as a global mining business.

Over the past two years the underperformance of ENRC against its peers has largely been driven by the following factors: concerns over corporate governance; a lack of strategic clarity regarding the development of our international assets; rising cost inflation in Kazakhstan; and our increasing leverage.

Since taking over as Chairman we have made considerable progress on the corporate governance front. We have also completed a strategic review of our business, resulting in renewed focus on our core strengths in the ferroalloys and iron ore markets, as well as a commitment to expedite the development of our copper assets in Africa. We have a firm plan in place to manage our liquidity requirements and reduce our net debt position in the medium-term to a more sustainable level. We also made good progress with the management of cost inflation which came in well below guidance. The primary focus for 2013 will be to maximise shareholder value through the implementation of the above strategic priorities.

2012 was flanked by two important acquisitions in Africa which were essential to our aim of enhancing corporate governance and achieving our strategic priorities. These acquisitions - the first to acquire the processing plants in respect of the RTR project and the Frontier mine in the Democratic Republic of the Congo, the second to acquire the outstanding 49.5% of Camrose Resources Limited - gave us full control of our assets in the DRC to ensure enhanced accountability. In July we were also awarded a new mining licence in respect of the Frontier mine. I am pleased to report excellent progress with the development of Frontier, which will produce its first concentrate and generate meaningful cash flow during 2013. The next two years will see us focus our attention and investment expenditure on our copper projects in Africa, with our long-term goal of 200 thousand tonnes per annum of combined copper production from Frontier, RTR and Boss Mining.

In line with our strategy of reinforcing our position within the Eurasian region, we acquired the outstanding ordinary shares that we did not own in Shubarkol Komir JSC, a high quality, producing coal asset in Kazakhstan. This acquisition enables us to sustain our low-cost position and secure supply of high quality thermal coal and semi-coke for our operations in Kazakhstan.

As a result of increasing cost pressures and weakening commodity markets, the Group has recognised impairment charges and an onerous contract provision totalling US$1,544 million which has resulted in a basic loss per share of 62 cents (2011 earnings per share: US 153 cents).

The poor pricing environment in the second half of the year materially impacted the Group's earnings. As a result the Board have decided not to declare a final dividend. However, the dividend paid in October in respect of H1 2012 of US 6.5 cents still represents a 16% payout ratio based on our earnings per share (adjusted) for the full year, in line with the Group's dividend policy.

Throughout 2012 senior management and the Board have had a regular dialogue on key risks relating to the Group's strategic objectives. We know that some of the jurisdictions in which the Group operates pose particular and often heightened risks that need to be managed appropriately. There are on-going processes in place for identifying, assessing, managing, monitoring and reporting on the significant risks faced by the Group.

We are acutely aware of our obligations with regards to compliance with all applicable laws and regulations, as well as our corporate value for fair dealing. We have compliance officers across our operations, and these numbers increased again during 2012.

Last year I committed to continue to strengthen the Board and I am delighted that Dr Mohsen Khalil and Mr Richard Burrows joined us in June 2012. Both of them have settled well into their roles, bringing their expertise to bear on the issues affecting the Company. In particular, Dr Khalil has a strong background in emerging markets, project finance and business procedures and has taken a considerable interest in our activities in Africa and Mr Burrows has extensive public company experience which has helped sharpen Board practices and accountability. In addition, we undertook a thorough review of our Board committees and I am pleased to note that each of the refreshed committees works well. Mr Terence Wilkinson was appointed as Senior Independent Director in May 2012 and he has been a great resource to me as Chairman; his energy and commitment have been valuable in helping the Board achieve its goals in the year.

We continue to look at the composition of the Board, mindful of the need to progressively refresh the Board and its committees, and in addition to this we will also look to strengthen the management team. Meanwhile I thank all the Directors, on your behalf, for their contribution during the year.

CHIEF EXECUTIVE OFFICER'S STATEMENT

2012 was a difficult year for all businesses in our sector, and ENRC has not been immune to the increasingly challenging market conditions. Prices materially declined as the year progressed, particularly for our major commodities of ferroalloys and iron ore. This has led to an underlying EBITDA of US$1,887 million, a fall of 44.7% against the previous year and a decrease of 74% in earnings per share (adjusted) to US 41 cents (2011: US 155 cents). The impact of additional charges, relating to impairments and an onerous contract provision totalling US$1,544 million has resulted in a basic loss per share of US 62 cents (2011 earnings per share: US 153 cents).

Focusing on production and cost containment

With prices falling against the backdrop of a volatile economic climate, the year saw our teams focus on maximising production from our low-cost assets in Kazakhstan, and successfully restricting cost inflation to well below the guidance given at the start of 2012. I am pleased to report that unit costs for iron ore only increased by 10%, while unit costs for ferroalloys rose less than 3% year-on-year.

The early part of the year saw mixed operational fortunes, particularly with respect to processing issues at Aluminium of Kazakhstan. However, our production performance recovered well in the second half, and this led to record saleable production in the Ferroalloys and Energy Divisions, as well as our best quarter in the past two and a half years for saleable production in the Iron Ore Division. In the Other Non-ferrous Division we recorded a significant increase in copper production year-on-year.

Investing for success

Despite the economic climate, we again took the opportunity to invest record sums in order to underpin our future success. During the year, our investment expenditure rose to US$2.3 billion (2011: US$2.1 billion), with our primary focus being the further expansion of our portfolio of high quality projects.

In Kazakhstan we continued to strengthen our integrated and low-cost operational model and made considerable progress on developing our New Aktobe Ferroalloys Plant. This project, which will be the world's most cost-effective high-carbon ferrochrome production facility, remains on budget and on-track for commissioning in Q4 2013. In the Alumina and Aluminium Division we completed all major construction works on the anode plant, which will reduce our dependence on third party suppliers - while the Logistics Division saw further investment in the railway fleet, through the acquisition of an additional 2,488 wagons.

Developments in Africa included an investment to expand copper oxide production at Boss Mining, which now has a capacity of 40 ktpa. We also completed the expansion of the solvent extraction and electrowinning ('SX/EW') capacity at Chambishi. However, Chambishi will require the construction of a second roaster before operating at full capacity of 55 ktpa. Refurbishment of the Frontier processing plant and pre-stripping works at the mine site also got underway in the second half of the year. Gaining an environmental licence for our port site in Brazil has been a complex challenge, so we were delighted to be awarded the Preliminary Licence during November 2012, as this adds incremental value to the project.

In November, we announced the findings of our capital expenditure review for the next five year period. Given the current market trends, we have adopted a disciplined capital allocation approach and prioritised those projects that offer the highest returns combined with the shortest payback periods. As a consequence our focus going forward will be on completing the New Aktobe Ferroalloys Plant, three copper projects in Africa (Frontier, RTR and the Boss Mining Concentrator) and iron ore expansion in Kazakhstan at SSGPO.

