International "Astana Mining & Metallurgy" Congress
14-15 october 2020*
Nur-Sultan, Kazakhstan

KAZ Minerals presents full 2019 year results

kaz minerals logo 260The Group's operations in 2019 comprised the Aktogay and Bozshakol open-pit copper mines in the East Region and the Pavlodar region of Kazakhstan, three underground mines in the East Region of Kazakhstan, the Bozymchak copper-gold mine in Kyrgyzstan and their associated concentrators.

Revenues increased by 11% to $863 million during 2019, resulting from increased sales volumes following the strong operational performance in the year. The 18 kt increase in copper sales during 2019 had a $102 million beneficial impact on copper revenues, partially offset by an $18 million adverse impact from lower realized copper prices. The average LME copper price decreased by 8% from $6,526/t in 2018 to $6,000/t in 2019, and copper sales were weighted towards the second half of the year when prices were lower. Sales included 65 kt of cathode material, comprising 23 kt produced at the Group's SX/EW plant and 42 kt from copper concentrate processed at the Balkhash smelter. The higher volume of material allocated to smelting in 2019 compared with 2018 positively impacts revenues as toll processed metal is recorded as revenue excluding TC/RCs. Aktogay also recorded $14 million of by-product revenues, primarily from commercially payable quantities of silver and gold.

Net debt increased from $1,986 million at 31 December 2018 to $2,759 million on 31 December 2019 as Free Cash Flow from operations was more than offset by investment in the Group's growth projects. The cash consideration of $436 million was paid in respect of the Baimskaya copper project acquisition. Expansionary capital expenditure of $718 million was incurred, an increase of $188 million over the prior year, mainly on the Aktogay expansion project and the feasibility study and pioneer work at Baimskaya.

Free Cash Flow of $411 million reduced by $174 million from the prior year, as the increase in EBITDA was more than offset by higher working capital (see the working capital section below) and sustaining capital expenditure. The increase in sustaining capital represents a normalization of expenditure, as Aktogay and Bozshakol had benefited from lower maintenance requirements in prior years as the operations were newer.

The cash impact of inventory changes in 2019 was $128 million (2018: $138 million), largely due to the acquisition of consumables and spare parts to support the Aktogay and Bozshakol operations. The Group's priority for 2019 was to ensure that the main sulfide concentrators at these sites operated at full design capacity throughout the year, hence a conservative approach to the stocking of such items were taken. It is expected that over time inventory requirements will reduce as the Group develops better data on consumption and wear rates, works with suppliers to shorten lead times and as the Group's shared spares strategy develops further. An outflow of $44 million in respect of ore stockpiles and work-in-progress at Aktogay and Bozshakol was also included in change in inventories, mainly related to the stockpiling of low-grade sulfide ore at Aktogay (to access high-grade areas and in preparation for the Aktogay expansion) and clay ore at Bozshakol. From 2020 it is expected that the amount of clay ore processed at Bozshakol from stockpiles will exceed mined volumes.

Prepayments and other current assets rose by $72 million (2018: $30 million) mainly due to an increase in VAT receivable at the Aktogay, Bozshakol and East Region operations. There was also an increase in VAT receivable relating to major growth projects of $41 million (2018: decrease of $3 million) which is shown separately in the table above and excluded from Free Cash Flow. The increase in VAT receivable was partly due to higher capital expenditure but was mainly the result of a delay in the receipt of VAT refunds in the second half of 2019. A VAT is being received in 2020 through a combination of offset and refund.

Trade and other receivables increased by $51 million (2018: decreased by $4 million) which reflects the timing of sales and cash receipts. In addition, provisionally priced trade receivables are marked to market at year-end contributing a $19 million increase on 31 December 2019 compared with the prior year due to higher forward prices. The Group's higher sales volumes in 2019 have also resulted in an increase in the normal level of trade receivables.

Trade and other payables and provisions decreased by $31 million (2018: $49 million increase) due to a reduction in customer receipts in advance of product deliveries compared to 31 December 2018. At the end of 2018, the Group had received advance payment for the dispatch of copper concentrate to European markets which was subsequently recognized as revenue in 2019.

Interest paid of $230 million was consistent with the prior year. Interest paid is higher than the total interest incurred during the year of $226 million, which led to a reduction in the interest payable from $71 million from 31 December 2018 to $61 million on 31 December 2019.

