19th Sep 2006 07:04
Kazakhmys PLC19 September 2006 Notes to the interim consolidated financial statementsfor the six months ended 30 June 2006 1. General information Kazakhmys PLC (the 'Company', formerly KCC International Plc) is a publiclimited company incorporated in the United Kingdom of Great Britain and NorthernIreland. The Company's registered address is 6th Floor, Cardinal Place, 100Victoria Street, London, SW1E 5JL, United Kingdom. The Group comprises theCompany and its consolidated subsidiaries as set out below. The Group's operations are primarily conducted through the Company's principalsubsidiary, Kazakhmys Corporation LLC ('Kazakhmys LLC'), in which the Companyacquired a 97.40% interest as a result of a share exchange representing acombination of businesses under common control on 23 November 2004. The shareexchange is described in Note 2(b). Subsequent to this share exchange, theCompany's interest in Kazakhmys LLC increased from 97.40% to 98.68% as a resultof a further share exchange with Kinton Trade Limited, a minority shareholder inKazakhmys LLC, on 26 September 2005 (refer Note 14(b)). As the result ofadditional capital contributions to the charter capital of Kazakhmys LLC duringthe six months ended 30 June 2006, the Company's interest in Kazakhmys LLCincreased from 98.68% as at 31 December 2005 to 99.08% as at 30 June 2006 (referNote 14(e)). The Group operates in the mining industry. Its major business is the mining andprocessing of copper ore into cathode copper and copper wire, and the refiningand sale of precious metals and other by-products of its copper mining process.It also provides other services to various external customers. These interim consolidated financial statements are for the six months ended 30June 2006. The information for the year ended 31 December 2005 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 2005, has beendelivered to the Register of Companies. The auditor's 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 2005. (b) Accounting for the share exchange agreements relating to the acquisition ofKazakhmys LLC Pursuant to various share exchange agreements entered into as a result of theoffer made by the Company to shareholders of Kazakhmys LLC, the Company acquiredKazakhmys LLC on 23 November 2004 in consideration for the allotment of ordinaryshares of £5 each in the Company or for a cash payment. The considerationoffered for each Kazakhmys LLC share was one ordinary share in the Company or acash payment of Kazakhstan tenge ('KZT') 4,736. No shareholder elected to takethe cash option and the offer period closed on 7 January 2005. Pursuant to the share exchange agreements, the Company issued 15,580,210ordinary shares of £5 each on or around 25 November 2004, a further 568,738ordinary shares of £5 each were issued in the period 29 December 2004 to 23August 2005 and an additional 2,000 ordinary shares of 20 pence each were issuedon 29 December 2005 (equivalent to 80 ordinary shares of £5 each prior to theshare split which took place on 23 September 2005 (refer to Note 14) in whichthe Company's share capital was redenominated into ordinary shares of 20 penceeach). Immediately after the initial issue of shares pursuant to the shareexchange agreements, the Company's interest in Kazakhmys LLC was 93.96%. Thisinterest increased to 97.40% upon completion of share allotments relating to theshare exchange agreements. As this transaction involved the combination of businesses under common control,the pooling of interests method of accounting has been applied in thepresentation of the interim consolidated financial statements, which present theresults of the Group as if the Company had always been the parent company ofKazakhmys LLC. (c) 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 International Financial Reporting Standardsat that date, and derivative financial instruments which have been measured atfair value. The interim consolidated financial statements are presented in USdollars ('$') and all monetary amounts are rounded to the nearest million ('$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 2005. In preparing the consolidated financial statements the Group has adopted all theextant accounting standards issued by the IASB and all the extantinterpretations issued by the IFRIC as at 30 June 2006. The Group has notapplied IFRS 7 'Financial Instruments: Disclosures' and consequential amendmentsIAS 1 'Presentation of Financial Statements' which are effective for annualperiods beginning on or after 1 January 2007. The following foreign exchange rates vs. the US dollar have been used in thepreparation of the interim consolidated financial statements: 30 June 2006 30 June 2005 31 December 2005 -------------- -------------- -------------- Spot Average Spot Average Spot Average -----------------------------------------------Kazakhstan tenge 118.69 127.10 135.26 131.20 133.77 132.88 Euro 0.80 0.81 0.84 0.78 0.84 0.80 UK pound sterling 0.55 0.56 0.55 0.53 0.58 0.55 Where applicable, comparatives have been adjusted on the same basis as currentperiod figures. The material adjustments to the comparatives are thereclassification within segment information of corporate head office costs,assets and liabilities from Kazakh Mining to unallocated items. 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. Segments results, assets and liabilities include items directly attributable toa segment 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. 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-product metals (lead, rhenium and selenium). • German copper processing operation. (a) Business segments The Kazakh Mining business, which involves the processing and sale of copper andother metals, is managed as one business segment. The products are subject tothe same risks and returns, exhibit similar long-term financial performance andare sold through the same distribution channels. The Group 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 fromthe Kazakh Mining operations, application of an appropriate mark-up and thenonward 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 disclosed separately as unallocated items. The price at which sales are made to the Company by Kazakhmys LLC is theprevailing price of commodities as determined by the LME. At the end of 2004, the Group acquired MKM, which operates from Germany, whereit manufactures copper and copper alloy semi-finished products. MKM facesdifferent risks to the Group's Kazakh Mining business and, therefore, from 1January 2005 the Group has operated in two distinct business segments. Segmentalinformation in respect of these two business segments for the periods ended 30June 2006, 30 June 2005 and 31 December 2005 is presented below. (i) Income statement information Six months ended Six months ended Year ended 30 June 2006 30 June 2005 31 December 2005 --------------------- --------------------- ----------------------- Kazakh MKM Total Kazakh MKM Total Kazakh MKM Total Mining Mining Mining ---------------------------------------------------------------------------------------$ million Sales to external 1,520.9 758.9 2,279.8 791.6 410.5 1,202.1 1,740.9 856.6 2,597.5customers ---------------------------------------------------------------------------------------Gross profit 1,073.0 53.4 1,126.4 439.0 38.6 477.6 1,024.8 66.1 1,090.9Operating costs (99.9)(23.4) (123.3)(91.8) (23.0) (114.8) (184.6)(44.3) (228.9)---------------------------------------------------------------------------------------Segment