Interim Results

4th Sep 2007 07:02

Kazakhmys PLC04 September 2007 KAZAKHMYS PLC INTERIM RESULTS FOR THE PERIOD ENDED 30 JUNE 2007 FINANCIAL HIGHLIGHTS • Financial results driven by steady copper cathode production and buoyant commodity prices • Revenues increased by 22% to $2.8 billion • EBITDA excluding special items up 22% to $1,323.7 million • EPS based on Underlying Profit up 29% to $1.71 per share CASH RETURN TO SHAREHOLDERS • Strong Free Cash Flow of $614.4 million for the period • Cashflow and strength of balance sheet allows cash return to shareholders of $700 million - Interim dividend of $64 million, an increase of 7% (13.6 US cents per share) - Special dividend of $235 million, or 50.0 US cents per share - Share buy-back programme of up to $400 million announced KEY BUSINESS DEVELOPMENTS • Delivery on diversification strategy with estimated investment of $1.6 billion - Acquisition of Eastern Akzhar petroleum block in March - Acquisition of Eurasia Gold Inc in July - Planned exercise of ENRC option* • Launch of Boschekul pre-feasibility study * A separate statement has been released today Vladimir Kim, Executive Chairman of Kazakhmys plc commented: "These are positive results, supported by sound operational performance acrossthe Group and delivery of our key strategic objectives. I am pleased that the financialstrength of our Group is supporting both diversification and increased returnsto shareholders whilst leaving us well positioned to invest in further growth." FINANCIAL OVERVIEW---------------------------------------------------------------------------------------- Six months Six months Change ended ended %$million (unless otherwise stated) 30 June 2007 30 June 2006----------------------------------------------------------------------------------------Revenues 2,789.3 2,279.8 22Earnings: Profit before taxation, finance items and 1,203.3 984.5 22 negative goodwill EBITDA excluding special items(1) 1,323.7 1,081.3 22 Underlying Profit(2) 799.6 619.3 29EPS: Basic and diluted ($) 1.70 1.35 26 Based on Underlying Profit(3) ($) 1.71 1.32 29Free Cash Flow 614.4 622.3 (1)ROCE (%) 24.4 27.7Cash cost of copper after by-product 44.5 25.5 75credits (USc/lb)---------------------------------------------------------------------------------------- (1) Reconciliation of EBITDA excluding special items to profit before taxation,finance items and negative goodwill is found in note 4(a) (2) Reconciliation of net profit attributable to equity shareholders of theCompany to Underlying Profit is found in note 8(b) (3) Reconciliation of EPS based on Underlying Profit is found in note 8(b) CHAIRMAN'S STATEMENT In the first six months of 2007 we have again enjoyed a strong increase inrevenue and profits, benefiting from continued buoyant commodity prices anddemand for all of our metals. Over the first six months of 2007 turnover rose to$2,789.3 million, a 22% increase on the same period last year. This increase wasreflected in pre-tax profits rising by 24% to $1,185.8 million and a 29%increase in earnings per share, based on Underlying Profit, from $1.32 in thefirst six months of 2006 to $1.71. Production increased modestly over the past six months, with output of finishedcopper rising by 2%. The Group continues to invest in existing operations and inthe development of new copper deposits in order to maintain and extend ourexisting production. Today we are announcing the launch of a comprehensivepre-feasibility study on the Boschekul project and we are making good progresson a detailed study of the oxide deposits at Aktogay. In 2007 we have started to deliver on some key areas of our strategy. This canbe seen in the acquisitions of the Eastern Akzhar petroleum block in March,followed just after the period end by our acquisition of Eurasia Gold in July.In addition, the independent Directors of the Board have approved the exerciseof the ENRC option, subject to the approvals of the Government of Kazakhstan and the independent shareholders of the Company. In total this represents estimated investment of $1.6 billion and has brought us exposure to some important new commodities. Kazakhstan and the region continue to offer numerous exceptional opportunities for diversification and development, through new projects and existing assets. Pursuing these opportunities remains a key part of our strategy. We will increase the amount of Kazakhmys PLC shares held through the KazakhstanStock Exchange to over 2.5% of our total issued share capital, following a shareexchange offer to existing holders of our operating subsidiary Kazakhmys LLC inwhich we will now hold 99.73%. This consolidation moves the Group towards a moresimplified corporate structure and supports the development of the Kazakhcapital markets. With commodity prices remaining high, the Group continues to generatesubstantial levels of Free Cash Flow, with net liquid funds of $1.7 billion at30 June 2007. We are intending to carry out a share buy-back of up to $400million and the Board is declaring a special dividend of $235 million, 50.0 UScents per share, in addition to the interim dividend of $64 million, 13.6 UScents per share, a 7% increase on the interim dividend last year. This brings atotal return to shareholders of up to $700 million. We believe that subsequentto this return, we retain sufficient balance sheet strength to implement ourstrategy and to take up other opportunities as they arise. I should like to thank all our employees for their continued hard work andsupport throughout the period. I should also like to thank the Directors, whohave played a key role in assisting on strategy over the past six months. Looking ahead, we anticipate total copper production finishing 2007 at aslightly higher level than 2006 and production from own material in line withlast year. The outlook for pricing and demand remains firm. Costs continue tocreate pressure and several initiatives are underway to mitigate this. Ourcommitment to our strategy of development and diversification remains strong andI look forward to reporting further progress in our 2007 annual results. CHIEF EXECUTIVE'S REVIEW It has been a positive six months' performance, with a combination of stableproduction and firm commodity prices producing a strong increase in financialreturns. This has been combined with good progress on our strategy to expand anddiversify. Lower ore output was largely offset by higher ore grades from several new mines,leading to steady production of copper in concentrate compared to the sameperiod in 2006. Total copper cathode output for the first half of 2007 reached190.4kt, excluding tolled material, compared to 186.5kt produced in the firstsix months of 2006. This included production of 26.9kt of cathodes frompurchased concentrate, an increase from 17.5kt for the first six months of lastyear. Production from purchased concentrate is undertaken when opportunitiesarise to purchase concentrate locally and capacity is available. Zinc metal in concentrate production was in line with the interim period lastyear, at 71.2kt in the first six months of 2007. On the same comparison,production of gold and silver from our own material reduced by 4% and 5%respectively, to 51.4koz and 10,104koz. The level of silver production wasdirectly linked to lower output from mines with silver content. Gold in oreproduction actually increased compared to the first half of 2006 and materialwas stockpiled, which has been processed in the second half of the current year. The average realised price on copper sales over the six month period was $6,930per tonne, an increase of 6.5% on the same period last year. There was a rise inrealised zinc prices of 29% to $3,572 per tonne. The increase in metals prices,accompanied by steady output, led to a rise in revenue of 22% to $2.8 billion.Revenues also benefited from the recognition of sales of 49kt of copper cathode,which were held as goods in transit at the year end. Revenue has been held back,however, by high inventories of silver which have been sold down since theperiod end. In addition, ore containing gold, as mentioned above, was stockpiledand has been processed in the second half. Cost pressures have been seen throughout the mining industry globally for sometime and this has had an impact in Kazakhstan. Inflation in Kazakhstan iscurrently about 8%, but fuel costs have risen by 31% in the first half of 2007,compared to the same period last year. Salaries have risen in excess of 20%,affected by a combination of the strong economy and the buoyant mining sector,with demand for skilled workers leading to a tight labour market. Fuel andlabour represent around 30% of our cash cost of sales. These pressures arelikely to continue and action is being taken, as described below, to mitigatethe impact. Cash cost of copper, including the cost of purchased concentrate and net ofrevenues arising from by-products for the first six months of 2007 was 44.5 UScents per pound. Excluding the costs of purchased concentrate and correspondingcopper cathode production, our cash cost for the period was estimated to be 27US cents per pound, which continues to place us amongst the lower cost copperproducers in the world due to the valuable contribution we receive fromby-product revenues. In common with other mining companies around the world, wehave faced cost pressures principally arising from labour, fuel andtransportation costs, but we continue to maximise by-product revenues with aview to mitigating these cost pressures. Our cash costs figure is also highlysensitive to the timing of by-product revenues; if the silver inventories hadremained constant during the period, then our cash costs would have reduced byapproximately 6 US cents per pound. EBITDA, excluding special items, rose by 22% to $1.3 billion, reflecting theimprovement in commodity prices. The EBITDA margin was unchanged from the firsthalf of last year, at 48%, as higher commodity prices offset the cost pressuresnoted above. The rise in the price of copper subdues the margins of MKM, ourGerman copper product division, as they purchase copper for fabrication. TheEBITDA margin of our core copper division, excluding MKM and purchasedconcentrate, has remained steady from the first half of last year, at 82%. We are undertaking a comprehensive cost management programme, in order to offsetthe cost pressures mentioned above and to embed a culture of cost efficiencyacross the organisation. This is divided into three key areas: transportation,concentrators and labour. The review of our transportation costs covers a widerange of activities. In road transportation we believe there are opportunitiesto reduce maintenance costs, outsource some maintenance activities and to makethe handling of material more efficient. We are considering ways of improvingour rail transportation system to improve delivery times and reduce losses intransit. The new Nurkazagan concentrator will start production in the secondhalf of this year and will save in transportation and other costs, principallyby removing the need to transport ore. We believe there are opportunities tobuild a further two concentrators and these projects are about to enterpre-feasibility stage. At the same time we are upgrading two of our eightexisting concentrators, Karagaily and Nikolaevskoe, which will improve theirrecovery rates and capacity. This refurbishment programme will then be extendedto other concentrators. We believe that there is potential to reduce our labournumbers in some areas, such as the outsourcing of transportation, but this hasto take into account our social responsibility towards our employees and thewider community. There has been continued focus on health and safety over the past six months. To30 June there were 17 fatalities, the same as in the first six months of lastyear. In the first half of last year there were nine fatalities related to fallsof ground and our programme to address this issue was covered in our 2006 AnnualReport. The number of fatalities as a result of falls of ground has reduced totwo in the current period, which is an encouraging start to this initiative.There has, however, been an increase in incidents related to underground mobilemining equipment and we will now be reviewing some specific initiatives toaddress this trend. There is a major new training facility for health and safetybeing developed at Zhezkazgan, due for completion this year, underlining ourcommitment in this area. The total spend on capital expenditure over the period was $650.2 million, ofwhich $83.8 million was sustaining capital expenditure and the balancerepresenting spend on new projects. 80% of the new project capital expenditurewas for the acquisition of the Eastern Akzhar petroleum business and relatedlicenses. In our 2006 Annual Report we stated that at this time we would report on thepotential fast tracking of our two growth projects, at Aktogay and Boschekul. Ican now announce that we are fast tracking the pre-feasibility stage ofBoschekul, which should see the project ready for approval into the feasibilitystage by December 2008. Early indications suggest a resource of 400 milliontonnes containing 2.2 million tonnes of copper, but we believe the size of theresource will increase. We have engaged the international engineering andconstruction group, Fluor, to assist on this project. Studies are being carriedout to optimise the development of Aktogay, specifically on the oxide deposits,which although relatively small, at 107 million tonnes, should be astraightforward and low cost project. This should move into pre-feasibilitystudy by the end of 2007. We continue to generate significant levels of cash, with Free Cash Flow over theperiod of $614 million and net liquid funds of $1,740 million at the period end.As mentioned in the Chairman's Statement, we have decided to return some cash toshareholders through a combination of a share buy-back of up to $400 million anda special dividend of $235 million, 50.0 US cents per share. The strength of ourbalance sheet still leaves the Group with the flexibility to meet ourrequirements for expenditure and to fulfil our diversification strategy. We have begun delivering on some important areas of our diversification strategysince the start of the year. In March 2007 we completed the acquisition of theEastern Akzhar petroleum block. We are currently carrying out studies to reviewprevious exploration work. For the second half of 2007 and early 2008 we areworking in the deeper southern part of the block and we are also looking atexploration in the shallow northern part of the block. Since the period end we have completed the acquisition of Eurasia Gold, in July.Eurasia Gold currently has around 1.9 million ounces of gold resource (on a JORCand C1 Kazakhstan Standard basis), though we anticipate that this number willincrease substantially following the survey work currently taking place, whichwe will report on at our 2007 Annual Results. These assets, such as theBozymchuk and Mizek Sulphide projects, are planned to move into production in2009 and, combined with our existing gold resources and output, provide the coreof an exciting gold division. Today we announced that the independent Directors of the Board have approved theexercise of the option to acquire an 18.8% holding in ENRC, subject to theapprovals of the Government of Kazakhstan and the independent shareholders ofthe Company. The estimated cost will be $810 million. The holding will provide entryto a range of new resources, including ferroalloys, iron ore and alumina. Giventhe strength of our balance sheet, we believe that there are many opportunitiesthat can be considered with ENRC to our mutual benefit. I should like to thank all my colleagues for their efforts in achieving theseresults. These are exciting times for all of us at Kazakhmys as we continue todevelop and improve our existing operations and start to deliver and takeadvantage of the many strategic opportunities available to us. I look forward toreporting on this further at the final results next year. REVIEW OF OPERATIONS OVERALL COPPER PRODUCTION Kazakh Mining Copper Production Six months Six months ended endedkt (unless otherwise stated) 30 June 2007 30 June 2006--------------------------------------------------------------Ore extraction 17,994 20,127Average copper grade (%) 1.21 1.10 Copper in concentrate 201.5 202.6 own concentrate 182.8 183.4 purchased concentrate 18.7 19.2 Copper cathodes(1) 191.2 187.9 own concentrate 163.5 169.0 purchased concentrate 26.9 17.5 tolling concentrate 0.8 1.4Copper rod 18.0 14.3--------------------------------------------------------------(1)Includes copper used to produce copper rod Total copper cathode output for the first half of 2007 reached 190kt, excludingtolled material, 2% higher than the 187kt produced in the first six months of2006. Lower ore output was largely offset by higher ore grades, resulting incopper in concentrate production in line with that of the same period in 2006. Lower