A summary of cash flows is shown below:

$ million	2009	2008
Segmental EBITDA	867	1,245
Impairment losses	385	400
Loss on disposal of property, plant and equipment	1	2
Dividends received from associate	84	38
Foreign exchange loss adjustment	26	(27)
Working capital movements	(216)	132
Interest paid	(63)	(70)
Mineral extraction tax paid	(120)	–
Income taxes paid	(144)	(621)
Net cash flows from operating activities	820	1,099
Sustaining capital expenditure	(241)	(384)
Free Cash Flow	579	715
Expansionary and new project capital expenditure	(187)	(310)
Interest received	10	28
Acquisition of subsidiaries, net of liquid funds and borrowings acquired	–	(1,157)
Capital transactions with shareholders	–	(121)
Dividends paid	–	(200)
Acquisition of associate	–	(918)
Payment of deferred consideration arising from business acquisition	(83)	–
Advance payment of deferred consideration arising from business acquisition	(102)	–
Payment received in advance of disposal of share of subsidiary	681	–
Proceeds from disposal of property, plant and equipment	14	17
Proceeds from disposal of non-current investments	–	14
Purchase of own shares	(7)	–
Other movements	(14)	(5)
Cash flow movement in net debt	891	(1,937)

Summary of the year

Lower earnings were the main driver behind the reduced cash flows from operating activities, but an adverse movement in working capital movements, primarily arising within MKM, offset by markedly lower tax payments, also reduced cash flows from operating activities compared to the prior year. Cash flows from operating activities were $820 million for the year, a decrease of $279 million compared to the prior year. Given lower levels of sustaining capital expenditure, Free Cash Flow, a key performance indicator of the Group’s ability to translate earnings into cash flow, was a healthy $579 million.

Working capital

Working capital levels for the Group increased by $216 million during the year. This adverse working capital movement is primarily due to:

• an increase in work in progress within the smelters in Kazakhmys Copper in the last quarter of the year which will be processed into copper cathodes during 2010;
• negative final pricing adjustments on provisionally priced contracts at 31 December 2008 within Kazakhmys Copper of approximately $50 million were paid to Chinese customers in January and February 2009 due to the sharp fall in copper prices at the end of 2008. This contributed to the adverse working capital movement in respect of trade and other payables within Kazakhmys Copper;
• an increase in the level of trade receivables within the Kazakhmys Copper Division given the sharp increase in commodity prices seen during the second half of the year; and
• within MKM the adverse working capital impact on inventory levels of $102 million and trade receivables of $16 million was largely commodity price driven.

Despite these adverse working capital movements, working capital levels are being tightly controlled and managed across all of the Group’s businesses.

Interest cash flows

Interest paid during the year was $63 million, $7 million lower than in 2008. The impact of lower US$ LIBOR interest rates during 2009 and the interest rate swaps that were taken out at the end of 2008 resulted in the average interest rate during the year on the Group’s PXF being 2.08% compared to 3.92% in 2008. The impact of lower interest rates was offset by the payment of 12 months of interest on the PXF in 2009 compared to seven months in 2008, as the facility was drawn down in May 2008 to fund the acquisition of Kazakhmys Power.

Lower average cash balances throughout the year, coupled with the lower US$ interest rates in 2009, also meant that interest income received on cash and deposits fell from $28 million to $10 million in 2009.

Income taxes and mineral extraction tax

The level of income taxes paid for the year was $144 million which is significantly lower than the $621 million paid in 2008. This sharp reduction is primarily as a result of the lower earnings of the Group for the year and the corresponding level of payments on account being made to the Kazakhstan tax authorities. In addition, at 31 December 2008 Kazakhmys Copper had an income tax receivable balance of approximately $100 million as a result of the payments on account being made during 2008 not taking into account the sharp reduction in profitability seen in the last quarter of the year. Payments on account for the first quarter of 2009 continued to be based on the significantly higher level of earnings for 2008, with agreement being reached with the tax authorities in the second quarter that no further payments on account would be required until the tax receivable balance had been utilised. Given the increase in commodity prices and higher profitability of Kazakhmys Copper in the second quarter and thereafter, this income tax receivable balance was fully utilised in the second half of the year and payments on account recommenced.

In addition to the income taxes paid, $120 million of taxes were paid in respect of the MET. Of the total MET expense recognised of $164 million, $44 million remained unpaid at the year end, and this was paid in the first quarter of 2010.

Capital expenditure

As a result of the market conditions that existed at the end of 2008, capital expenditure during the year was sharply curtailed; sustaining capital expenditure was $143 million lower at $241 million compared to the prior year, and expansionary and new project capital expenditure was $123 million lower at $187 million. Existing supply contracts were also renegotiated in light of the economic environment which also contributed to a reduction in capital expenditure across the year.

Despite this reduction in capital expenditure, major items of expenditure during the year included expenditure on the pre-feasibility studies on Aktogay and Bozshakol, expenditure on the Zhezkazgan and Balkhash smelters to improve recovery rates, ramping up of the West Nurkazgan underground mine which commenced mining operations in February 2009, purchase of essential new machinery at mines to maintain operations, the overhaul at Unit 5 and initial expenditure on the rehabilitation of Unit 8 at Ekibastuz GRES-1, and continued exploration work within Kazakhmys Petroleum.

Investing cash flows

The Group paid $3 million in January 2009 as deferred consideration relating to the Kazakhmys Power acquisition. Furthermore, as explained below, on termination of the management contract of the Ekibastuz GRES-1 power plant and Maikuben West coal mine, the Group paid an additional $80 million in April 2009 under the earnout agreement relating to the 2008 financial year. The Group paid a further $102 million under the termination agreement in October 2009 by cash collateralising early a standby letter of credit to AES Corporation (AES).

Payment of $681 million was also received in respect of the disposal of 50% of Ekibastuz GRES-1 LLP to Samruk as discussed in ‘Discontinued operations’.

Dividends received

The Group received dividends of $84 million from ENRC in 2009, compared to $38 million in 2008. As explained in the income statement, these dividends have been credited against the carrying value of the investment in ENRC rather than being included within earnings.