TIDMENRC
RNS Number : 0288K
Eurasian Natural Resources Corp Plc
15 August 2012
15 August 2012
Eurasian Natural Resources Corporation PLC
Announcement of 2012 Half Year Results
Financial Highlights for H1 2012
-- Financial performance impacted predominantly by a decline in
commodity prices and a challenging economic environment.
-- Revenue decreased 19% to US$3,246 million.
-- Cost of sales up 4% to US$1,757 million, driven by increased
inflation, increased depreciation and higher wage rates.
-- Underlying EBITDA fell 41% to US$1,144 million; Underlying EBITDA margin of 35%.
-- Earnings per share down 60% to US 36 cents.
-- Dividend of US 6.5 cents per share; payout ratio of 18% maintained.
-- Gross available funds of US$1,565 million; borrowings of
US$4,940 million. US$3.0 billion of additional facilities obtained
since the start of 2012 to fund growth projects.
Business Highlights for H1 2012
-- Sustained good demand for key products.
-- Cost control and productivity enhancing initiatives helped to
keep unit costs for key products below expectations.
-- Capital expenditure of US$1,047 million; focus on development
of key strategic projects, notably the new Aktobe ferroalloys
plant, anode plant, Power Unit 6 at EEC and the expansion of
logistics capacity.
-- Continued progress in Africa: material increases in copper
production; agreement reached with First Quantum Minerals ('FQM')
to acquire its DRC copper assets; post period granting of the new
licence for the Frontier copper mine in the DRC.
-- Acquisition of all outstanding shares in Shubarkol completed,
strengthening portfolio of Tier-1 assets and providing synergies to
our core businesses in Kazakhstan.
Outlook for Full Year 2012
-- Capital expenditure reduced to US$2.4 billion for 2012;
overall capex programme in advanced stages of review to
reprioritise investment spend; comprised of total committed
expansionary capex of US$2.3 billion and capex under review of
US$8.8 billion.
-- Production expected to be at full available capacity across
all Divisions in H2 2012; increased copper volumes expected, as
well as recoveries in iron ore and alumina volumes.
-- Volatile market environment and pricing uncertainty to
persist, but competitive advantage of low-cost position in
Kazakhstan to be maintained.
-- Industry cost pressures to continue, albeit at a slightly
lower level than previously guided. Social spend to be maintained
at approximately 2011 levels.
-- On-going assessment of options to best unlock value for
shareholders, including demerging of the international operations
of the Group.
"ENRC has shown a resilient performance in the first half of
2012, a period characterised by deepening economic uncertainty and
declining prices for our key products. In the light of these market
conditions we have concentrated on controlling our costs and
enhancing productivity, with unit cost inflation falling well below
our earlier guidance. Furthermore, we have implemented a review of
our capex projects and are revising the development plan for our
copper assets in the DRC, so as to improve the capital efficiency
of our investment programme and returns to shareholders. Our growth
programme in both Kazakhstan and internationally, has progressed
well and is on-track to deliver significant value in the coming
years. We expect that demand will remain robust for our core
commodities in the second half of the year."
Felix J Vulis, Chief Executive Officer
Eurasian Natural Resources Corporation PLC
Summary Group Financial Information (Unaudited):
H1 2012 vs. H1
2011
------------------
In millions of US$ (unless otherwise H1 2012 H1 2011 +/- %
stated)
---------------------------------------- -------- -------- -------- --------
Revenue 3,246 4,011 (765) (19.1)%
Cost of sales (1,757) (1,690) (67) 4.0%
---------------------------------------- -------- -------- -------- --------
Gross profit 1,489 2,321 (832) (35.8)%
Operating profit 800 1,667 (867) (52.0)%
Profit before income tax 667 1,631 (964) (59.1)%
Income tax expense (212) (449) 237 (52.8)%
Effective tax rate % 31.8% 27.5%
---------------------------------------- -------- -------- -------- --------
Profit for the period 455 1,182 (727) (61.5)%
---------------------------------------- -------- -------- -------- --------
Profit attributable to equity holders
of the Company 463 1,166 (703) (60.3)%
Earnings per share - basic and diluted
(US cents) 36 91 (55) (60.5)%
Interim dividend per share (US cents) 6.5 16.0 (9.5) (59.4)%
---------------------------------------- -------- -------- -------- --------
Total depreciation, amortisation and
impairment (324) (260) (64) 24.6%
---------------------------------------- -------- -------- -------- --------
Loss arising related to acquisition
of associate (14) - (14) 100.0%
---------------------------------------- -------- -------- -------- --------
Acquisition related costs (6) - (6) 100.0%
---------------------------------------- -------- -------- -------- --------
Total costs(1) (2,446) (2,344) (102) 4.4%
---------------------------------------- -------- -------- -------- --------
Underlying EBITDA(2) 1,144 1,927 (783) (40.6)%
Underlying EBITDA margin %(3) 35.2% 48.0%
---------------------------------------- -------- -------- -------- --------
Net cash generated from operations 724 1,184 (460) (38.9)%
Capital expenditure 1,047 697 350 50.2%
Gross available funds(4) 1,565 1,600 (35) (2.2)%
Net debt(5) (3,411) (2) (3,409) >100.0%
---------------------------------------- -------- -------- -------- --------
(1) Total costs: Cost of sales; distribution costs; general and administrative expenses; exploration
costs and other operating expenses offset by other operating income.
(2) Underlying EBITDA: Profit before finance income, finance cost, income tax expense, depreciation,
amortisation and impairment of property, plant and equipment and intangible assets, net gains
and losses on derivatives not qualifying for hedge accounting, share of profit or loss of
joint ventures and associates, loss arising related to acquisition of associate and acquisition
related credit/costs expensed under IFRS 3 (revised).
(3) Underlying EBITDA margin: Underlying EBITDA as a percentage of revenue.
(4) Gross available funds: Cash and cash equivalents plus term deposits and other financial
assets and less non-current available-for-sale financial assets and other restricted financial
assets.
(5) Net debt: Cash and cash equivalents less current and non-current borrowings.