results 973.1 30.0 1,003.1 347.2 15.6 362.8 840.2 21.8 862.0 Unallocated (18.6) (3.3) (19.5) corporate costs ---------------------------------------------------------------------------------------Profit before 984.5 359.5 842.5 taxation, finance items and negative goodwill Net finance (costs) (35.1) (0.5) 5.6 /income Recognition of 6.5 - - negative goodwill ---------------------------------------------------------------------------------------Profit before 955.9 359.0 848.1 taxation Income tax expense (317.0) (126.9) (297.3)---------------------------------------------------------------------------------------Profit for the 638.9 232.1 550.8 period --------------------------------------------------------------------------------------- (ii) Balance sheet information As at 30 June 2006 As at 30 June 2005 As at 31 December 2005 ------------------------- -------------------------- ----------------------------$ million Kazakh MKM Total Kazakh MKM Total Kazakh MKM Total Mining Mining Mining ------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ASSETS Tangible and 1,900.1 167.8 2,067.9 1,465.7 175.3 1,641.0 1,598.1 165.8 1,763.9 intangible assets Non-current 4.1 3.2 7.3 2.8 3.0 5.8 2.7 3.1 5.8 investments Operating assets 712.3 387.8 1,100.1 360.9 378.3 739.2 593.1 220.0 813.1 (1) Current 823.8 - 823.8 313.5 - 313.5 356.5 - 356.5 investments Cash and cash 96.8 18.6 115.4 14.4 25.8 40.2 13.1 2.6 15.7 equivalents ------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Segment assets 3,537.1 577.4 4,114.5 2,157.3 582.4 2,739.7 2,563.5 391.5 2,955.0 ------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------Unallocated assets: Non-current assets 3.2 0.6 0.8 - Corporate Current assets - 21.6 112.3 13.3 Corporate Dividends - - 164.5 receivable - Corporate Cash and cash 466.8 128.8 506.3 equivalents - Corporate Elimination (194.0) (291.0) (359.9) ------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------TOTAL ASSETS 4,412.1 2,690.4 3,280.0 ------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------LIABILITIES Employee benefits 82.9 8.9 91.8 69.4 10.1 79.5 67.3 7.3 74.6 and provisions Operating 145.9 20.3 166.2 107.5 36.2 143.7 273.5 29.6 303.1 liabilities (2) Borrowings - 378.6 378.6 204.2 191.5 395.7 41.6 202.8 244.4 ------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------Segment 228.8 407.8 636.6 381.1 237.8 618.9 382.4 239.7 622.1 liabilities ------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Unallocated liabilities: Other payables - 26.9 119.7 20.1 Corporate Deferred tax 280.2 232.7 260.9 liability - Group Income tax payable 285.5 108.8 107.6 - Group Dividend payable - 1.9 1.1 3.1 Group Elimination (194.0) (291.0) (359.9) ------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------TOTAL LIABILITIES 1,037.1 790.2 653.9 ------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ (1) Operating assets include inventories, trade and other receivables,prepayments and other current assets and restricted cash. (2) Operating liabilities include trade and other payables and dividends payableby Kazakhmys LLC to the Company. (iii) Earnings before interest, tax, depreciation and amortisation ("EBITDA")excluding special items (1) by business segments Six months ended 30 June 2006 Six months ended 30 June 2005 ------------------------------------- -----------------------------------$ million Kazakh MKM Corporate Total Kazakh MKM Corporate Total Mining unallocated Mining unallocated ------------------- ------- ------- ------- ------- ------- ------- ------- ------- Profit before 973.1 30.0 (18.6) 984.5 347.2 15.6 (3.3) 359.5 taxation, finance items and negative goodwill Special items: - - - (Less)/add: write (10.2) - - (10.2) 0.3 - - 0.3 (back)/off of property, plant and equipment Add/(less): loss/ 3.6 (0.1) 0.5 4.0 10.6 - - 10.6 (gain) on disposal of property, plant and equipment ------------------- ------- ------- ------- ------- ------- ------- ------- ------- Profit before 966.5 29.9 (18.1) 978.3 358.1 15.6 (3.3) 370.4 taxation, finance items and negative goodwill excluding special items Add: depreciation and 91.4 10.4 0.1 101.9 101.4 10.3 - 111.7 depletion Add: amortisation 0.9 0.2 - 1.1 0.6 0.1 - 0.7 ------------------- ------- ------- ------- ------- ------- ------- ------- -------EBITDA excluding 1,058.8 40.5 (18.0) 1,081.3 460.1 26.0 (3.3) 482.8 special items ------------------- ------- ------- ------- ------- ------- ------- ------- ------- Year ended 31 December 2005 -------------------------------------------$ million Kazakh MKM Corporate Total Mining unallocated ---------------------------- ---------- ---------- ---------- ---------- Profit before taxation, finance items 840.3 21.7 (19.5) 842.5 and negative goodwill Special items: - - (Less)/add: write (back)/off of 6.8 - - 6.8 property, plant and equipment Add/(less): loss/(gain) on disposal 8.6 (4.0) - 4.6 of property, plant and equipment ---------------------------- ---------- ---------- ---------- ---------- Profit before taxation, finance items 855.7 17.7 (19.5) 853.9 and negative goodwill excluding special items Add: depreciation and depletion 196.5 21.0 0.2 217.7 Add: amortisation 1.5 0.4 - 1.9 ---------------------------- ---------- ---------- ---------- ----------EBITDA excluding special items 1,053.7 39.1 (19.3) 1,073.5 ---------------------------- ---------- ---------- ---------- ---------- (1) EBITDA excluding special items is defined as profit before interest,taxation, depreciation and amortisation, as adjusted for special items. Specialitems are those items which are non-recurring or variable in nature and which donot impact the underlying trading performance of the business. (iv) Net liquid funds/(debt) by business segments As at 30 June 2006 As at 30 June 2005 ----------------------------------- ------------------------------------$ million Kazakh MKM (1) Corporate Total Kazakh MKM (1) Corporate Total Mining unallocated Mining unallocated (2) ------------------- ------- ------- ------- ------- ------- ------- ------- ------- Cash and cash equivalents 96.8 18.6 466.8 582.2 14.4 25.8 128.8 169.0 Current investments 823.8 - - 823.8 313.5 - - 313.5 Borrowings - (378.5) - (378.5) (204.2) (191.0) (100.0) (495.2) Inter-segment borrowings - 194.0 - 194.0 100.0 191.0 - 291.0 (1) (2) Finance leases - (0.1) - (0.1) - (0.5) - (0.5) Redeemable preference - - - - - - (0.1) (0.1) shares ------------------- ------- ------- ------- ------- ------- ------- ------- ------- Net liquid funds/(debt) 920.6 (166.0) 466.8 1,221.4 223.7 25.3 28.7 277.7 ------------------- ------- ------- ------- ------- ------- ------- ------- ------- As at 31 December 2005 -------------------------------------------$ million Kazakh MKM (1) Corporate Total Mining unallocated ---------------------------- ---------- ---------- ---------- ---------- Cash and cash equivalents 13.1 2.6 506.3 522.0 Current investments 356.5 - - 356.5 Borrowings (41.6) (202.6) - (244.2) Inter-segment borrowings (1) (2) - 195.4 - 195.4 Finance leases - (0.2) - (0.2) Redeemable preference shares - - - - ---------------------------- ---------- ---------- ---------- ----------Net liquid funds/(debt) 328.0 (4.8) 506.3 829.5 ---------------------------- ---------- ---------- ---------- ---------- (1) Borrowings of MKM include amounts borrowed from the Kazakh Mining segment. (2) Borrowings of Kazakh Mining include amounts borrowed from the Corporate headoffice as at 30 June 2005. (v) Capital expenditure, depreciation, write (back)/off and impairment losses bybusiness