ore output in the first half of 2007 was primarily due to the suspensionof production for stripping works at the Kounrad mine in the Balkhash Complexand lower output from the Zhezkazgan Complex. There was increased ore output inthe Karaganda Region as the Kosmurun mine produced over the full six monthperiod when it was only operational for part of the first half of 2006. The impact on copper in concentrate production of the lower ore output wasalmost offset by a higher average copper grade of 1.21%, considerably above the1.10% recorded for the first half of 2006. This was achieved by additionaloutput from the newer, relatively high grade mines such as Zhomart in theZhezkazgan Complex, Artemyevskoe in the East Region and Kosmurun in theKaraganda Region, coupled with the impact of the suspension of output at Kounradfor stripping works, a mine with a below average ore grade. As the newer minesproduced at a ramped up capacity throughout the first half of 2007, theirupwards pressure on the average copper grade is unlikely to continue. Cathode output in the first half of 2007 was adversely impacted by maintenanceshutdowns at both the Zhezkazgan and Balkhash smelters. The smelters are nowfully operational, although there may be a further 10 day maintenance shutdownduring the second half of the year. The Group has continued to opportunistically produce cathodes from purchasedconcentrate when there is concentrate available locally and there is sparecapacity at the smelters. In the first half of 2007 the Group produced 26.9kt ofcopper cathodes from purchased concentrate, up from 17.5kt in the first half of2006. The volume of cathodes allocated for further processing into copper rod isdetermined by contracted demand, normally from the Chinese market. In the firsthalf of 2007, 3.7kt more copper rod was processed than in the comparative periodof the prior year. COPPER REVIEW BY REGION Zhezkazgan Complex Six months Six months ended endedkt (unless otherwise stated) 30 June 2007 30 June 2006--------------------------------------------------------------Ore extraction 12,816 14,050Average copper grade (%) 0.81 0.82 Copper concentrate 247.2 280.1Copper in concentrate 93.1 100.9 Copper cathodes(1) 93.7 105.8 of which tolling - 0.5Copper rod 18.0 14.3--------------------------------------------------------------(1)Includes copper used to produce copper rod The Zhezkazgan Complex's ore output in the first half of 2007 was lower than inthe corresponding period of 2006 as a result of a collapse impacting theAnnensky and East mines in the second half of 2006 and the majority ofZhezkazgan Complex mines being at or nearing a mature stage. The increase inoutput, half year on half year, from the Zhomart mine commissioned in April2006, was not sufficient to offset the fall in output from the other ZhezkazganComplex mines. Considerable work is required, in efficiencies and expansions, tomaintain the current copper output levels. The lower ore output, at a similar ore grade as in the prior year, resulted inproduction of copper in concentrate being reduced from 100.9kt to 93.1kt. At the end of May 2007, the Zhezkazgan smelter closed for 14 days formaintenance, contributing to a decline in copper cathode production in the firsthalf of 2007 to 93.7kt, compared to the level achieved in the first half of2006. Balkhash Complex Six months Six months ended endedkt (unless otherwise stated) 30 June 2007 30 June 2006--------------------------------------------------------------Ore extraction 1,093 2,286Average copper grade (%) 1.15 0.82 Copper concentrate(1) 92.5 133.0Copper in concentrate 15.9 24.3 Copper cathodes 97.5 82.1 of which tolling 0.8 0.9Copper rod - ---------------------------------------------------------------(1)Excludes concentrate processed by third parties In the first six months of 2007 there was limited ore output of 178kt (30 June2006: 1,175kt) from the Kounrad mine as it undergoes major stripping works. Thestripping works are scheduled to continue throughout 2007, though in June therewas some limited output and further production, albeit intermittent, is expectedover the second half of the year. The Sayak mine experienced technical issueswith drilling and ore transportation equipment reducing its output to 702kt (30June 2006: 867kt). Kounrad mine had a copper grade of only 0.34% in the first half of 2006, belowthe Complex's average, so its reduction in output has resulted in the Complex'saverage grade rising from 0.82% to 1.15%. The stripping works at Kounrad and technical issues at Sayak led to theComplex's copper in concentrate output falling from 24.3kt to 15.9kt. The Balkhash smelter, where the vast majority of purchased concentrate isprocessed, together with own concentrate from the Karaganda and East regions,produced 97.5kt of cathodes, up from 82.1kt in the first half of 2006. Althoughone of the smelter furnaces at Balkhash was shutdown for maintenance for 14 daysin June, the lost production is expected to be made up in the second half of theyear. East Region Six months Six months ended endedkt (unless otherwise stated) 30 June 2007 30 June 2006--------------------------------------------------------------Ore extraction 2,173 2,318Average copper grade (%) 2.60 2.63 Copper concentrate(1) 231.4 259.5Copper in concentrate 43.7 47.6 Copper cathodes - -Copper rod - ---------------------------------------------------------------(1)Excludes concentrate processed by third parties The ore volumes produced in the East Region were slightly below the levelsachieved over the same period in 2006 as an increase in ore output of 271kt fromone of the newer mines, Artemyevskoe, was offset by delays in obtaining miningand transportation equipment at the Orlovskoe and Yubileyno-Snegirikhinskoemines. New equipment is expected to be delivered in the third quarter of 2007. There was also reduced production at the Nikolaevskoe mine which had been transferred from an open pit to an underground mine in 2006 and a temporary stoppage of ore extraction at Belousovskoe mine in April 2007 as stripping and ore preparation works were undertaken. In addition to the figures shown above, 5.4kt of copper in concentrate wasproduced by a third party on a tolled basis for the Group (30 June 2006: 4.1kt). In the first half of 2007, the region's average ore grade was almost the same asthe grade achieved in the comparative period in 2006. Karaganda Region Six months Six months ended endedkt (unless otherwise stated) 30 June 2007 30 June 2006--------------------------------------------------------------Ore extraction 1,912 1,473Average copper grade (%) 2.36 1.83 Copper concentrate 158.7 71.2Copper in concentrate 24.6 6.4 Copper cathodes - -Copper rod - --------------------------------------------------------------- Ore output in the Karaganda Region grew by 439kt from 1,473kt to 1,912kt and theore grade increased from 1.83% to 2.36% resulting in copper in concentrateproduction of 24.6kt, 284% higher than the first half of 2006. Kosmurun mine output rose by 540kt at an average grade of 4.00%, more thancompensating for the closure of the Abyz mine for planned stripping worksthroughout the period. During the first six months of 2007, 950kt of ore from the Nurkazgan mine wasstockpiled at the new Nurkazgan concentrator awaiting the completion of thetesting and commissioning works. This concentrator is expected to becomeoperational in the second half of 2007. REVIEW OF ZINC PRODUCTION Kazakh Mining Zinc Production Six months Six months ended endedkt (unless otherwise stated) 30 June 2007 30 June 2006--------------------------------------------------------------Average zinc grade (%) 3.69 4.00Zinc in concentrate 71.2 70.6Zinc metal 27.4 33.8-------------------------------------------------------------- Zinc in concentrate production in the first six months of 2007 was in line withthe same period in 2006. The increased ore output in 2007 from the Artemyevskoemine offset the impact of the second quarter equipment shortages at theOrlovskoe mine. Some ore from the Kosmurun mine, which had been found to contain zinc for thefirst time, has been stockpiled as the Karagaily concentrator is upgraded. Thestockpiled ore is expected to be processed in the second half of 2007. The zinc grade fell slightly to 3.69% from the 4.00% recorded in 2006. This waspartly due to the Kosmurun mine producing ore containing zinc in 2007, at abelow average grade of 2.10%. Other factors were lower grades being extracted atthe Artemyevskoe mine and the ceasing of production for stripping works at theAbyz mine. Zinc metal output is slightly below the current annualised capacity of 60kt,though with the relative attractiveness of concentrate prices, material is beingsold as concentrate and not stockpiled. REVIEW OF PRECIOUS METALS PRODUCTION Kazakh Mining Precious Metals Production Six months Six months ended endedkoz (unless otherwise stated) 30 June 2007 30 June 2006--------------------------------------------------------------Silver grade (g/t) 21.09 20.34Silver 10,111 10,692 own production 10,104 10,660 tolling 7 32 Gold grade (g/t) 0.77 0.70Gold 70.6 77.7 own production 51.4 53.6 tolling 19.2 24.2-------------------------------------------------------------- Silver own production in the first half of 2007 was 5% below that for the firstsix months of 2006 as the decrease in ore output in the Zhezkazgan Complex,particularly from the Annensky and East mines impacted by the 2006 collapse, waspartially offset by production from the South mine and the recently commissionedZhomart mine. The other main silver producing region, East, also experiencedlower silver output due to the slightly lower ore production at the Orlovskoemine. Gold in ore output was higher than that in the first half of 2006, as theArtemyevskoe and Nikolaevskoe mines in the East Region reported greater goldoutputs. Karaganda's gold output was also higher than that achieved in the firsthalf of 2006 due to the above average gold content of the Kosmurun mine whoseore extraction was significantly higher than in the prior period. However, own gold production from the Group's precious metals refinery inBalkhash was 4% lower than the first half of 2006, mainly due to the build-up ofwork in progress and the stockpiling of Nurkazgan ore, all of which is expectedto be processed later in the year. MKM PRODUCTION The Group's German downstream manufacturing subsidiary, MKM, sold 136kt, up from134kt in the first half of 2006. Within this, the volumes of wire rod, a lowmargin product, fell slightly from 62kt to 59kt as the business focused more onhigher margin products, taking advantage of improved market conditions.Production of strips rose from 23kt to 25kt, an increase of 9%, and bars from11kt to 13kt, an increase of 15%. KAZAKHMYS PETROLEUM Following the acquisition of the Eastern Akzhar petroleum block in WesternKazakhstan, Kazakhmys has recruited a specialist team to carry out prospectingwork to establish the reserves in place. In the second half of the year,prospecting will be undertaken including exploratory drilling on the suprasaltstructures, performing seismic 3D work on the subsalt structures, re-enteringexisting wells to confirm previous exploration results and establishing theinitial on-site infrastructure to support activities on the block. FINANCIAL REVIEW BASIS OF PREPARATION The financial information set out on pages 20 to 39 has been prepared usingconsistent accounting policies with those adopted in the financial statementsfor the year ended 31 December 2006. SUMMARY OF RESULTS Revenues for the six month period to 30 June 2007 amounted to $2,789.3 million,a 22.3% increase over the prior period in 2006. Profit before taxation, financeitems and negative goodwill rose by 22.2% to $1,203.3 million and our keyperformance measure for earnings, EBITDA excluding special items, was $1,323.7million, a 22.4% increase compared to 2006. The improved earnings wereattributable to the continued strength in commodity prices shown across all ofthe Group's main products during the period. These results translated to an increased profit attributable to equityshareholders of $794.2 million, compared to $632.7 million in the prior year, anincrease of 25.5%. Underlying Profit, a more informed measure of the Group'sfinancial performance, increased by 29.1% from $619.3 million to $799.6 million. A summary of the consolidated income statement is set out below: Six months Six months Change ended ended %$million (unless otherwise stated) 30 June 2007 30 June 2006-----------------------------------------------------------------------------------------------Revenues 2,789.3 2,279.8 22.3Operating costs excluding (1,465.6) (1,198.5) 22.3depreciation, depletion,amortisation and special items-----------------------------------------------------------------------------------------------EBITDA excluding special items 1,323.7 1,081.3 22.4Special items: Less: write (off)/back of property, plant and (3.8) 10.2 equipment Less: loss on disposal of property, plant and (1.8) (4.0) equipmentLess: depreciation, depletion and amortisation (114.8) (103.0)-----------------------------------------------------------------------------------------------Profit before taxation, finance items and 1,203.3 984.5 22.2negative goodwillNet finance expenses (17.5) (35.1)Recognition of negative goodwill - 6.5-----------------------------------------------------------------------------------------------Profit before taxation 1,185.8 955.9 24.1Income tax (384.3) (317.0)-----------------------------------------------------------------------------------------------Profit for the period 801.5 638.9 25.4Minority interests (7.3) (6.2)-----------------------------------------------------------------------------------------------Profit attributable to equity shareholders of 794.2 632.7 25.5the parent------------------------------------------------------------------------------------------------EPS - basic and diluted $1.70 $1.35 25.9EPS based on Underlying Profit $1.71 $1.32 29.5------------------------------------------------------------------------------------------------ Basic and diluted EPS increased by 25.9% to $1.70 per share. EPS based onUnderlying Profit was $1.71 per share compared to $1.32 per share reported in2006, an improvement of 29.5%. Following these results and reflecting the strength of the balance sheet, theDirectors have declared an interim dividend of 13.6 US cents per share togetherwith a special dividend of 50.0 US cents per share. The Directors have alsoannounced a share buy-back programme of up to $400 million that will commence inOctober 2007. The improved earnings have benefited the Group's cash flows and net liquid fundsposition, with the latter standing at $1,740.4 million at 30 June 2007 evenafter the acquisition of Dostan-Temir LLP (renamed as Kazakhmys Petroleum LLP)and the related oil and gas exploration and development licence withinKazakhstan. The continued high commodity prices and healthy funding position leaves theGroup well placed to pursue future organic growth and opportunisticacquisitions. On 5 July 2007 the Group acquired 96.34% of Eurasia Gold Inc, aCentral Asian gold mining company for $260.1 million, and on 3 September 2007the independent Directors of the Board approved an announcement setting outtheir decision to exercise the call option over Vladimir Kim's 18.8% interest inENRC PLC for an estimated cost of $810 million, subject to the approvals of theGovernment of Kazakhstan and the independent shareholders of the Company. The definitions of our key financial indicators are shown in the Glossary andthese measures are set out below: Six months Six months ended ended$million (unless otherwise stated) 30 June 2007 30 June 2006---------------------------------------------------------------------------------EBITDA excluding special items 1,323.7 1,081.3EPS based on Underlying Profit ($) 1.71 1.32Free Cash Flow 614.4 622.3Return on Capital Employed (%) 24.4 27.7Cash cost of copper after by-product credits 44.5 25.5(USc/lb)(1)--------------------------------------------------------------------------------- (1) In line with management and external reporting, the Group has changed the unitof measurement of the cash cost of copper after by-product credits from $/tonneto USc/lb. REVENUES As the Kazakh Mining and MKM business are different in nature, the two segmentshave been analysed separately. Kazakh Mining Revenues of the Kazakh Mining business increased from $1,520.9 million to$1,978.0 million, a 30.0% increase against the prior period. With commodityprices remaining strong, revenues from our copper and zinc based products showedsignificant increases. The average market and realised prices for our main products during the period,all of which increased significantly over the prior period, are set out below: Six months ended Six months ended 30 June 2007 30 June 2006 -------------------------------------------------- Average Average Average Average market realised market realised