Our investment programme reflects our determination to deliver value to all shareholders over the coming years by maintaining our leading low cost position, continuing to expand our product portfolio and develop our existing asset base. At the same time, we are actively reviewing our non-core assets and the opportunities that these may provide through either disposals or development partnerships.

Supporting our people

Our people are at the heart of what makes ENRC a successful Group. It is their commitment and skills that drive us forwards - and we owe it to them to adopt the highest standards of health and safety.

I was greatly saddened by the 18 fatalities (2011: 13) that took place, of which 10 were employees (2011: 11). The year saw an increase in the number of contractors working at our sites and, partly as a result, the number of contractor fatalities increased to eight (2011: 2). On behalf of the Board and senior management team, I would like to express sincere condolences to all of the families involved in these tragic circumstances.

Furthermore, in 2012 we extended and clarified our lost time injury ('LTI') definitions to be better aligned with international practices, as part of this we now include exploration sites. We experienced 103 LTIs to employees (2011: 64). The lost time injury frequency rate for employee cases was 0.72 in 2012 (0.50 in 2011). These numbers include all reported fatality cases.

I believe that improved reporting has had some impact on these performance figures, but that does not mask our concern at the rise in the number of incidents. We are now actively reviewing our safety improvement programmes to determine how we can enhance their effectiveness and are also seeking to improve our processes surrounding contractor safety management and supervision.

Looking ahead

Although we expect the stainless steel industry to continue to grow at around 4% during 2013, the ferrochrome market remains fundamentally oversupplied. The export of chrome ore from South Africa continues to sustain high cost Chinese ferrochrome production and the supply of UG2 based chrome ore is projected to increase further over the coming years. The effect of supply of Chinese product to the market will be countered by power shortages in South Africa, which will limit expansion, as well as by cost push pressures which will impact all producers. Furthermore, any extension to Eskom's power buy-back scheme in South Africa will continue to restrict supply. Primarily it is the interplay of these factors that will drive pricing during 2013.

We will continue with our programme of investment during 2013, and our total estimated capital spend including expansionary and sustaining projects will total US$1.7 billion. We will concentrate on the delivery of three projects: the New Aktobe Ferroalloys Plant in Kazakhstan and the development of both the Frontier and RTR copper projects in the DRC. We continue to review the scope of our iron ore expansion programme in Kazakhstan, in the light of supply and demand pressures, as well as our expansion at Boss Mining.

As always, our people will be one of our key differentiators. It has been a privilege to work alongside so many talented and committed people during the year and I look forward to doing so again in 2013. I thank them for their continued passion and hard work.

Felix J Vulis

Chief Executive Officer

CHIEF FINANCIAL OFFICER'S REVIEW

In a challenging environment the Group generated underlying EBITDA of US$1,887 million, down 45% from 2011. This was underpinned by production at full available capacity in the Ferroalloys Division, close to full available capacity in the Iron Ore Division and maintenance of our position as a low cost producer. The Group's performance for the year was significantly impacted by the continuing deterioration of commodity prices. Other factors which led to the underlying EBITDA reduction compared to the prior year included our on-going investment in and expansion of our copper/cobalt operations in Africa and processing difficulties in alumina production.

Revenue for the year ended 31 December 2012 decreased by 18.0% to US$6,320 million (2011: US$7,705 million). The decrease in commodity prices was particularly strong in the second half of the year and had a severe impact on revenue. In total, US$1,242 million of the reduction in revenue compared to 2011 was as a result of commodity price declines in the year. Changes in volumes had a modest influence on the Group's decrease in revenue, as lower sales volumes of ferroalloys and alumina were partially compensated by higher sales of iron ore, copper and additional volumes of coal from Shubarkol following the acquisition of the outstanding ordinary shares in that business in April 2012.

The increase in the scale of operations in Africa and the continued development of our assets across the Group were the main reasons for the increase in operating costs. Excluding depreciation and amortisation (resulting from investments in property, plant and equipment) and exploration costs which support the long-term development of our mineral base, total operating costs increased by 2% compared to the previous year. This increase was mainly driven by materials inflation although this inflation was not as severe as that seen in the prior year and an increase in wage rates in our operations in Kazakhstan and Russia from 1 July 2012. At the same time lower Mineral Extraction Tax ('MET') and favourable exchange rates for the Kazakhstani tenge, to a large extent, mitigated these inflationary factors.

In total, the Group's underlying EBITDA was 44.7% below that achieved in 2011, with 82% of the reduction driven by lower commodity prices.

As a result of the weakness in commodity prices and continuing cost pressures, the Group has recognised impairment charges totalling US$1,216 million in the 2012 results. Further detail of these impairment charges is set out later in this review. In addition, the Group has recognised an onerous contract provision totalling US$328 million in respect of its alumina supply contract with RUSAL.

The basic loss per share for 2012 was US 62 cents (2011: earnings per share of US 153 cents) as a result of the impairment charges and onerous contract provision. Earnings per share (adjusted) which excludes these charges, the net gain arising from business combinations and related tax and share of minority interest effects was US 41 cents per share (2011: US 155 cents per share).

During 2012, the Group completed the acquisitions of the former FQM assets in March 2012 and the outstanding ordinary shares in Shubarkol and Camrose in April 2012 and December 2012 respectively. Details regarding these acquisitions can be found in note 5 to this preliminary announcement. As a result of these acquisitions we have consolidated these businesses from their respective dates of acquisition. The total contribution from the acquisition of Shubarkol to the Group's underlying EBITDA was US$90 million. The contribution to the Group's underlying EBITDA from the acquisition of the former FQM assets was a loss of US$14 million as we began the work to develop these assets. Camrose did not make a material contribution to the Group as it was only acquired on 28 December 2012.

To fund capital expenditure and acquisitions, in 2012 the Group secured an additional US$3,000 million of bank facilities and also issued a three year US$500 million promissory note as part of the FQM transaction. All of the Group's facilities, excluding the Group's revolving credit facility ('RCF') and part of the Export Credit Facilities, were fully drawn as at 31 December 2012.

The Group's credit rating is currently BB- with Standard & Poor's and Ba3 with Moody's. Both agencies currently have the Group on negative outlook.

To strengthen its liquidity position the Group has refinanced its RCF in February 2013, increasing the facility to US$500 million and extending the maturity to 2015. Additionally the Group is at an advanced stage of negotiation over a new US$700 million debt facility.

The existing US$3,000 million Euro Medium Term Note programme signed in 2010 has not yet been utilised, although we continue to consider this programme as an integral part of our future funding strategy.

INCOME STATEMENT

Revenue

Revenues decreased significantly to US$6,320 million (2011: US$7,705 million) primarily as a result of reduced commodity prices for all key products, in particular iron ore, ferroalloys and aluminium.

