Q3 Production Report and IMS

24 October 2013

Kazakhmys PLC Production Report for the Third Quarter Ended 30 september 2013 and Interim Management Statement

l Copper cathode equivalent output on track for upper end of guidance range, 285 to 295 kt

§ Cathode equivalent output of 215 kt in the nine months to 30 September

§ Cathode equivalent output from own concentrate of 71 kt in Q3 2013

l By-product output on track to meet full year targets for all metals

§ Zinc in concentrate production of 100 kt for the nine month period

§ Silver output of 10,419 koz, benefited from work in progress release and higher recovery rates

§ Total gold output of 78.2 koz

l Kazakhmys Power

§ Net power generated at Ekibastuz GRES-1 of 9,504 GWh, impacted by lower domestic commercial demand

l Financial position

§ 231 kt of cathode equivalent sales assisted by release of inventory

§ Net debt of $1,437 million as at 30 September 2013, reflecting continued investment in major growth projects

Oleg Novachuk, Chief Executive Officer, said: "We have had a solid nine months of production and we are continuing to deliver against our production targets. We remain focused on output and grades, in order to maximise returns."

For further information please contact:

REGISTERED OFFICE

6th Floor, Cardinal Place, 100 Victoria Street, London SW1E 5JL, United Kingdom.

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

It is the largest copper producer in Kazakhstan and one of the top worldwide with 16 operating mines, 9 concentrators and 1 copper smelter. Kazakhmys Mining's operations are fully integrated from mining ore through to the production of finished copper cathode and rod. Total copper cathode equivalent output from own ore was 292 kt in 2012. Production is backed by a captive power supply and significant rail infrastructure.

Kazakhmys Mining produces significant volumes of other metals, including zinc, silver and gold. In 2012, it produced 152 kt of zinc in concentrate. The Group is amongst the largest silver producers in the world with output of 12.6 Moz in 2012.

Kazakhmys Power includes a 50% interest in the coal fired Ekibastuz GRES-1 plant, the largest in Kazakhstan. The plant is undergoing a modernisation programme to take current capacity of 3,000 MW to its nameplate capacity of 4,000 MW. Kazakhmys Power also operates the captive power stations which supply electricity to Kazakhmys Mining.

The Group is listed on the London Stock Exchange, the Kazakhstan Stock Exchange (KASE) and the Hong Kong Stock Exchange (HKSE). It had revenues from continuing operations of $3.4 billion in 2012 with Group EBITDA of $1.9 billion. The Group employs around 58,000 people, principally in Kazakhstan. The Group's strategic aim is to optimise its current operations, deliver its major growth projects and to participate in the development of the significant natural resource opportunities in Central Asia.

Copper Summary

1Includes copper cathode converted into rod, excluding tolling.

2Copper cathode equivalent of copper in concentrate sold.

Higher ore volumes and grade supported cathode production during the first nine months of 2013. Management are maintaining a focus on copper content and output, in order to optimise costs and improve profitability.

Ore extraction of 29,570 kt in the first nine months of 2013 was 6% above the comparative period, driven by an increase in output from the Central Region, with Konyrat mine contributing an additional 2,036 kt of ore.

The average copper grade of 0.97% achieved in the first nine months of 2013 was slightly above the comparative period as activity moved to higher grade sections in order to raise metal output. The combination of higher ore volume and grade led to an 8% increase in copper in ore mined compared to the prior year.

The average copper grade achieved in Q3 2013 was 1.00%, an increase on the previous quarter due to reduced ore volumes from the low grade Konyrat mine and a planned focus on higher grade sections elsewhere.

In the first nine months of 2013, the output of copper in concentrate from own material increased by 5% from the prior period to 236.5 kt. This increase reflected the higher ore extraction and grades.

Copper in concentrate output from own material was 78.7 kt in Q3 2013, in line with the previous quarter. A 10% increase in metal in ore mined, due to higher ore extraction and grade, was offset by the processing of stockpiled ore in the prior quarter, whilst there was some build-up of material in Q3 2013.