price price price price------------------------------------------------------------------------------------Copper ($/tonne) 6,769 6,930 6,070 6,510Zinc metal ($/tonne) 3,561 3,572 2,762 2,768Silver ($/oz) 13.31 13.32 10.95 10.87Gold ($/oz) 659 649 590 600------------------------------------------------------------------------------------ The average realised prices for our main products do not differ significantlyfrom market prices with the exception of copper. In line with industry practice,our sales agreements for copper cathodes provide for provisional pricing at thetime of delivery with the final price based on the market price for futureperiods. With an average market copper price in the second quarter of 2007 of$7,597 per tonne compared to an average copper price of $5,941 per tonne in thefirst quarter of the year, the rising trend in copper prices has resulted inpositive pricing adjustments during the period. Additionally, a premium over LMEprices is incorporated into our sales agreements, consistent with marketpractice. Revenues from the sale of copper cathodes were $1,406.9 million, or 71.1% of thetotal revenues of the Kazakh Mining business, with the average realised price ofcopper increasing 6.5% compared to the prior period. Although production volumesof copper cathodes, excluding tolling, increased by 2.1% compared to theprevious period, sales volumes of copper cathodes were 40kt, or 24.5% higher.This is primarily due to some shipments to Europe that were scheduled to bedelivered in December 2006 being delivered in January 2007 as the shipments tooklonger than anticipated over the New Year period. Zinc metal sales volumes decreased by 32.4% compared to the prior period butthis was partially offset by higher realised prices which were 29.0% higherresulting in a fall in revenue of only 12.8%. Zinc metal output during theperiod was slightly below the annualised capacity of the Balkhash zinc smelterof 60kt, which may be balanced by greater output in the second half of the year.However, with the relative attractiveness of zinc concentrate prices in the CIS,zinc is being sold as concentrate instead of being stockpiled at the zincsmelter without a material impact on profitability. Zinc in concentrate sales volumes increased by 85.0% compared to the priorperiod largely due to increased production at the Artemyevskoe mine and thereduction in zinc concentrate inventory levels. Capacity constraints at the zincsmelter in the production of zinc metal, as mentioned above, increased thevolumes of zinc concentrate sold which, when coupled with higher realised pricesfor zinc concentrate, pushed up revenues by 160.7% to $154.1 million,contributing 7.8% of Kazakh Mining's revenues during the period compared with3.9% in the prior period. Sales volumes of silver were down 31.7% but were offset by strong pricesresulting in revenues only decreasing by 16.4%. The decrease in sales volumes ofsilver was largely attributable to the delay in finalising the 2007 salescontracts in order to obtain improved pricing in our contracts. Since the periodend, additional sales agreements for 2007 have been agreed and surplus stockshave subsequently been sold at attractive prices. Gold sales volumes wereslightly down on the prior period, with revenues broadly flat due to the timingof shipments around the period end. MKM MKM reported revenues of $811.3 million for the period, an increase of 6.9% fromthe prior period's revenue figure of $758.9 million. Although sales volumes wereonly up by 1.6% compared to the prior period, this was part of a strategicdecision to reduce working capital levels and the associated financing costs.MKM's sales activity was focused towards higher margin products as well asincreasing volumes within the tolling business which rose by 46.1% compared tothe same period in 2006. Whilst these moves curtailed revenue growth,particularly in the lower margin wire rod business, increased volumes of highermargin products and higher levels of tolling had a positive impact on relativeprofitability. Following this change in focus of MKM's sales activities, there were strongperformances in the sales of the higher margin products with revenues for barsup 43.2%, tubes up by 34.0% and strips up by 32.1% compared to the prior perioddue to good market conditions and increased customer demand for these products.Revenues from the lower margin wire rods were down 7.1% over the prior period.The improved underlying performance at MKM seen in the second half of 2006 hastherefore continued into the first half of 2007. EARNINGS Profit before taxation, finance items and negative goodwill increased from$984.5 million to $1,203.3 million, an increase of 22.2%, split between $1,193.4million for the Kazakh Mining business, $25.8 million for MKM and a loss of$15.9 million for unallocated costs. A reconciliation of profit before taxation,finance items and negative goodwill to EBITDA excluding special items bybusiness segment is set out below: Six months Six months ended ended$million (unless otherwise stated) 30 June 2007 30 June 2006-----------------------------------------------------------------------------------------Kazakh Mining Profit before taxation, finance items and negative 1,193.4 973.1 goodwill Add/(loss): loss/(gain) from special items 5.5 (6.6) Add: depreciation, depletion and amortisation 103.1 92.3----------------------------------------------------------------------------------------- EBITDA excluding special items 1,302.0 1,058.8----------------------------------------------------------------------------------------- Revenues 1,978.0 1,520.9----------------------------------------------------------------------------------------- EBITDA excluding special items margin (%) 65.8 69.6-----------------------------------------------------------------------------------------MKM Profit before taxation, finance items and negative 25.8 30.0 goodwill Add/(loss): loss/(gain) from special items 0.1 (0.1) Add: depreciation and amortisation 11.2 10.6----------------------------------------------------------------------------------------- EBITDA excluding special items 37.1 40.5----------------------------------------------------------------------------------------- Revenues 811.3 758.9----------------------------------------------------------------------------------------- EBITDA excluding special items margins (%) 4.6 5.3-----------------------------------------------------------------------------------------Unallocated costs excluding special items (15.4) (18.0)-----------------------------------------------------------------------------------------Total EBITDA excluding special items 1,323.7 1,081.3-----------------------------------------------------------------------------------------Total EBITDA excluding special items margin (%) 47.5 47.4----------------------------------------------------------------------------------------- Kazakh Mining The EBITDA excluding special items margin fell to 65.8% from 69.6% in the priorperiod. Despite commodity prices being higher in 2007 compared to the priorperiod, the main reason behind the lower margin was the significantly highercost of purchased concentrate. With an increase in the volume of copper cathodesproduced from purchased concentrate from 18kt to 27kt, there was a $64.9 millionincrease (67% increase) in the cost of purchased concentrate. Excluding theeffects of purchased concentrate on costs and revenue from cathodes producedfrom purchased concentrate, the EBITDA excluding special items margin would haveremained level at approximately 82%, despite the cost pressures faced by thebusiness. Significant cost pressures were faced within Kazakhstan due to its buoyanteconomy and, in common with other companies in the mining industry, there wasmore widespread pressure on input costs. General cost inflation withinKazakhstan and the mining industry is running in excess of 8% which placespressure on input prices denominated in both US dollars and Kazakhstan tenge. Inaddition, the Kazakhstan tenge appreciated against the US dollar by 3.1%compared to the corresponding period in 2006. As certain costs are denominatedin US dollars, this strengthening of the Kazakhstan tenge leads to higher costsfor the Kazakh Mining business whose functional currency is the Kazakhstantenge. Employee remuneration increased for both production and administrative stafffollowing a pay rise in the fourth quarter of 2006 which was necessary to bringaverage salaries within the business into line with the local market. Employeeremuneration is increasing generally across Kazakhstan due to rising levels ofprosperity and a tightening labour market for skilled labour across the naturalresources sector within the CIS. Transportation and repair costs increased by 62.2% to $45.9 million primarilydue to higher costs in transporting ore from the recently opened Kosmurun mineto the Karagaily concentrator some 220km away. A pre-feasibility study iscurrently in progress on the construction of a new concentrator at Kosmurunwhich should reduce these transportation costs in the future. In addition, fuelcosts increased by 31.0% to $37.4 million reflecting the global increase incosts for gasoline and diesel fuel and the increased transportation relating tothe Kosmurun mine referred to previously. Utilities costs doubled to $12.8million compared to the prior period reflecting increased tariffs and the highercosts to transmit electricity to more remote mines in the East Region andKaraganda Complex. Selling and distribution costs increased slightly by $2.0 million to $26.2million, an increase of 8.3%. This relatively small increase was due to a shiftin sales from Europe to China in 2007 compared to 2006 with lower relativetransportation and tariff charges. Administration costs rose by 53.5% to $133.2million. This increase is mainly due to increases in employee remuneration,higher levies and charges following the completion of the statutory tax audit inearly 2007, and higher social responsibility costs within Kazakhstan whichreflect our commitment to the communities in which we operate. Depreciation, depletion and amortisation increased from $92.3 million to $103.1million. This was due to a higher book value of property, plant and equipmentattributable to rising levels of capital expenditure in recent years as well asthe effect of the appreciation of the Kazakhstan tenge against the US dollar. The cash cost of copper after by-product credits is a key measure in assessingthe ability of the Kazakh Mining business to control its production costs andmaximise credits from by-product production. For the period ended 30 June 2007,the cash cost of copper after by-product credits amounted to 44.5 USc/lbcompared to 25.5 USc/lb in the prior period. This increase was primarily due tothe increased cost of purchased concentrate which is reflected within theoverall cash cost of copper. The Group continues to maximise by-product creditswhilst still focusing on controlling operating costs. MKM Although EBITDA excluding special items fell from $40.5 million to $37.1million, the underlying performance of MKM was masked by the impact of copperprice fluctuations on stock valuation, during a period of falling stock levelsat MKM which were gradually being managed downwards for working capitalpurposes. Within earnings, a contribution of approximately $19 million (30 June2006: $28 million) arose from an increased stock valuation as a result of acombination of rising copper prices and falling stock levels. The impact of thiscontribution during the period was less than in the prior period and concealsthe improvement in the underlying trading performance of MKM compared to theprior period. A more informed trading performance measure for MKM is the 'Gross Value Add'(GVA) as MKM is primarily a fabricating downstream business. This measure iscommonly used in this industry to measure the 'value add' of the productionprocess to purchased raw materials. Despite only a 1.5% increase in salesvolumes, the GVA rose from $78.5 million to $104.5 million, an increase of 33.1%due to a combination of higher margin products being sold, improved marketconditions and increased conversion charges. NET FINANCE ITEMS Net finance costs were $17.5 million during the period, which contrasted withnet finance costs of $35.1 million that arose in the prior period. A net foreign exchange loss of $52.7 million is included within the net financecost, compared to a loss of $63.8 million that was recognised in the priorperiod. The foreign exchange loss primarily arose on the high level of US dollardenominated cash deposits and current investments within Kazakhmys LLC as aresult of the appreciation of the Kazakhstan tenge against the US dollar whichmoved from 127.00 KZT/$ as at 31 December 2006 to 122.31 at 30 June 2007, a 3.7%movement. Finance income primarily relates to interest earned from US dollar andKazakhstan tenge denominated cash and deposits placed with financialinstitutions in both the UK and Kazakhstan. Interest income of $45.9 million is35.0% higher than the prior period amount of $34.0 million reflecting highercash and deposit balances compared to the prior period resulting from highercommodity prices, and the effect of higher global interest rates on liquidfunds. Finance costs, other than foreign exchange, include a finance cost of $6.1million which relates to the interest expense on the MKM bank loan, up from $1.7million in the prior period. TAXATION The effective tax rate for the period was 32.4% compared to a rate of 33.2% inthe prior period. The overall tax charge was $384.3 million, an increase of$67.3 million compared to the prior period primarily as a result of the increasein earnings within the Group. Excess profits tax is levied in addition to corporate tax on the profitsattributable to certain subsoil contracts where the internal rate of returnexceeds 20%. For the period, excess profits tax of $33.1 million was charged toearnings which represented an incremental 2.8% to the effective tax rate, upfrom 2.6% in the prior period. Withholding taxes of $20.0 million were accrued during the period representingan incremental 1.7% to the effective tax rate, up from 0.7% in the prior period.These withholding taxes relate to profits arising within Kazakhstan which areexpected to be remitted to the UK for dividend purposes. The effective tax rate has decreased from the prior period principally due tothe overprovision of income taxes in previous years which contrasted with anunderprovision of income taxes in the six months ended 30 June 2006. Non-taxableincome arising from the Balkhash zinc smelter for which Kazakhmys LLC benefitsfrom a tax holiday contributes to a reduction in the effective tax rate althoughthis impact is dependent on the level of zinc production. Following an increase in trade taxes within Germany, the effective tax rate forMKM increased from 35.98% to 37.34% during the period. However, following theGerman government's recent decision to reduce corporate tax rates, the effectivetax rate for MKM is expected to fall in the second half of the year. The effective tax rate is expected to remain at levels in excess of thestatutory Kazakhstan tax rate of 30% due to excess profits taxes arising onprofitable subsoil contracts at the current time of high commodity prices, andthe additional withholding taxes payable on dividend distributions fromKazakhstan to the UK. UNDERLYING PROFIT AND EARNINGS PER SHARE Profit for the year attributable to equity shareholders increased from $632.7million to $794.2 million, an increase of 25.5% compared to the prior period.Underlying Profit is seen as a more informed measure of the performance of thebusiness as it removes non-recurring or variable non-trading items from profitattributable for the year, and their resulting tax and minority interestimpacts. It therefore provides a more consistent basis for comparing theunderlying trading performance of the Group between 2007 and 2006. The increase of 29.1% in Underlying Profit principally reflects the favourableimpact of higher commodity prices on earnings. The reconciliation of Underlying Profit from profit attributable to equityshareholders is set out below: Six months Six months Change ended ended %$million (unless otherwise stated) 30 June 2007 30 June 2006--------------------------------------------------------------------------------------------Profit attributable to equity 794.2 632.7 25.5shareholders of the parentSpecial items: Recognition of negative goodwill - (6.5) Write off/(back) of property, plant and 3.8 (10.2) equipment Loss on disposal of fixed assets 1.8 4.0Tax effect of special items (0.3) (0.8)Minority interest effect of special items 0.1 0.1--------------------------------------------------------------------------------------------Underlying Profit 799.6 619.3 29.1-------------------------------------------------------------------------------------------- Basic earnings per share rose from $1.35 to $1.70, an increase of 25.9%.Earnings per share based on Underlying Profit was $1.71 compared to $1.32 forthe prior period, an increase of 29.5%. DIVIDENDS The Directors have declared an interim dividend of 13.6 US cents per share inrespect of the 2007 financial year. Taking into account the profitability of the business and underlying growth inearnings of the Group, together with its cash flows and growth requirements, theDirectors have declared a special dividend of 50.0 US cents per share and havealso announced a share buy-back programme of up to $400 million that will takeplace from October 2007 as a means of returning cash to shareholders. Interim and final dividends will be paid in the approximate proportions ofone-third and two-thirds of the total annual dividend, respectively. TheDirectors will also ensure that dividend cover is prudently maintained. CASH FLOWS A summary of cash flows is set out below: Six months Six months ended ended$million 30 June 2007 30 June 2006--------------------------------------------------------------------------------EBITDA 1,318.1 1,087.5Recognition of negative goodwill - (6.5)Write off/(back) of assets and impairment 4.9 (5.7)lossesGain on disposal of assets held for trading (0.5) -Loss on disposal of property, plant and 1.8 4.0equipmentForeign exchange loss adjustment (20.1) (14.4)Working capital movements (172.7) (197.0)Interest paid (6.2) (0.2)Income tax paid (427.1) (169.2)--------------------------------------------------------------------------------Net cash flows from operating activities 698.2 698.5Sustaining capital expenditure (83.8) (76.2)--------------------------------------------------------------------------------Free Cash Flow 614.4 622.3Expansionary and new project capital (566.4) (95.4)expenditureInterest received 57.9 46.5Acquisition of subsidiaries, net of cash - (2.0)acquiredDividends paid (123.2) (170.4)Other movements 0.8 0.6--------------------------------------------------------------------------------Cash flow movement in net liquid funds (16.5) 401.6-------------------------------------------------------------------------------- Cash flows from operating activities during the period were $698.2 million inline with the prior period. Despite adverse working capital movements andsignificantly higher payments to the tax authorities, Free Cash Flow was ahealthy $614.4 million. Of the $172.7 million adverse working capital movement, $145.9 million relatedto a reduction in trade and other payables. This reduction was primarily due tothe expiry of a 2006 sales contract whereby in December 2006, the customer madea significant payment in advance of the goods being shipped in early 2007. Inaddition, there was a general reduction in the level of trade payablesoutstanding within the Kazakh Mining business in order to obtain better termswith suppliers. Inventory levels were sharply reduced due to a number of factors: 49kt of coppercathodes held as goods in transit at 31 December 2006 were sold in early 2007;lower levels of purchased concentrate were held at 30 June 2007 due to itsutilisation within the production process; and MKM changed working practiceswithin the business in order to reduce inventory levels. These factors werepartially offset by the stockpiling of ore at the Nurkazgan mine which is due tobe processed in the second half of the year when the new concentrator is broughton-line. The level of receivables was higher at 30 June 2007 and this was primarily dueto credit being given to Chinese customers within the 2007 sales contracts,whereas for the 2006 sales contracts, payment for goods was mostly required inadvance of delivery. The difference between the working capital movements acrossbalance sheets, and those seen in the cash flow summary are mainly attributableto the appreciation of the Kazakhstan tenge which is a non-cash movement. Income tax payments were significantly higher at $427.1 million for the sixmonths ended 30 June 2007 compared with $169.2 million in the prior period to 30June 2006, an increase of $257.9 million. The higher level of tax payments ismainly attributable to the 2007 schedule of tax payments on account that wasagreed with the tax authorities being based on earnings from 2006, which weresignificantly higher than earnings in 2005 (on which the 2006 tax paymentsschedule was based upon). In addition, the higher tax payments during 2007 werecompounded by a significant catch-up payment in the first quarter of 2007 due tothe lower 2006 tax payment schedule referred to previously. The Group also paidaround $60 million of excess profits tax to the tax authorities during April2007 in respect of the year ended 31 December 2006. Capital expenditure in aggregate (including expenditure on property, plant andequipment, intangible assets and mine stripping costs) amounted to $650.2million, split between $83.8 million for sustaining capital expenditure and$566.4 million for expansionary and new project capital expenditure. The mainitems in the latter category were the cost of acquiring Dostan-Temir LLP and therelated oil and gas licence, the acquisition of land in Almaty for theconstruction of a new head office, an advance payment for a new aircraft as partof a fleet replacement programme, expenditure on the recently constructedBalkhash acid plant and the construction of the new concentrator at theNurkazgan mine. BALANCE SHEET Shareholders' funds were $4,662.0 million as at 30 June 2007, an increase of$802.1 million compared with the balance as at 31 December 2006. The increasereflected retained earnings of $794.2 million, favourable currency translationdifferences of $128.0 million primarily due to the appreciation of theKazakhstan tenge against the US dollar by 3.7% over the period, being offset bythe final 2006 dividend declared during the period of $120.1 million. Thecurrency translation differences were primarily attributable to theconsolidation of the results and balances of the Group's Kazakhstansubsidiaries, whose functional currencies are the Kazakhstan tenge, into USdollars. Property, plant and equipment increased by 7.2% to $2,050.6 million over theperiod after the effect of depreciation of $109.8 million was more than offsetby capital expenditure of $186.8 million and favourable currency translationdifferences of $69.0 million. Disposals of property, plant and equipment werenot significant during the period. Intangible assets increased by $485.4 million over the period from $28.9 millionat 31 December 2006 to $514.3 million at 30 June 2007. This increase was mainlyrepresented by the purchase of Dostan-Temir LLP and the related oil and gaslicence and new mining licences for the Aidarly and Akbastau mineral deposits aspart of the Group's ongoing exploration programme. Net liquid funds decreased slightly to $1,740.4 million at 30 June 2007 comparedwith $1,745.3 million as at 31 December 2006 following the significant capitalexpenditure on property, plant and equipment, mine stripping costs andintangible assets of $650.2 million, largely offsetting operating cash flows of$698.2 million. Of the net liquid funds balance, $1,604.2 million was held ascash and cash equivalents, $357.2 million was held in the form of deposits withvarying maturities of at least three months from inception, and borrowings inMKM were $221.0 million. During the period, liquid funds held within the Kazakh Mining business weremoved from financial institutions based in Kazakhstan to Western Europe, suchthat at the period end, 25% of the Group's liquid funds were held withinKazakhstan compared to 74% at 31 December 2006. Since the period end, furthertransfers of liquid funds have been undertaken to ensure that only workingcapital requirements and a small contingency will be held within Kazakhstan.Whilst these transfers will adversely impact the level of interest income earnedon the Group's liquid funds, counterparties located within Western Europe shouldattract higher credit ratings. The Company is due to issue 2,559,665 ordinary shares of 20 pence each and haspaid $11.5 million in consideration for the transfer to it of 227,959,211 unitsin Kazakhmys LLC previously owned by minority shareholders. As a result of this,the Company's interest in Kazakhmys LLC will increase from 99.08% as at 30 June2007 to 99.73%. INDEPENDENT REVIEW REPORT TO KAZAKHMYS PLC Introduction We have been instructed by Kazakhmys PLC to review the financial information ofKazakhmys PLC and its subsidiaries (the Group) for the six months ended 30 June2007 which comprises the interim consolidated income statement, interimconsolidated balance sheet, interim consolidated cash flow statement, theinterim consolidated statement of changes in equity and the related notes 1 to19. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the Company in accordance with guidance containedin Bulletin 1999/4 'Review of Interim Financial Information' issued by theUnited Kingdom Auditing Practices Board. To the fullest extent permitted by law,we do not accept or assume responsibility to anyone other than the Company, forour work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4. A review consists principally of making enquiries of Group management andapplying analytical procedures to the financial information and underlyingfinancial data, and based thereon, assessing whether the accounting policies andpresentation have been consistently applied unless otherwise disclosed. A reviewexcludes audit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. Ernst & Young LLPLondon, United Kingdom3 September 2007 INTERIM CONSOLIDATED INCOME STATEMENTSix months ended 30 June 2007 Six months Six months Year ended ended ended 30 June 30 June 31 December$million (unless otherwise stated) Notes 2007 2006 2006-------------------------------------------------------------------------------------------Revenues 4 2,789.3 2,279.8 5,046.5Cost of sales (1,372.6) (1,153.4) (2,612.4)-------------------------------------------------------------------------------------------Gross profit 1,416.7 1,126.4 2,434.1Selling and distribution expenses (41.9) (38.1) (81.4)Administrative expenses (166.7) (116.1) (280.8)Other operating income 15.4 19.9 44.7Other operating expenses (15.3) (13.3) (35.1)Write (off)/back of assets and impairment losses 5 (4.9) 5.7 (9.9)-------------------------------------------------------------------------------------------Profit before taxation, finance items and 1,203.3 984.5 2,071.6negative goodwillFinance income 6 110.1 62.9 266.8Finance costs 6 (127.6) (98.0) (177.1)Recognition of negative goodwill - 6.5 6.5-------------------------------------------------------------------------------------------Profit before taxation 1,185.8 955.9 2,167.8Income tax expense 7 (384.3) (317.0) (754.7)-------------------------------------------------------------------------------------------Profit for the period 801.5 638.9 1,413.1-------------------------------------------------------------------------------------------Attributable to:Equity shareholders of the Company 794.2 632.7 1,399.7Minority interests 7.3 6.2 13.4------------------------------------------------------------------------------------------- 801.5 638.9 1,413.1-------------------------------------------------------------------------------------------Earnings per share attributable to equityshareholders of the CompanyBasic and diluted ($) 8 1.70 1.35 2.99EPS based on Underlying Profit ($) 8 1.71 1.32 3.00-------------------------------------------------------------------------------------------DividendsDividend per share (US cents) 9 25.7 36.0 48.8Total amount of dividends 9 120.1 168.3 228.1------------------------------------------------------------------------------------------- INTERIM CONSOLIDATED BALANCE SHEETAt 30 June 2007 At At At 30 June 30 June 31 December$million Notes 2007 2006 2006-------------------------------------------------------------------------------------------AssetsNon-current assetsIntangible assets 10 514.3 30.3 28.9Tangible assets 2,105.1 2,040.8 1,958.3-------------------------------------------------------------------------------------------Property, plant and equipment 11 2,050.6 1,988.3 1,912.6Mine stripping costs 54.5 52.5 45.7-------------------------------------------------------------------------------------------Investments 7.2 7.3 6.2------------------------------------------------------------------------------------------- 2,626.6 2,078.4 1,993.4-------------------------------------------------------------------------------------------Current assetsInventories 681.8 541.2 730.6Prepayments and other current assets 137.5 82.3 110.4Trade and other receivables 336.4 304.2 263.5Investments 12 357.2 823.8 1,237.2Cash and cash equivalents 13 1,604.2 582.2 785.4------------------------------------------------------------------------------------------- 3,117.1 2,333.7 3,127.1-------------------------------------------------------------------------------------------TOTAL ASSETS 5,743.7 4,412.1 5,120.5-------------------------------------------------------------------------------------------Equity and liabilitiesEquityShare capital 14 173.3 173.3 173.3Share premium 14 503.4 503.4 503.4Foreign currency translation reserve 14 356.6 421.3 228.6Reserve fund 14 37.6 37.6 37.6Retained earnings 3,591.1 2,210.7 2,917.0-------------------------------------------------------------------------------------------Equity attributable to shareholders of the 4,662.0 3,346.3 3,859.9CompanyMinority interests 39.9 28.7 31.9-------------------------------------------------------------------------------------------Total equity 4,701.9 3,375.0 3,891.8-------------------------------------------------------------------------------------------Non-current liabilitiesDeferred tax liability 353.7 280.2 347.7Employee benefits 36.5 32.7 32.7Provisions 88.5 55.4 57.4Borrowings 15 221.0 184.6 277.3------------------------------------------------------------------------------------------- 699.7 552.9 715.1-------------------------------------------------------------------------------------------Current liabilitiesProvisions 10.0 3.7 1.9Trade and other payables 192.5 193.1 330.4Dividend payable 1.4 1.9 4.4Income tax payable 138.2 285.5 176.9------------------------------------------------------------------------------------------- 342.1 484.2 513.6-------------------------------------------------------------------------------------------Total liabilities 1,041.8 1,037.1 1,228.7-------------------------------------------------------------------------------------------TOTAL EQUITY AND LIABILITIES 5,743.7 4,412.1 5,120.5-------------------------------------------------------------------------------------------The interim consolidated financial statements were approved by the Board of Directors on 3 September 2007. INTERIM CONSOLIDATED CASH FLOW STATEMENTSix months ended 30 June 2007 Six months Six months Year ended ended ended 30 June 30 June 31 December$million Notes 2007 2006 2006---------------------------------------------------------------------------------------------Cash flows from operating activitiesCash receipts from customers 2,674.2 2,340.4 5,076.6Cash paid to employees and suppliers (1,542.7) (1,472.5) (3,034.3)---------------------------------------------------------------------------------------------Cash inflow before interest and income tax paid 1,131.5 867.9 2,042.3Interest paid (6.2) (0.2) (6.8)Income tax paid (427.1) (169.2) (623.3)---------------------------------------------------------------------------------------------Net cash inflow from operating activities 16 698.2 698.5 1,412.2---------------------------------------------------------------------------------------------Cash flows from investing activitiesInterest received 57.9 46.5 77.2Proceeds from disposal of property, plant and 2.4 0.1 3.4equipmentPurchase of property, plant and equipment (186.8) (165.0) (338.0)Mine stripping costs (11.6) (5.9) (6.7)Purchase of intangible assets (451.8) (0.7) (0.4)Licence payments for subsoil contracts (0.8) (0.9) (1.6)Proceeds from disposal of non-current investments 0.8 1.1 2.6Acquisition of non-current investments (1.6) (1.3) (0.7)Proceeds from disposal of assets held for trading 51.7 1.0 1.0Acquisition of assets held for trading - - (50.8)Investment in short-term bank deposits, net 833.9 (447.2) (784.7)Acquisition of subsidiaries, net of cash acquired - (2.0) (2.0)---------------------------------------------------------------------------------------------Net cash flows from/(used) in investing activities 294.1 (574.3) (1,100.7)---------------------------------------------------------------------------------------------Cash flows from financing activitiesProceeds from contribution to charter capital of - 1.6 1.6subsidiary by minority interestsProceeds from borrowings - 167.0 249.5Repayment of borrowings (58.7) (41.4) (41.5)Dividends paid by the Company (120.1) (168.3) (230.4)Dividends paid by subsidiary to minority interests (3.1) (2.1) (3.0)---------------------------------------------------------------------------------------------Net cash flows used in financing activities (181.9) (43.2) (23.8)---------------------------------------------------------------------------------------------Net increase in cash and cash equivalents 17 810.4 81.0 287.7Cash and cash equivalents at the beginning of the 17 785.4 522.0 522.0periodEffect of exchange rate changes on cash and cash 17 8.4 (20.8) (24.3)equivalents---------------------------------------------------------------------------------------------Cash and cash equivalents at the end of the period 13 1,604.2 582.2 785.4--------------------------------------------------------------------------------------------- INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITYSix months ended 30 June 2007 Attributable to equity shareholders of the parent --------------------------------------------------- $million Notes Foreign currency Share Share translation Reserve Retained Minority Total capital premium reserve fund earnings Total interests equity------------------------------------------------------------------------------------------------------------At 1 January 2006 173.3 503.4 147.9 9.4 1,765.8 2,599.8 26.3 2,626.1Profit for the period - - - - 632.7 632.7 6.2 638.9Currency translation - - 273.4 - - 273.4 3.3 276.7differences------------------------------------------------------------------------------------------------------------ - - 273.4 - 632.7 906.1 9.5 915.6Contribution to - - - - - - 1.6 1.6charter capital ofsubsidiary byminority shareholdersTransfer to reserve - - - 28.2 (28.2) - - -fundGain from dilution of - - - - 8.7 8.7 (8.7) -minority interest insubsidiaryAcquisition of - - - - - - 0.9 0.9minority interest insubsidiaryEquity dividends - - - - - - (0.9) (0.9)declared bysubsidiary tominority shareholdersEquity dividends 9 - - - - (168.3) (168.3) - (168.3)declared by theCompany------------------------------------------------------------------------------------------------------------At 30 June 2006 173.3 503.4 421.3 37.6 2,210.7 3,346.3 28.7 3,375.0------------------------------------------------------------------------------------------------------------At 1 January 2006 173.3 503.4 147.9 9.4 1,765.8 2,599.8 26.3 2,626.1Profit for the year - - - - 1,399.7 1,399.7 13.4 1,413.1Currency translation - - 80.7 - - 80.7 0.4 81.1differences------------------------------------------------------------------------------------------------------------ - - 80.7 - 1,399.7 1,480.4 13.8 1,494.2Contribution to - - - - - - 1.6 1.6charter capital ofsubsidiary byminority shareholdersTransfer to reserve - - - 28.2 (28.2) - - -fundGain from dilution of - - - - 7.8 7.8 (7.8) -minority interest insubsidiaryAcquisition of - - - - - - 1.0 1.0minority interest insubsidiary Equity dividends - - - - - - (3.0) (3.0)declared bysubsidiary tominority shareholdersEquity dividends 9 - - - - (228.1) (228.1) - (228.1)declared by the Company------------------------------------------------------------------------------------------------------------At 31 December 2006 173.3 503.4 228.6 37.6 2,917.0 3,859.9 31.9 3,891.8------------------------------------------------------------------------------------------------------------Profit for the period - - - - 794.2 794.2 7.3 801.5Currency translation - - 128.0 - - 128.0 1.2 129.2differences------------------------------------------------------------------------------------------------------------ - - 128.0 - 794.2 922.2 8.5 930.7Equity dividends - - - - - - (0.5) (0.5)declared bysubsidiary tominority shareholdersEquity dividends 9 - - - - (120.1) (120.1) - (120.1)declared by theCompany------------------------------------------------------------------------------------------------------------At 30 June 2007 173.3 503.4 356.6 37.6 3,591.1 4,662.0 39.9 4,701.9------------------------------------------------------------------------------------------------------------ NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS Six months ended 30 June 2007 1. General information Kazakhmys PLC is a public limited company incorporated in the United Kingdom ofGreat Britain and Northern Ireland. The Company's registered address is 6thFloor, Cardinal Place, 100 Victoria Street, London, SW1E 5JL, United Kingdom.The Group comprises the Company and its consolidated subsidiaries. The Group's operations are primarily conducted through the Company's principalsubsidiary, Kazakhmys LLC. Its major business is the mining and processing ofcopper ore into cathode copper and copper wire, and the refining and sale ofprecious metals and other by-products of its copper mining process. It alsoprovides other services to various external customers. These interim consolidated financial statements are for the six months ended 30June 2007. The information for the year ended 31 December 2006 does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. A copy of the statutory accounts for that year, which were prepared inaccordance with International Financial Reporting Standards (IFRS) issued by theInternational Accounting Standards Board (IASB) and interpretations issued bythe International Financial Reporting Interpretations Committee (IFRIC) of theIASB, as adopted by the European Union up to 31 December 2006, has beendelivered to the Register of Companies. The auditors' report under section 235of the Companies Act 1985 in relation to those accounts was unqualified. 2. Basis of preparation (a) Interim Consolidated Financial Statements The interim consolidated financial statements have been prepared in accordancewith IAS 34 'Interim Financial Reporting'. The interim consolidated financialstatements do not include all the information and disclosures required in theannual financial statements, and should be read in conjunction with the Group'sannual financial statements for the year ended 31 December 2006. (b) Comparative figures Where a change in the presentational format of the interim consolidatedfinancial statements has been made during the period, comparative figures havebeen restated accordingly. 3. Significant accounting policies The interim consolidated financial statements have been prepared under ahistorical cost basis, except for certain classes of property, plant andequipment which have been revalued at 1 January 2002 to determine deemed cost aspart of the first-time adoption of IFRS at that date, and derivative financialinstruments which have been measured at fair value. The interim consolidatedfinancial statements are presented in US dollars ($) and all monetary amountsare rounded to the nearest million ($million) except when otherwise indicated. The accounting policies adopted are consistent with those followed in thepreparation of the Group's annual financial statements for the year ended 31December 2006, except for the adoption of new Standards and Interpretations,noted below. Adoption of these standards and interpretations did not have anysignificant effect on the financial position or performance of the Group. • IFRS 7 'Financial Instruments: Disclosures' and consequential amendments to IAS 1 'Presentation of Financial Statements: Capital disclosures'. The Group adopted IFRS 7 and IAS 1 as of 1 January 2007, which require an entity to disclose additional information about its financial instruments, their significance and the nature and extent of risks to which they give rise. • IFRIC 9 'Reassessment of Embedded Derivatives'. The Group adopted IFRIC 9 as of 1 January 2007, which states that the date to assess the existence of an embedded derivative is the date that an entity first becomes party to the contract that significantly modifies the cash flows. • IFRIC 10 'Interim financial reporting and impairment'. The Group adopted IFRIC 10 as of 1 January 2007, which requires that an entity must not reverse an impairment loss recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost. In preparing the interim consolidated financial statements the Group has adoptedall the extant accounting standards issued by the IASB and all the extantinterpretations issued by the IFRIC as at 30 June 2007. The following foreign exchange rates against the US dollar have been used in thepreparation of the interim consolidated financial statements: 30 June 2007 30 June 2006 31 December 2006 ------------------------------------------------------ Spot Average Spot Average Spot Average-------------------------------------------------------------------------------------------Kazakhstan tenge 122.31 123.16 118.69 127.10 127.00 126.09Euro 0.74 0.75 0.80 0.81 0.76 0.80UK pound sterling 0.50 0.51 0.55 0.56 0.51 0.54------------------------------------------------------------------------------------------- 4. Segment information Segment information is presented in respect of the Group's primary basis ofsegmentation in business segments, which are based on the Group's management andinternal reporting structures. Segment results, assets and liabilities include items directly attributable to asegment as well as those that can be allocated on a reasonable basis.Unallocated items comprise corporate head office assets and liabilities, incometaxes payable, deferred taxes and dividends payable/receivable as well as theassets and liabilities of Kazakhmys Petroleum LLP. The Group's activities principally relate to: • Kazakh Mining business which involves the production and sale of: - Copper cathodes and copper rod; - Zinc and zinc concentrate; - Gold and silver; and - Other by-products (lead, rhenium, selenium, cadmium, sulphuric acid). • German copper processing operation of semi-finished products; and • Kazakh oil and gas exploration and development activity. (a) Business segments Kazakh Mining The Kazakh Mining business, which involves the processing and sale of copper andother metals, is managed as one business segment. The products are subject tothe same risks and returns, exhibit similar long-term financial performance andare sold through the same distribution channels. The Group mines substantiallyall the copper ore it processes and utilises most of 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% of total revenues (both externaland internal) and the related assets are less than 10% of total assets. The UK operation consists of two functions: • A trading function responsible for the purchases of products from the Kazakh Mining operations, application of an appropriate mark-up and then onward sale to third parties; and • A corporate head office function. For the purposes of business segmental reporting, the trading function isregarded as a sales function on behalf of the Kazakh Mining business andconsequently the assets and liabilities related to those trading operations,i.e. trade creditors and trade receivables, are included with the Kazakh Miningbusiness segment. The expenses, assets and liabilities of the corporate headoffice function are included within unallocated items. The price at which sales are made to the Company by Kazakhmys LLC is based onthe prevailing price of commodities as determined by the LME. MKM MKM operates in Germany and manufactures copper and copper alloy semi-finishedproducts. MKM faces different risks to the Group's Kazakh Mining business and istherefore shown as a separate business segment. Kazakhmys Petroleum LLP In April 2007, the Group acquired Kazakhmys Petroleum LLP (previously calledDostan-Temir LLP), a company which holds a licence to conduct oil and gasexploration and development activity in the East Akzhar petroleum block inWestern Kazakhstan. In accordance with IAS 14 'Segment reporting', since therevenues, results and net assets of the company are all less than 10% of theGroup's, the expenses, assets and liabilities of Kazakhmys Petroleum LLP areincluded within unallocated items. Segmental information by business segment for the periods ended 30 June 2007, 30June 2006 and 31 December 2006 is presented below. (i) Income statement information Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 ---------------------------------------------------------------$million Kazakh MKM Total Kazakh MKM Total Kazakh MKM Total Mining Mining Mining-----------------------------------------------------------------------------------------------------Sales to external 1,978.0 811.3 2,789.3 1,520.9 758.9 2,279.8 3,330.4 1,716.1 5,046.5customers-----------------------------------------------------------------------------------------------------Gross profit 1,364.6 52.1 1,416.7 1,073.0 53.4 1,126.4 2,364.5 69.6 2,434.1Operating costs (171.2) (26.3) (197.5) (99.9) (23.4) (123.3) (282.4) (48.0) (330.4)-----------------------------------------------------------------------------------------------------Segment results 1,193.4 25.8 1,219.2 973.1 30.0 1,003.1 2,082.1 21.6 2,103.7Unallocated costs (15.9) (18.6) (32.1)------------------------------------------------------------------------------------------------------Profit before taxation, 1,203.3 984.5 2,071.6finance items andnegative goodwillNet finance (costs)/ (17.5) (35.1) 89.7incomeRecognition of negative - 6.5 6.5goodwill------------------------------------------------------------------------------------------------------Profit before taxation 1,185.8 955.9 2,167.8Income tax expense (384.3) (317.0) (754.7)------------------------------------------------------------------------------------------------------Profit for the period 801.5 638.9 1,413.1------------------------------------------------------------------------------------------------------ (ii) Balance sheet information At 30 June 2007 At 30 June 2006 At 31 December 2006 ------------------------------------------------------------------$million Kazakh MKM Total Kazakh MKM Total Kazakh MKM Total Mining Mining Mining-----------------------------------------------------------------------------------------------------AssetsTangible and 1,974.2 160.7 2,134.9 1,900.1 167.8 2,067.9 1,816.1 166.1 1,982.2intangible assetsNon-current 5.2 2.0 7.2 4.1 3.2 7.3 3.5 2.7 6.2investmentsOperating assets (1) 736.1 419.8 1,155.9 527.5 387.8 915.3 713.4 395.2 1,108.6Current investments 357.2 - 357.2 823.8 - 823.8 1,237.2 - 1,237.2Cash and cash 1,179.9 18.0 1,197.9 96.8 18.6 115.4 405.0 30.0 435.0equivalents-----------------------------------------------------------------------------------------------------Segment assets 4,252.6 600.5 4,853.1 3,352.3 577.4 3,929.7 4,175.2 594.0 4,769.2-----------------------------------------------------------------------------------------------------Unallocated assets:Non-current assets 1,635.8 1,154.5 1,156.3Current assets 10.0 21.6 6.0Dividends - - 304.5receivableCash and cash 406.3 466.8 350.4equivalentsElimination (1,161.5) (1,160.5) (1,465.9)-----------------------------------------------------------------------------------------------------Total assets 5,743.7 4,412.1 5,120.5-----------------------------------------------------------------------------------------------------LiabilitiesEmployee benefits 125.9 9.1 135.0 82.9 8.9 91.8 85.0 7.0 92.0and provisionsOperating 86.5 73.0 159.5 147.8 29.5 177.3 599.5 37.9 637.4liabilities (2)Segment liabilities 212.4 82.1 294.5 230.7 38.4 269.1 684.5 44.9 729.4Unallocatedliabilities:Other payables 44.6 26.9 12.0Deferred tax 353.7 280.2 347.7liabilityBorrowings 221.0 184.6 277.3Income tax payable 138.2 285.5 176.9Elimination (10.2) (9.2) (314.6)-----------------------------------------------------------------------------------------------------Total liabilities 1,041.8 1,037.1 1,228.7----------------------------------------------------------------------------------------------------- (1) Operating assets include inventories, trade and other receivables and prepayments and other current assets. (2) Operating liabilities include trade and other payables and dividends payable by Kazakhmys LLC to the Company. (iii) Earnings before interest, tax, depreciation and amortisation (EBITDA) excluding special items (1) by business segments Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 -------------------------------------------------------------------------$million Kazakh MKM Un- Total Kazakh MKM Un- Total Kazakh MKM Un- Total Mining allocated Mining allocated Mining allocated----------------------------------------------------------------------------------------------------------------------Profit/(loss) 1,193.4 25.8 (15.9) 1,203.3 973.1 30.0 (18.6) 984.5 2,082.1 21.6 (32.1) 2,071.6before taxation,finance items andnegative goodwillSpecial items:Add/(less): 3.8 - - 3.8 (10.2) - - (10.2) 1.4 - - 1.4write off/(back) of property,plant and equipmentAdd/(less): 1.7 0.1 - 1.8 3.6 (0.1) 0.5 4.0 8.9 0.1 0.6 9.6loss/(gain)on disposal of property, plant andequipment----------------------------------------------------------------------------------------------------------------------Profit /(loss) 1,198.9 25.9 (15.9) 1,208.9 966.5 29.9 (18.1) 978.3 2,092.4 21.7 (31.5) 2,082.6before taxation,finance items andnegative goodwillexcluding specialitemsAdd: 101.8 11.1 0.5 113.4 91.4 10.4 0.1 101.9 200.8 21.8 0.4 223.0depreciationand