The average realised prices for ferroalloys decreased by 9.8% compared to the average realised prices for the same period last year. The chrome ore average realised price was 41.5% lower which also reflected a higher share of low-grade ore sold in 2012. Manganese concentrate average realised prices were 9.4% below 2011 levels. In addition, the Ferroalloys Division revenue was further reduced due to lower sales volumes of ferroalloys as a result of the exclusion of Tuoli from our consolidated results.

Average realised prices for iron ore in the first half of 2012 were substantially lower in comparison with the previous year and decreased further in the third quarter of 2012 which led to an additional decline in the Division's full year revenue compared to 2011. Average realised prices for iron ore concentrate and iron ore pellets were 30.4% and 25.1% lower respectively compared to the prior year.

The Alumina and Aluminium Division's revenue was mainly affected by lower realised prices. There was also a negative impact from reduced sales volumes caused by production difficulties at the alumina refinery.

Cost of sales

Cost of sales increased by 5.9% to US$3,723 million (2011: US$3,517 million). However, excluding the impact of higher non-cash depreciation and amortisation due to the Group's enhanced asset base, the Group's total cost of sales remained at 2011 levels.

Materials inflation increased costs, although as mentioned earlier, this impact was not as severe as in 2011. Increases in wage rates at our main operations in Kazakhstan and Russia in the second half of 2012 added to cost growth.

To mitigate the decreasing margins in the second half of 2012, the Group implemented additional measures to cut costs. In addition, the increase in cost of sales was to a large extent compensated by lower MET and a favourable exchange rate for the Kazakhstani tenge.

Distribution costs

Distribution costs increased by 5.8% to US$530 million (2011: US$501 million) mainly as a result of US$27 million of additional transportation costs. This was driven by increased sales volumes of iron ore and copper coupled with the transportation of these products to more remote destinations and higher sales of coal following the inclusion of Shubarkol's shipments.

General and administrative costs

General and administrative costs in 2012 increased by 5.9% to US$733 million (2011: US$692 million). Professional and other services fees increased by US$51 million reflecting increased strategic development and compliance activity. Staff costs rose by US$38 million compared to the prior year mainly reflecting the increased scale of operations.

Excluding the one off payment of US$98 million made to the Nazarbayev fund in 2011, the Group made increased sponsorship and donations payments in 2012 primarily in supporting the construction of a new opera house in Astana (2012 US$64 million: 2011 US$19 million). Further detail regarding our social investment projects will be set out in the Group's Annual Report and Accounts and Sustainable Development Report to be published in quarter 2.

Exploration costs

Exploration costs increased by 93.5% to US$149 million (2011: US$77 million) mainly as we continued developing the Other Non-ferrous Division assets.

Impairment charge and onerous contract provision

The Group recognised an impairment charge of US$1,216 million and onerous contract provision totalling US$328 million as detailed below:

·; Aluminium of Kazakhstan ('AoK'): impairment of US$608 million mainly due to lower long-term prices for alumina associated with the deteriorating conditions of the aluminium market and increasing inflationary pressure on key cost items;

·; Onerous contract: a provision of US$328 million relating to the Group's contract with RUSAL for the supply of approximately 1.2 million tonnes of alumina per annum. Due to the continued weakness in the price of alumina the cost of fulfilling the contractual obligations exceeds the economic benefits expected from the contract;

·; Boss Mining Group: impairment of US$240 million mainly due to delay of the development of the Boss Mining concentrator driven by the reprioritisation of the Group's copper projects in the DRC. This affected the capital expenditure profile, which impacted the timing of associated cash inflows at Boss Mining and has also resulted in higher production costs;

·; Zhairemsky GOK: impairment of US$124 million due to expected future operating losses affected by a high cost of production and continued limited market opportunities for its manganese products;

·; Chambishi: impairment of US$96 million is driven by the deferral of capital expenditure as a result of the reprioritisation of the Group's copper and cobalt projects and consequential higher production costs; and

·; Available for sale financial assets: impairment of US$120 million relating to the Group's interest in Northam Platinum Limited following a prolonged and significant reduction in the share price below ENRC's entry cost.

Further detail regarding these non-recurring charges is set out in note 9.

Net other operating expenses

Net other operating expenses consisted mainly of foreign exchange gains and losses from operating activities.

Net finance costs

Net finance costs (after interest capitalised in respect of qualifying projects) increased by 83.7% to US$226 million (2011: US$123 million) as a result of the increased funding requirements to support the Group's investment programme and strategic development. Total interest capitalised during the year was US$59 million (2011: US$nil).

Share of (loss)/profit of joint ventures and associates

The net share of loss of joint ventures and associates amounted to a US$39 million loss (2011: US$2 million profit) which arose primarily from the Group's interest in Camrose during the year.

Net gain arising from business combinations

The net gain of US$89 million arising from business combinations is a result of the requirement under IFRS to revalue the Group's existing interest in a joint venture or associate to fair value when the remaining interest is acquired as part of a business combination. Further details of how this gain arises from the acquisitions of Shubarkol and Camrose are set out in note 5.

Taxation

The Group's income tax charge for the year was US$302 million (2011:US$ 769 million) an Effective Tax Rate ('ETR') of minus 54.9% (2011: 27.9%).

Excluding the impact of impairments, the onerous contract provision and the net gain arising from business combinations, the Group's adjusted income tax expense for the year ended 31 December 2012 was US$401 million (2011: US$769 million), an adjusted ETR of 44.3% (2011: 27.7%).

The adjusted ETR in Kazakhstan was broadly stable, however the adjusted Group ETR increased, mainly because of the Group's lower profitability and the greater proportion of losses resulting from investment in greenfield sites.

BALANCE SHEET

The Group's net book value of property, plant and equipment at 31 December 2012 was US$14,591 million (2011: US$9,891 million), an increase of 47.5%. Goodwill and other intangibles at 31 December 2012 totalled US$1,754 million (2011: US$1,410 million), an increase of 24.4%.

The increases in property, plant and equipment and goodwill arose primarily from the acquisitions of the former FQM assets and related Frontier licence, Shubarkol and Camrose.

Further property, plant and equipment expenditure relating to the Group's capital expenditure projects in 2012 is set out in the capital expenditure section later in this review.

In total, these acquisitions gave rise to an increase in property, plant and equipment of US$4,034 million of which US$2,964 relates to mineral rights. Goodwill arising on these transactions totalled US$633 million which arose primarily as a result of the recognition of related deferred tax liabilities on the mineral rights acquired. Further detail in respect of these acquisitions can be found at note 5 to this preliminary announcement.

The Group's gearing has increased significantly as a result of additional borrowings being drawn down to fund acquisitions and capital expenditure projects. Gearing increased to 34.5% at 31 December 2012 from 8.2% at 31 December 2011. A summary of the Group's borrowings is set out in note 17 to this preliminary announcement with further commentary in the Funding and Liquidity section of this review.