RESULTS OF OPERATIONS (Unaudited)
The following table sets out selected financial information of the
Group's operations for the six months ended 30 June 2012 and 30 June
2011:
In millions
of US$
(unless Intra
stated Iron Alumina Other Group
otherwise) Ferroalloys Ore and Aluminium Non-ferrous(1) Energy Logistics(1) Corporate Eliminations Total
------------- ------------ ------ -------------- --------------- ------- ------------- ---------- ------------- -------
Segment revenue
2012 1,333 983 453 302 358 164 4 (351) 3,246
2011 1,644 1,296 577 327 313 143 6 (295) 4,011
------------- ------------ ------ -------------- --------------- ------- ------------- ---------- ------------- -------
Segment operating profit/(loss)
2012 390 416 (6) (109) 157 22 (70) - 800
2011 595 786 141 5 159 25 (44) - 1,667
------------- ------------ ------ -------------- --------------- ------- ------------- ---------- ------------- -------
Segment operating profit/(loss) margin
2012 29.3% 42.3% (1.3)% (36.1)% 43.9% 13.4% n/a - 24.6%
2011 36.2% 60.6% 24.4% 1.5% 50.8% 17.5% n/a - 41.6%
------------- ------------ ------ -------------- --------------- ------- ------------- ---------- ------------- -------
Underlying EBITDA(2)
2012 458 473 48 (13) 210 35 (67) - 1,144
2011 655 835 188 66 188 37 (42) - 1,927
------------- ------------ ------ -------------- --------------- ------- ------------- ---------- ------------- -------
Underlying EBITDA margin(3)
2012 34.4% 48.1% 10.6% (4.3)% 58.7% 21.3% n/a - 35.2%
2011 39.8% 64.4% 32.6% 20.2% 60.1% 25.9% n/a - 48.0%
------------- ------------ ------ -------------- --------------- ------- ------------- ---------- ------------- -------
% of Group revenue excluding inter-segmental revenues
2012 40.8% 30.3% 13.6% 9.3% 4.7% 1.3% 0.0% - 100.0%
2011 40.8% 32.3% 14.0% 8.2% 3.2% 1.4% 0.1% - 100.0%
------------- ------------ ------ -------------- --------------- ------- ------------- ---------- ------------- -------
% of Group underlying EBITDA
2012 40.0% 41.3% 4.2% (1.1)% 18.4% 3.1% (5.9)% - 100.0%
2011 34.0% 43.3% 9.8% 3.4% 9.8% 1.9% (2.2)% - 100.0%
------------- ------------ ------ -------------- --------------- ------- ------------- ---------- ------------- -------
(1) The management of the SABOT logistics business was
transferred during H2 2011 to the Other Non-ferrous Division from
the Logistics Division resulting in a restatement to H1 2011.
(2) Underlying EBITDA: Profit before finance income, finance
cost, income tax expense, depreciation, amortisation and impairment
of property, plant and equipment and intangible assets, net gains
and losses on derivatives not qualifying for hedge accounting,
share of profit or loss of joint ventures and associates, loss
arising related to acquisition of associate and acquisition related
credit/costs now expensed under IFRS 3 (revised).
(3) Underlying EBITDA margin: Underlying EBITDA as a percentage
of revenue.
For further information, please contact:
ENRC: Investor Relations Mounissa Chodieva +44 (0) 20 7389 1879
Charles Pemberton +44 (0) 20 7104 4015
Alexandra Leahu +44 (0) 20 7104 4134
ENRC: Press Relations Julia Kalcheva +44 (0) 20 7389 1861
M: Communications (Press Relations advisor to ENRC):
Hugh Morrison +44 (0) 20 7153 1534
Charlotte Kirkham +44 (0) 20 7920 2331
Andrew Benbow +44 (0) 20 7920 2344
The information set out in this announcement relates to the six
months ended 30 June 2012 and, unless otherwise stated, is compared
to the corresponding period of 2011, the six months ended 30 June
2011. The Chief Executive Officer's Outlook statement includes an
update for the period since 30 June 2012. Where applicable in the
document all references to 't' are to metric tonnes, to 'kt' are to
thousand metric tonnes, and 'mt' to million metric tonnes unless
otherwise stated. Unless stated otherwise, statements relating to
market data contained in this announcement are based on external
sources, for example research institutes and industry bodies,
including: CRU, Heinz H Pariser, the IMF, and others, and are
derived from actual and/or estimated data relating to 2011 and 2012
and are prepared in H1 2012 or early H2 2012.
Eurasian Natural Resources Corporation PLC ('ENRC') will
announce its 2012 Half Year Results on 15 August 2012. There will
be a presentation to investors and analysts, commencing at 09.30
(London time) in the Auditorium at Deutsche Bank, 75 London Wall,
London, EC2N 2DB, United Kingdom. There will be a simultaneous
webcast and audiocast on the ENRC website (www.enrc.com).
Forward-looking statements
This announcement includes statements that are, or may be deemed
to be, 'forward-looking statements'. These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms 'believes', 'estimates', 'plans',
'projects', 'anticipates', 'expects', 'intends', 'may', 'will', or
'should' or, in each case, their negative or other variations or
comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These
forward-looking statements include matters that are not historical
facts or are statements regarding the Group's intentions, beliefs
or current expectations concerning, among other things, the Group's
results of operations, financial condition, liquidity, prospects,
growth, strategies, and the industries in which the Group operates.
Forward-looking statements are based on current plans, estimates
and projections, and therefore too much reliance should not be
placed upon them. Such statements are subject to risks and
uncertainties, most of which are difficult to predict and generally
beyond the Group's control. By their nature, forward-looking
statements involve risk and uncertainty because they relate to
future events and circumstances. The Group cautions you that
forward-looking statements are not guarantees of future performance
and that if risks and uncertainties materialise, or if the
assumptions underlying any of these statements prove incorrect, the
Group's actual results of operations, financial condition and
liquidity and the development of the industry in which the Group
operates may materially differ from those made in, or suggested by,
the forward-looking statements contained in this announcement. In
addition, even if the Group's results of operations, financial
condition and liquidity and the development of the industry in
which the Group operates are consistent with the forward-looking
statements contained in this announcement, those results or
developments may not be indicative of results or developments in
future periods. A number of factors could cause results and
developments to differ materially from those expressed or implied
by the forward-looking statements including, without limitation,
general economic and business conditions, industry trends,
competition, commodity prices, changes in regulation, currency
fluctuations, changes in business strategy, political and economic
uncertainty. Subject to the requirements of the Prospectus Rules,
the Disclosure and Transparency Rules and the Listing Rules or any
applicable law or regulation, the Group expressly disclaims any
obligation or undertaking publicly to review or confirm analysts
expectations or estimates or to release publicly any updates or
revisions to any forward-looking statements contained herein to
reflect any changes in the Group's expectations with regard thereto
or any change in events, conditions or circumstances on which any
such statement is based. Nothing in this announcement should be
construed as a profit forecast. The forward looking statements
contained in this document speak only as at the date of this
document.