segments Six months ended 30 June 2006 Six months ended 30 June 2005 ---------------------------------- -----------------------------------$ million Kazakh MKM Corporate Total Kazakh MKM Corporate Total ------------------- Mining unallocated Mining unallocated ------- ------- ------- ------- ------- ------- ------- ------- Property, plant and 159.0 3.0 3.0 165.0 137.0 7.1 0.5 144.6 equipment Mine stripping costs 5.9 - - 5.9 7.0 - - 7.0 Intangible assets 0.7 - - 0.7 3.4 - 0.4 3.8 ------------------- ------- ------- ------- ------- ------- ------- ------- -------Capital expenditure 165.6 3.0 3.0 171.6 147.4 7.1 0.9 155.4 ------------------- ------- ------- ------- ------- ------- ------- ------- -------Depreciation and 91.4 10.4 0.1 101.9 101.4 10.3 - 111.7 depletion Amortisation 0.9 0.2 - 1.1 0.6 0.1 - 0.7 ------------------- ------- ------- ------- ------- ------- ------- ------- -------Depreciation, depletion 92.3 10.6 0.1 103.0 102.0 10.4 - 112.4 and amortisation ------------------- ------- ------- ------- ------- ------- ------- ------- ------- Write (back)/off of (7.0) 1.3 - (5.7) 3.6 - - 3.6 assets and impairment losses ------------------- ------- ------- ------- ------- ------- ------- ------- ------- Year ended 31 December 2005 -------------------------------------------$ million Kazakh MKM Corporate Total ---------------------------- Mining unallocated ---------- ---------- ---------- ---------- Property, plant and equipment 320.7 12.5 0.5 333.7 Mine stripping costs 26.5 - - 26.5 Intangible assets 4.2 1.0 - 5.2 ---------------------------- ---------- ---------- ---------- ----------Capital expenditure 351.4 13.5 0.5 365.4 ---------------------------- ---------- ---------- ---------- ----------Depreciation and depletion 196.5 21.0 0.2 217.7 Amortisation 1.5 0.4 - 1.9 ---------------------------- ---------- ---------- ---------- ----------Depreciation, depletion and 198.0 21.4 0.2 219.6 amortisation ---------------------------- ---------- ---------- ---------- ---------- Write (back)/off of assets and 11.4 - 0.4 11.8 impairment losses ---------------------------- ---------- ---------- ---------- ---------- (b) Revenues by product$ million Six months Six months Year ended ended ended 30 31 30 June June December 2006 2005 2005 ----------------------------- --------- --------- ---------Kazakh Mining Copper cathodes 1,060.2 595.5 1,377.2 Silver in granules 117.8 77.2 147.3 Zinc metal 102.4 46.8 64.3 Copper rods 98.6 20.1 26.5 Zinc concentrate 59.1 1.6 15.0 Gold bullion 28.2 14.2 37.7 Other by-products 14.7 10.0 14.5 Other revenue 39.9 26.2 58.4 ----------------------------- --------- --------- --------- 1,520.9 791.6 1,740.9 ----------------------------- --------- --------- ---------MKM Wire 416.5 178.5 389.1 Sheet steel and steel strips 190.6 125.3 252.3 Tubes and bars 119.5 79.4 167.3 Metal trade 32.3 27.3 47.9 ----------------------------- --------- --------- --------- 758.9 410.5 856.6 ----------------------------- --------- --------- ---------Total revenues 2,279.8 1,202.1 2,597.5 ----------------------------- --------- --------- --------- Provisional pricing All copper sales agreements provide for provisional pricing of sales in themonth 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 2006 gains of $57.5 million (six months ended30 June 2005: $8.4 million, year ended 31 December 2005: $52.4 million) relatingto the difference between provisional pricing and final pricing have beenincluded within revenues. At 30 June 2006, copper sales totalling 2,496 tonnes (30 June 2005: 15,375tonnes, 31 December 2005: 20,881 tonnes) remained to be finally priced and wererecorded at that date at an average price of $8,474 per tonne (30 June 2005:$3,323 per tonne, 31 December 2005: $4,342 per tonne) based on provisionalinvoices. The loss on sales contracts of $1.6 million arising in July 2006 and relating tocontracts previously priced in June 2006, will be recognised in the second halfof the year ended 31 December 2006. (c) Revenues by destination 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 ---------------------------- ------- ------- ------- ------- Six months ended 30 June 2005 --------------------------------------- $ million Europe China Other Total ---------------------------- ------- ------- ------- -------Sales to third parties 607.4 423.3 171.4 1,202.1 ---------------------------- ------- ------- ------- ------- Year ended 31 December 2005 --------------------------------------- $ million Europe China Other Total ---------------------------- ------- ------- ------- -------Sales to third parties 995.1 1,303.0 299.4 2,597.5 ---------------------------- ------- ------- ------- ------- 5. Write back/(off) of assets and impairment losses $ million Six months Six months Year ended ended ended 30 31 30 June June 2005 December 2006 2005 ----------------------------- --------- --------- --------- Write back/(off) of property, plant and 10.2 (0.3) (6.8) equipment Release of provisions for/(provisions 1.2 (2.7) (3.8) against) prepayments and other current assets Impairment of investments - - (1.8) Write-off of goodwill - (0.4) (0.4) Provisions against trade and other (1.1) (0.2) (0.3) receivables (Provisions against)/release of provisions (4.6) - 1.3 for obsolete inventories ----------------------------- --------- --------- --------- 5.7 (3.6) (11.8) ----------------------------- --------- --------- --------- 6. Finance income and finance costs$ million Six months Six months Year ended ended ended 30 31 30 June June 2005 December 2006 2005 ----------------------------- --------- --------- ---------Finance income: Interest income 34.0 10.0 30.6 Foreign exchange gains 28.9 43.8 56.8 ----------------------------- --------- --------- ---------Total finance income 62.9 53.8 87.4 ----------------------------- --------- --------- ---------Finance costs: Interest expense (1.7) (6.3) (8.8) Interest on employee obligations (1.0) (0.4) (2.0) Unwinding of discount on provisions (2.6) (2.1) (3.2) ----------------------------- --------- --------- ---------Finance costs before foreign exchange losses (5.3) (8.8) (14.0) Foreign exchange losses (92.7) (45.5) (67.8) ----------------------------- --------- --------- ---------Total finance costs (98.0) (54.3) (81.8) ----------------------------- --------- --------- --------- 7. Business combination On 10 February 2006, the Group acquired 90% of ZhREK JSC, a power transmissioncompany in Kazakhstan, for $2.3 million. The fair value of the net identifiableassets was $9.7 million, minority interests were $0.9 million and negativegoodwill on acquisition was $6.5 million. Upon acquisition, the Group acquiredcash of $0.3 million. 8. 