Copper Summary

In the first nine months of 2013, copper cathode equivalent production from own concentrate of 214.9 kt was in line with the prior period. The higher level of copper mined and processed in 2013 was offset by a release of work in progress in 2012.

Copper cathode equivalent production from own concentrate in Q3 2013 was 2% below the prior quarter, reflecting the build-up of copper in concentrate inventory.

The suspension of Zhezkazgan smelter began in Q3 2013 and led to sales of 5.1 kt of copper cathode equivalent in the form of concentrate during September. The smelter will run down its inventory during the remainder of this year and the sale of copper in concentrate will increase as no new material is sent to the smelter for processing.

Other Metals Summary

1 Includes a small volume of by-product production from the former Kazakhmys Gold mines: Central Mukur and Mizek.

2 Includes slimes from purchased concentrate.

Zinc (by-product)

Zinc metal in ore decreased by 15% in the first nine months of 2013 reflecting lower zinc bearing ore output and grades. Zinc in concentrate output reduced by just 11% to 99.6 kt, as the prior period was impacted by a build-up of inventory.

In Q3 2013 the production of zinc in concentrate increased by 17% compared to the previous quarter due to a 14% increase in zinc bearing ore, mainly from the Central Region and a return to higher grade areas at Artemyevsky, together adding 15 kt of zinc metal in ore.

Due to the complexity of processing copper-zinc ore from Akbastau mine, 472 kt of ore containing approximately 5.5 kt of zinc and 7.8 kt of copper was stockpiled in the first nine months of 2013. The stockpiled material is unlikely to be processed in the near future, pending further technical studies.

Silver (by-product)

Silver output increased significantly in the first nine months of 2013, mainly due to a reduction of work in progress and higher recovery rates during the first nine months of the year. There was a 4% decrease in silver in ore mined, which resulted from lower grades.

In Q3 2013 silver output reduced by 20% from the previous quarter. Following the suspension of the Zhezkazgan smelter, mentioned earlier, copper in concentrate containing 232 koz of silver granule equivalent was shipped to China in Q3 2013.

Other Metals Summary

Gold (by-product)

In the first nine months of 2013, the output of gold in mined ore was impacted by stripping work at Abyz mine, which restarted mining at the end of Q3 2013. In addition, gold in ore output from Artemyevsky mine was affected by equipment maintenance and lower grades. Gold production decreased by 5% compared to the corresponding period in 2012, reflecting the decrease in gold in ore mined, partially offset by a build-up of work in progress in the corresponding period in 2012.

The output of gold in Q3 2013 rose by 4% to 25.8 koz from the previous quarter, mainly due to an increase in gold in ore mined in the Central Region, with a re-start of extraction at Abyz and increased volume and content from the Nurkazgan, Akbastau and Artemyevsky mines. Gold output in Q2 2013 benefited from the processing of stockpiled material.

Kazakhmys Mining Review by Region

Ore extraction in the first nine months of 2013 was in line with the comparative period. Several mines across the region increased output, offsetting reduced production from Annensky mine, where operations at some sections were suspended in July 2012 due to depletion. Output from North mine was impacted by stripping work, which started in the first half of 2012.

Ore output in Q3 2013 was in line with the previous quarter. Activity was reduced in high cost areas, but the decrease was partially offset by extraction at the Itauz pit of the North mine, where operations resumed in July 2013 following the completion of stripping work. In addition, work was completed on the main conveyor at Zhomart mine in June 2013, allowing an increase in output.

The average copper grade rose to 0.80% in the first nine months of 2013. Activity was moved to higher grade sections as part of the Group's focus on value in production.

The output of copper in concentrate increased by 8% in the first nine months of 2013, reflecting the higher level of metal in ore mined, partially offset by a reduction in recovery rates at the concentrators.