Listing Rules
This 2012 Half Year Results Announcement has been prepared to
meet the requirements of the Listing Rules of the United Kingdom's
Financial Services Authority ('FSA') to provide additional
information to shareholders and should not be relied on for any
other purpose or by any other party.
CHIEF EXECUTIVE OFFICER'S STATEMENT
ENRC has delivered a solid operational performance in the first
half of 2012 despite challenging market conditions. The Group's
financial results have reflected the decline in commodity prices,
continued cost inflation in Kazakhstan, as well as the costs of
growing our business in Africa and Brazil. ENRC has reported
underlying EBITDA of US$1,144 million a decrease of 41% and a
decrease in Earnings per Share ('EPS') of 60% to US 36 cents.
The Group's growth strategy in both Kazakhstan and
internationally has advanced well during the period. The key
investment project in the Ferroalloys Division, the new Aktobe
ferroalloys plant, has progressed within budget and is on-track for
commissioning in Q4 2013, with planned production in the first full
year of operation in 2014 of approximately 400 kt of high carbon
ferrochrome. The construction of the anode plant within the Alumina
and Aluminium Division will be commissioned at the end of this
year, reducing our production cost of aluminium, as well as our
reliance on third-party suppliers.
ENRC's integrated model and advantageous low cost position in
Kazakhstan underpin our competitive advantage. We have continued to
strengthen this model, increasing our self-sufficiency in both the
Energy and Logistics Divisions through the expansion of our own
rail fleet and the reconstruction of Power Unit 6. The Logistics
Division acquired a further 626 wagons during the period and Power
Unit 6, which will have a capacity of 325MW, is on-track for
commissioning in H2 2013.
In Brazil we have completed all of the required public hearings
related to the port environmental licence and are awaiting a
response on our environmental plan from the relevant
authorities.
This has been a pivotal year so far for the growth and
development of our assets in Africa. Our copper strategy has been
significantly progressed through the acquisition of the processing
plants at Kolwezi and Frontier in March this year from First
Quantum Minerals Ltd. ('FQM') and the recent granting of the new
Frontier mining licence. Across the Group we are focused on
prioritising those projects with the highest returns and following
our recent acquisitions in the DRC, we are in the process of
revising our copper development plans. We intend to fast-track the
recommissioning of Frontier and the completion of our processing
plant at Kolwezi, potentially delaying further expansion at Boss
Mining in the short-term but ultimately improving the efficiency of
our capital investment programme in the DRC. We plan to hold a
seminar to update the market on our copper development plans on 2
October 2012 in London. On revising our plans we will be firmly on
track to become a significant global copper producer.
ENRC believes that the future success of our business depends
upon addressing the sustainability challenges that we face today.
As part of the Group's commitment to reporting on key non-financial
data, we released our first standalone Sustainable Development
Report in May this year, prepared under the guidance of the Global
Reporting Initiative Sustainability Reporting Guidelines.
Independent assurance of the report was provided by
PricewaterhouseCoopers LLP.
The Group has taken a number of important steps forward in 2012
to improve corporate governance and in May this year the Board was
strengthened by the appointment of Richard Burrows and Mohsen
Khalil as Independent Non-executive Directors. Of the Group's
twelve directors, 8 are now Independent Non-executives.
The Board continues to assess options to best unlock value for
shareholders, including demerging of the international operations
of the Group. In this regard, the Board is being independently
advised by Lazard. We will update the market once the review
process has been completed.
I would like to extend sincere thanks to our employees for their
on-going loyalty, dedication and hard work during the first half of
2012.
PRODUCTION PERFORMANCE
Both of the Group's key divisions, Ferroalloys and Iron Ore,
were impacted by unscheduled repairs and maintenance during the
period, while ore extraction within the Iron Ore Division was
further curtailed by a temporary decline in ore quality. The Group
no longer controls Tuoli, the Chinese ferroalloy plant, and volumes
from Tuoli have not been reflected in the comparable numbers below.
Temporary interruptions to the supply of soda ash caused a drop in
alumina production, while the aluminium smelter and the Energy
Division both operated at full available capacity. Despite
constraints on power availability at Boss Mining in the DRC, the
Other Non-ferrous Division showed strong growth in copper volumes
as expected.
-- Ferroalloys: chrome ore extraction was below full capacity,
amounting to 2.35 mt (H1 2011: 2.42 mt). Saleable ferrochrome
production was 595 kt (H1 2011: 614 kt), while production of total
saleable ferroalloys was relatively stable at 752 kt (H1 2011: 759
kt).
-- Iron Ore: both iron ore extraction and the production of
primary concentrate decreased against the comparable period. Pellet
volumes amounted to 3,687 kt (H1 2011: 4,326 kt), or 49.1% (H1
2011: 54.0%) of the mix, with total saleable production declining
to 7,511 kt (H1 2011: 8,006 kt).
-- Alumina and Aluminium: both bauxite and alumina volumes
decreased against the comparable period. Aluminium volumes were
maintained at 124 kt (H1 2011: 124 kt) reflecting the smelter
operating at its nameplate capacity.
-- Other Non-ferrous: total saleable copper contained production
increased 25.6% to 17,493 t (H1 2011: 13,933 t), whilst that of
cobalt was 5,351 t (H1 2011: 5,471 t), a decrease of 2.2%.
-- Energy: coal extraction at Vostochny amounted to 10,258 kt
(H1 2011: 10,165 kt) and power generation of 7,177 GWh (H1 2011:
6,900 GWh), both ahead of the comparable period. Shubarkol volumes
as of 1 May 2012 were reported for the first time, with coal
extraction amounting to 927 kt and semi-coke production of 34
kt.
FINANCIAL PERFORMANCE
Our financial results were primarily impacted by deterioration
in prices across our suite of commodities. These declines were
further exacerbated by reduced sales volumes. Revenue declined by
19% to US$3,246 million (H1 2011: US$4,011 million) and underlying
EBITDA fell 41% to US$1,144 million (H1 2011: US$1,927 million).