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 31 30 June June 2005 December 2006 2005 ----------------------------- --------- --------- ---------Current income tax Corporate income tax - current period (UK) 0.2 1.0 2.2 Corporate income tax - current period 281.0 137.9 269.8 (overseas) Corporate income tax - prior periods 15.0 1.3 1.3 Excess profits tax 24.3 13.8 27.0 ----------------------------- --------- --------- --------- 320.5 154.0 300.3 ----------------------------- --------- --------- ---------Deferred income tax Corporate income tax - current period (4.5) (26.1) (8.1) Excess profits tax 1.0 (1.0) 5.1 ----------------------------- --------- --------- --------- (3.5) (27.1) (3.0) ----------------------------- --------- --------- ---------Income tax expense 317.0 126.9 297.3 ----------------------------- --------- --------- --------- (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 31 30 June June 2005 December 2006 2005 ----------------------------- --------- --------- ---------Profit before taxation 955.9 359.0 848.1 ----------------------------- --------- --------- ---------At statutory income tax rate of 30% 286.8 107.7 254.4 Underprovided in previous periods 15.0 1.3 1.3 Unrecognised tax losses 5.6 2.4 4.7 Effect of higher tax rate in Germany 1.4 1.0 1.0 Change in the tax rate in Germany - - (2.7) Unremitted overseas earnings 6.8 4.8 11.9 Non deductible expenses/(non taxable income): Non taxable income of zinc plant (26.5) (4.0) (8.3) Recognition of negative goodwill (2.0) - - Non deductible expenses 4.6 0.9 2.9 Excess profits tax 25.3 12.8 32.1 ----------------------------- --------- --------- ---------At effective income tax rate of 33.2% 317.0 126.9 297.3 (30.06.05: 35.3%, 31.12.05: 35.1%) ----------------------------- --------- --------- --------- Corporate income tax is calculated at 30% of the assessable profit for theperiod for the Company and Kazakhmys LLC. The MKM tax rate is calculated at35.98% (30 June 2005 and 31 December 2005: 35.98%) and relates to Germancorporate income tax and trade tax. The Directors have estimated the tax expensefor the six months period ended 30 June 2006 based on the projected tax rate forthe Group for the 12 months to 31 December 2006. Excess profits tax is levied on profitable subsoil contracts where the InternalRate of Return for the current period exceeds 20%. The effective rate for excessprofits tax for those subsoil contracts liable to this tax is 36% (30 June 2005:35%, 31 December 2005: 37%). 9. Earnings per share The earnings per share ('EPS') calculation has assumed that the number ofordinary shares issued pursuant to share exchange agreements in relation to theacquisition of Kazakhmys LLC have been in issue from 1 January 2004 consistentwith the pooling of interests method used to account for combinations ofbusinesses under common control. The EPS calculation has also assumed that the share split that occurred on 26September 2005, in which the Company's share capital was redenominated intoordinary shares of 20 pence each, was in effect for all prior periods. The Directors believe that this basis for the EPS calculation provides a morerelevant performance measure of the Group than using an EPS calculation whichreflected shares issued based on the actual date of issue. (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 31 December 30 June 2006 2005 2005 ----------------------------- --------- --------- --------- Net profit attributable to equity 632.7 226.1 538.8 shareholders of the Company ----------------------------- --------- --------- --------- Six months Six months Year ended ended ended 30 June 31 December 30 June 2006 2005 2005 No. No. No. ----------------------------- --------- --------- --------- Number of shares Weighted average number of ordinary 467,474,200 403,725,750 418,105,627 shares of 20 pence each for EPS calculation ----------------------------- --------- --------- --------- EPS - basic and diluted $1.35 $0.56 $1.29 ----------------------------- --------- --------- --------- (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 and which do not impact theunderlying trading performance of the business and their resultant tax andminority interest effects, as shown in the table below. EPS based on UnderlyingProfit is calculated by dividing Underlying Profit by the weighted averagenumber of ordinary shares of 20 pence each outstanding during the period. TheDirectors believe EPS based on Underlying Profit provides a more consistentmeasure for comparing the underlying trading performance of the Group. The following shows the reconciliation of Underlying Profit from the reportedprofit and the share data used in the computations for EPS based on UnderlyingProfit: $ million Six months Six months Year ended ----------------------------- ended ended 30 June 31 December 30 June 2006 2005 2005 --------- --------- --------- Net profit attributable to equity 632.7 226.1 538.8 shareholders of the Company Special items: Recognition of negative goodwill (6.5) - - Write (back)/off of property, plant and (10.2) 0.3 6.8 equipment Loss on disposal of property, plant and 4.0 10.6 4.6 equipment Tax effect of special items (0.8) (0.2) (0.5) Minority interest effect of special 0.1 (0.1) 0.1 items ----------------------------- --------- --------- --------- Underlying Profit 619.3 236.7 549.8 ----------------------------- --------- --------- --------- Six months Six months Year ended ended ended 30 June 31 December 30 June 2006 2005 2005 No. No. No. ----------------------------- --------- --------- --------- Weighted average number of ordinary 467,474,200 403,725,750 418,105,627 shares of 20 pence each for EPS based on Underlying Profit calculation ----------------------------- --------- --------- --------- EPS based on Underlying Profit - basic $1.32 $0.59 $1.31 and diluted ----------------------------- --------- --------- --------- 10. Dividends paid and proposed The dividend per share disclosures below have been calculated using the numberof shares in issue at the date of payment after reflecting the share split thatoccurred on 26 September 2005 for comparability purposes. The dividends declaredand paid during the six months ended 30 June 2006 and 2005, and the year ended31 December 2005 are as follows: Per share Amount $ $ million ------------------------------------- -------- -------- Six months ended 30 June 2006 Declared by the Company: Final dividend in respect of year ended 31 December 2005 0.36 168.3 (sourced from 2005 earnings) ------------------------------------- -------- -------- Six months ended 30 June 2005 Declared by Kazakhmys LLC: Interim dividend payable to former shareholders (sourced 0.13 52.1 from 2004 earnings) ------------------------------------- -------- -------- Year ended 31 December 2005 Declared by the Company: Interim dividend in respect of year ended 31 December 0.27 110.0 2005 (sourced from 2004 earnings) Declared by Kazakhmys LLC: Interim dividend payable to former shareholders (sourced 0.13 52.1 from 2004 earnings) ------------------------------------- -------- -------- 0.40 162.1 ------------------------------------- -------- -------- The dividends shown above are those that have been declared and paid by theCompany, in respect of the period following the share exchange, and KazakhmysLLC for the period prior to the share exchange. This presentation is consistentwith the pooling of interests method used to account for combinations ofbusinesses under common control. Dividends declared by Kazakhmys LLC On 24 February 2005, Kazakhmys LLC paid an interim dividend in respect of theyear ended 31 December 2004 of $52.1 million, which was paid to shareholders onthe register of Kazakhmys LLC as at 31 October 2004. Accordingly, as the shareexchange agreement was not effective until 23 November 2004, these dividendswere paid directly to Kazakhmys LLC's former shareholders, rather than to theCompany. The dividends are shown in the interim consolidated financialstatements as cash outflows for the Group, consistent with the pooling ofinterests method of accounting. Dividends declared by the Company On 5 July 2005, the Company paid an interim dividend of $110.0 million inrespect of the year ended 31 December 2005 to shareholders on the register as at1 July 2005. This interim dividend was sourced from 2004 earnings by way ofpayment of the final