The Group's return on capital employed was 7.9% (2011: 23.4%). The calculation of return on capital employed is set out in note 20 to the preliminary announcement. The decrease reflects the growth in capital employed (primarily debt funding) which has been used to fund acquisitions and projects which are not yet in production or not yet at full production.

CASHFLOW

Net cash generated from operating activities

The Group generated US$1,270 million of net cash from operating activities (2011: US$2,143 million), a fall of 40.7% as a result of the Group's lower profitability. Working capital requirements reduced marginally during the year by US$36 million (2011: increase of US$378 million) despite increases in inventory primarily within the Ferroalloys division as a result of poor weather at the year end and congestion at the Chinese border and offset by reductions in trade receivables.

Net cash used for investing activities

During the year the Group utilised a total of US$4,521 million for investing activities (2011: US$2,656 million). The primary use of these funds was for the acquisition of property, plant and equipment (2012: US$2,306 million, 2011: US$2,121 million) and in respect of the acquisition of subsidiaries (2012: US$1,958 million, 2011: US$281 million).

Net cash flow used for financing activities

The Group generated a cash inflow of US$3,331 million (2011: US$448 million cash outflow) from its financing activities during the year ended 31 December 2012. This includes: US$3,950 million drawn from unsecured term loan facilities, US$136 million drawn from various export credit facilities, less repayment of borrowings of US$338 million (2011: US$154 million) and cash outflows for dividends of US$233 million (2011: US$448 million).

FUNDING AND LIQUIDITY

Funding activities

The Group secured additional liquidity during the year with the signing of two bank facilities: US$2,000 million facility with Sberbank of Russia and an additional US$1,000 million with Russian Commercial Bank (Cyprus) Limited (part of the VTB group). Both facilities are unsecured and were fully drawn as at 31 December 2012.

On 12 February 2013, the Group refinanced its existing revolving credit facility, increasing the facility from US$467 million to US$500 million and extending the maturity to 2015.

During the year, the Group did not utilise the US$3,000 million Euro Medium Term Note programme signed in 2010 and as at 31 December 2012 there were no issues under the programme.

Debt structure

The table below shows the Group's debt maturity profile including terming out US$1,000 million of debt from 2014 to 2016.

As at the end of 2012, the average maturity of outstanding debt was 3.9 years (2011: 6.0 years) and net gearing at 31 December 2012 was 34.5% (2011: 8.2%).

The Group's policy is to maintain a balance between fixed and floating interest rates within its debt portfolio. This is principally achieved by using a mix of floating and fixed interest rate borrowings. As at 31 December 2012, 59% of the Group's borrowings incur floating rate interest, while the remaining 41% incur fixed rate interest.

The Group's debt is denominated primarily in US$ (95% of total debt) with the remainder being denominated in EUR (5% of total debt). The majority of the Group's EUR debt has been swapped into US$ as at 31 December 2012.

Cash and cash equivalents by region

The Group holds cash and cash equivalents in the following geographic regions:

CAPITAL EXPENDITURE

2012 Capital Expenditure

In 2012, the Group's cash outflow in respect of capital expenditure amounted to US$2,345 million (2011: US$2,134 million) an increase of US$211 million, or 10%.

The geographical split of capital expenditures for 2012 was as follows: Kazakhstan US$1,732 million, Africa US$514 million, Brazil US$52 million and other US$47 million.

Cash outflow for Capital Expenditure

1 Previously as expansion/replacement of ferroalloy smelting capacity (Aktobe) - 440 ktpa.

2 Includes: concentrator expansion, pelletiser, HBI plant and mine expansion.

3 Previously as expansion of copper (sulphide) production.  

DIVISIONAL OVERVIEW

Ferroalloys Division

The Ferroalloys Division primarily produces and sells ferrochrome, as well as other ferroalloys, for use as alloying products in the production of steel, whilst manganese and chrome ore are sold to third-party producers of ferroalloys as well as the chemical industry. ENRC is the largest ferrochrome producer in the world by chrome content and the lowest cost producer of high-carbon ferrochrome. The Ferroalloys Division is vertically integrated, having its own chrome ore and manganese ore mines feeding its ferroalloy production in Kazakhstan and Russia. In addition to its own ore, the Division also benefits from competitively priced electricity supplied by the Energy Division, as well as having a gas-fired power station at its Aktobe plant.

Iron Ore Division

The Iron Ore Division consists of producing assets in the Republic of Kazakhstan and exploration and development assets in Brazil. In Kazakhstan the Iron Ore Division produces and sells iron ore concentrate and pellets primarily to steel producers and on the basis of full year 2012 data, is a material exporter of iron ore and in the lowest quartile of the global cost curve. Kazakhstan-based operations include iron ore mines, crushing, beneficiation and pelletising plants and a thermal power station. In Brazil, the Division is focused on the development of a high-quality iron ore deposit in the Caetite region in the State of Bahia, as well as two early stage exploration projects, both located in the State of Minas Gerais.

Alumina and Aluminium Division

The Alumina and Aluminium Division produces and sells alumina to aluminium producers, and also produces and sells the Group's own aluminium. ENRC believes, based on full year 2012 data, that the Alumina and Aluminium Division is the world's 14th largest supplier of traded alumina by volume and is at the lower end of the global industry cost curve for aluminium. The Alumina and Aluminium Division's vertically integrated operations include: bauxite mines, a limestone mine, an alumina refinery, an aluminium smelter and a power station.

Energy Division

The Energy Division is one of the largest electricity providers in the Republic of Kazakhstan, accounting for approximately 15.8% of the country's recorded electricity production in 2012 (2011: 16.2%). Taking into account all of the energy generation facilities of ENRC, including SSGPO, the alumina refinery (Aluminium of Kazakhstan ('AOK')) and the Aktobe ferroalloys smelter ('Kazchrome'), the Group's share of Kazakhstan's energy supply was 21.4% in 2012 (2011: 22.3%). The Energy Division provides a cost-effective energy supply to the Group's other principal Kazakhstani operating divisions, with internal consumption of 73.2% (2011: 71.5%) of the electricity produced in 2012, as well as producing a surplus for sales to third parties in Kazakhstan.