During the period the Group experienced continued cost inflation in
Kazakhstan, higher levels of depreciation and amortisation,
heightened finance costs, as well as an increase in its Effective
Tax Rate ('ETR'), resulting in a fall in basic EPS of 60% to US 36
cents per share (H1 2011: US 91 cents). A more detailed discussion
of financial performance is contained in the Chief Financial
Officer's review.
SAFETY AND ENVIRONMENT
The total number of Group work-related injuries on comparable
basis, including fatalities, to employees in H1 2012 was 39 (H1
2011: 33). The Group Lost Time Injury Frequency Rate ('LTIFR') for
H1 2012 was 0.59 (H1 2011: 0.48). As with fatalities, our LTIFR
reporting currently adopts Kazakhstan classifications across the
Group, leading to a lower number of reported LTI cases compared to
international practice. We are currently working towards gathering
more comprehensive data for 2012 internal reporting. We continue to
focus on developing our safety culture and behaviours through our
work with DuPont.
We continued to advance our classification process so as to
align it with international standards and in 2012 have, for the
first time, comparable data for contractors' fatalities. The total
number of fatalities, including on-site work and non-work related
fatalities and contractors, was 12 in H1 2012 (H1 2011: 4). Of
this, employees totalled 6 fatalities, including 1 fatality at
Shubarkol since acquisition. We view all fatalities as unacceptable
and express our sincere condolences to the families involved. Our
safety programmes will continue to focus on understanding the
causes of, and eliminating, all fatalities. In this regard, the
prescriptive compliance based approach we previously operated is
increasingly being replaced with a safety culture of personal
responsibility and behavioural change.
The Group continually seeks to reduce its environmental impact
and we recognise the seriousness of the issue of climate change,
believing that the reduction of greenhouse gas ('GHG') emissions is
a necessity. In 2012 we reported for the first time our GHG
performance to the Carbon Disclosure Project, a key survey
reflecting GHG data and management's approach to this issue.
CAPITAL EXPENDITURE
In H1 2012 the Group's capital expenditure amounted to US$1,047
million (H1 2011: US$697 million), an increase of 50%. The major
portion of expenditures occurred within the Other Non-ferrous
Division, followed by the Ferroalloys and Iron Ore Divisions.
An overview of the current status of the main expansionary
projects is as follows:
-- Ferroalloys: construction of the new Aktobe ferroalloys plant
is progressing according to schedule
-- Iron ore: development of mine expansion projects is in progress
-- Alumina and Aluminium: commissioning of the anode plant on track for H2 2012
-- Other Non-ferrous: development and review of the copper expansion strategy
-- Energy: reconstruction of Power Unit 6 at Aksu is underway
-- Logistics: continued expansion of railway fleet in Kazakhstan
ENRC is in the advanced stages of reviewing all capital
expenditure projects that are not currently in execution. These
'Under Review' projects will be reassessed both in terms of their
scope and timing in order to reflect current market and economic
conditions, timing of regulatory approvals, return on investment
and payback period. All projects within the full capital
expenditure programme, described in the Chief Financial Officer's
section of this report, have subsequently been reclassified as
either 'Committed' (projects in execution) or 'Under Review'.
Estimated capital expenditure for 2012 is expected to decrease
against previous guidance of US$2.7 billion to approximately US$2.4
billion of which US$0.8 billion relates to sustaining capital
expenditure. The Group's total capital expenditure programme for
its expansionary projects is US$11.1 billion, comprised of US$2.3
billion of committed capital expenditure and US$8.8 billion as
projects under review.
ACQUISITIONS
The Group has undertaken a number of acquisitions during 2012;
primarily to strengthen its growth platform and to fast-track
copper production in the DRC, as well as to reinforce the Group's
integrated business model in Kazakhstan.
In March the Group announced that it had acquired all of the
residual copper assets relating to FQM in the DRC for a total
consideration of US$1.25 billion. The total consideration comprised
US$750 million paid upon closing in March 2012, with a deferred
consideration of US$500 million in the form of a 3-year Promissory
Note with an interest coupon of 3%, payable annually in
arrears.
In April 2012 ENRC completed the acquisition of the outstanding
75% of the ordinary shares of Shubarkol, for an aggregate purchase
price of US$600 million, plus assumed debt of US$50 million.
Shubarkol is an important strategic acquisition, securing reliable
access to a supply of high quality and low-cost thermal coal, with
planned production in 2012 of approximately 8 million tonnes.
After the period end, in July 2012, the DRC Government granted
the Group a new mining licence in respect of the Frontier mine for
US$101.5 million. The new Frontier licence will provide feed for
the Frontier processing plant, acquired as part of the transaction
with FQM completed in March 2012. This licence will allow us to
progress operations and expedite plans to ramp up copper production
in Africa.
OUTLOOK
The first half of 2012 has been characterised by volatility and
uncertainty across global markets, leading to a steadily declining
pricing environment for our key commodities. We expect these
features to persist for the remainder of the year. However, it is
in such an economic climate that being one of the world's lowest
cost producers comes into its own. We expect our operations will
produce at full available capacity for the remainder of the year
and that demand will remain robust for our core products.
Looking further ahead, we anticipate annualised industrial
production growth in China in excess of 8% over the next 5 years,
with steel production growing at around 5%. The competitive edge of
our proximity to China cannot be underestimated and in North West
China alone there is the potential for as many as 10 new steel
plants and expansion projects by 2015. We continue to work to
ensure that we take full advantage of this growing customer base on
our doorstep.
Felix J Vulis
Chief Executive Officer
CHIEF FINANCIAL OFFICER'S REVIEW
The first half of 2012 has been a challenging environment with
growing global economic uncertainty, increased pressures on prices
and lower demand. The Group showed resilient performance despite
the prevailing economic conditions.
The Group's revenue and underlying EBITDA were lower by 19% and
41% respectively against 2011, reflecting the impact of the
difficult market conditions. 68% of the deterioration in the
Group's underlying EBITDA was caused by weakened commodity prices,
14% due to reduced sales volumes and 18% due to higher costs.
However, revenue for the six months ended 30 June 2012 was in
line with our expectations and underlying EBITDA was better than
anticipated, which is mainly due to lower operating costs in the
Ferroalloys Division, better prices and volumes of iron ore than
expected, and higher sales volumes in the Energy and Logistics
Divisions.