dividend in respect of the year ended by 31 December 2004by Kazakhmys LLC. On 26 May 2006 the Company paid the final dividend of $168.3 million in respectof the year ended 31 December 2005 to shareholders on the register as at 28April 2006. This final dividend was sourced from 2005 earnings by way of paymentof the interim dividend in respect of the year ended by 31 December 2005 byKazakhmys LLC. Dividend declared by the Company Per share Amount $ $ million ------------------------------------ --------- --------- Declared by Directors on 18 September 2006 (not recognised as a liability as at 30 June 2006) Interim dividend in respect of year ended 31 December 0.13 59.8 2006 ------------------------------------ --------- --------- 11. Property, plant and equipment During the six months ended 30 June 2006, the Group acquired assets with a costof $165.0 million (30 June 2005: $144.6 million, 31 December 2005: $333.7million), of which $95.4 million related to new and expansionary projects (30June 2005: $50.0 million, 31 December 2005: $181.4 million). Assets with a book value of $4.1 million were disposed of by the Group duringthe six months ended 30 June 2006 (30 June 2005: $14.5 million, 31 December 2005: $11.9 million) resulting in a loss on disposal of $4.0 million (30 June 2005:$10.6 million, 31 December 2005: $4.6 million). In addition to the above additions and disposals, during the six months ended 30June 2006 property, plant and equipment: • increased by $216.0 million as a result of foreign exchange movements on translation; • increased by $10.2 million as a result of write backs; • decreased by $100.1 million as a result of depreciation expense. 12. Current investments Current investments include bank deposits of $823.8 million (30 June 2005:$313.0 million, 31 December 2005: $355.5 million) and available for salesecurities of nil (30 June 2005: $0.5 million, 31 December 2005: $1.0 million).Bank deposits are deposits held at ABN Amro Bank, Citibank Kazakhstan, BankTuran Alem, HSBC Bank Kazakhstan and Halyk Bank. 13. Cash and cash equivalents$ million As at As at As at 30 June 30 June 31 December 2006 2005 2005 ----------------------------- --------- --------- ---------Cash deposits with maturities of less than 435.4 - 496.7 three months Cash at bank 146.6 168.8 25.1 Petty cash 0.2 0.2 0.2 ----------------------------- --------- --------- --------- 582.2 169.0 522.0 ----------------------------- --------- --------- --------- Cash deposits are principally held at Credit Suisse First Boston, ABN Amro Bankand HSBC Bank. 14. Share capital and reserves (a) Authorised and allotted share capital As described in the annual financial statements for the year ended 31 December2005, a pooling of interests method of accounting has been applied in thepresentation of the financial information. This method presents the results ofthe Group as if the Company had always been the parent company. This has theeffect that, despite the Company not being incorporated until 15 July 2004, theordinary share capital shown throughout the period of the financial informationis that of the Company resulting from the share exchange with the previousshareholders of Kazakhmys LLC. On 23 September 2005, a share split took place in which each ordinary share of£5 was sub-divided into 25 ordinary shares of 20 pence each. Number £ million $ million ----------------------------- --------- --------- ---------Authorised As at 30 June 2006 750,000,000 150.0 - ----------------------------- --------- --------- ---------Allotted and called up share capital (1) As at 30 June 2006 467,474,200 93.5 173.3 As at 30 June 2005 403,725,750 80.7 151.1 As at 31 December 2005 467,474,200 93.5 173.3 ----------------------------- --------- --------- --------- (1) Excluding the one special share of £1 each which was cancelled on 23 May2005 (refer Note 14(c)). The changes in share capital, including the impact of the share split are shownbelow: Number of Share Share Total shares capital premium $ million $ million $ million------------------------- -------- -------- -------- -------- Ordinary shares of £5 each issued and fully paid Issued to initial shareholders 2 - - - Issued pursuant to share exchange 16,149,028 151.1 - 151.1 agreements (1) ------------------------- -------- -------- -------- -------- At 23 September 2005 16,149,030 151.1 - 151.1 ------------------------- -------- -------- -------- -------- Share capital following the share split: Ordinary shares of 20 pence each issued and fully paid Shares in issue at 23 September 403,725,750 151.1 - 151.1 2005 Issued pursuant to transaction with 5,314,425 1.9 32.5 34.4 Kinton Trade Limited Issued pursuant to the Company's 58,434,025 20.3 470.9 491.2 Listing (net of expenses $57.2 million) ------------------------- -------- -------- -------- -------- At 31 December 2005 and 30 June 467,474,200 173.3 503.4 676.7 2006 ------------------------- -------- -------- -------- -------- (1) Includes 80 ordinary shares of £5 each which were actually issued on 29December 2005 as 2,000 ordinary shares of 20 pence each. These shares have beenincluded in the proforma number of shares issued pursuant to the share exchangeagreements to reflect the pooling of interests method of accounting for thetransaction rather than its legal form. (b) Ordinary shares Between 23 November 2004 and 23 August 2005, a total number of 16,148,948ordinary shares of £5 each in the Company were issued and a further 2,000ordinary shares of 20 pence each were issued on 29 December 2005 (equivalent to80 ordinary shares of £5 each prior to the share split) pursuant to shareexchange agreements in relation to the acquisition of Kazakhmys LLC. Pursuant to a special resolution passed on 23 September 2005 it was resolvedinter alia to: • divide the £50,000 nominal amount of authorised share capital ofthe Company formerly divided into 50,000 redeemable preference shares of £1 eachinto 10,000 ordinary shares of £5 each; • subdivide each ordinary share of £5 in the capital of the Companyinto 25 ordinary shares of 20 pence each; and • increase the authorised share capital of the Company from£100,050,001 to £150,000,001 by the creation of 249,750,000 ordinary shares of20 pence each. On 26 September 2005, the Company issued 5,314,425 ordinary shares of 20 penceeach in consideration for the transfer to it of 127,546,200 units in KazakhmysLLC from Kinton Trade Limited. This was at an exchange rate equivalent to thatapplied pursuant to the share exchange offer made by the Company in November2004 when it first acquired units in Kazakhmys LLC. On 12 October 2005, the Company's ordinary shares were admitted to the OfficialList of the Financial Services Authority and to trading on the London StockExchange. Following the exercise of an over-allotment option, the global offercomprised 140,849,373 ordinary shares of 20 pence each at a price of £5.40, ofwhich 58,434,025 new ordinary shares of 20 pence each were issued by the Companyand 82,415,348 were ordinary shares of 20 pence each sold by existingshareholders. Gross proceeds of $548.4 million (£315.5 million) were received bythe Company following the issue of the new ordinary shares. (c) Special share At 30 June 2005 and 31 December 2005 the Company had 1 special share of £1 aspart of its authorised share capital. The special share was cancelled by specialresolution at the Company's Annual General Meeting on 23 May 2006. (d) 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(e)). During the year ended 31December 2005, the reserve fund was reduced by $5.4 million to match a reductionin Kazakhmys LLC's capital. (e) Capital contributions to charter capital of Kazakhmys LLC Between 31 January 2006 and 14 March 2006, the Company made capitalcontributions of $186.7 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. 