Other Non-ferrous Division

The Other Non-ferrous Division operates principally in the Democratic Republic of the Congo ('DRC'), where it mines copper and cobalt and processes the ore through Boss Mining Sprl ('Boss'), a subsidiary of ENRC, with the State-owned La Générale des Carrières et des Mines ('Gécamines') as a minority (30%) partner. ENRC also owns Camrose Resources Limited, whose primary assets, held through its subsidiaries, includes interests in five copper and cobalt exploitation licences situated in the DRC. In Q1 2012, ENRC acquired additional processing capacity at the Roan Tailings and Reclamation Project ('RTR') and at the Frontier mine. Chambishi Metals PLC, acquired in April 2010 and located in Zambia, processes material mined in the DRC at Boss and once the Frontier mined is fully commissioned, will process concentrate from the Frontier mine. The Other Non-ferrous Division's copper and cobalt operations include open cast mines, crushing, beneficiation, concentrator plants and an electro-winning facility in the DRC and the Chambishi copper and cobalt smelter in Zambia. In addition, the Other Non-ferrous Division includes a number of development prospects: Mozambique - coal; Mali - bauxite; Zimbabwe - platinum; and South Africa - fluorspar, coal and manganese. The Group's African logistics and trucking business, SABOT, operates in Central and Southern Africa.

Logistics Division

The Logistics Division provides transportation and logistics services to the Group's principal Kazakhstani operating Divisions, as well as to third parties. The Division's operations include freight forwarding and wagon and railway repair services. The availability of these services within the Group mitigates many of the risks associated with the supply of raw materials and delivery of products to customers. In addition, the Division operates a railway transfer and reloading terminal on the Kazakhstan/China border, facilitating the Group's access to the Chinese market.

1 2011 numbers as restated to exclude Tuoli.

2 Unit costs: Cost of sales divided by sales volumes.

Production

In 2012, the Ferroalloys Division produced: 3,730 kt of saleable chrome ore (2011: 3,567 kt); 954 kt of saleable manganese ore concentrate (2011: 1,009 kt); and 1,754 kt of ferroalloys (2011: 1,725 kt), including 1,199 kt (2011: 1,185 kt) of its primary product, high-carbon ferrochrome. In 2012, 229 kt (2011: 225 kt) of ferroalloys were consumed internally.

Sales and Pricing

The European ferrochrome benchmark price in 2012 moved up from US$1.15 per pound of chrome in Q1 to US$1.35 in Q2 mostly on the back of energy cost pressures on South African producers and perceived improving market conditions. The benchmark price dropped to US$1.25 in Q3 and declined again in Q4 to US$1.10 as the market caught up with the reality of the worsening global economic situation. Falling prices in the second half of 2012 were driven by concerns over nickel pricing, excess stainless capacity in China and the on-going crisis in Europe.

During Q2 and Q3 2012 the benchmark did not accurately reflect the reality of pricing in the ferrochrome market, with spot prices well below the benchmark. This resulted in heightened discussions around the extent that the European benchmark would continue as a valid pricing mechanism for ferrochrome. These discussions faded in Q4 as the benchmark price better aligned with real market levels and ferrochrome market conditions continued to weaken, in line with the worsening outlook for the global economy. In 2012, the Group's regional mix of sales saw a growth in volumes sold into China at a cost of lower sales to Japan. This reflected difficult market conditions for the Japanese steel makers, caused by the strong Japanese Yen, a contracting domestic market, and intense competition from China and Korea. Sales volumes into Europe and the USA stayed more or less in line with those of 2011.

Ferroalloys Division

Results for the year

The Ferroalloys Division contributed US$872 million or 46.2% to the Group's underlying EBITDA (2011: US$1,169 million; 34.2%), a US$297 million decrease due to adverse market conditions resulting in a decline in realised sales prices and volumes.

In 2012 the Ferroalloys Division sold 1,487 kt of ferroalloys, 55 kt less than in 2011 although 84% of this decrease is attributable to the exclusion of Tuoli. Chrome ore sales decreased 12.7% to 496 kt (2011: 568 kt).

Total revenue for the Division fell US$466 million compared to the previous period. A decline in commodity prices reduced the Division's revenue by US$321 million. A higher proportion of sales to China in the second half of the year at lower average prices also contributed to a lower realised price for 2012 compared to the prior year. A further reduction in revenue of US$147 million was due to lower sales volumes. US$114 million of the decline related to ferrochrome, of which US$70 million was attributable to Tuoli. Further US$24 million was attributable to chrome ore as less volume was available for sales to the third parties. Sales of other goods and services improved revenue by US$2 million.

Cost of sales decreased by US$83 million of which US$72 million was attributable to lower sales volumes (including US$69 million relating to Tuoli). This was partially offset by a US$17 million rise in depreciation and amortisation costs. Unit cost of ferroalloys was broadly at the same level as 2011, excluding Tuoli, unit cost increased 2.9%. Higher costs of electricity, repairs and depreciation throughout the year and increased labour rates in H2 2012 were mitigated by a significant decrease in Mineral Extraction Tax (MET), partial replacement of Chinese coke to a cheaper Russian substitute and a reduction in prices for Russian coke. The Division's total MET amounted to US$134 million (2011: US$173 million).

Distribution costs reduced by 9.5% to US$277 million (2011: US$306 million) mainly as a result of lower sales volumes. A shorter average delivery distance also had an impact on the reduction of transportation costs as there was a higher share of HC FeCr shipments to China and a lower share to Japan.

General and administrative expenses reduced by 11.7% to US$182 million (2011: US$206 million). The decrease of US$24 million was primarily due to lower social investments, lower provisions against loans and receivables when compared to 2011 and the exclusion of Tuoli.

A charge of US$124 million has been recognised in respect of impairment of the assets in respect of Zhairemsky GOK as a result of the continuing weakness in prices and demand for manganese products.

Capital Expenditure

The new Aktobe ferroalloys plant is a strategic investment in the Ferroalloys Division. This project consists of construction of four Direct Current (DC) furnaces with a total capacity of 440 ktpa. The planned Q4 2013 commissioning date and total project cost of US$750 million remain unchanged.

1 Unit costs: Cost of sales divided by sales volumes.

Production

In 2012, the Iron Ore Division mined 40,966 kt of iron ore (2011: 43,212 kt). This was processed into 16,722 kt of primary iron ore concentrate (2011: 17,636 kt), with saleable concentrate production of 8,604 kt (2011: 8,459 kt). The balance was used to produce 7,144 kt (2011: 7,648 kt) of pellet.

Sales and Pricing

Global steel production increased slightly in 2012 with annual crude steel production for the full year up 1.2% year-on-year. The majority of this increase was from emerging economies. The industry capacity utilisation rate averaged approximately 79% in 2012 (2011: 81%).

In H1 2012, the Platts IODEX was volatile within a narrow range of US$135-150/dmt, before falling sharply in Q3 to US$88/dmt. The price gradually rebounded to around US$140/dmt by the year end.