This is the first time we have included 100% of the results of
Shubarkol Komir JSC ('Shubarkol') in the income statement as it is
now wholly owned by the Group. The total contribution of Shubarkol
in the Group's underlying EBITDA was US$17 million. The Group's
share in Shubarkol's results in the prior period was US$7
million.
There was a rise in total operating costs from H1 2011 which
primarily resulted from cost inflation in Kazakhstan, higher
employment costs and increased depreciation in line with the higher
value of property, plant and equipment. Of the total increase in
operating costs, 32% resulted from additional exploration
activities in the Other Non-ferrous Division.
As at 30 June 2012, the Group had gross available funds of
US$1,565 million, including cash and cash equivalents of US$1,529
million, term deposits of US$22 million, and other financial assets
of US$14 million. During H1 2012, the Group put in place credit
facility agreements for a total amount of US$3 billion and
refinanced the revolving credit facility for an amount of US$467
million which gives the Group additional confidence in its funding
headroom and liquidity position (see cash flow financing
section).
INCOME STATEMENT
Revenue
During the period, revenue decreased by 19.1% to US$3,246
million (H1 2011: US$4,011 million). This resulted primarily from
reduced commodity prices, in particular in the Ferroalloys and Iron
Ore Divisions, and lower sales volumes in the Ferroalloys
Division.
The average prices for Ferroalloys dropped by 7.7% compared to
the average prices in the same period last year. The chrome ore
average price was lower by 36.9% and manganese concentrate average
price by 11.7% compared to H1 2011. In addition, the Ferroalloys
Division revenue was impacted by lower sales volumes, notably for
chrome ore and high-carbon ferrochrome.
Iron ore concentrate and iron ore pellets average prices in the
first half of 2012 were significantly lower compared to the same
period last year by 25.0% and 19.9%, respectively.
Alumina and Aluminium Division showed a decline in sales against
H1 2011 caused by production problems at the alumina refinery
earlier during the period which was resolved with alumina
production returning to full capacity in June 2012.
The Ferroalloys Division accounted for 40.8% of the Group
revenue, the Iron Ore Division 30.3%, the Alumina and Aluminium
Division 13.6%, the Other Non-ferrous Division 9.3%, the Energy
Division 4.7% and the Logistics Division 1.3%.
Gross margin
Gross margin significantly declined during the period to 45.9%
(H1 2011: 57.9%) as result of the weakened sales prices and was
further affected by increased unit costs across the divisions.
Higher costs of sale were driven by increased depreciation,
higher material prices and wage rates. These were partially offset
by lower Mineral Extraction Tax ('MET').
Distribution costs
Distribution costs showed a rise of 5.6% to US$265 million (H1
2011: US$ 251 million). This is primarily due to US$15 million
additional transportation costs resulting from increased tariffs
and transport fares. This increase was partially offset by a US$3
million reduction in insurance costs.
General and administrative costs
General and administrative costs during the first half of 2012
increased by 1.7% to US$363 million (H1 2011: US$357 million).
Staff costs rose by US$27 million and professional and other
services fees grew by US$16 million compared to the same period in
the prior year. Sponsorship and donations decreased by US$34
million mainly due to a delay in the timing of social
investments.
Exploration expenses
Exploration expenses increased by 126.9% to US$59 million (H1
2011: US$26 million) reflecting increased activities in the Other
Non-ferrous Division.
Net other operating expenses
Net other operating expenses comprised mainly foreign exchange
gains and losses from operating activities.
Net finance costs
Net finance costs increased by 202.4% to US$124 million (H1
2011: US$41 million) as a result of the increased borrowings to
support the Group's capital expenditure projects and strategic
development.
Share of (loss)/profits of Joint Ventures and Associates
The net share of joint ventures and associates results amounted
to a US$9 million loss (H1 2011: US$5 million profit). The Group's
share in the loss of its joint venture investments in Camrose
Resources Limited and Taurus Gold Limited were US$6 million and
US$2 million, respectively. The outstanding 75% shares in Shubarkol
were acquired by the Group in April 2012 resulting in Shubarkol
being reclassified as a subsidiary. The Group's share in the
profits of Shubarkol in the previous period was US$7 million.
Taxation
The Group's income tax expense was US$212 million (H1 2011:
US$449 million), an Effective Tax Rate ('ETR') of 31.8% (H1 2011:
27.5%).
The main drivers behind the ETR being higher than the 20%
corporate income tax rate in the Republic of Kazakhstan, where the
majority of the Group's operations are located, included losses not
recognised for deferred tax purposes in jurisdictions where the
Group has a lack of income and, therefore, tax capacity, which
added 7.3 percentage points to the ETR, Excess Profits Tax charges
in Kazakhstan which increased the ETR by 2.6 percentage points, and
items not taxable or deductible for tax purposes which added 2.6
percentage points.
As the Group continues to develop its greenfield projects, we
expect the ETR to increase and remain high as compared with prior
periods. This is mainly due to the significant expenditure which is
being undertaken in jurisdictions where revenues are not yet being
generated.
The Group's ETR also remains sensitive to prices and market
conditions.
Exchange rates
The average Kazakhstani Tenge ('KZT') to US Dollar ('US$')
exchange rate in H1 2012 was 148.16 (H1 2011: 146.01).
BALANCE SHEET
The Group's net book value of property, plant and equipment at
30 June 2012 was US$11,896 million (31 December 2011: US$9,891
million), an increase of 20.3%.
There was continued good progress in implementation of various
capital expenditure projects which are aimed to reduce cost by
improving efficiency and increasing capacity. An analysis of
additions in the period arising from the Group's capital
expenditure projects in the first half of 2012 is set out in the
capital expenditure section of this review.
Goodwill and intangible assets at 30 June 2012 totalled US$2,107
million (31 December 2011: US$1,410 million), an increase of
49.4%.
During the period, the Group completed the acquisition of FQM's
assets in respect of the Kolwezi Tailings project, the Frontier and
Lonshi mines and related exploration interests, all located in the
Katanga Province of the DRC, for total consideration of US$1.25
billion. This resulted provisionally in US$573 million of goodwill
and intangible assets recognised as of 30 June 2012 based on a
preliminary purchase price allocation exercise. The acquisition of
the 75% outstanding shares in Shubarkol resulted provisionally in
US$132 million of goodwill. Further details can be found in Note 5
to the Interim Financial Statements.