15. Borrowings During the period, the Group via its subsidiary MKM, obtained a borrowingfacility from Deutsche Bank. The maximum amount that can be borrowed under thefacility is conditional upon a maximum of 80% of trade debtors plus the marketvalue of inventory minus the trade creditors for metal purchases but not morethan $250.0 million, of which $184.5 million has been drawn down at 30 June 2006. The loan bears interest at Euribor +1.45% and is repayable over 4 years. Theloan is secured over the receivables and inventory of MKM. Proceeds of the loanwere used to repay borrowings of $25.4 million from Kazakhmys LLC and supportadditional working capital requirements of MKM. 16. Reconciliation of profit before taxation to net cash inflow from operatingactivities $ million Six months Six months Year ended ended ended 30 31 30 June June 2005 December 2006 2005 ----------------------------- --------- --------- --------- Profit before taxation 955.9 359.0 848.1 Interest income (34.0) (10.0) (30.6) Interest expense 1.7 6.3 8.8 Depreciation and depletion 101.9 111.7 217.7 Amortisation 1.1 0.7 1.9 Recognition of negative goodwill (6.5) - - Write (back)/off and impairment losses (5.7) 3.6 11.8 Loss on disposal of property, plant and 4.0 10.6 4.6 equipment Unrealised foreign exchange loss 46.5 1.7 0.3 ----------------------------- --------- --------- ---------Operating cash flows before changes in 1,064.9 483.6 1,062.6 working capital and provisions Increase in inventories (123.0) (42.6) (97.1) (Increase)/decrease in prepayments and other (31.0) (28.6) 18.0 current assets Increase in trade and other receivables (7.3) (17.5) (69.5) (Increase)/decrease in restricted cash (1.7) 27.5 29.0 Increase in employee benefits 0.7 0.1 1.2 (Decrease)/increase in provisions (9.5) 0.3 3.4 (Decrease)/increase in trade and other (25.2) 29.4 20.3 payables ----------------------------- --------- --------- --------- Cash flows from operations before income 867.9 452.2 967.9 taxes and interest Interest paid (0.2) (7.1) (9.0) Income taxes paid (169.2) (190.2) (333.3) ----------------------------- --------- --------- ---------Net cash inflow from operating activities 698.5 254.9 625.6 ----------------------------- --------- --------- --------- 17. Movement in net liquid funds $ million As at Cash flow Net Other non As at 1 January exchange cash 30 June 2006 adjustments movements 2006 (1) ----------------- --------- --------- --------- --------- --------- Cash and cash 522.0 81.0 (20.8) - 582.2 equivalents Current investments 356.5 446.2 73.2 (52.1) 823.8 Borrowings (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 ----------------- --------- --------- --------- --------- --------- $ million As at Cash flow Net Other non As at 1 January exchange cash 30 June 2005 adjustments movements 2005 (1) ----------------- --------- --------- --------- --------- ---------Cash and cash 74.1 99.6 (4.7) - 169.0 equivalents Current investments 259.9 57.0 (12.6) 9.2 313.5 Borrowings (101.0) (103.6) 6.5 (6.1) (204.2) Finance leases (1.0) 0.4 0.1 - (0.5) Redeemable preference (0.1) - - - (0.1) shares ----------------- --------- --------- --------- --------- --------- Net liquid funds 231.9 53.4 (10.7) 3.1 277.7 ----------------- --------- --------- --------- --------- --------- (1) Other non cash movements comprise foreign exchange losses/gains incurred bythe Company's subsidiaries and recognised in the consolidated income statement. $ million As at Cash flow Net Other non As at 1 January exchange cash 31 2005 adjustments movements December (1) 2005 ----------------- --------- --------- --------- --------- --------- Cash and cash 74.1 453.0 (5.1) - 522.0 equivalents Current investments 259.9 98.8 (8.5) 6.3 356.5 Borrowings (101.0) 54.0 2.5 (4.3) (48.8) Finance leases (1.0) 0.7 0.1 - (0.2) Redeemable preference (0.1) 0.1 - - - shares ----------------- --------- --------- --------- --------- --------- Net liquid funds 231.9 606.6 (11.0) 2.0 829.5 ----------------- --------- --------- --------- --------- --------- (1) Other non cash movements comprise foreign exchange losses gains incurred bythe Company's subsidiaries and recognised in the consolidated income statement. 18. Commitments and contingencies There have been no material changes in commitments and contingencies since 31December 2005. 19. 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 and are not disclosed inthis note. Details of transactions between the Group and other related partiesare disclosed below. The following table provides the total amount of transactions which have beenentered into with related parties for the relevant financial period: $ million Sales to Purchases Amounts Amounts related from owed by owed to parties related related related parties parties parties --------------------- --------- --------- --------- ---------Apro Limited: Six months to 30 June 2006 - - - - Six months to 30 June 2005 20.6 - - - Year to 31 December 2005 20.6 - - - --------------------- --------- --------- --------- --------- HOZU Corporation: Six months to 30 June 2006 - - - - Six months to 30 June 2005 - 0.1 13.5 - Year to 31 December 2005 - 0.2 0.2 - --------------------- --------- --------- --------- --------- Companies under trust management Six months to 30 June 2006 5.1 4.2 13.7 (1) 2.2 Six months to 30 June 2005 5.5 4.0 14.9 (1) - Year to 31 December 2005 15.7 7.6 12.4 (1) 1.6 --------------------- --------- --------- --------- --------- Other companies Six months to 30 June 2006 7.9 1.3 5.9 0.5 Six months to 30 June 2005 0.2 0.2 - - Year to 31 December 2005 7.1 7.2 1.8 2.0 --------------------- --------- --------- --------- --------- (1) A provision of $9.7 million (30 June 2005: $21.2 million, 31 December 2005:$13.9 million) has been set against the balance. 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. (b) Option agreement with Executive Chairman On 14 March 2006, the Company announced that a vehicle wholly owned by theCompany's Executive Chairman, Mr Kim, had agreed to acquire a 25% stake in ENRCKazakhstan Holding B.V. ('EKH'), the holding company for certain assets of theEurasia Natural Resources group's metals and mining business. EKH primarilyoperates in Kazakhstan producing, in particular, chrome, iron ore and alumina.The Company has been given the benefit of a call option in respect of Mr Kim'sshareholding in EKH. The terms of the call option allow the Company, at itsabsolute discretion, from 1 January 2007 to and until 31 December 2007, to callfor Mr Kim's interest in EKH to be transferred to the Company for aconsideration representing 100% of the initial investment of $751 million plus a10% margin (reflecting the risk of the initial investment) and the actualfinancing and transaction costs incurred by Mr Kim. This is provided that, asrequired by the Listing Rules, this consideration and the terms of the optionare determined by an independent adviser to be fair and reasonable so far as theremaining shareholders of the Company are concerned. Mr Kim is not permitted todispose of his interest in EKH before 1 January 2008 without the consent of theCompany. Should the Company exercise the call option, then it will comply withall class tests and related party rules relevant to the Company. Any suchdecision would be taken by an independent committee of the Board. The accounting treatment of the option is governed by International AccountingStandard 39 "Financial Instruments: Recognition and Measurement". IAS 39contains special accounting requirements for those equity instruments that donot have a quoted market price in an active market and derivatives that arelinked to, and must be settled by delivery of, such unquoted equity instruments.Specifically, they should be measured at cost, less impairment, if their fairvalue cannot be reliably measured. The Directors have considered therequirements of IAS 39 in this regard and are of the view that the fair valuecannot be reliably measured on the basis that, to-date, insufficient informationon EKH's financial performance, position and cash flows has been made availableto the Company in order to arrive at a reliable valuation of the option.