During 2012 the Group sold the majority of its iron ore products to Russia and China, predominantly to The Magnitogorsk Iron and Steel Works OJSC ('MMK') and to steel producers in North West China. Sales to MMK are based on a monthly pricing mechanism using the Platts index. Due to lower contractual volumes of iron ore supplied to MMK during 2012, the Group reached agreement with JSC Chelyabinsk Metallurgical Plant ('MECHEL') for the supply of iron ore concentrate, with pricing based on monthly agreements. The contractual prices with the Group's main Chinese customers are determined on a quarterly basis. In 2012, 60.5% (9.9 mt) (2011: 66%; 10.5 mt) of sales by volume were to Russia, whilst 33.3% (5.5 mt) (2011: 29.7%, 4.7 mt) went to China, with the remaining 6.3% (1.0 mt) sold within Kazakhstan (2011: 4.3%, 681 kt). Of the 16.0 mt of product sold during 2012, 43.7% (7.2 mt) (2011: 48.1%, 7.6 mt) was pellet.

Iron Ore Division

Results for the year

The Iron Ore Division contributed US$758 million or 40.2% to the Group's underlying EBITDA (2011: US$1,505 million; 44.1%). The decline was mainly driven by the dramatic downturn in realised prices for iron ore throughout the year and in H2 2012 in particular.

Depressed prices for iron ore with a 30% fall for concentrate and 25% fall for pellets reduced the Division's revenue by US$686 million year-on-year. A higher proportion of lower-priced concentrate and screening sold also had an adverse impact on revenue. During 2012 pellets accounted for 43.7% of total iron ore sales volumes (2011: 48.1%). The increase in total sales volumes contributed US$65 million to revenue and was attributed to higher sales to China and in Kazakhstan.

The US$101 million growth in cost of sales was a result of higher unit cost of sales (US$87 million) and increased sales volumes (US$14 million). Higher unit cost of sales was driven by higher prices for fuel, coal, explosive materials, tyres, electricity, and an increase in H2 2012 wage rate. In addition to the inflationary factors, a temporary decline in ore quality in Q2 2012 along with increased depreciation, higher equipment and our own railway lines repairs, had a negative impact on unit cost. Partly offsetting the unit cost growth, there was a decline in Mineral Extraction Tax (MET) by US$41 million, resulting from lower commodity prices and lower volumes of ore extracted. In 2012 MET amounted to US$73 million (2011: US$114 million).

Distribution costs increased 41.3% to US$260 million (2011: US$184 million) due to higher transportation costs as a result of sales volumes growth and because more products were shipped to China, a longer distance compared to rail transportation to Russia and sales within Kazakhstan.

General and administrative expenses amounted to US$140 million, a US$42 million or 23.1% reduction compared to 2011 (2011: US$182 million). This was primarily due to lower social investments.

Capital Expenditure

The investment strategy for the Iron Ore Division in Kazakhstan is to expand the current product portfolio by adding three new products: high quality concentrate, high quality pellet and hot briquetted iron ('HBI'). In order to support the Group's growth strategy by providing access to the seaborne iron ore market, the Group is developing the BMSA project in Brazil.

The iron ore expansion programme in Kazakhstan is currently being assessed with the latest estimates approximating US$1.8 billion. This programme comprises of the following projects:

·; Mine expansion in Kazakhstan: stripping works were undertaken during 2012 and continue to take place in order to secure the required ore feed for both existing production and the Group's future expansionary projects.

·; Concentrator expansion - 7 mtpa high grade concentrate: In 2012 initial preparatory construction and installation works were undertaken.

·; Pelletiser expansion - addition of 4 mtpa of high quality pellet: feasibility studies were completed during 2012. Scope of the project is currently being reviewed and completion is currently estimated in 2018.

·; HBI Plant: development of 1.8 mtpa of HBI. The plant site has been prepared and is ready for civil works to commence. The estimated completion date is 2019.

BMSA: in November 2012 we received the Preliminary Licence for the port. However, due to iron ore market dynamics, macroeconomic challenges and the protracted port Installation License award process, the Group has launched a review of the BMSA project. Options being reviewed are: different phasing of the project, including a scenario with an early revenue Direct Shipping Ore ('DSO') phase over the next 3 years, utilising the existing railway and port infrastructure. Additionally, we are reviewing funding options, including but not limited to project finance and strategic partnerships. To confirm some of the major operational assumptions for the potential DSO phase and to update the existing Bankable Feasibility Study, the Group began trial DSO production in November 2012, with a capacity of 300 ktpa.

1 Unit costs: Cost of sales divided by sales volumes.

Production

In 2012, the Alumina and Aluminium Division mined 5,170 kt of bauxite (2011: 5,495 kt) and produced 1,510 kt of alumina (2011: 1,670 kt) and 249 kt (2011: 249 kt) of aluminium.

Sales and Pricing

The London Metal Exchange ('LME') aluminium price was volatile during 2012, with a peak of US$2,308 per tonne recorded during late February and a low of US$1,811 per tonne in June. The LME price closed the year at US$1,957 per tonne.

Primary aluminium is used to make aluminium semi-finished products like sheet and plate, extrusions, forgings and castings. For the majority of 2012 the semi-finished products market was fairly weak, with some recovery seen in H2 2012, resulting in increased sales to our main customers in Russia.

Global production remained strong in 2012, with China, India and the Middle East maintaining output despite reported higher energy costs. During 2012 primary aluminium premiums continued to increase from around US$100-US$120 per tonne at the beginning of the year to US$230 per tonne by the year end, reflecting the tightening of availability of physical metal. This was primarily driven by large volumes of aluminium being tied up in inventory under financing deals, long queues at LME warehouses and the high warehouse component within the metal premium.

In 2012 the Group supplied 1,036 kt (2011: 1,182 kt) of alumina to third parties, predominantly to United Company RUSAL ('RUSAL'), which accounted for 99% of alumina sales, under a long-term supply contract. The pricing under this contract is linked as a percentage of the LME price of primary aluminium. In 2012 RUSAL, the Division's largest single customer, accounted for 36.4% (2011: 38.1%) of the Division's sales revenue. The balance of the alumina production is consumed by the Group in its own aluminium smelter (Kazakhstan Aluminium Smelter, or 'KAS') and Kazogneupor, a local Kazakhstan refractory materials producer.

Results for the year

The Alumina and Aluminium Division contributed US$41 million, or 2.2%, to the Group's underlying EBITDA (2011: US$332 million; 9.7%). The Division's results were strongly affected by weak prices, when LME aluminium prices were at levels which led to the alumina price being below unit cost of sale.

In addition, the unit cost of alumina was negatively influenced by the processing problems at the alumina refinery caused by disruptions to the supply of soda ash.

The Division's revenue was US$238 million, or 20.8% below 2011. Lower sales prices reduced revenue by US$179 million. Lower sales volumes, mainly for alumina decreased revenue by US$63 million. Sales of other goods and services increased the Division's revenue by US$4 million.