The Group's borrowings at 30 June 2012 totalled US$4,940 million
(31 December 2011: US$1,594 million). A summary of the Group's
borrowings is set out in Note 14 to the Interim Financial
Statements with further commentary in the Funding and Liquidity
section of this review.
CASH FLOW
Net cash generated from operating activities
The Group generated US$724 million from operating activities (H1
2011: US$1,184 million). The reduced cash generated from operating
activities is primarily due to the significant decrease in the
operating profit during the first half of 2012 compared to the
prior period.
Net cash used for investing activities
During the period, the Group utilised a total of US$2,465
million for investing activities (H1 2011: US$952 million). The
Group utilised US$1,333 million on acquisitions (H1 2011: US$nil).
The Group completed the acquisitions of certain FQM assets in the
DRC and the remaining 75% shares in Shubarkol. These resulted in a
cash outlay of US$749 million (net of US$1 million refund) in March
2012 and US$584 million (net of cash acquired) in April 2012,
respectively.
In addition, the Group utilised funds to acquire property, plant
and equipment during the period which amounted to US$1,020 million
(H1 2011: US$821 million). The Group has also settled the
contingent consideration relating to the Rubio Holdings Limited
acquisition amounting to US$108 million.
Net cash flow generated from financing activities
The Group generated cash resources of US$2,657 million (H1 2011:
US$273 million outflow) from its financing activities during the
period ended 30 June 2012. Additional funding primarily consisted
of US$1,937 million (net of fees) from Russian Commercial Bank
(Cyprus) Limited (part of the VTB group) and US$980 million (net of
fees) from Sberbank of Russia. These cash inflows were partially
offset by repayment of borrowings and deferred consideration of
US$209 million and payment of dividends of US$141 million.
FUNDING AND LIQUIDITY
During H1 2012, the Group secured additional liquidity by
entering into credit facility agreements with Sberbank of Russia
for US$2 billion and Russian Commercial Bank (Cyprus) for an
additional US$1 billion, and refinancing of the revolving credit
facility with a reduced amount of US$467 million arranged on a club
deal basis with Credit Agricole acting as the coordinating
bank.
As of 30 June 2012, the average maturity of outstanding debt was
four years.
CAPITAL EXPENDITURE
2012 Capital Expenditure
In H1 2012, the Group's capital expenditure amounted to US$1,047
million (H1 2011: US$697 million), an increase of US$350 million,
or 50%.
The geographic split of capital expenditure in H1 2012 was
Kazakhstan US$740 million, Africa US$270 million, Brazil US$24
million and other US$13 million.
Planned sustaining capital expenditure for 2012 is estimated in
the region of US$800 million in line with the initial
projections.
Capital Expenditure
Six months ended 30 June
---------------------------
In millions of US$ 2012 2011
--------------------- -------------- -----------
Expansionary 773 504
Sustaining 274 193
--------------------- -------------- -----------
Total 1,047 697
--------------------- -------------- -----------
Capital Expenditure Projects
In view of the recent global economy outlook and challenges on
key commodity markets, the Group is undertaking a thorough review
of capital expenditure programme and this work is already at an
advanced stage. While conducting the review, robust capital
allocation rules are followed.
The Group identified a list of committed capital expenditure
projects in execution which are characterised by an attractive
return on investment in the current environment. The remaining main
capital expenditure projects are still under review with respect to
scope and timing, taking into account market and economic
conditions, timing of key approvals, return on investment and
payback period.
Main Capital Expenditure Projects
Current Date of
In millions of US$ estimated Division commissioning
cost
------------------------------------------- ---------- ------------------ --------------
Committed
-------------------------------------------------------------------------------------------
New Aktobe Ferroalloys Plant - 440 750 Ferroalloys 2013
ktpa
Mine expansion Phase 1 370 Iron Ore 2014
Anode production plant 240 Alumina and 2012
Aluminium
Expansion of copper (oxide) production 150 Other Non-ferrous 2013
Chambishi copper plant (LME grade 2012
A) 80 Other Non-ferrous
Reconstruction of power unit 6 - 265 Energy 2013
325 MW
Stripping complex 2 - maintenance 196 Energy 2017
capital expenditure
Railway fleet expansion 210 Logistics 2012
------------------------------------------- ---------- ------------------ --------------
Total - Committed 2,261
------------------------------------------- ---------- ------------------ --------------
Under review
-------------------------------------------------------------------------------------------
Mine expansion Phase 2 455 Iron Ore TBD
Concentrator expansion - 7 mtpa high 455 Iron Ore TBD
grade concentrate
Pelletiser - 5 mtpa 555 Iron Ore TBD
HBI Plant - 1.8 mtpa 675 Iron Ore TBD
Pedra de Ferro (BMSA) 2,100 Iron Ore TBD
Mineracao Minas Bahia SA (MIBA) 2,600 Iron Ore TBD
Construction of 2 x 600 MW power 1,260 Energy TBD
units
Mine expansion - 5 mtpa coal 230 Energy TBD
Expansion of copper (sulphide) production 465 Other Non-ferrous TBD
------------------------------------------- ---------- ------------------ --------------
Total - Under review 8,795
------------------------------------------- ---------- ------------------ --------------
DIVISIONAL OVERVIEW
Ferroalloys Division
The Ferroalloys Division primarily produces and sells
ferrochrome, as well as other ferroalloys, for use as alloying
products in the production of steel, whilst manganese and chrome
ore are sold to third-party producers of ferroalloys as well as the
chemical industry. ENRC is the largest ferrochrome producer in the
world by chrome content and the lowest cost producer of high-carbon
ferrochrome. The Ferroalloys Division is vertically integrated,
having its own chrome ore and manganese ore mines feeding its
ferroalloy production in Kazakhstan and Russia. In addition to its
own ore, the Division also benefits from competitively priced
electricity supplied by the Energy Division, as well as having a
gas-fired power station at its Aktobe plant.
Iron Ore Division
The Iron Ore Division consists of producing assets in the
Republic of Kazakhstan and exploration and development assets in
Brazil. In Kazakhstan the Iron Ore Division produces and sells iron
ore concentrate and pellets primarily to steel producers and on the
basis of full year 2011 data, is a material exporter of iron ore
and in the lowest quartile of the global cost curve.