The cash impact of inventory changes in 2019 was $128 million (2018: $138 million), largely due to the acquisition of consumables and spare parts to support the Aktogay and Bozshakol operations. The Group's priority for 2019 was to ensure that the main sulfide concentrators at these sites operated at full design capacity throughout the year, hence a conservative approach to the stocking of such items were taken. It is expected that over time inventory requirements will reduce as the Group develops better data on consumption and wear rates, works with suppliers to shorten lead times and as the Group's shared spares strategy develops further. An outflow of $44 million in respect of ore stockpiles and work-in-progress at Aktogay and Bozshakol was also included in change in inventories, mainly related to the stockpiling of low-grade sulfide ore at Aktogay (to access high-grade areas and in preparation for the Aktogay expansion) and clay ore at Bozshakol. From 2020 it is expected that the amount of clay ore processed at Bozshakol from stockpiles will exceed mined volumes.

Prepayments and other current assets rose by $72 million (2018: $30 million) mainly due to an increase in VAT receivable at the Aktogay, Bozshakol and East Region operations. There was also an increase in VAT receivable relating to major growth projects of $41 million (2018: decrease of $3 million) which is shown separately in the table above and excluded from Free Cash Flow (see APMs section on page 54). The increase in VAT receivable was partly due to higher capital expenditure but was mainly the result of a delay in the receipt of VAT refunds in the second half of 2019. A VAT is being received in 2020 through a combination of offset and refund.

Trade and other receivables increased by $51 million (2018: decreased by $4 million) which reflects the timing of sales and cash receipts. In addition, provisionally priced trade receivables are marked to market at year-end contributing a $19 million increase on 31 December 2019 compared with the prior year due to higher forward prices. The Group's higher sales volumes in 2019 have also resulted in an increase in the normal level of trade receivables. Further details relating to the nature of Group's customers are given in note 4(b) to the condensed consolidated financial statements.

Trade and other payables and provisions decreased by $31 million (2018: $49 million increase) due to a reduction in customer receipts in advance of product deliveries compared to 31 December 2018. At the end of 2018, the Group had received advance payment for the dispatch of copper concentrate to European markets which was subsequently recognized as revenue in 2019.

Interest paid of $230 million was consistent with the prior year. Interest paid is higher than the total interest incurred during the year of $226 million, which led to a reduction in the interest payable from $71 million from 31 December 2018 to $61 million on 31 December 2019.

Sustaining capital expenditure increased to $142 million in 2019 from $85 million in the prior year, primarily due to higher maintenance spend at Aktogay and Bozshakol.

Expansionary and new project expenditure of $718 million in 2019 primarily relates to the Aktogay expansion project ($459 million). The first Aktogay and Bozshakol projects also incurred an expenditure of $50 million and $37 million respectively, mainly for final retention payments, and the heap leach pad expansion at Aktogay. Following the acquisition of Baimskaya, the Group invested $111 million in the feasibility study and initial pioneer works. In addition, there was a capital investment at East Region and Bozymchak of $56 million, mainly relating to the Artemyevsky expansion and $5 million for the Koksay project. Please refer to the Operating review for an analysis of the Group's capital expenditure by operating segment.

On 22 January 2019, the Group announced the Initial Completion of the acquisition of the Baimskaya copper project in the Chukotka region of Russia. The consideration due at Initial Completion was $675 million made up of $436 million in cash and 22.3 million new KAZ Minerals shares valued at $239 million, which were allotted to the Vendor. The Initial Cash Consideration of $436 million was settled during the first half of 2019, partly offset by $1 million of cash and cash equivalents on acquisition (see note 5(a) on page 43).

The 22.3 million shares are subject to a three-year lock-up period ending on the third anniversary of Initial Completion. Deferred Consideration of $225 million for the remaining interest is payable in 21.0 million shares, subject to the achievement of certain Project Delivery Conditions, including a pre-determined level of throughput and development of infrastructure by the Russian state. To the extent these conditions are not met or waived by the Group and therefore not settled in shares, the Deferred Consideration will become payable in cash on 31 March 2029.

The Initial Consideration of 22.3 million KAZ Minerals PLC shares valued at $239 million has been recognized as an increase in the share capital of around $6 million and a share premium of $233 million. The Deferred Consideration of $225 million has also been included within equity (see note 13(c)(iii) on page 48), representing the Group's ability to settle this amount through the issue of 21.0 million shares.

The total consideration for the acquisition was $900 million, of which around $880 million has been reflected as a mining license within mining assets, $13 million in net deferred tax assets and $7 million relating to other non-current assets, income taxes prepaid and cash and cash equivalents (see note 5(a) on page 43).

In 2019, other investing cash flows relate to the receipt of the remaining $45 million consideration in respect of NFC's equity investment in Koksay for $70 million, as announced in June 2018 (see note 5(b) on page 43). In 2018, other investing cash flows included the receipt of $25 million advance consideration in respect of NFC's equity investment in Koksay and $15 million of advances paid to fund studies on the Baimskaya copper project.