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 Mr Kim. (c) Directors' interests The interests of the Directors who were in office at 30 June 2006 in the sharecapital of the Company were as follows: 30 June 2006 31 December 2005 ------------ ------------ Mr Vladimir Kim (1) 186,685,950 186,685,950 Mr Yong Keu Cha (2)(3) 72,946,982 72,946,982 Mr Oleg Novachuk (4) 51,462,545 51,462,545 Mr David Munro 41,211 41,211 Mr Vladimir Ni - - Mr James Rutland - - Lord Renwick - - (1) Mr Kim's interest is represented through a 100% interest in Cuprum HoldingB.V. and a 50% interest in Harper Finance Limited. Additionally, Mr Kim isregistered and beneficial holder of 6,175 ordinary shares (31 December 2005:6,175). (2) Mr Cha's interest is represented through a 100% interest in Perry PartnersS.A. (3) Mr Cha will cease to be a Director effective from 31 December 2006. (4) Mr Novachuk's interest is represented through a 44.94% interest in HarperFinance limited. In addition, Mr Novachuk holds a 50% interest in Kinton TradeLimited, a minority shareholder of the Company, which owns 11,723,045 ordinaryshares. 20. Events after the balance sheet date On 18 September 2006 the Directors declared an interim dividend in respect ofthe year ended 31 December 2006 of 12.8 US cents per ordinary share. Thedividend shall be paid on 27 October 2006 to shareholders on the register as at29 September 2006. INDEPENDENT REVIEW REPORT TO KAZAKHMYS PLC Introduction We have been instructed by Kazakhmys PLC to review the financial information ofKazakhmys PLC and it subsidiaries ("the Group") for the six months ended 30 June2006 which comprises the interim consolidated balance sheet and the relatedinterim consolidated income statement, interim consolidated cash flow statement,and the interim consolidated statement of changes in equity and related notes 1to 20. 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 withInternational Financial Reporting Standard IAS 34 "Interim Financial Reporting"("IAS 34"). Our responsibility is to express a conclusion on these interimconsolidated financial statements based on our review. 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 and Ireland) and therefore provides a lower level of assurance than an audit. Accordinglywe 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 2006. Ernst & Young LLPLondon, United Kingdom18 September 2006 Interim dividend Interim dividend on the Company's ordinary share capital in respect of the sixmonths ended 30 June 2006 will be paid as follows: Amount to be paid in US dollars 12.8 US cents per ordinary ---------------------------------- share -------------------- Currency conversion dates (five business days) 12-18 September 2006 ---------------------------------- -------------------- Ex-dividend date 27 September 2006 ---------------------------------- -------------------- Record date 29 September 2006 ---------------------------------- -------------------- Dividend warrants posted 26 October 2006 ---------------------------------- -------------------- Payment date of dividend 27 October 2006 ---------------------------------- -------------------- The interim dividend will be paid on 27 October 2006 to shareholders on theregister at close of business on 29 September 2006. Production and sales figures for the six months ended 30 June 2006 1. Summary of significant production and sales figures 30 June 30 June 2006 2005 Kazakh Mining: Ore mined (kt) 20,127 19,458 Copper content in ore mined (%) 1.10 1.03 Copper cathode production (kt): From own concentrate 169 167 From purchased concentrate 18 26 Total copper cathodes produced (excluding tolling) (kt) 187 193 Tolling (kt) 1 7 Total copper cathodes produced (including tolling) (kt) 188 200 Total copper cathodes and copper rods sold (kt) 178 178 MKM: Wire sales (kt) 82 59 Flat sales (kt) 31 30 Tubes and Bars sales (kt) 21 20 Total MKM sales (kt) 134 109 2. Mining Metal Mining Ore Mined Copper Zinc Gold Silver ---------------- ---------- ------------ ----------- ------------------ 30 June 30 June 30 30 30 30 30 30 30 June 30 June 2006 2005 June June June June June June 2006 2005 2006 2005 2006 2005 2006 2005 kt kt % % % % g/t g/t g/t g/t Zhezkazgan Complex: North 1,620 1,705 0.67 0.74 - - - - 7.31 10.46 South 3,434 3,541 0.73 0.87 - - - - 12.82 13.45 Stepnoy 1,693 1,769 0.79 0.76 - - - - 17.42 18.50 East 2,886 2,815 0.91 1.01 - - - - 20.04 27.47 West 1,386 1,594 0.40 0.69 - - - - 12.93 22.66 Annensky 2,435 2,328 1.13 1.11 - - - - 22.17 21.26 Zhaman-Aybat 596 - 1.11 - - - - - 5.46 - TOTAL 14,050 13,752 0.82 0.89 - - - - 15.54 18.99 Balkhash Complex: Kounrad 1,175 1,828 0.34 0.29 - - - - 1.89 1.62 Shatyrkul 244 217 2.04 2.34 - - 0.29 0.33 2.48 2.65 Sayak I & Sayak III 867 778 1.12 1.21 - - 0.25 0.31 5.95 6.11 TOTAL 2,286 2,823 0.82 0.70 - - 0.26 0.31 3.49 2.94 (1) (1) East Region: Orlovskoe 833 833 4.28 4.34 3.90 3.92 0.57 0.54 54.47 53.21 Belousovskoe 132 116 0.91 0.72 3.26 2.40 0.50 0.47 49.85 46.50 Irtyshskoe 252 219 1.19 1.02 2.63 2.45 0.29 0.31 40.02 43.85 Nikolaevskoe 380 1,108 1.06 1.00 2.07 1.84 0.21 0.17 22.04 16.88 Yubileyno-Snegirikhinskoe 189 152 4.32 3.62 3.17 4.97 0.57 0.65 42.74 45.14 Artemyevskoe 532 - 1.68 - 6.85 - 1.75 - 161.32 - TOTAL 2,318 2,428 2.63 2.30 4.04 2.83 0.75 0.35 70.90 34.96 Karaganda Region: Abyz 184 233 1.68 0.80 3.47 4.71 3.71 6.38 47.65 62.62 Nurkazgan 1,023 222 1.22 0.35 - - 0.31 0.13 3.76 1.24 Kosmurun 266 - 4.29 - - - 1.53 - 22.7 - TOTAL 1,473 455 1.83 0.58 3.47 4.71 0.96 3.33 12.67 32.67 (2) (2) TOTAL KAZAKH MINING 20,127 19,458 1.10 1.03 4.00 2.99 0.70 0.69 20.34 18.97 (3) (3) (4) (4) (1) Production only from Shatyrkul, and Sayak I & Sayak III mines in BalkhashComplex. (2) Production only from Abyz mine. (3) Production only from East Region and Abyz mine of Karaganda Region. (4) Production only from Balkhash Complex (excluding Kounrad mine), East Regionand Karaganda Region. Coal Mining Coal mined Waste stripped Strip ratio --------------- --------------- ---------------- 30 June 30 June 30 June 30 June 30 June 30 June 2006 2005 2006 2005 2006 2005 kt kt kbcm kbcm bcm:t bcm:t Borlynskoe 3,231 2,738 4,699 2,874 1.45 1.05 Kuu - Chekinskoe 500 600 2,048 2,352 4.09 3.92 TOTAL 3,731 3,338 6,747 5,226 1.81 1.57 3. Processing Copper Processing Copper concentrate Copper in concentrate produced --------------------- ------------------------ 30 June 30 June 30 June 30 June 2006 2005 2006 2005 kt kt % % Zhezkazgan Complex: Zhezkazgan No.1 90 96 39.6 40.3 Zhezkazgan No.2 104 118 39.5 39.6 Satpayev 86 86 28.0 26.9 TOTAL 280 300 36.0 36.2 Balkhash Complex: Balkhash 133 92 