depletionAdd: 1.3 0.1 - 1.4 0.9 0.2 - 1.1 2.4 0.4 - 2.8amortisation----------------------------------------------------------------------------------------------------------------------EBITDA 1,302.0 37.1 (15.4) 1,323.7 1,058.8 40.5 (18.0) 1,081.3 2,295.6 43.9 (31.1) 2,308.4excluding specialitems---------------------------------------------------------------------------------------------------------------------- (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 non-trading in nature and which do not impact the underlying trading performance of the business. (iv) Net liquid funds/(debt) by business segments Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 -----------------------------------------------------------------$million Kazakh MKM(1) Un- Total Kazakh MKM Un- Total Kazakh MKM Un- Total Mining allocated(2) Mining allocated Mining allocated----------------------------------------------------------------------------------------------------------------------Cash and cash 1,179.9 18.0 406.3 1,604.2 96.8 18.6 466.8 582.2 405.0 30.0 350.4 785.4equivalentsCurrent investments 357.2 - - 357.2 823.8 - - 823.8 1,237.2 - - 1,237.2Borrowings - (305.5) (270.0) (575.5) - (378.5) - (378.5) - (359.9) - (359.9)Inter-segment - 84.5 270.0 354.5 - 194.0 - 194.0 - 82.6 - 82.6borrowingsFinance leases - - - - - (0.1) - (0.1) - - - -----------------------------------------------------------------------------------------------------------------------Net liquid funds/(debt) 1,537.1 (203.0) 406.3 1,740.4 920.6 (166.0) 466.8 1,221.4 1,642.2 (247.3) 350.4 1,745.3----------------------------------------------------------------------------------------------------------------------(1) Borrowings of MKM include amounts borrowed from the Kazakh Mining segment (2) Unallocated borrowings include amounts borrowed by the corporate head officefunctions from the Kazakh Mining segment. (v) Capital expenditure, depreciation, write off/(back) of assets and impairmentlosses by business segments Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 ---------------------------------------------------------------$million Kazakh MKM Un- Total Kazakh MKM Un- Total Kazakh MKM Un- Total Mining allocated Mining allocated Mining allocated----------------------------------------------------------------------------------------------------------------------Property, 182.6 2.6 1.6 186.8 159.0 3.0 3.0 165.0 328.4 4.4 5.2 338.0plant andequipmentMine 11.6 - - 11.6 5.9 - - 5.9 6.7 - - 6.7strippingcostsIntangible 7.3 - 478.4 485.7 0.7 - - 0.7 8.8 0.2 - 9.0assets----------------------------------------------------------------------------------------------------------------------Capital 201.5 2.6 480.0 684.1 165.6 3.0 3.0 171.6 343.9 4.6 5.2 353.7expenditure----------------------------------------------------------------------------------------------------------------------Depreciation 101.8 11.1 0.5 113.4 91.4 10.4 0.1 101.9 200.8 21.8 0.4 223.0and depletionAmortisation 1.3 0.1 - 1.4 0.9 0.2 - 1.1 2.4 0.4 - 2.8----------------------------------------------------------------------------------------------------------------------Depreciation, 103.1 11.2 0.5 114.8 92.3 10.6 0.1 103.0 203.2 22.2 0.4 225.8depletion andamortisation----------------------------------------------------------------------------------------------------------------------Write off/ 3.9 1.0 - 4.9 (7.0) 1.3 - (5.7) 8.3 1.6 - 9.9(back) ofassets andimpairmentlosses---------------------------------------------------------------------------------------------------------------------- (b) Revenues by product $million Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006-------------------------------------------------------------------------------------------Kazakh MiningCopper cathodes 1,406.9 1,060.2 2,389.0Zinc concentrate 154.1 59.1 128.0Copper rods 117.7 98.6 196.1Silver in granules 98.5 117.8 239.1Zinc metal 89.3 102.4 201.3Gold bullion 29.2 28.2 51.2Other by-products 50.4 14.7 38.1Other revenue 31.9 39.9 87.6------------------------------------------------------------------------------------------- 1,978.0 1,520.9 3,330.4-------------------------------------------------------------------------------------------MKMWire 385.1 416.5 925.8Sheet steel and steel strips 247.3 190.6 432.8Tubes and bars 161.3 119.5 272.9Metal trade 17.6 32.3 84.6------------------------------------------------------------------------------------------- 811.3 758.9 1,716.1-------------------------------------------------------------------------------------------Total revenues 2,789.3 2,279.8 5,046.5------------------------------------------------------------------------------------------- Provisional pricing Almost all copper sales agreements provide for provisional pricing of sales inthe month of sale with final pricing settlement based on the average LME copperprice for the month following the sale. For the six months ended 30 June 2007 gains of $70.3 million (30 June 2006:$57.5 million, 31 December 2006: $49.8 million) relating to the differencebetween provisional pricing and final pricing have been included withinrevenues. At 30 June 2007, copper sales totalling 7,423 tonnes (30 June 2006: 2,496tonnes, 31 December 2006: 4,262 tonnes) remained to be finally priced and wererecorded at that date at an average price of $7,758 per tonne (30 June 2006:$8,474 per tonne, 31 December 2006: $6,761 per tonne) based on provisionalinvoices. The gain on sales contracts of $2.2 million arising in July 2007 andrelating to contracts previously priced in June 2007 will be recognised in thesecond half of the year ending 31 December 2007. (c) Revenues by destination Six months ended 30 June 2007$million Europe China Other Total-----------------------------------------------------------------------------------------Sales to third parties 1,565.4 867.3 356.6 2,789.3----------------------------------------------------------------------------------------- Six months ended 30 June 2006$million Europe China Other Total-----------------------------------------------------------------------------------------Sales to third parties 1,659.2 302.5 318.1 2,279.8----------------------------------------------------------------------------------------- Year ended 31 December 2006$million Europe China Other Total-----------------------------------------------------------------------------------------Sales to third parties 3,770.1 641.8 634.6 5,046.5----------------------------------------------------------------------------------------- 5. Write off/(back) of assets and impairment losses $million Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006-------------------------------------------------------------------------------------------Write off/(back) of property, plant and equipment 3.8 (10.2) 1.4Provisions against/(release of provisions for) 0.6 (1.2) 0.1prepayments and other current assetsRelease of impairment of investments - - (1.9)Provisions against/(release of provisions for) trade 0.5 1.1 (8.3)and other receivablesProvisions against obsolete inventories - 4.6 18.6------------------------------------------------------------------------------------------- 4.9 (5.7) 9.9------------------------------------------------------------------------------------------- 6. Finance income and finance costs $million Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006-------------------------------------------------------------------------------------------Finance income:Interest income 45.9 34.0 78.5Foreign exchange gains 64.2 28.9 188.3-------------------------------------------------------------------------------------------Total finance income 110.1 62.9 266.8-------------------------------------------------------------------------------------------Finance costs:Interest expense (6.1) (1.7) (8.0)Interest on employee obligations (1.7) (1.0) (3.0)Unwinding of discount on provisions (2.9) (2.6) (4.2)-------------------------------------------------------------------------------------------Finance costs before foreign exchange losses (10.7) (5.3) (15.2)Foreign exchange losses (116.9) (92.7) (161.9)-------------------------------------------------------------------------------------------Total finance costs (127.6) (98.0) (177.1)------------------------------------------------------------------------------------------- 7. Income tax(a) Income tax expense Major components of income tax expense for the periods presented are: $million Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006------------------------------------------------------------------------------------------Current income taxCorporate income tax - current period (UK) 12.8 0.2 5.2Corporate income tax - current period (overseas) 336.4 281.0 653.5Corporate income tax - prior periods (3.2) 15.0 0.4Excess profits tax - current period 29.9 24.3 77.3Excess profits tax - prior periods (6.7) - (49.4)------------------------------------------------------------------------------------------ 369.2 320.5 687.0------------------------------------------------------------------------------------------Deferred income taxCorporate income tax - current period 15.7 (4.5) 63.0Corporate income tax - prior periods (10.5) - 17.1Excess profits tax - current period 9.9 1.0 (12.4)------------------------------------------------------------------------------------------ 15.1 (3.5) 67.7------------------------------------------------------------------------------------------Income tax expense 384.3 317.0 754.7------------------------------------------------------------------------------------------ (b) Income tax reconciliation The tax assessed on the profit for the period is higher than the standard rateof corporation tax in the tax jurisdictions in which the Group operates. A reconciliation of income tax expense applicable to accounting profit beforeincome tax at the statutory income tax rate to income tax expense at the Group'seffective income tax rate for the periods presented is as follows: $million Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006------------------------------------------------------------------------------------------Profit before taxation 1,185.8 955.9 2,167.8------------------------------------------------------------------------------------------At statutory income tax rate of 30% 355.7 286.8 650.3(Over)/underprovided in previous years - (10.5) - 17.1deferred income tax(Over)/underprovided in previous years - current (3.2) 15.0 0.4income taxUnrecognised tax losses - 5.6 10.4Effect of higher tax rate in Germany 1.4 1.4 0.5Unremitted overseas earnings 20.0 6.8 91.8Non deductible expenses/(non taxable income): Non taxable income on zinc plant (19.7) (26.5) (46.4) Recognition of negative goodwill - (2.0) (2.0) Non deductible expenses 7.5 4.6 17.1Excess profits tax 33.1 25.3 15.5------------------------------------------------------------------------------------------At effective income tax rate of 32.4% (30 June 384.3 317.0 754.72006: 33.2%, 31 December 2006: 34.8%)------------------------------------------------------------------------------------------ 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 at37.34% (30 June 2006: 35.98%, 31 December 2006: 35.98%) and relates to Germancorporate income tax and trade tax. Excess profits tax is levied on profitable subsoil contracts where thecumulative internal rate of return exceeds 20% in a given period. The effectiverate for excess profits tax for those subsoil contracts liable to this tax is15% (30 June 2006: 8%, 31 December 2006: 13%). 8. Earnings per share(a) Basic and diluted EPS Basic EPS is calculated by dividing profit for the period attributable to equityshareholders of the Company by the weighted average number of ordinary shares of20 pence each outstanding during the period. The Company has no dilutivepotential ordinary shares. The following reflects the income and share data used in the EPS computations. $million Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006-------------------------------------------------------------------------------------------Net profit attributable to equity shareholders of 794.2 632.7 1,399.7the Company------------------------------------------------------------------------------------------- Number (unless otherwise stated) Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006-------------------------------------------------------------------------------------------Number of sharesWeighted average number of ordinary shares of 20 467,474,200 467,474,200 467,474,200pence each for EPS calculation-------------------------------------------------------------------------------------------EPS - basic and diluted ($) 1.70 1.35 2.99------------------------------------------------------------------------------------------- (b) EPS based on Underlying Profit The Group's Underlying Profit is the profit for the period after adding backitems which are non-recurring or variable in nature, which do notimpact the underlying trading performance of the business and their resultanttax and minority interest effects, is shown in the table below. EPS based onUnderlying Profit is calculated by dividing Underlying Profit by the weightedaverage number of ordinary shares of 20 pence each outstanding during theperiod. The Directors believe EPS based on Underlying Profit provides a moreconsistent measure for comparing the underlying trading performance of theGroup. The following shows the reconciliation of Underlying Profit from the reportedprofit and the share data used in the computations for EPS based on UnderlyingProfit: $million Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006-------------------------------------------------------------------------------------------Net profit attributable to equity shareholders of the 794.2 632.7 1,399.7CompanySpecial items: Recognition of negative goodwill - (6.5) (6.5) Write off/(back) of property, plant and equipment 1.8 (10.2) 1.4 Loss on disposal of property, plant and equipment - 4.0 9.6Tax effect of non-recurring items (0.3) (0.8) (1.5)Minority interest effect of non-recurring items 0.1 0.1 --------------------------------------------------------------------------------------------Underlying Profit 799.6 619.3 1,402.7------------------------------------------------------------------------------------------- Number (unless otherwise stated) Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006-------------------------------------------------------------------------------------------Weighted average number of ordinary shares of 20 467,474,200 467,474,200 467,474,200pence each for EPS basedon Underlying Profit calculation-------------------------------------------------------------------------------------------EPS based on Underlying Profit - basic and diluted ($) 1.71 1.32 3.00------------------------------------------------------------------------------------------- 9. Dividends paid and proposed The dividends declared and paid during the six months ended 30 June 2007 and2006, and the year ended 31 December 2006 are as follows: Dividends declared by the Company during reporting periods Per share Amount US cents $million--------------------------------------------------------------------------------------Six months ended 30 June 2007Final dividend in respect of year ended 31 December 2006 (sourced 25.7 120.1from 2006 earnings)--------------------------------------------------------------------------------------Six months ended 30 June 2006Final dividend in respect of year ended 31 December 2005 (sourced 36.0 168.3from 2005 earnings)--------------------------------------------------------------------------------------Year ended 31 December 2006Final dividend in respect of year ended 31 December 2005 (sourced 36.0 168.3from 2005 earnings)--------------------------------------------------------------------------------------Interim dividend in respect of year ended 31 December 2006 (sourced 12.8 59.8from 2006 earnings)-------------------------------------------------------------------------------------- 48.8 228.1-------------------------------------------------------------------------------------- Dividends declared by the Company after period end Per share Amount US cents $million--------------------------------------------------------------------------------------Declared by Directors on 3 September 2007 (not recognised as aliability as at 30 June 2007) Interim dividend in respect of year ended 31 December 2007 (1) 13.6 63.9 Special dividend in respect of year ended 31 December 2007 (1) 50.0 235.0-------------------------------------------------------------------------------------- 63.6 298.9-------------------------------------------------------------------------------------- (1) Based on the number of ordinary shares in issue of 470,033,865 following theissue of ordinary shares in consideration for the transfer of additional unitsin Kazakhmys LLC previously owned by minority shareholders (see note 19(b)). 