Kazakhmys Production Report for 12 Months and Q4

27 January 2011

Kazakhmys PLC Production Report for 12 Months and the Fourth Quarter Ended 31 December 2010

l Annual production of 303 kt copper cathode from own material

§ In line with target set at the start of 2010

§ Increase of work in progress at the smelters, equivalent to around 9 kt of cathode

l Strong by-product output over the year

§ Zinc in concentrate production of 167 kt, ahead of previous guidance due to an increase in grade and recovery rates

§ Gold in ore mined up 24% on 2009, with renewed output from Abyz mine

§ Production of 127 koz, in line with annual target

§ Silver production of 14,093 koz ahead of previous guidance

§ Anticipated reduction of grade at Zhezkazgan Complex was offset by an increase in grade and ore output at East Region

l Kazakhmys Power output ahead of target

§ Net power generated in 2010 of 11,065 GWh, a 14% increase compared to 2009

§ Realised tariff achieved of 4.49 KZT/kWh in 2010 compared to 3.19 KZT/kWh in 2009

Oleg Novachuk, Chief Executive Officer, said: "This was another solid year for Kazakhmys, with our full year production meeting or exceeding targets in all areas. We anticipate maintaining copper output at a similar level in 2011 and with strong demand from customers, all contracts for the current year have been agreed. The power business is continuing to perform strongly, allowing us to deliver the reinvestment and development programme."

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Kazakhmys PLC is a leading international natural resources group with significant interests in copper, gold, zinc, silver, power generation and petroleum.

It is the largest copper producer in Kazakhstan and one of the top worldwide with 17 operating mines, 10 concentrators and 2 copper smelters. Kazakhmys Copper operations are fully integrated from mining ore through to the production of finished copper cathode and rod. Total copper cathode equivalent produced in 2010 from own ore was 303 thousand tonnes. Production is backed by a captive power supply and significant rail infrastructure.

Kazakhmys Copper produces significant volumes of other metals, including zinc, silver and gold. In 2010, it produced 167 thousand tonnes of zinc in concentrate. The Group is in the top ten largest silver producers in the world (14 million ounces produced in 2010).

Kazakhmys Gold, which acquired Eurasia Gold Inc in July 2007, includes new development and exploration opportunities. Kazakhmys Gold has measured and indicated gold equivalent resources of 2.5 million ounces. The Group produced 170 thousand ounces of gold in 2010.

Kazakhmys Power has a 50% interest in the coal fired Ekibastuz GRES-1 plant, the largest in Kazakhstan with a nameplate capacity of 4,000 MW.

Kazakhmys Petroleum is continuing its work programme at the East Akzhar exploration block, located on the eastern fringe of the Caspian depression, which was acquired in April 2007.

The Group is part of the FTSE-100 index of companies listed on the London Stock Exchange and is also listed on the Kazakhstan Stock Exchange (KASE). It had revenues of $3.7 billion in 2009 with EBITDA of $1.6 billion. The Group employs some 62,000 people, principally in Kazakhstan. The Group's strategic aim is to optimise its current operations, deliver its major growth projects and to diversify and participate in the development of the significant natural resource opportunities in Central Asia.

Copper Summary

1Includes copper sold in concentrate and cathode converted into rod.

Ore extraction in 2010 of 32,935 kt was 2% above the volume achieved in 2009. There were significant changes at mines within the Zhezkazgan Complex, which largely offset each other, and an increase in ore volumes extracted at the Nurkazgan and Abyz mines, in the Karaganda Region. 

The average copper grade in 2010 fell to 1.09% from 1.18% in the prior year. This decrease was due to a move to lower grade sections of the Orlovsky mine in the East Region and lower grades achieved at the maturing mines in the Zhezkazgan Complex.