The output of copper in concentrate in Q3 2013 was 5% below the previous quarter, whilst the metal in ore mined increased by 1%. The reduction was mainly due to some stockpiling of ore, which is likely to be processed during the remainder of the year.

Kazakhmys Mining Review by Region

Higher output from the Konyrat and Akbastau mines increased ore extraction to 9,579 kt in the first nine months of 2013, 31% above the comparative period. Mining at Konyrat recommenced in June 2012.

In Q3 2013 output at Nurkazgan mine almost doubled, following the completion of major reconstruction work on the main conveyor in Q2 2013. Ore extraction in Q3 2013 benefited from an increase of output at Akbastau mine, partly to create a "buffer" of stockpiled ore at the Karagaily concentrator in preparation for winter. Output in the quarter also benefited from the recommencement of mining at Abyz in August 2013. Mining at Konyrat is restricted pending work at Balkhash concentrator to increase its processing capacity, which should be completed by the year end.

In the first nine months of 2013, the average copper grade declined to 0.80% impacted by higher output from the relatively low grade Konyrat mine (0.30%). The increased output from Konyrat offset a rise in grade at Akbastau mine, where operations moved to more mineral rich areas.

The increase in metal in ore mined is reflected in a 9% rise in the production of copper in concentrate to 62.8 kt during the first nine months of 2013. As mentioned above, some Akbastau ore has been stockpiled during the quarter at the Karagaily concentrator and will be processed during the remainder of the year. Copper in concentrate output in the first nine months of 2013 has benefited from an increase in recovery rates at the Karagaily concentrator, due to the processing of higher grade ore during this period.

Copper in concentrate production in Q3 2013 was 4% above the previous quarter, as the increase in metal in ore mined was offset by stockpiling. 

Kazakhmys Mining Review by Region

1Excludes concentrate processed by third parties.

Ore extraction in the first nine months of 2013 was affected by the suspension of operations at Nikolayevsky mine in Q3 2012, due to poor economic returns. In addition, output at Artemyevsky mine was impacted by equipment maintenance and delays with backfilling in Q3 2013.

The average copper grade, at 2.37%, was lifted by the suspension of the relatively low grade Nikolayevsky mine in the second half of 2012. There was also an increase in grade at Orlovsky mine, where operations were moved to higher grade sections, although this was partly offset by lower grades at the mature Yubileyno-Snegirikhinsky mine. It is expected that mining will cease at Yubileyno-Snegirikhinsky during 2014 due to depletion of the reserves.

The average copper grade in Q3 2013 was higher than the previous quarter, due to the change at Orlovsky mine, mentioned above.

Copper in concentrate output in the first nine months of 2013 decreased by 6% to 58.2 kt compared to the prior period, reflecting the 7% reduction of metal in ore. This decrease was partially offset by improved recovery rates across most of the Region's concentrators including Nikolayevsky, which is undergoing a modernisation programme.

Output of copper in concentrate in Q3 2013 increased by 13% compared to the previous quarter, reflecting higher volumes of metal mined and processed.

Kazakhmys Power Review

1 Results shown are for 100% of the business.

2 Electricity generated and sold to customers less internal consumption and transformer losses in the power station.

3 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.

4 External sales only.

Ekibastuz GRES-1

Net power generated at Ekibastuz GRES-1 in the first nine months of 2013 was 9% below the comparative period. The decrease in output was driven mainly by lower domestic commercial demand. Domestic sales fell by 2,366 GWh, partially offset by a 1,467 GWh increase in sales to Russia.

In Q3 2013 net power generated was in line with the previous quarter, but below Q3 2012, reflecting lower domestic demand. Supply and pricing was also affected by low tariff imports from hydro-power stations in Kyrgyzstan and competing domestic power stations seeking to maintain volumes and selling at relatively low tariffs.

The ceiling tariff for 2013 set by the Ministry of Industry and New Technologies is 7.30 KZT/kWh, compared to a ceiling tariff of 5.60 KZT/kWh for Q1 2012 and 6.50 KZT/kWh for the remainder of 2012. The weighted average realised tariff achieved by GRES-1 in the first nine months of 2013 was 6.42 KZT/kWh, an increase of 8% compared to the prior period.