Kazakhstan-based operations include iron ore mines, crushing,
beneficiation and pelletising plants and a thermal power station.
In Brazil, the Division is focused on the development of a
high-quality iron ore deposit in the Caetité region in the State of
Bahia, as well as two early stage exploration projects, both
located in the State of Minas Gerais.
Alumina and Aluminium Division
The Alumina and Aluminium Division produces and sells alumina to
aluminium producers, and also produces and sells the Group's own
aluminium. ENRC believes, based on full year 2011 data, that the
Alumina and Aluminium Division is the world's ninth largest
supplier of traded alumina by volume and is at the lower end of the
global industry cost curve for alumina and aluminium. The Alumina
and Aluminium Division's vertically integrated operations include:
bauxite mines, a limestone mine, an alumina refinery, an aluminium
smelter and a power station.
Energy Division
The Energy Division is one of the largest electricity providers
in the Republic of Kazakhstan, accounting for approximately 16.3%
of the country's recorded electricity production in 2011 (2010:
16.6%). Taking into account all of the energy generation facilities
of ENRC, including SSGPO, the alumina refinery (Aluminium of
Kazakhstan ('AOK')) and the Aktobe ferroalloys smelter
('Kazchrome'), the Group's share of Kazakhstan's energy supply was
22.5% in 2011 (2010: 22.6%). The Energy Division provides a
cost-effective energy supply to the Group's other principal
Kazakhstani operating divisions, with internal consumption of 71.5%
(2010: 73.9%) of the electricity produced in 2011, as well as
producing a surplus for sales to third parties in Kazakhstan.
Other Non-ferrous Division
The Other Non-ferrous Division operates principally in the
Democratic Republic of the Congo ('DRC'), where it mines copper and
cobalt and processes the ore through Boss Mining Sprl ('Boss'), a
subsidiary of ENRC, with the State-owned La Générale des Carrières
et des Mines ('Gécamines') as a minority (30%) partner. ENRC also
owns 50.5% of Camrose Resources Limited, whose primary assets, held
through its subsidiaries, includes interests in five copper and
cobalt exploitation licences situated in the DRC. ENRC acquired
additional processing capacity at Kolwezi and at the Frontier mine
in H1 2012, as well as more recently a new licence in respect of
the Frontier mine. The Chambishi smelter, located in Zambia,
processes material mined in the DRC at Boss. The Other Non-ferrous
Division's copper and cobalt operations include open cast mines,
crushing, beneficiation, concentrator plants and an electro-winning
facility in the DRC and the Chambishi copper and cobalt smelter in
Zambia. In addition, the Other Non-ferrous Division includes a
number of development prospects: Mozambique - coal; Mali - bauxite;
Zimbabwe - platinum; and South Africa - fluorspar, coal and
manganese. The Group's African logistics and trucking business,
SABOT, operates in Central and Southern Africa.
Logistics Division
The Logistics Division provides transportation and logistics
services to the Group's principal Kazakhstani operating Divisions,
as well as to third parties. The Division's operations include
freight forwarding, wagon repair services, railway construction and
repair services. The availability of these services within the
Group mitigates many of the risks associated with the supply of raw
materials and delivery of products to customers. In addition, the
Division operates a railway transfer and reloading terminal on the
Kazakhstan/China border, facilitating the Group's access to the
Chinese market.
OPERATING AND FINANCIAL REVIEW
Ferroalloys Division
Six months ended 30 June(1)
Key Facts 2012 2011 % Change
---------------------------------- ------- ------ ------------- ---------
Third-party Sales Volumes
High-carbon ferrochrome '000t 506 578 (12.5)%
Medium-carbon ferrochrome '000t 25 24 4.2%
Low-carbon ferrochrome '000t 44 44 0.0%
Ferrosilicochrome '000t 36 36 0.0%
Ferrosilicomanganese '000t 84 87 (3.4)%
Ferrosilicon '000t 23 26 (11.5)%
Total Ferroalloys '000t 718 795 (9.7)%
Chrome ore '000t 192 300 (36.0)%
Manganese concentrate '000t 291 309 (5.8)%
Iron-manganese concentrate '000t 21 42 (50.0)%
Production Volumes
Chrome ore '000t 1,729 1,884 (8.2)%
Manganese ore concentrate '000t 447 453 (1.3)%
Ferroalloys total gross(2) '000t 866 905 (4.3)%
Ferroalloys total net '000t 752 792 (5.1)%
High-carbon ferrochrome gross(2) '000t 583 631 (7.6)%
High-carbon ferrochrome net '000t 524 575 (8.7)%
Prices
Ferroalloys US$/t 1,695 1,836 (7.7)%
Chrome ore US$/t 222 352 (36.9)%
Manganese concentrate US$/t 159 180 (11.7)%
Iron-manganese concentrate US$/t 91 48 89.6%
Unit Costs (3)
Ferroalloys US$/t 979 942 3.9%
Chrome ore US$/t 54 55 (1.8)%
Manganese concentrate US$/t 132 115 14.8%
Iron-manganese concentrate US$/t 11 8 37.5%
---------------------------------- ------- ------ ------------- ---------
(1) Numbers for ferroalloys include Tuoli.
(2) Gross production volumes include the internal consumption of
ferroalloys products.
(3) Unit costs: Cost of sales divided by sales volumes.
Analysis of third-party revenue by destination:
H1 2012 H1 2011
------------------------------------------------- -------- --------
Asia Pacific 42.2% 44.8%
Europe and Middle East 27.3% 23.5%
Eurasia 19.1% 22.0%
Rest of the World 11.4% 9.7%
------------------------------------------------- -------- --------
Production
In H1 2012, the Ferroalloys Division produced: 1,729 kt of
saleable chrome ore (H1 2011: 1,884 kt); 447 kt of saleable
manganese ore concentrate (H1 2011: 453 kt); and 752 kt of
ferroalloys (H1 2011: 792 kt), including 524 kt (H1 2011: 575 kt)
of its primary product, high-carbon ferrochrome. In H1 2012, 114 kt
(H1 2011: 113 kt) of ferroalloys were consumed internally.