This combination of lower grade and modestly higher ore output led to a 6% reduction of metal in ore mined. The decline is reflected in the production of copper in concentrate from own material, which reduced by 7%, to 334.9 kt in 2010. In 2009, the output of copper in concentrate was also assisted by the processing of stockpiled ore. The production of copper in concentrate in 2010 benefited from the reprocessing of waste material from the Balkhash furnaces and converters, which partially offset the lower contribution from stockpiled ore.

Copper cathode equivalent production from own concentrate of 303.3 kt in 2010 was 5% below the volumes in 2009. There was a rebuild of work in progress in 2009 and 2010, with not all copper concentrate being converted to finished metal, which has affected the comparison of cathode output year on year. 

Copper rod is produced to order, mainly for customers in China. Volumes increased markedly in 2010 due to strong demand and improved premiums for the product.

By-products Summary

1 Includes slimes from purchased concentrate.

2 Represents tolled materials provided via third parties.

Zinc by-product

Zinc in concentrate production was 12% higher year-on-year, benefiting from a combination of increase in grade and extraction of zinc bearing ore in the East Region, particularly at Artemyevsky mine. There was also an increase in the recovery rate which rose to 72% during 2010 compared to 67% in 2009. Production of zinc in 2009 benefited from the processing of stockpiled ore, but the absence of this contribution in 2010 was more than offset by the improved grade and recovery.

Zinc in concentrate production in Q4 2010 was 9% below Q3 2010, due to the commencement of stripping work at the Abyz mine in the Karaganda Region, and the timing of receipts of material processed by a third party.

Silver by-product

Production of silver in 2010 was 17% below the level achieved in 2009. The overall volume of silver in mined ore was in line with 2009, but during 2009 there was a significant release of material from stockpiled ore and work in progress.

The production of silver in Q4 2010 was 6% higher than the previous quarter due to a reduction of work in progress.

Gold by-product

Gold metal in mined ore increased by 24% in 2010 compared to 2009. This increase was due to the higher output of gold rich ore at the Abyz mine in the Karaganda Region, where stripping work was taking place during H1 2009. However, the production of gold in concentrate and finished product in 2010 was 11% and 6% below the comparative period respectively, due to the significant processing of stockpiled ore in 2009.

The production of gold metal in Q4 2010 was impacted by renewed stripping work at Abyz mine, leading to a 25% decrease in gold in metal mined compared to Q3 2010, and a 17% reduction in gold production.

Kazakhmys Copper Review by Region

1 Includes copper used to produce copper rod.

2 Represents tolled materials provided via third parties.

Ore extraction of 23,309 kt at the Zhezkazgan Complex in 2010 was 2% lower than 2009. Output from North mine was 1,487 kt lower than the previous year, mainly due to the depletion of the Taskora open pit in December 2009 and extensive stripping work during Q1 2010. This reduction was partly offset by a 432 kt increase in ore output at Zhomart mine which benefited from the delivery of new mining equipment.

In 2009 production at West mine was suspended, although some sections of the mine continued producing using the infrastructure of East and South mines. West mine restarted operations during 2010, although part of the 1,496 kt increase in production was due to the transfer back of those sections temporarily included within East and South mines.

Ore extraction was suspended at sections of the Annensky mine during Q4 2010 due to concerns around rock fall and safety, which had an adverse impact on output for the quarter. Support work has since been completed and all sections were in operation by December 2010.

The average copper grade at the Complex for 2010 was 0.82%, compared to 0.87% in 2009. The mines in Zhezkazgan are generally mature and grades declined across all the mines, with the exception of North mine, where the stripping work in Q1 2010 allowed access to an area of higher grade.

In 2010, production of own copper in concentrate at the Complex was 170.3 kt, 6% below the comparative period in 2009. This decrease reflected the decline in grade and ore output, although these factors were slightly offset by achieving a higher recovery rate at the concentrators.

