Kazakhmys’ principal product is copper, which was one of the stronger performing LME quoted metals in 2009, rising 139% across the year. The LME copper price climbed from a low of $3,051 per tonne in late January 2009 to a high of $7,346 per tonne on 31 December 2009. The average price during the year was $5,164 per tonne, 26% below the average of $6,952 per tonne in 2008.

The recovery in the copper price was driven by a number of factors which included strong demand from China which built up copper inventories and experienced increased industrial activity driven by economic growth and government investment. Prices were also supported by the improvement in the global economic environment in the second half of 2009, and continued weakness in the US dollar.

Despite the strong demand for copper from China in 2009, the global consumption of refined copper is estimated to have decreased by 3.1% to 17.5 MT. China’s refined copper consumption is forecast to have increased by 1.6 MT to 6.7 MT in 2009, with refined copper consumption expected to have declined in the rest of the world by 1.1 MT. This reduction included a 23% fall in consumption in Western Europe, Japan and North America.

Given Kazakhmys’ proximity to China, a significant portion of copper cathode production is supplied to the Chinese market. The refined copper demand prospects for China in 2010 are positive with an estimated increase in consumption of 9% to 7.3 MT as economic growth continues. Chinese refined copper production is expected to be 5.3 MT in 2010, implying an import requirement of 2.0 MT.

Kazakhmys Copper also has exposure to the Western European market where the construction sector remained depressed and car production volumes fell during 2009. Refined copper consumption in Western Europe is estimated to have contracted by 22% in 2009.

With most of the major Western European economies returning to growth in late 2009 and with a recovery in demand from the power sector, refined copper consumption is expected to grow 2.1% to 2.7 MT in 2010. The growth rate reflects the slower economic recovery expected in the mature Western European markets as contrasted with the continued strength of the economic growth in China.

Kazakhmys Copper will maintain a presence in both the Chinese and European markets by selling to traders and end users in 2010. Kazakhmys Copper has contracted the majority of its 2010 copper cathode and rod production under annual agreements. The pricing of sales is based on the LME price plus a premium to reflect the terms of trade.

From April 2009 the zinc price climbed steadily, with the LME average price for the year being $1,659 per tonne, an 11% decrease from the 2008 average of $1,870 per tonne. The improvement in zinc prices from April 2009 reflected the tightening of supply with mine production cutbacks in early 2009 and as China’s zinc consumption grew by 20%, broadly in line with the growth in demand for steel in the country.

While zinc prices trended higher during 2009, LME zinc inventories grew by 93% from 253 kt to 488 kt at the end of the year and zinc consumption is estimated to have declined from 11.5 MT in 2008 to 11.0 MT in 2009. A market surplus in zinc is forecast in 2010, although a rebound in worldwide steel production is expected to support prices as restocking takes place, along with growing demand from developing economies.

Gold

During 2009, gold prices were mainly supported by investment demand with the metal maintaining its status as a safe haven during periods of economic uncertainty. This was reflected in the gold price which rose from $875 per ounce at the beginning of 2009 to trade above $1,000 per ounce from October 2009, finishing the year at $1,104 per ounce.

Investment demand is forecast to be the main driver of gold prices in 2010 with the US dollar expected to be weak, real interest rates remaining low, and concerns persisting around rising inflation. Given the dependence on investment demand, the gold price could be vulnerable to changes in investor sentiment.

Silver

Silver prices in 2009, like gold, were supported by investment demand, a weak US dollar and concerns around inflation. These factors largely offset the global slowdown in industrial production which reduced the demand for silver used in industrial and manufacturing processes.

Silver prices commenced the year at $11.1 per ounce and ended at $17.0 per ounce, reaching a high of $19.2 per ounce in early December. The silver market is projected to record a 49 Moz surplus in 2009, with a similar surplus forecast in 2010.