The average realised tariff is 12% below the ceiling tariff principally as sales to Russia, which represented 20% of total sales in the first nine months of 2013, take place below domestic rates.

The average realised tariff in Q3 2013 was 6.42 KZT/kWh, an increase of 2% compared to Q2 2013, mainly due to an increase in Russian sales' tariffs.

Net dependable capacity increased by 372 MW in the first nine months of 2013 compared to the prior period, benefiting from the commissioning of Unit 8 in Q4 2012.

Kazakhmys Power Review

Captive power stations

Net power generated in the first nine months of 2013 was 4% above the comparative period, due to an increase in availability of working hours as a result of a maintenance programme completed in 2012 and driven by external sales. Net power generated in Q3 2013 was in line with the previous quarter.

The suspension of the Satpayev concentrator and Zhezkazgan smelter, mentioned previously, reduced internal consumption and allowed a 16% increase in external sales compared to the previous quarter.

The weighted average realised tariff for external sales in the first nine months of 2013 increased to 5.10 KZT/kWh, reflecting the new ceiling tariff approved by the Ministry of Industry and New Technologies of 5.10 KZT/kWh for the year.

Interim Management Statement

There were no material events and transactions in the period covered by this Interim Management Statement that were not disclosed as post balance sheet events in the Group's Half-Yearly Report for the period ended 30 June 2013 other than as set out below.

Holding in ENRC PLC

Following the passing of the necessary resolutions at the Kazakhmys General Meeting on 2 August 2013, and in accordance with both the Irrevocable Undertaking dated 23 June 2013 and the request of 30 September 2013 by Eurasian Resources for Kazakhmys to accept the Offer, Kazakhmys announced on 4 October 2013 that it had validly accepted the ENRC Takeover Offer in respect of its entire shareholding in ENRC, representing approximately 26 per cent. of the issued share capital of ENRC.

The expected net sale proceeds are $1,194 million, comprising $875 million in cash (net of $12 million estimated costs) and 77,041,147 Kazakhmys shares with a value of $319 million at the date of the Irrevocable Undertaking to accept the offer. The transaction is expected to complete by the end of the year.

Interim Management Statement

Sales volumes

The following table sets out the sales volumes of the Group's major products:

1Cathode equivalent of copper in concentrate sold.

2 Granule equivalent of silver in concentrate sold.

3 Sales include output of silver and gold doré from the Central Mukur and Mizek mines.

4 Volumes shown are for 100% of the business.

Total copper product sales volumes in the first nine months of 2013 were 30.4 kt above the comparative period in 2012. The increase in copper product sales volumes was mainly due to the release of 15.6 kt of finished goods inventory in the first nine months of 2013 compared to a build-up of 12.6 kt of inventory in the comparative period in 2012. As the recognition of sales is dependent on the timing of shipments, inventory levels could increase in Q4 2013.

Sales of copper concentrate to China commenced in September 2013 with the suspension of the Zhezkazgan smelter and 5.2 kt of copper in concentrate was sold, equivalent to the copper content of 5.1 kt of copper cathode. Copper rod production and sales remain below the prior year as better terms were obtained for sales of copper cathode.

Sales of zinc in concentrate in the first nine months of 2013 were below the comparative period in 2012 mainly due to lower production volumes.

Silver sales volumes in the first nine months of 2013 were above the comparative period with higher production volumes. The copper concentrate sold to China in the period also contained 258 koz of silver material, being 232 koz of silver granule equivalent.

Gold sales volumes in the first nine months of 2013 were below the prior period which included the sale of 69 koz of gold bar inventory built up in the second half of 2011 due to the export restriction placed on sales of gold bar by the Government of Kazakhstan. Gold sales in the first nine months of 2013 were also impacted by lower production volumes.