Copper cathode output from the Zhezkazgan Complex does not reflect the volumes of copper in concentrate produced at Zhezkazgan as some concentrate is transported to the Balkhash smelter for processing. One of the two furnaces at Zhezkazgan remains suspended, which across the Group balances smelting capacity with the current level of own concentrate production and is technically and economically more efficient.

Kazakhmys Copper Review by Region

1 Excludes concentrate processed by third parties.

2 Represents tolled materials provided via third parties.

Ore extraction at Balkhash in 2010 of 2,361 kt was 4% higher than 2009, as the Complex benefited from the delivery of new mining equipment in Q4 2009 and H1 2010. There were no major changes in operations at the Complex during the year.

The average copper grade during 2010 declined slightly to 1.24%. This reduction was mainly due to extraction at Sayak mine moving to a lower grade area. The grade at Sayak mine is likely to decline further in 2011.

Copper in concentrate output in 2010 was 41.7 kt, an increase of 10% from the previous year. Output was assisted by the reprocessing of waste materials from the Balkhash furnaces and converters, which contributed approximately 15 kt of copper in concentrate.

The smelter at Balkhash processes all the concentrate from Balkhash, East and Karaganda, along with some concentrate from Zhezkazgan. Copper cathode production in 2010 from own material at Balkhash was 186.3 kt, a 4% reduction compared to the previous year. There was a decline of 8% in the copper in concentrate supply from the first three areas, but this reduction was offset by the shipment of higher volumes from Zhezkazgan.

Copper cathode output in Q4 2010 was 16% below the level achieved in Q3 2010, as there was an increase in work in progress over the quarter.

Kazakhmys Copper Review by Region

1Excludes concentrate processed by third parties.

Ore output in the East Region increased by 3% to 4,610 kt, mainly due to a 199 kt increase in output at the Artemyevsky mine. A backfill cement plant, commissioned in Q1 2010, assisted in overcoming some bottlenecks. A modernisation programme is continuing at the mine, which will restrain output in 2011. 

Given the current pricing environment, Belousovsky mine was re-opened in Q4 2010, however, output volumes and grade are expected to be lower than those achieved in 2008 as the mine is mature.

The average grade in the East Region in 2010 declined to 2.48%. This reduction is a result of lower grades at Orlovsky mine where operations have moved to less rich ore areas, and a natural decline in grade at Nikolayevsky as the mine matures.

The production of copper in concentrate in the Region of 85.6 kt in 2010 was 21% below the comparative period. This reduction was due to an 11% decrease in metal mined during the period and a reduction in recovery rates. There was also an increase in ore volumes processed by third parties, which is not reflected in the above figures.

Kazakhmys Copper Review by Region

1Excludes concentrate processed by third parties.

Ore extraction in the Karaganda Region increased by 40% in 2010 to 2,655 kt. Output at Nurkazgan West increased by 461 kt. Underground operations started at Nurkazgan in early 2009 and have been ramping up since that time. Output at Abyz mine increased to 465 kt as operations restarted in July 2009 following stripping work undertaken in H1 2009.

Ore output in the Region in Q4 2010 was 43% lower than the previous quarter, as upgrade work is taking place at Nurkazgan West and a section of the mine is closed for safety improvements. The mine should return to full production during the course of 2011, with an increase from other sections of the mine. Output at Abyz mine reduced in Q4 2010 with the commencement of further stripping work, which will continue during 2011.

Copper in concentrate production in the Karaganda Region was 21% higher year-on-year. This improvement reflects the 49% increase in metal in ore mined and some processing of stockpiled ore from Akbastau and Abyz. In 2009 however, output was lifted by significant processing of stockpiled ore.

In Q4 2010, copper in concentrate production declined 25% to 6.2 kt compared to Q3 2010. This reduction was due to the decrease in ore extraction mentioned above, although this was offset by the processing of some stockpiled ore in the quarter.

