Kazakhmys PLC
KAZAKHMYS PLC ANNUAL REPORT AND ACCOUNTS 2009

Performance

Kazakhmys Gold

Production summary

2009 2008
Ore output (kt) 1,564 2,014
Average gold grade (g/t) 1.39 1.50
Gold doré production (koz) 47 56

During 2009, ore extraction took place at Kazakhmys Gold’s two operating mines, Mizek Oxide and Central Mukur. The output figures for 2009 reflect the impact of the closure of the Zhaima mine in September 2008, and also lower output from Mizek Oxide. The lower gold grade is due to a fall in gold content as the mines continue to mature.

In 2010, output from the Kazakhstan operating mines may fall further as extraction becomes more challenging with the mines expected to cease output during 2011. The gold-copper development project in Kyrgyzstan, Bozymchak, is expected to commence output late in 2010. More details on this project can be found in the capital expenditure section below.

At a glance

Operations:

Location: Kazakhstan and Kyrgyzstan

Mines: Mizek Oxide and Central Mukur

Growth projects: Bozymchak and Mizek Sulphide

Production overview:

Gold doré: 47 koz

Financial overview:

Sales revenues: $47 million

EBITDA (excluding special items): $24 million

Financial summary

$ million (unless otherwise stated) 2009 2008
Sales revenues 47 49
Average realised price ($/oz) 982 878
EBITDA (excluding special items) 24 19
Cash cost ($/oz) 343 440
Capital expenditure 15 13
Sustaining 3 3
Expansionary 12 10

Revenues

In 2009, Kazakhmys Gold sold doré under an annual contract to a European trader, with the price determined by reference to the LBMA price less refining charges. These arrangements are expected to remain unchanged in 2010.

Kazakhmys Gold’s revenues decreased by only $2 million to $47 million in 2009, despite a reduction in gold sales volumes following the closure of the Zhaima mine in 2008, and the decrease in output from Mizek Oxide. The lower sales volumes were largely offset by the strength of gold prices in 2009, with an average realised price of $982 per ounce, 12% higher than in the prior year.

EBITDA (excluding special items)

The improved EBITDA in 2009 resulted from the higher realised gold price which maintained revenues at the same level as the prior year, whilst production volumes, and therefore costs, were lower. Kazakhmys Gold also benefited from the currency devaluation on its tenge denominated cost base and the price of various input materials fell compared to 2008.

Cash cost

The cash cost is lower in 2009 compared to the prior year due to the devaluation of the tenge and lower input prices. The cash cost in 2008 included royalty payments of $21 per ounce which are not present in 2009 following changes to the Kazakhstan tax code.

Capital expenditure

Sustaining

Sustaining capital expenditure of $3 million in 2009 was for the replacement of equipment at Kazakhmys Gold’s existing mining operations.

Expansionary

Kazakhmys Gold’s major focus in 2009 was the progression of the Bozymchak gold-copper project which successfully moved from the feasibility stage to development towards the end of the year. The project’s development will be funded by the allocation of $100 million from the loan facility negotiated with the China Development Bank and Samruk.

The Bozymchak deposit is located in Kyrgyzstan and contains gold, copper and silver. The development of the deposit is proceeding with stripping work to commence in April 2010. The delivery of the concentrator is expected to take place in early 2010 and construction should be completed in the latter part of the year.

Bozymchak will commence operations as an open pit mine in late 2010, producing around 5 MT of ore over a six year period with a gradual transition to underground mining from 2014, which will produce a further 11 MT of ore.

The concentrator should reach an annual production capacity of 35 kt of concentrate by the end of 2011. The planned annual production of copper in concentrate is 7 kt and 30 koz of gold, once fully commissioned.

During 2009, further technical studies were conducted on the Mizek Sulphide project located in northeast Kazakhstan. The technical studies are expected to be completed in the first half of 2010. The development of the Mizek Sulphide site will remain on hold until a viable option for the processing of ore is identified.

Exploration work at the Akjilga silver and copper deposit in Tajikistan continued in 2009 which improved the understanding of the ore body. At present, Kazakhmys does not believe Akjilga to be of sufficient scale to develop further and accordingly is reviewing options for the deposit.