18.3 18.0 TOTAL 133 92 18.3 18.0 East Region: Orlovskoe 160 158 20.1 20.7 Belousovskoe 6 5 13.5 15.1 Irtyshskoe 13 10 13.4 14.3 Nikolaevskoe 81 68 16.0 14.4 TOTAL 260 241 18.4 18.5 Karaganda Region: Karagaily (Abyz) 44 39 3.8 2.1 Karagaily (Kosmurun) 27 - 17.3 - TOTAL 71 39 9.0 2.1 Own copper concentrate processed 17 14 24.2 15.8 by third party TOTAL (own concentrate) 761 686 24.1 25.2 Purchased concentrate 91 138 21.0 20.1 TOTAL (own and purchased 852 824 23.8 24.3 concentrate) 4. Zinc and Precious Metals Processing Zinc Zinc in Silver Gold concentrate concentrate produced ----------- ------------- --------------- -------------- 30 30 30 30 30 June 30 June 30 30 June June June June 2006 2005 June June 2006 2005 2006 2005 2006 2005 kt kt % % g/t g/t g/t g/t Zhezkazgan Complex: Zhezkazgan No.1 - - - - 776.6 825.5 - - Zhezkazgan No.2 - - - - 701.3 939.3 - - Satpayev - - - - 576.9 488.0 - - TOTAL - - - - 687.5 772.8 - - Balkhash Complex: Balkhash - - - - 54.4 54.8 2.8 2.1 TOTAL - - - - 54.4 54.8 2.8 2.1 East Region: Orlovskoe 51 54 45.0 42.3 106.7 120.2 1.2 1.2 Belousovskoe 7 5 43.9 43.8 590.8 611.6 5.7 5.8 Irtyshskoe 7 7 38.4 35.9 422.9 460.6 2.3 2.1 Nikolaevskoe 28 27 40.9 35.4 137.2 90.3 1.4 0.7 Yubileyno-Snegirikhinskoe - 8 - 32.0 - 177.5 - 2.0 (KazZinc) Artemyevskoe (KazZinc) 56 - 51.7 - 2,697.5 - 14.5 - TOTAL 149 101 43.2 39.9 143.2 135.9 1.4 1.2 Karaganda Region: Karagaily 5 8 33.8 34.8 124.7 178.9 8.4 18.3 TOTAL 5 8 33.8 34.8 124.7 178.9 8.4 18.3 TOTAL KAZAKH MINING 154 109 42.7 39.5 330.5(1) 411.7 2.9(1) 3.2(1) (1) (1) (1) (1) Production from own concentrators within East Region and Karaganda Region. 5. Copper Smelter/Refinery - copper cathodes production Concentrate Copper in Copper cathodes smelted concentrate ----------------- ----------------- ----------------- 30 June 30 June 30 June 30 June 30 June 30 June 2006 2005 2006 2005 2006 2005 kt kt % % kt kt Zhezkazgan Complex: Own concentrate 317 316 34.0 34.9 102 108 Purchased concentrate 9 27 26.8 24.7 3 7 Other (1) 71 77 - - 1 3 TOTAL 397 420 28.6 28.7 106 118 Balkhash Complex: Own concentrate 461 345 16.6 17.1 65 56 Purchased concentrate 83 107 20.1 18.8 15 19 Other (1) 46 79 - - 1 - TOTAL 590 531 16.0 15.2 81 75 TOTAL KAZAKH MINING 987 951 21.2 21.2 187 193 (excluding tolling) Tolling - 6 83.0 82.2 1 7 TOTAL KAZAKH MINING 987 957 21.1 21.5 188 200 (including tolling) (1) Includes materials recovered (slag, scrap, etc.) reprocessed at bothZhezkazgan and Balkhash Complexes. 6. Copper Smelter/Refinery - copper rod and acid production Copper rod Acid production -------------- ---------------------- --------------------- 30 June 2006 30 June 2005 30 June 2006 30 June 2005 -------------- ----------- ----------- ----------- ----------- kt kt kt kt -------------- ----------- ----------- ----------- -----------Zhezkazgan 14 6 106 117 -------------- ----------- ----------- ----------- -----------Balkhash - - - - -------------- ----------- ----------- ----------- ----------- TOTAL 14 6 106 117 -------------- ----------- ----------- ----------- ----------- 7. Zinc Smelter/Refinery - zinc metal production Zinc concentrate Zinc in Zinc metal smelted concentrate ---------------- ------------------ --------------- 30 June 30 June 30 June 30 June 30 June 30 June 2006 2005 2006 2005 2006 2005 kt kt % % kt kt TOTAL (all Balkhash 85 113 45.7 41.1 34 29 Complex) 8. Precious metal production Silver Gold --------------- ----------------- 30 June 30 June 30 June 30 June 2006 2005 2006 2005 koz koz koz koz Kazakhmys 10,660 10,593 54 47 Tolling 32 45 24 16 TOTAL (including tolling) 10,692 10,638 78 63 9. Other production - Kazakh Mining 30 June 2006 30 June 2005 ---------- -----------Electricity power space (GWh) 3,358 3,137 Heating power (KGcal) 2,431 2,444 Enamel wire (t) 195 264 Lead dust (t) 7,236 7,443 10. Kazakh Mining sales 30 June 2006 30 June 2005 ------------------ --------------- kt (1) $ million kt (1) $ millionCopper cathode 163 1,060.2 173 595.5 Copper rod 15 98.6 5 20.1 TOTAL COPPER SALES 178 1,158.8 178 615.6 Zinc concentrate 81 59.1 8 1.6 Zinc metal 37 102.4 38 46.8 Silver (koz) 10,835 117.8 10,963 77.2 Gold (koz) 47 28.2 33 14.2 (1) Kilotonne unless stated 11. Average realised prices 30 June 2006 30 June 2005 --------- -----------Copper ($/t) 6,510 3,458 Zinc ($/t) 2,767 1,231 Silver ($/oz) 10.87 7.04 Gold ($/oz) 600 430 12. MKM production and sales 30 June 2006 30 June 2005 ---------------- ------------------ Production Sales Production Sales kt kt kt kt Wire rod 62.5 62.2 43.8 43.4 Drawn wire 19.9 19.6 15.4 15.6 Total wire 82.4 81.8 59.2 59.0 Pre-rolled 1.1 1.2 3.8 3.8 Sheets 7.7 7.6 6.3 5.9 Strips 22.7 22.6 20.9 20.6 Total flat 31.5 31.4 31.0 30.3 Tubes 10.1 9.9 9.5 9.3 Bars 11.3 11.1 10.8 10.9 Total tubes and bars 21.4 21.0 20.3 20.2 TOTAL MKM 135.3 134.2 110.5 109.5 Glossary AGM or Annual General Meeting The Annual General Meeting of the Company which was held on 23 May 2006. Apro Apro Limited, a company incorporated in England, and a related party of theGroup bcm:t Bank cubic metres excavated to recover one metric tonne of coal Board or Board of Directors The board of directors of the Company Capital Employed The aggregate of equity attributable to shareholders, minority interests andborrowings Cash cost of copper after by-product credits The US dollar cash cost of copper per metric tonne after revenues arising fromby-products CIS Commonwealth of Independent States. Company or Kazakhmys Kazakhmys PLC Directors The directors of the Company Dollar or $ United States dollars, the currency of the United States of America EBITDA Earnings before interest, tax, depreciation and amortisation EKH ENRC Kazakhstan Holding B.V., the holding company for certain assets of theEurasia Natural Resources group's metals and mining business. EURIBOR European Inter Bank Offer Rate EPS Earnings per share EPS based on Underlying Profit Earnings 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. EPT Excess profits tax Free Cash Flow Net cash flows from operating activities less sustaining capital expenditure ontangible and intangible assets and investment in mine stripping costs FTSE 100 Financial Times Stock Exchange top 100 companies GWh Gigawatt-hour, one gigawatt-hour represents one hour of electricity consumed ata constant rate of one gigawatt g/t grammes per metric tonne The Group Kazakhmys PLC and its subsidiary companies HSE Committee Health Safety and Environment Committee IAS International Accounting Standards IASB International Accounting Standards Board IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards Kazakh Mining business The 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 Kazakhstan The Republic of Kazakhstan kbcm Thousand bank cubic metres KGcal One thousand Gigacalories, units of heat energy koz Thousand ounces kt Thousand metric tonnes Listing The listing of the Company's ordinary shares on the London Stock Exchange on 12October 2005 LME London Metal Exchange LSE London Stock Exchange MKM Mansfelder Kupfer und Messing GmbH, the Group's operating subsidiary in theFederal Republic of Germany ROCE Return On Capital Employed, defined as profit before taxation, finance items andnegative goodwill over capital employed $/t , $/tonnes US dollars per metric tonne Special Items Those 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 information t Metric tonnes Tenge or KZT The official currency of the Republic of Kazakhstan Underlying Profit Profit 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 ExchangeRelated Shares:
KAZ.L