Other Divisions Review

There was a decrease in ore extraction during 2010 compared to 2009 as Mukur and Mizek mines move towards the end of their operational lives. The ore body at Mizek has been depleted and extraction ceased in November 2010, although the processing of previously extracted ore will continue into 2011. The maturity of the mines is also reflected in the decline in grade.

The processing of material in Q4 2010 was affected by the normal seasonal changes with the onset of winter. Production is impacted by colder weather as the heap leaching method used slows down with a decrease in ambient temperature.

The level of Gold doré production, in the full year of 2010 and the final quarter, reflects the trends above.

Other Divisions Review

During 2010, the deep well drilling programme continued at East Akzhar with the development of four deep wells. The first deep well, drilled in 2009, had a sidetrack developed which was used to deliver acid treatment in order to improve well pressure. Further acid fracturing is planned for 2011. The second deep well, also drilled in 2009, will require acid treatment, although this will take place when the results of the first and the third wells have been obtained.

The third deep well was drilled to its target depth of 5,200 metres in the first half of 2010. Acid treatment was undertaken, which improved the hydrocarbon flow rate. Once the necessary permits are obtained, further testing will be undertaken.

The drilling of the fourth deep well started in May 2010 and reached its target depth of 5,250 metres at the beginning of December 2010. Testing of the well will follow in 2011.

The drilling of a fifth well commenced in early 2011 and by the end of January, 1,000 metres had been drilled, out of a projected 5,200 metres.

Other Divisions Review

1 The net dependable capacity is the maximum capacity a unit can sustain over a specified period modified for seasonal limitations and reduced by the capacity required for station service and auxiliaries.

On 26 February 2010, the Group completed the sale of a 50% interest in Ekibastuz GRES-1 to Samruk-Kazyna with the Group retaining a 50% interest. The results shown above are for 100% of the business.

During 2010, there was a 14% increase in net power generated compared to 2009. The increase was due to both the attraction of new customers and a growth in demand from existing customers. This trend reflects the overall increase seen in the consumption of power in Kazakhstan during 2010.

Net power generated in Q4 2010 was 36% higher than the previous quarter. This increase is due to standard seasonal changes with the onset of winter.

The weighted average realised tariff increased by 41% in 2010, to 4.49 KZT/kWh, compared to 2009. This increase reflects a rise in the ceiling tariff for domestic electricity sales set by the Ministry of Industry and New Technologies, of 4.68 KZT/kWh in 2010, compared to 3.60 KZT/kWh in 2009. The increase is in order to support the substantial investment programme taking place at the power station.

The weighted average realised tariff during 2010 was only slightly lower than the ceiling tariff, as export sales to Russia resumed in June 2010, at a lower tariff than domestic sales.

In 2010 the net dependable capacity increased by 159 MW to 2,171 MW compared to 2009. The increase was a result of repair work carried out at four of the units. The mounting of the first Electrostatic Precipitator (ESP) was completed in September 2010. Commissioning and testing of the ESP is ongoing, but the work should significantly reduce emissions and ESP's will be installed at all the other units.

The net dependable capacity increased by 96 MW in Q4 2010 compared to Q3 2010, due to the removal of restrictions on load caused by high water temperatures during the summer months, and the commissioning of the ESP.

There are 8 units at Ekibastuz GRES-1 of which 5 are currently in operation. The rehabilitation of a sixth unit is underway and the unit should be commissioned by the end of 2012. The rehabilitation of a seventh unit commenced in Q4 2010 and should be commissioned by the end of 2014. With both units operational by the end of 2014, the capacity of the power station should increase to 3,500 MW as compared to its nameplate capacity of 4,000 MW.

Kazakhmys Copper Production Appendix

Kazakhmys Copper Production Appendix

Kazakhmys Copper Production Appendix

Kazakhmys Copper Production Appendix

Kazakhmys Copper Production Appendix

Kazakhmys Copper Production Appendix

1 Includes slimes from purchased concentrate.

Kazakhmys Copper Production Appendix

1 Includes slimes from purchased concentrate.