10. Intangible assets During the six months ended 30 June 2007, the Group acquired licences totalling$485.3 million (30 June 2006: $6.5 million, 31 December 2006: $8.8 million).Included within this amount is $450.0 million in relation to the purchase ofDostan-Temir LLP and the related oil and gas licence, which together have been treated as an asset acquisition. Of the $485.3 million, $33.9 million was capitalised by Group in respect of contractual reimbursements to the Government for geological information and investments made to society (30 June 2006: $5.9 million, 31 December 2006: $8.6 million). These latter amounts are non-cash items and arerecorded within provisions for payments of licences. In addition to the above,during the six months ended 30 June 2007 intangible assets: • increased by $1.1 million as a result of foreign exchange movements on translation; • increased by $0.4 million as a result of other intangible asset acquisitions; and • decreased by $1.4 million as a result of the amortisation expense. 11. Property, plant and equipment During the six months ended 30 June 2007, the Group acquired property, plant andequipment with a cost of $186.8 million (30 June 2006: $165.0 million, 31December 2006: $338.0 million), of which $115.8 million related to new andexpansionary projects (30 June 2006: $95.4 million, 31 December 2006: $260.1million). Assets with a book value of $4.2 million were disposed of by the Group duringthe six months ended 30 June 2007 (30 June 2006: $4.1 million, 31 December 2006:$13.0 million) resulting in a loss on disposal of $1.8 million (30 June 2006:$4.0 million, 31 December 2006: $9.6 million). In addition to the above additions and disposals, during the six months ended 30June 2007 property, plant and equipment: • increased by $69.0 million as a result of foreign exchange movements on translation; • decreased by $3.8 million as a result of write offs; and • decreased by $109.8 million as a result of the depreciation expense. 12. Current investments Current investments include bank deposits of $357.2 million (30 June 2006:$823.8 million, 31 December 2006: $1,186.7 million) with a maturity at inceptionof greater than three months, and assets held for trading of $nil (30 June 2006:$nil, 31 December 2006: $50.5 million). Bank deposits are held with majorKazakhstan banks and local branches of international financial institutions. 13. Cash and cash equivalents $million As at As at As at 30 June 30 June 31 December 2007 2006 2006---------------------------------------------------------------------------------------Cash deposits with maturities of less than three months 1,477.0 435.4 647.3Cash at bank 126.8 146.6 137.8Petty cash 0.4 0.2 0.3--------------------------------------------------------------------------------------- 1,604.2 582.2 785.4--------------------------------------------------------------------------------------- Cash deposits are principally held with major western European and U.S. financialinstitutions and their triple A rated managed liquidity funds. 14. Share capital and reserves (a) Authorised and allotted share capital Number £ million $ million-------------------------------------------------------------------------------------------At 30 June 2007, 30 June 2006 and 31 December 2006Authorised share capital - ordinary shares of 20 pence 750,000,000 150.0 -each-------------------------------------------------------------------------------------------Allotted and called up share capital 467,474,200 93.5 173.3------------------------------------------------------------------------------------------- (b) Reserves (i) Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differencesarising from the translation of the financial statements of Kazakhmys LLC andMKM into US dollars. (ii) Reserve fund In accordance with legislation of the Republic of Kazakhstan the reserve fundcomprises prescribed transfers from retained earnings amounting to 15% ofKazakhmys LLC's charter capital. During the six months ended 30 June 2006, thereserve fund was increased by $28.2 million as a result of the contributions tocharter capital of Kazakhmys LLC (see Note 14(c)). (c) Capital contributions to charter capital of Kazakhmys LLC Between 31 January 2006 and 14 March 2006, the Company made capitalcontributions of $186.8 million to its subsidiary, Kazakhmys LLC. Minorityshareholders contributed a further $1.6 million to the charter capital. As theCompany took up the rights of minority shareholders who did not subscribe to theinitial capital contribution, the Company's share in Kazakhmys LLC increasedfrom 98.68% at 31 December 2005 to 99.08% at 30 June 2006, 31 December 2006 and30 June 2007. 15. Borrowings In May 2006, MKM entered into a loan credit agreement with Deutsche Bank for along-term loan of €230 million to repay borrowings from Dresden Bank andintercompany balances due to Kazakhmys LLC, and for general working capitalpurposes. The interest payable is EURIBOR + 1.45%. The Deutsche Bank loan issecured over the inventories and receivables of MKM. At 30 June 2007, the amountof inventories and receivables of MKM held as security for the borrowings was$223.6 million and $196.0 million (30 June 2006: $199.5 million and $188.2million, 31 December 2006: $240.9 million and $154.2 million) respectively.Kazakhmys LLC acts as guarantor of the loan. 16. Reconciliation of profit before taxation to net cash inflow from operatingactivities $million Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006-----------------------------------------------------------------------------------------Profit before taxation 1,185.8 955.9 2,167.8Interest income (45.9) (34.0) (78.5)Interest expense 6.1 1.7 8.0Depreciation and depletion 113.4 101.9 223.0Amortisation 1.4 1.1 2.8Recognition of negative goodwill - (6.5) (6.5)Write off/(back) of assets and impairment losses 4.9 (5.7) 9.9Unrealised foreign exchange loss/(gain) 37.2 46.5 (39.2)Gain on disposal of assets held for trading (0.5) - -Loss on disposal of property, plant and equipment 1.8 4.0 9.6-----------------------------------------------------------------------------------------Operating cash flows before changes in working 1,304.2 1,064.9 2,296.9capital and provisionsDecrease/(increase) in inventories 68.6 (123.0) (339.2)Increase in prepayments and other current assets (35.9) (32.7) (64.8)Increase in trade and other receivables (63.6) (7.3) (11.1)Increase in employee benefits 2.8 0.7 2.3Increase/(decrease) in provisions 1.3 (9.5) 2.1(Decrease)/increase in trade and other payables (145.9) (25.2) 156.1-----------------------------------------------------------------------------------------Cash inflow before interest and income tax paid 1,131.5 867.9 2,042.3Interest paid (6.2) (0.2) (6.8)Income tax paid (427.1) (169.2) (623.3)-----------------------------------------------------------------------------------------Net cash inflow from operating activities 698.2 698.5 1,412.2----------------------------------------------------------------------------------------- 17. Movement in net liquid funds At Net Other At 1 January exchange non-cash 30 June$million 2007 Cash flow translation movements(1) 2007--------------------------------------------------------------------------------------------Cash and cash equivalents 785.4 810.4 8.4 - 1,604.2Current investments 1,237.2 (885.6) 47.2 (41.6) 357.2Borrowings (277.3) 58.7 (2.4) - (221.0)--------------------------------------------------------------------------------------------Net liquid funds 1,745.3 (16.5) 53.2 (41.6) 1,740.4-------------------------------------------------------------------------------------------- At Net Other At 1 January exchange non-cash 30 June$million 2006 Cash flow translation movements(1) 2006--------------------------------------------------------------------------------------------Cash and cash equivalents 522.0 81.0 (20.8) - 582.2Current investments 356.5 446.2 73.2 (52.1) 823.8Borrowings (48.8) (125.7) (10.8) 0.8 (184.5)Finance leases (0.2) 0.1 - - (0.1)--------------------------------------------------------------------------------------------Net liquid funds 829.5 401.6 41.6 (51.3) 1,221.4-------------------------------------------------------------------------------------------- At Net Other At 1 January exchange non-cash 31 December$million 2006 Cash flow translation movements(1) 2006----------------------------------------------------------------------------------------------Cash and cash equivalents 522.0 287.7 (24.3) - 785.4Current investments 356.5 834.5 12.8 33.4 1,237.2Borrowings (48.8) (208.2) (13.8) (6.5) (277.3)Finance leases (0.2) 0.2 - - -----------------------------------------------------------------------------------------------Net liquid funds 829.5 914.2 (25.3) 26.9 1,745.3---------------------------------------------------------------------------------------------- (1) Other non-cash movements comprise foreign exchange losses/gains incurred bythe Company's subsidiaries and recognised in the consolidated income statement. 18. Related party disclosures(a) Transactions with related parties Transactions between the Company and its subsidiaries, which are related partiesof the Company, have been eliminated on consolidation. The Group operates a number of companies under trust management agreements withlocal and state authorities. The activities include heating distributionsystems, road maintenance and aviation services. The purpose of these agreementsis to provide public and social services without any material financial benefitfor the Group. Transactions between the Group and these companies are conductedon an arm's length basis. The volume and quantities of these transactionsbetween the Group and the other related parties are not significant. (b) Option agreement with Executive Chairman On 14 March 2006, the Company announced that an entity wholly owned by theCompany's Executive Chairman, Vladimir Kim, had agreed to acquire a 25% stake inENRC Kazakhstan Holding B.V. (EKH), the holding company for certain assets ofthe Eurasia Natural Resources group's metals and mining business. EKH primarilyoperates in Kazakhstan producing, in particular, chrome, iron ore and alumina.Following the completion of a subsequent restructuring of the EKH group ofcompanies, a new entity ultimately wholly owned by Vladimir Kim, is now thedirect holder of an 18.8% interest in the issued share capital of EurasianNatural Resource Corporation PLC (ENRC), representing the original 25% stake inEKH. The Company has been given the benefit of a call option in respect ofVladimir Kim's shareholding in ENRC. The terms of the call option allow theCompany, at its absolute discretion, from 1 January 2007 to and until 31December 2007, to call for Vladimir Kim's interest in ENRC to be transferred tothe Company for a consideration representing 100% of the initial investment of$751 million plus a 10% margin (reflecting the risk of the initial investment)and the actual financing and transaction costs incurred by Vladimir Kim less anydividends paid to Vladimir Kim as a result of holding the stake. This isprovided that, as required by the Listing Rules, this consideration and theterms of the option are determined by an independent adviser to be fair andreasonable so far as the remaining shareholders of the Company are concerned.Vladimir Kim is not permitted to dispose of his interest in ENRC before 1January 2008 without the consent of the Company. The proposed exercise of thecall option will comply with all class tests and related party rules relevant tothe Company. The accounting treatment of the option is governed by IAS 39 'FinancialInstruments: Recognition and Measurement'. IAS 39 contains special accountingrequirements for those equity instruments that do not have a quoted market pricein an active market and derivatives that are linked to, and must be settled bydelivery of, such unquoted equity instruments. If the fair value of such equityinstruments cannot be reliably measured, they must be measured at cost, lessimpairment. To be able to reliably measure the option, the variability in therange of fair value estimates should not be significant, and the probabilitiesof the various estimates within the range should be capable of being reasonablyassessed. There currently remain significant differences in the fair valueestimates being obtained for ENRC from external advisers and those estimated byother parties, and the probability of each value cannot be reasonably assessed.The Directors have therefore considered the requirements of IAS 39 in thisregard and are of the view that the fair value cannot be reliably measured onthe basis that, to-date, insufficient information on ENRC's financialperformance, position and cash flows has been made available to the Company inorder to arrive at a reliable valuation of the option as construed by IAS 39.Consequently the option is valued at cost, which is nil, due to the fact that nopayment was made by the Company to enter into the option with Vladimir Kim. 19. Events after the balance sheet date (a) Business acquisition On 5 July 2007 the Group acquired 96.34% of the ordinary shares of Eurasia GoldInc. (Eurasia Gold) a company listed on the Toronto Stock Exchange. Since theoffer was accepted by holders of more than 90% of the Eurasia Gold shares,Kazakhmys Gold Inc., an indirectly wholly owned subsidiary of Kazakhmys PLC, isnow exercising its right under the compulsory acquisition provisions of theBusiness Corporations Act (British Columbia) to acquire all outstanding EurasiaGold shares not already owned by Kazakhmys Gold Inc. at the same price ofCA$0.85 for each Eurasia Gold share. The principal activity of Eurasia Gold andits subsidiaries is the mining and processing of gold ore into refined ore. Eurasia Gold was purchased for a consideration of $260.1 million. The Group willfinalise the determination of fair values of the purchased company by 31December 2007 due to the timing of the acquisition. At the acquisition date, thenet identifiable assets and liabilities of Eurasia Gold, including preliminaryfair value adjustments, were as follows: Carrying value Preliminary Preliminary at acquisition fair value fair value at$million date adjustments acquisition(1)------------------------------------------------------------------------------------------------AssetsProperty, plant and equipment (2) 16.2 230.8 247.0Other assets (including intangible assets) (2) 2.0 (1.2) 0.8Inventories (3) 11.2 4.2 15.4Trade and other receivables 9.0 - 9.0Cash and cash equivalents 11.6 - 11.6LiabilitiesDeferred tax liabilities (4) - (47.7) (47.7)Provisions (1.2) - (1.2)Loans and borrowings (9.2) 3.3 (5.9)Trade and other payables (4.0) - (4.0)----------------------------------------------------------------------------------------------Net identifiable assets 35.6 189.4 225.0----------------------------------------------------------------------------------------------96.34% share of the fair value of net assets acquired 216.8Goodwill arising on purchase of 96.34% interest (5) 43.3----------------------------------------------------------------------------------------------Purchase consideration paid 260.1---------------------------------------------------------------------------------------------- (1) Fair values at acquisition will be finalised by 31 December 2007. (2) Fair value adjustments have been made to reflect initial estimates of the fairvalues of land and buildings, plant and machinery, reserves and resources andother exploration and development projects. (3) Inventories have been revalued to their net realisable value. (4) The increase in the deferred tax liability largely reflects the tax effect ofthe fair value adjustments. (5) Goodwill has been recognised as a consequence of the requirement to recognisea deferred tax liability on the fair value adjustments. (b) Purchase of Kazakhmys LLC minority share The Company is due to issue 2,559,665 ordinary shares of 20 pence each and haspaid $11.5 million in consideration for the transfer to it of 227,959,211 unitsin Kazakhmys LLC previously owned by minority shareholders. As result of this,the Company's interest in Kazakhmys LLC will increase from 99.08% as at 30 June2007 to 99.73% and the allotted and called up share capital of the Company willincrease from 467,474,200 to 470,033,865 ordinary shares of 20 pence each. (c) Exercise of option agreement with Executive Chairman On 3 September 2007, the independent Directors of the Board approved anannouncement setting out their decision to exercise the call option overVladimir Kim's 18.8% interest in Eurasian Natural Resources Corporation PLC foran estimated cost of $810 million. This is subject to the approvals of theGovernment of Kazakhstan and the independent shareholders of the Company. (d) Interim dividend On 3 September 2007 the Directors declared an interim dividend in respect of theyear ended 31 December 2007 of 13.6 US cents per ordinary share together with aspecial dividend of 50.0 US cents per ordinary share. The interim and specialdividends will be paid together on 5 October 