Interim Management Statement

As noted in the Kazakhmys Power Review, electricity sales at Ekibastuz GRES-1 in the first nine months of 2013 were 9% below the comparative period due to lower domestic commercial demand.

Commodity prices

The following table sets out the average realised prices for the Group's major products:

1 The realised price excludes revenue from the silver material in the copper concentrate sold and is calculated using the copper cathode equivalent of the copper in concentrate sold.

The following table sets out the average LME/LBMA prices:

Realised prices will differ from the average LME/LBMA prices during the same period, principally because of the timing of sales over the period not occurring evenly. Premiums or discounts to metal exchange prices, negotiated with customers, also impact realised average prices. The LME copper price on 1 January 2013 was $8,085 per tonne and had declined to $7,291 per tonne on 30 September 2013.

The weighted average realised tariff for Ekibastuz GRES-1 during the first nine months of 2013 was 6.42 KZT/kWh, an increase of 8% compared to the prior period. The realised tariff on domestic sales of 6.88 KZT/kWh compares to a ceiling tariff for domestic electricity sales set by the Government of Kazakhstan of 7.30 KZT/kWh from 1 January 2013. In 2012, the domestic ceiling tariff was 5.60 KZT/kWh for the first quarter of the year before being raised to 6.50 KZT/kWh for the remainder of 2012.

Commodity hedging

At 30 September 2013, there were no commodity hedges in place.

Exchange rates and exchange rate hedging

The KZT/$ exchange rate at 30 September 2013 was KZT/$ 153.62 compared to KZT/$ 149.86 at 30 September 2012. The average exchange rate for nine months ended 30 September 2013 was KZT/$ 151.57, compared to an average rate of KZT/$ 148.67 for the comparative period in the prior year.

Interim Management Statement

Except as described in this statement, there has been no significant change in the financial position of the Group since 30 June 2013.

Net debt of subsidiary businesses

The net debt of the Group's subsidiary businesses increased from $1,260 million at 30 June 2013 to $1,437 million at 30 September 2013 as the Group continued to develop the Aktogay and Bozshakol projects. Operating cash flows during the period included a VAT refund of $52 million, quarterly mineral extraction tax payments of $55 million and the semi-annual interest payment of $71 million under the $2.7 billion China Development Bank/Samruk-Kazyna finance facility.

At 30 September 2013, gross debt of $3,104 million was $159 million higher than the position at 30 June 2013, following an additional $250 million draw down under the Group's pre-export finance facility and principal repayments of $94 million on the China Development Bank/Samruk-Kazyna finance facility.

Of the gross debt at 30 September 2013, $2,563 million related to the $2.7 billion China Development Bank/Samruk-Kazyna finance facility, $56 million related to the China Development Bank facility for the Aktogay project and $485 million related to the pre-export finance facility.

Total cash and cash equivalents and current investments for the Group of $1,667 million at 30 September 2013 were broadly in line with the $1,685 million at 30 June 2013. Of these funds, $1,200 million is reserved for the development of the Group's projects under the relevant finance facilities.  

Net debt of Ekibastuz GRES-1

The net debt of the Group's subsidiary businesses excludes the net debt of the equity accounted joint venture investment in Ekibastuz GRES-1. Ekibastuz GRES-1's net debt, on a 100% basis, increased to $40 million at 30 September 2013 compared to $33 million as at 30 June 2013 due to expenditure incurred on the plant's ongoing rehabilitation programme.

Kazakhmys Mining Production Appendix

Kazakhmys Mining Production Appendix

Kazakhmys Mining Production Appendix

Kazakhmys Mining Production Appendix

1 Copper cathode equivalent of copper in concentrate sold.

Kazakhmys Mining Production Appendix

Kazakhmys Mining Production Appendix

1 Includes slimes from purchased concentrate.

2 Includes a small volume of by-product production from the former Kazakhmys Gold mines: Central Mukur and Mizek.

Kazakhmys Mining Production Appendix

1 Includes slimes from purchased concentrate.