Cost of sales rose by 7.6% to US$859 million (2011: US$798 million). The main driver of the increase was higher unit costs. Alumina unit cost of sales increased by 21.0% compared to 2011. This mainly reflected higher consumption rates for input materials which were used for restoring the solid crystal phase of aluminium hydroxide post processing difficulties. Additionally price inflation for mazut, diesel fuel, coal and tyres, as well as increased repairs and wage rates impacted growth in unit costs. Depreciation and amortisation increased cost of sales by US$18 million. The Division's Mineral Extraction Tax amounted to US$12 million (2011: US$15 million).

Distribution costs stayed at the same level as 2011 and amounted to US$55 million (2011: US$55 million). General and administrative expenses decreased by 1.9% to US$51 million (2011: US$52 million), mainly as a result of a reduction in staff costs.

Net other operating expenses increased by US$14 million to US$20 million (2011: US$6 million). This was mainly as a result of the charge from RUSAL for alumina supply disruption and additional costs of commissioning the anode plant.

A charge of US$608 million has been recognised in respect of impairment of Aluminium of Kazakhstan's assets as a result of the lower long-term prices for alumina associated with the deteriorating conditions of the aluminium market and continuing cost pressures. This continued price weakness means that the division's contract with RUSAL is considered onerous resulting in a provision of US$328 million being recognised. A further US$10 million impairment has been recognised in respect of a property asset.

Capital Expenditure

In 2012 all major construction works at the Anode Plant were completed. The plant was partially commissioned in 2012 with full commissioning expected in H1 2013. The total estimated cost for this project increased from US$240 million to US$298 million due to an increase in project scope.

1 Production numbers for saleable copper and cobalt refers to tonnes of contained metal. Contained metal consists of total units, whether in metal form or metal units contained in concentrate and sludge, net of internal consumption.

Production: Copper

Production volumes increased by 18.9% at Boss Mining's heap leach operations, compared with 2011, due to greater capacity from additional heaps and tankhouses, as well as the commissioning of the roaster at Chambishi. Slightly lower copper mining volumes were offset by an increased mining grade of 3.11% (2011: 2.98%).

Production: Cobalt

At Boss Mining, cobalt mining volumes increased during 2012 to 1,289 kt (2011: 1,058 kt). However saleable cobalt production decreased due to lower recovery rates caused by changes in mineralogy and decreased availability of cobalt oxide ore.

Sales and Pricing: Copper

The average price for copper in 2012 as traded on the LME was an historical high. This was due to concerns regarding copper supply falling short of demand. After rallying strongly during January, LME prices traded within a US$8,000-US$8,700 per tonne range until late May when prices declined to a low of $7,220/t. Prices recovered again in September following action from European and US central banks and the unveiling of Chinese plans to reinvigorate the economy which had seen weakening copper demand in the first half of 2012.

Contracts are typically negotiated annually, fixing a premium, discount or 'refining charge' (for varying quality and delivery locations) alongside the period for which the LME price is fixed. The majority of copper produced was sold to Chinese smelters, who refine the lower grade material that is produced in the DRC.

Sales and Pricing: Cobalt

The Metal Bulletin cobalt price reached a peak of US$15.20 per pound in February 2012, before steadily declining through the remainder of the year, reaching a low of US$10.20 per pound in early December 2012. The cobalt price closed the year at US$10.50 per pound. The decline in price was due mainly to oversupply, which has been weighing on prices since mid-2011.

Other Non-ferrous Division

Results for the year

The Other Non-ferrous Division's Underlying EBITDA amounted to US$(107) million (2011: US$74 million). Significantly lower sales prices, reduction in sales volumes of cobalt concentrate and higher investment in the Division's greenfield mineral exploration, offset additional revenue received from increased copper sales.

Higher sales volumes of copper as a result of the production ramp-up boosted revenue by US$80 million, although lower sales of cobalt reduced revenue by US$70 million. A downturn in prices for both copper and cobalt had a negative impact on revenue of US$81 million. The Group's African logistics business, SABOT, contributed US$52 million (2011: US$64 million) to the Division's third parties revenue.

Cost of sales increased US$119 million as a result of higher depreciation and amortisation as well as cost inflation driven by higher prices for acid and power. An increase in amortisation was largely due to higher mineral rights amortisation occurred to reflect a new mine plan.

The overall unit cost of copper increased by US$3,447/t to US$8,570/t. This growth was attributable to an increase in depreciation and amortisation of US$2,220/t, coupled with a significant decrease in cobalt concentrate by-product credit of US$1,620/t. Excluding those factors the unit cost decreased by US$392/t in 2012. Cobalt unit costs decreased to US$29,583/t (2011: US$31,262/t), mainly due to copper by-product production doubling at Chambishi decreasing unit cost through by-product credits by US$633/t in 2012. A decrease in depreciation of US$1,046/t contributed to the decrease of overall cobalt unit cost.

Distribution costs increased 78.6% to US$25 million (2011: US$14 million) reflecting higher copper sales and transition to direct sales to customers which resulted in additional freight, handling and shipping expenses.

General and administrative expenses amounted to US$97 million, a US$18 million or 22.8% increase compared to 2011 (2011: US$79 million). This was mainly attributable to increased staff costs, higher professional services and social investments, partly as a result of the acquisition of the former FQM assets.

Exploration costs rose to US$135 million (2011: US$70 million), a significant increase mostly attributable to the logistics and mining feasibility studies for the Mozambique coal project as well as higher expenditure in copper projects.

A charge of US$240 million has been recognised in respect of impairment of the assets of Boss Mining as a result of the deferral of the development of the Boss Mining Concentrator driven by the reprioritisation of the Group's copper projects in the Democratic Republic of the Congo ('DRC'). Chambishi also incurred an impairment charge of US$96 million which is driven by the deferral of capital expenditure as a result of this reprioritisation and consequential higher production costs.

Capital Expenditure

In 2012, the Group completed a review of its growth strategy for the Other Non-ferrous Division. With the acquisition of the Frontier and RTR processing plants, as well as the award of the Frontier licence, the Division's development focus has shifted towards projects that provide the highest returns within the shortest execution time.

·; Frontier: The first phase of development is scheduled to reach commissioning in April 2013 and production by July 2013. Expected production in 2013 is 40 ktpa of copper in concentrate. Target production of 80 - 90 ktpa of copper in concentrate is planned at an estimated total cost of US$440 million.

·; RTR: processing plant is approximately 40% complete. First production expected in H1 2015, with a total project cost of US$440 million.

·; Boss Mining - expansion of copper (oxide) production: all scheduled works are complete and the heap leaching and tank houses are now fully operational. The total project cost was US$150 million.

·; Boss Mining - expansion of copper (sulphide) production: reprioritisation of our project pipeline has meant that the Boss Mining Concentrator has been postponed until the completion of the development of both RTR and Frontier, current estimated project cost is US$725 million.