2007 to shareholders on theregister as at 14 September 2007. For those shareholders who have elected toreceive their dividends in sterling, the currency conversion rate to convert thedividend into UK pounds sterling will be £0.4970 to the US dollar. This is basedon the average exchange rates for the five business days ending two days before thedate of the interim results announcement. PRODUCTION AND SALES FIGURES Six months ended 30 June 2007 1. Summary of significant production and sales figures 30 June 30 Junekt (unless otherwise stated) 2007 2006------------------------------------------------------------------------------------------Kazakh Mining:Ore mined 17,994 20,127Copper content in ore mined (%) 1.21 1.10------------------------------------------------------------------------------------------Copper cathode production: From own concentrate 163 169 From purchased concentrate 27 18------------------------------------------------------------------------------------------Total copper cathodes produced (excluding tolling) 190 187Tolling 1 1------------------------------------------------------------------------------------------Total copper cathodes produced (including tolling) 191 188------------------------------------------------------------------------------------------Total copper cathodes and copper rods sold 220 178------------------------------------------------------------------------------------------MKM:Wire sales 79 82Flat sales 34 31Tubes and bars sales 23 21------------------------------------------------------------------------------------------Total MKM sales 136 134------------------------------------------------------------------------------------------ 2. Mining Metal Mining Ore Copper Zinc Gold Silver mined------------------------------------------------------------------------------------------ 30 30 30 30 30 30 30 30 30 30 June June June June June June June June June June 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 kt kt % % % % g/t g/t g/t g/t----------------------------------------------------------------------------------------------Zhezkazgan Complex:North 1,344 1,620 0.66 0.67 - - - - 8.66 7.31South 3,137 3,434 0.69 0.73 - - - - 17.50 12.82Stepnoy 1,447 1,693 0.80 0.79 - - - - 12.01 17.42East 2,753 2,886 0.81 0.91 - - - - 17.06 20.04West 1,047 1,386 0.37 0.40 - - - - 10.92 12.93Annensky 1,649 2,435 1.04 1.13 - - - - 25.60 22.17Zhaman-Aybat 1,439 596 1.30 1.11 - - - - 9.08 5.46---------------------------------------------------------------------------------------------Total Zhezkazgan Complex 12,816 14,050 0.81 0.82 - - - - 15.42 15.54---------------------------------------------------------------------------------------------Balkhash Complex: Kounrad 178 1,175 0.31 0.34 - - - - 0.80 1.89Shatyrkul 213 244 2.22 2.04 - - 0.29 0.29 1.90 2.48Sayak I and Sayak III 702 867 1.05 1.12 - - 0.27 0.25 5.44 5.95---------------------------------------------------------------------------------------------Total Balkhash Complex 1,093 2,286 1.15 0.82 - - 0.27(1)0.26(1)4.00 3.49---------------------------------------------------------------------------------------------East Region:Orlovskoe 618 833 4.61 4.28 4.23 3.90 0.57 0.57 54.40 54.47Belousovskoe 72 132 0.83 0.91 2.84 3.26 0.48 0.50 43.00 49.85Irtyshskoe 202 252 1.33 1.19 3.07 2.63 0.36 0.29 53.10 40.02Nikolaevskoe 275 380 1.72 1.06 3.05 2.07 0.61 0.21 29.89 22.04Yubileyno-Snegirikhinskoe 203 189 3.09 4.32 3.23 3.17 0.62 0.57 42.86 42.74Artemyevskoe 803 532 1.71 1.68 5.44 6.85 1.49 1.75 109.06 161.32---------------------------------------------------------------------------------------------Total East region 2,173 2,318 2.60 2.63 4.28 4.04 0.89 0.75 69.90 70.90---------------------------------------------------------------------------------------------Karaganda Region:Abyz - 184 - 1.68 - 3.47 - 3.71 - 47.65Nurkazgan 1,106 1,023 1.17 1.22 - - 0.31 0.31 2.65 3.76Kosmurun 806 266 4.00 4.29 2.10 - 1.63 1.53 28.17 22.70---------------------------------------------------------------------------------------------Total Karaganda Region 1,912 1,473 2.36 1.83 2.10(2)3.47(4)0.86 0.96 13.41 12.67---------------------------------------------------------------------------------------------Total Kazakh Mining 17,994 20,127 1.21 1.10 3.69(3)4.00(5)0.77 0.70(6)21.09 20.34--------------------------------------------------------------------------------------------- (1) Production only from Shatyrkul and Sayak I and Sayak III mines in Balkhash Complex. (2) Production only from Kosmurun mine. (3) Production only from East Region and Kosmurun mine of Karaganda Region. (4) Production only from Abyz mine. (5) Production only from East Region and Abyz mine of Karaganda Region. (6) Production only from Balkhash Complex (excluding Kounrad mine), East Regionand Karaganda Region. Coal Mining Coal Waste Strip mined stripped ratio -------------------------------------------------------- 30 June 30 June 30 June 30 June 30 June 30 Junekt 2007 2006 2007 2006 2007 2006-----------------------------------------------------------------------------------------Molodezhnoe 3,217 3,231 5,822 4,699 1.81 1.45Kuu-Chekinskoe 429 500 1,917 2,048 4.47 4.09-----------------------------------------------------------------------------------------Total 3,646 3,731 7,739 6,747 2.12 1.81----------------------------------------------------------------------------------------- 3. Processing Copper processing Copper Copper concentrate in produced concentrate -------------------------------------------- 30 June 30 June 30 June 30 June 2007 2006 2007 2006 kt kt % %----------------------------------------------------------------------------------------Zhezkazgan Complex:Zhezkazgan No.1 100 90 40.3 39.6Zhezkazgan No.2 89 104 39.3 39.5Satpayev 58 86 30.5 28.0----------------------------------------------------------------------------------------Total Zhezkazgan Complex 247 280 37.7 36.0-----------------------------------------------------------------------------------------Balkhash Complex:Balkhash 92 133 17.2 18.3----------------------------------------------------------------------------------------Total Balkhash Complex 92 133 17.2 18.3----------------------------------------------------------------------------------------East Region:Orlovskoe 128 160 20.6 20.1Belousovskoe 10 6 16.6 13.5Irtyshskoe 14 13 15.8 13.4Nikolaevskoe 79 81 17.0 16.0----------------------------------------------------------------------------------------Total East Region 231 260 18.9 18.4----------------------------------------------------------------------------------------Karaganda Region:Karagaily (Abyz) - 44 - 3.8Karagaily (Kosmurun) 159 27 15.5 17.3----------------------------------------------------------------------------------------Total Karaganda Region 159 71 15.5 9.0----------------------------------------------------------------------------------------Own copper concentrate processed by third 21 17 26.2 24.2party----------------------------------------------------------------------------------------Total Kazakh Mining (own concentrate) 750 761 24.4 24.1----------------------------------------------------------------------------------------Purchased concentrate 73 91 25.7 21.0----------------------------------------------------------------------------------------Total Kazakh Mining (own and purchased 823 852 24.5 23.8concentrate)---------------------------------------------------------------------------------------- 4. Zinc and precious metals processing Zinc Zinc Silver(1) Gold(1) concentrate in produced concentrate ------------------------------------------------------------------------- 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2007 2006 2007 2006 2007 2006 2007 2006 kt kt % % g/t g/t g/t g/t----------------------------------------------------------------------------------------------------Zhezkazgan Complex:Zhezkazgan No.1 - - - - 715.1 776.6 - -Zhezkazgan No.2 - - - - 705.8 701.3 - -Satpayev - - - - 733.1 576.9 - -----------------------------------------------------------------------------------------------------Total Zhezkazgan Complex - - - - 715.9 687.5 - -----------------------------------------------------------------------------------------------------Balkhash Complex:Balkhash - - - - 63.0 54.4 2.5 2.8----------------------------------------------------------------------------------------------------Total Balkhash Complex - - - - 63.0 54.4 2.5 2.8----------------------------------------------------------------------------------------------------East Region:Orlovskoe 42 51 45.3 45.0 105.8 106.7 1.2 1.2Belousovskoe 5 7 41.4 43.9 223.2 590.8 3.3 5.7Irtyshskoe 8 7 36.0 38.4 557.3 422.9 2.4 2.3Nikolaevskoe 38 28 41.9 40.9 207.1 137.2 2.5 1.4Artemyevskoe (KazZinc) 59 56 53.0 51.7 2,479.2 2,697.5 13.9 14.5----------------------------------------------------------------------------------------------------Total East Region 152 149 46.8(2) 44.1(2) 172.7(2) 143.2(2) 1.8(2) 1.4(2)----------------------------------------------------------------------------------------------------Karaganda Region:Karagaily - 5 - 33.8 84.9 124.7 3.6 8.4----------------------------------------------------------------------------------------------------Total Karaganda Region - 5 - 33.8 84.9 124.7 3.6 8.4----------------------------------------------------------------------------------------------------Total Kazakh Mining 152 154 46.8 45.8 323.7 330.5 2.5 2.9---------------------------------------------------------------------------------------------------- (1) Grade in grams per tonne of copper concentrate (2) Production from own concentrators. 5. Copper Smelter/Refinery - copper cathodes production Concentrate Copper in Copper smelted concentrate cathodes -------------------------------------------------------------- 30 June 30 June 30 June 30 June 30 June 30 June 2007 2006 2007 2006 2007 2006 kt kt % % kt kt------------------------------------------------------------------------------------------Zhezkazgan Complex:Own concentrate 282 329 35.6 33.0 90 102Purchased concentrate 6 9 32.9 26.8 4 3Other (1) 4 3 30.4 35.8 - 1------------------------------------------------------------------------------------------Total Zhezkazgan Complex 292 341 35.5 32.9 94 106------------------------------------------------------------------------------------------Balkhash Complex:Own concentrate 453 461 18.0 16.6 73 65Purchased concentrate 94 83 24.9 20.1 23 15Other (1) 2 22 68.7 6.3 - 1------------------------------------------------------------------------------------------Total Balkhash Complex 549 566 19.3 16.7 96 81------------------------------------------------------------------------------------------Total Kazakh Mining (excluding 841 907 24.9 22.8 190 187tolling)------------------------------------------------------------------------------------------Tolling 1 1 58.9 74.2 1 1------------------------------------------------------------------------------------------Total Kazakh Mining (including 842 908 23.9 22.3 191 188tolling)------------------------------------------------------------------------------------------ (1) Includes materials recovered (slag, scrap, etc.) reprocessed at bothZhezkazgan and Balkhash Complexes. 6. Copper Smelter/Refinery - copper rod and acid production Copper Acid rod production ---------------------------------------------------- 30 June 30 June 30 June 30 Junekt 2007 2006 2007 2006-----------------------------------------------------------------------------------------Total Kazakh Mining (all Zhezkazgan Complex) 18 14 81 106----------------------------------------------------------------------------------------- 7. Zinc Smelter/Refinery - zinc metal production Zinc Zinc in Zinc concentrate concentrate metal smelted ---------------------------------------------------- 30 June 30 June 30 June 30 June 30 June 30 June 2007 2006 2007 2006 2007 2006 kt kt % % kt kt-------------------------------------------------------------------------------------------Total Kazakh Mining (all 76 85 34.1 45.7 27 34Balkhash Complex)------------------------------------------------------------------------------------------- 8. Precious metal production Silver Gold ---------------------------------------------------- 30 June 30 June 30 June 30 Junekoz 2007 2006 2007 2006------------------------------------------------------------------------------------------Kazakh Mining 10,104 10,660 52 54Tolling 7 32 19 24------------------------------------------------------------------------------------------Total Kazakh Mining (including tolling) 10,111 10,692 71 78------------------------------------------------------------------------------------------ 9. Other production - Kazakh Mining 30 June 30 June 2007 2006-----------------------------------------------------------------------------------------Electricity power space (GWh) 3,203 3,358Heating power (KGcal) 2,488 2,431Enamel wire (t) 440 195Lead dust (t) 5,428 7,236----------------------------------------------------------------------------------------- 10. Kazakh Mining sales 30 June 30 June 2007 2006----------------------------------------------------------------------------------------- kt(1) $million kt(1) $million-----------------------------------------------------------------------------------------Copper cathode 203 1,406.9 163 1,060.2Copper rod 17 117.7 15 98.6------------------------------------------------------------------------------------------Total copper sales 220 1,524.6 178 1,158.8------------------------------------------------------------------------------------------Zinc concentrate 132 154.1 81 59.1Zinc metal 25 89.3 37 102.4Silver (koz) 7,395 98.5 10,835 117.8Gold (koz) 45 29.2 47 28.2------------------------------------------------------------------------------------------ (1) Kilotonne (unless otherwise stated). 11. Average realised prices 30 June 30 June 2007 2006-----------------------------------------------------------------------------------------Copper ($/t) 6,930 6,510Zinc ($/t) 3,572 2,768Silver ($/oz) 13.32 10.87Gold ($/oz) 649 600----------------------------------------------------------------------------------------- 12. MKM production and sales 30 June 2007 30 June 2006 --------------------------------------------------------------kt Production Sales Production Sales------------------------------------------------------------------------------------------Wire rod 60 59 62 62Drawn wire 20 20 20 20------------------------------------------------------------------------------------------Total wire 80 79 82 82------------------------------------------------------------------------------------------Pre-rolled 2 2 1 1Sheets 7 7 8 7Strips 25 25 23 23------------------------------------------------------------------------------------------Total flat 34 34 32 31------------------------------------------------------------------------------------------Tubes 10 10 10 10Bars 13 13 11 11------------------------------------------------------------------------------------------Total tubes and bars 23 23 21 21------------------------------------------------------------------------------------------Total MKM 137 136 135 134------------------------------------------------------------------------------------------ GLOSSARY Capital EmployedThe aggregate of equity attributable to shareholders, minority interests andborrowings Cash cost of copper after by-productsThe US cents per pound cost of copper after revenues arising from by-products CISCommonwealth of Independent States 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 ENRCEurasian Natural Resources Corporation PLC EURIBOREuropean Inter Bank Offer Rate Free Cash FlowNet cash flows from operating activities less sustaining capital expenditure ontangible and intangible assets and investment in mine stripping costs g/tgrammes per metric tonne GWhGigawatt-hour, one gigawatt-hour represents one hour of electricity consumed ata constant rate of one gigawatt GovernmentThe Government of the Republic of Kazakhstan IASInternational Accounting Standards JORCJoint Ore Reserves Committee Kazakh MiningThe Kazakh mining operations, which involve the processing and sale of copperand other metals Kazakhmys LLC Kazakhmys Corporation LLC, the Group's principal operating subsidiary inKazakhstan KazakhstanThe Republic of Kazakhstan KgcalOne thousand Gigacalories, units of heat energy kmKilometres kozThousand ounces ktThousand metric tonnes KZT or tengeKazakhstan tenge, the official currency of Kazakhstan LMELondon Metal Exchange LSELondon Stock Exchange MKMMansfelder Kupfer und Messing GmbH, the Group's operating subsidiary in theFederal Republic of Germany Ounce or ozA troy ounce ROCEReturn on Capital Employed, defined as profit before taxation, finance items andnegative goodwill over capital employed $/t or $/tonneUS dollars per metric 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 4(a) to the financial statements tmetric tonnes 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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