Equity attributable to owners of the Company at 31 December 2019 was $2,115 million (2018: $1,050 million), with the increase of $1,065 million mainly due to Underlying Profit in 2019 of $571 million, the shares issued and Deferred Consideration for the Baimskaya acquisition of $464 million, partly offset by dividends paid of $47 million during 2019. There was also a $65 million increase in the US dollar value of the Group's foreign currency operations following a 1% increase in the value of the tenge from 31 December 2018 to 31 December 2019.

The Group's mining assets are largely held within Kazakhstan-based entities that maintain the tenge as their functional currency. At the year-end, non-monetary net assets are consolidated and reported in US dollars at the closing exchange rate with the change in value arising from movements in the tenge exchange rate reflected in equity and not through the income statement. The Group's external liabilities, principally bank debt, are mainly US dollar-denominated and are not affected by movements in the KZT/$ exchange rate.

Andrew Southam, Chief Executive Officer, said: "In 2019 KAZ Minerals has continued to build on its operational track record, delivering further growth in copper production and maintaining its industry-leading cost position. Our large scale operations in Kazakhstan achieved record levels of production and our proven, low-cost asset base provides a strong platform for investment into value-accretive growth projects. The Aktogay expansion project is on budget and on track to commence production in 2021. We look forward to releasing further details of our plans for Baimskaya when the bankable feasibility study is completed."

KAZ Minerals PLC ("KAZ Minerals" or "the Group") is a high growth copper company focused on a large scale, low cost, open-pit mining in Kazakhstan, Russia, and Kyrgyzstan. It operates the Aktogay and Bozshakol open-pit copper mines in the East Region and Pavlodar region of Kazakhstan, three underground mines and associated concentrators in the East Region of Kazakhstan and the Bozymchak copper-gold mine in Kyrgyzstan. In 2019, total copper production was 311 kt with by-products of 201 koz of gold, 3,382 koz of silver and 38 kt of zinc in concentrate. The Group acquired the Baimskaya project in the Chukotka region of Russia in January 2019, one of the world's most significant undeveloped copper assets, with the potential to become a large scale, low cost, open-pit copper mine.

The Group's new operations at Aktogay and Bozshakol have delivered industry-leading production growth and transformed KAZ Minerals into a company dominated by world-class, open-pit copper mines.

Aktogay is a large scale, open pit mine similar to Bozshakol, with a remaining mine life of around 25 years (including the expansion project) at an average copper grade of 0.35% (oxide) and 0.33% (sulfide). Aktogay commenced production of copper cathode from oxide ore in December 2015 and copper in concentrate from sulfide ore in February 2017. The operating sulfide concentrator has an annual ore processing capacity of 25 million tonnes and the sulfide processing capacity will be doubled to 50 million tonnes with the addition of a second concentrator by the end of 2021. Aktogay is competitively positioned on the global cost curve and will produce an average of 100 kt of copper per year from sulfide ore until 2021, increasing to 170 kt per year from 2022 to 2027, after the second concentrator commences operations. Copper production from oxide ore will be in the region of 20 kt per annum until 2024.

Bozshakol is a first quartile asset on the global cost curve with an annual ore processing capacity of 30 million tonnes and a remaining mine life of c.40 years at an average copper grade of 0.36%. The mine and processing facilities commenced output in 2016 and will produce an average of 100 kt of copper cathode equivalent and 120 koz of gold in concentrate per year over the first 10 years of operations.

The Peschanka deposit within the Baimskaya license area in Russia has JORC resources of 9.5 Mt of copper at an average grade of 0.43% and 16.5 Moz of gold at an average grade of 0.23 g/t. Average annual production over the first ten years of operations is expected to be 250 kt copper and 400 koz gold, or 330 kt Copper Equivalent Production, with a mine life of approximately 25 years and first quartile operating costs. The project is located in a region identified by the Russian Government as strategically important for economic development and will benefit from the construction of state-funded power and transport infrastructure and the provision of tax incentives. The estimated capital budget for construction is $5.5 billion. The parameters of the project will be confirmed on completion of the feasibility study. The Group expects the project to generate a significant NPV uplift and an attractive IRR at analyst consensus copper prices. The development of Baimskaya will enable the Group to continue its high growth trajectory, adding a large scale, a long-life asset to the Group's portfolio.

KAZ Minerals is listed on the London Stock Exchange and the Kazakhstan Stock Exchange and employs around 16,000 people, principally in Kazakhstan.

KAZ Minerals is the Gold Partner of the International Astana Mining & Metallurgy Congress, which will be held June 18-19, 2020 in Nur Sultan, at the Hilton Astana Hotel.

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