·; Chambishi copper plant: construction of a new solvent extraction and electrowinning ('SX/EW') plant at Chambishi was completed in 2012. The SX/EW facility has a capacity of 55 ktpa of LME grade A copper cathode. The total project cost increased to US$90 million. Full utilisation of the copper SX/EW plant is expected only after a second roaster is installed. A feasibility study for the second roaster will be completed in 2013. Expected copper production in 2013 will be 20 - 25 ktpa of LME grade A copper.

·; Camrose Resources Limited: construction of the first DMS plant was completed during 2012, while the second DMS plant was completed in early 2013. Both are now in operation. Mining was initiated at the Mashitu Pit. The plants will produce approximately 29 ktpa of copper contained in concentrate during 2013.

1 Unit costs: Cost of sales divided by sales volumes.

Production

In 2012, the Energy Division produced 14,264 GWh (2011: 13,993 GWh), of which 73.2% (2011: 71.5%) was used by other Divisions internally within the Group. Coal extraction at EEC was broadly flat at 20,302 kt (2011: 20,110 kt). Coal extraction at Shubarkol as of May 2012 amounted to 5,591 kt.

Sales and Pricing: Coal

Strong demand from the industrial and power sectors resulted in coal output in Kazakhstan increasing 3.8% in 2012. The Energy Division's total sales of coal to third parties were up 74.6% in 2012, as a result of the acquisition of Shubarkol Komir, which completed in April 2012.

In Kazakhstan, the Group sold 4.9 mt of coal to third parties (2011: 2.1 mt), including sales of 2.8 mt of Shubarkol coal since May 2012. The average sales price of Vostochny coal was KZT1,208 (US$8.1) per tonne (2011: KZT1,155 (US$7.9) per tonne), an increase of 4.6% in local currency terms. The average sales price for Shubarkol coal, which has a higher calorific value and lower ash content than coal from Vostochny, was KZT3,146 (US$21.1) per tonne. In addition, the Group sold 38 kt of special coke to third parties domestically, at an average sales price of KZT19,131 (US$128.3) per tonne.

Russian power utilities' imports of steam coal from Kazakhstan decreased 4.5% year-on-year. In Russia, the Energy Division sold 4.1 mt of Vostochny coal (2011: 4.2 mt), at an average sales price of US$28.9 per tonne (2011: US$28.4), and 0.4 million tonnes of Shubarkol coal, at an average sales price of US$43.6 per tonne. Since the acquisition of Shubarkol the Group has expanded its customer base and sales geography delivering coal to consumers in Europe and Central Asia.

Sales and Pricing: Electricity

Improvements in industrial demand in Kazakhstan saw electricity demand continue to grow in 2012 with electricity generation rising by 4.6% for the country as a whole to 90.5 billion kWh (2011: 86.6 billion kWh). The Energy Division's sales of electricity to third parties decreased 5.6% in 2012 due to increased internal consumption. The average sales price to third parties in local currency was unchanged at KZT5.6 (US 3.76 cents) per kWh (2011: KZT5.6 (US 3.82 cents) per kWh.

Energy Division

Results for the year

The Energy Division contributed 22.3% or US$421 million (2011: US$360 million; 10.5%) to the Group's underlying EBITDA. The Division's results were positively impacted by higher prices for coal and the additional sales volumes of Shubarkol's coal and special coke following its acquisition in April 2012. This acquisition added US$90 million to the Group's underlying EBITDA.

The Division's third party revenue increased by 41.1% to US$350 million (2011: US$248 million). Higher prices for coal contributed US$27 million to the increase in revenue. As a result of the Shubarkol acquisition, the Division received additional third party revenues of US$105 million. Sales of electricity reduced by US$8 million due to lower prices and less volume available for third-party sales as consumption by the Group's subsidiaries increased, in particular from the Ferroalloys Division. Total sales revenue to the Group's entities was US$417 million (2011: US$370 million).

Cost of sales rose US$98 million or 42.8% to US$327 million (2011: US$229 million), US$60 million of which was attributable to the acquisition of the Shubarkol businesses. Unit cost of sales for EEC coal rose by 12.8% driven by increased labour rates in H2 2012, higher depreciation and amortisation, inflation of diesel and auxiliary materials costs. There was also an increase in diesel consumption as a result of a higher volume of drilling performed by diesel-powered drilling rigs. The higher cost of coal led to electricity unit cost growth which increased by 14.3% compared to 2011. Unit costs were also affected by the labour rate increase in the second half of the year, higher depreciation and amortisation and emission charges.

Distribution costs amounted to US$81 million (2011: US$67 million), a 20.9% rise with the majority of the increase attributed to the inclusion of Shubarkol sales.

General and administrative expenses increased to US$43 million (2011: US$25 million) with US$10 million attributable to higher social investments and US$6 million to the acquisition of Shubarkol operations.

An impairment of US$13 million has been recognised in respect of the Group's investment in its Xinjiang Aismir Coking Coal Co. Limited Joint Venture (Asmare JV).

Capital Expenditure

Reconstruction of Power Unit 6 is currently underway, which will increase its capacity from 300 MW to 325 MW. Certain major pieces of equipment were installed during the year including the boiler carcass, filter and boiler heating surface. The commissioning date for this project remains unchanged and it is expected to be delivered in 2013 at a total estimated cost of US$265 million.

A tender has been awarded for the development of Stripping Complex 2 and the contract is currently being negotiated.

1 Data includes all internal and third-party rail transportation.

2 Data applies to Transsystema only.

3 Unit costs: Cost of sales divided by sales volumes (attributable to third parties).

Results for the year

The Logistics Division reported underlying EBITDA of US$78 million (2011: US$95 million). A decline compared to 2011 reflecting higher volumes of goods transported in rented railcars. The disposal of Zhol Zhondeushy LLP, the railway line repair business, in May 2012 had an insignificant impact on underlying EBITDA in total, although its exclusion had an effect on the reported revenue and costs when looked at separately in the income statement.

The Division's revenue decreased by US$56 million. US$111 million was attributable to third parties, primarily due to the disposal of Zhol Zhondeushy LLP. This reduction was partially compensated by increased revenue from the provision of transportation services in third party rented railcars for Group companies, particularly the Iron Ore Division.

Cost of sales decreased US$23 million, or 10.1%, to US$205 million (2011: US$228 million). The reduction in cost of sales as a result of the exclusion of Zhol Zhondeushy LLP was partially offset by the additional costs incurred as a larger share of third party railcars was rented for the additional services to Group companies detailed above.

General and administrative expenses declined by 10.0% to US$27 million (2011: US$30 million) which was mainly attributable to the exclusion of Zhol Zhondeushy LLP.

Capital Expenditure

The Logistics Division expanded its railway fleet during 2012 to improve the self-sufficiency of the Group in the transportation of its own materials, with the purchase of 2,258 open-top wagons and 230 pellet wagons during the year.