Sales and Pricing
H1 2012 was characterised by sharply deteriorating economic
conditions for many of our ferroalloy customers. In particular
Japanese steel producers faced an increasingly difficult business
climate on the back of competitive pressure from China and Korea,
as a result of structural factors and the strength of the Japanese
Yen. The US ferroalloy market proved to be more resilient,
particularly for specialty steels, where there was sustained good
demand from the automotive, energy, and aerospace industries. On
the supply side, Q1 2012 saw Eskom in South Africa introduce its
power buy-back scheme, which resulted in producers curtailing
production and the tightening of supply.
The European ferrochrome benchmark price in Q1 2012 settled at
US$1.15 per pound of chrome, down US 5 cents on the previous
quarter. The Q2 2012 benchmark increased US 20 cents to US$1.35 per
pound of chrome due to the reduced supply of charge chrome caused
by Eskom's power buyback programme. On-going concerns over the
European sovereign debt crisis manifested in a weaker nickel price,
driving a preference for austenitic grades. This in conjunction
with weaker ferrochrome demand globally resulted in the Q3
benchmark settling US 10 cents lower at US$1.25 per pound of
chrome.
In Q1 2012, prices and demand for medium- and low-carbon
ferrochrome increased due to restocking. Demand and prices in Q2
2012 initially rose in April and May before falling, following a
drop in demand for high-carbon ferrochrome and other commodities,
as problems regarding the sovereign debt crisis in Europe
escalated. We expect pricing pressure to continue in Q3 2012,
particularly with the restarting of low-carbon ferrochrome
production in South Africa in June.
Due to shaft repairs at Donskoy in Q1 2012 and a resulting lack
of availability of saleable chrome ore grades in H1 2012, the
Division sold predominantly an off-grade product with lower Cr2O3
content, which impacted the realised price of third-party chrome
ore sales. Slowing demand and the build-up of stocks in China
further impacted the price of chrome ore during the period.
Both temporary and permanent production cuts for
silico-manganese and refined ferromanganese, intensified in the
first few months of 2012, precipitating a major price rally.
Further production cutbacks, particularly in South Africa and
Australia, applied additional strain on the availability of
silico-manganese in the USA, having a positive impact on pricing.
However reduced demand through Q2 2012 resulted in ferroalloy
prices steadily pulling back, most notably for
silico-manganese.
Through Q2 2012 Chinese crude steel production was relatively
firm and there was a significant drop in manganese ore inventories
at Chinese ports. This underpinned a rise in price for benchmark
medium grade manganese ore (44% lump) from US$4.60 per dry metric
tonne unit ('dmtu') in March to US$5.15 per dmtu.
Ferroalloys Division
Summary income statement
Six months ended 30
June
In millions of US$ 2012 2011 % Change
------------------------------------- ---------- ---------- ---------
Revenue 1,333 1,644 (18.9)%
Third parties 1,325 1,637 (19.1)%
Inter-segment 8 7 14.3%
Cost of sales (699) (763) (8.4)%
------------------------------------- ---------- ---------- ---------
Gross profit 634 881 (28.0)%
Gross margin % 47.6% 53.6%
Distribution costs (148) (154) (3.9)%
General and administrative expenses (93) (119) (21.8)%
Net other operating expense (3) (13) (76.9)%
------------------------------------- ---------- ---------- ---------
Operating profit 390 595 (34.5)%
Operating profit margin % 29.3% 36.2%
Depreciation, amortisation and
impairment (68) (60) 13.3%
Underlying EBITDA 458 655 (30.1)%
Underlying EBITDA margin % 34.4% 39.8%
------------------------------------- ---------- ---------- ---------
Results for the six months
The Ferroalloys Division contributed US$458 million or 40.0% to
the Group's Underlying EBITDA (H1 2011: US$655 million; 34.0%), a
decrease of US$197 million, due to adverse market conditions
leading to a decline in prices and sales volumes. Operating costs
were 10.1% lower than the corresponding period in 2011 as a result
of lower sales volumes, the exclusion of Tuoli from operations and
cost control initiatives.
In H1 2012 the Ferroalloys Division sold 718 kt of ferroalloys,
77 kt less than in H1 2011, 41.6% of the decrease is attributable
to the exclusion of Tuoli. Chrome ore sales fell 36.0% to 192 kt
(H1 2011: 300 kt).
Total revenue for the Division fell US$311 million compared to
the previous period. Of this decrease in revenue, US$175 million
was due to lower sales volumes (US$126 million relating to
high-carbon ferrochrome, US$51 million of which was attributable to
Tuoli and US$38 million due to chrome ore). A decline in commodity
prices reduced the Division's revenue by US$145 million. Sales of
other goods and services increased revenue by US$9 million.
Cost of sales decreased by US$64 million of which US$72 million
was attributable to lower sales volumes (including US$45 million
from Tuoli). This was partially offset by a US$8 million rise
relating to increased depreciation and amortisation and higher
material prices for Chinese coke, fuel, lubricants and some
explosive materials. MET amounted to US$71 million (H1 2011: US$95
million).
Distribution costs remained broadly stable and amounted to
US$148 million (H1 2011: US$154 million) as a decrease in volumes
was offset by higher transportation cost affected by the changes in
delivery routes. Thus there were less volumes of HC FeCr
transported to China and Japan and the increase in sales volumes to
the more remote destinations in West Europe.
General and administrative expenses amounted to US$93 million
(H1 2011: US$119 million). The decrease of US$26 million was
primarily due to a delay in timing of social investments, which are
planned for later in the year.
Capital Expenditure
The New Aktobe Ferroalloy Plant is one of the key investments in
the Ferroalloys Division. This project is aligned with the Groups
growth strategy in ferroalloys and consists of the construction of
four Direct Current (DC) furnaces with a total capacity of 440
ktpa. At present, the following have been completed: pits,
foundations and air pipes for all of the furnaces whilst furnace
covers are in the process of installation. In H1 2012, we
progressed significantly with project implementation, and the main
activities were excavating, pit backfilling, foundation and framing
works. Overall, the commissioning date and total cost of this
project remain unchanged at Q4 2013 and US$750 million
respectively.
Iron Ore Division
Six months ended 30 June
Key Facts 2012 2011 % Change
--------------------------------------- --------- --------- -------- ---------
Third-party Sales Volumes
Iron ore concentrate '000t 4,325 3,936 9.9%
Iron ore pellet '000t 3,636 4,350 (16.4)%
Production
Iron ore mined '000t 20,097 21,332 (5.8)%
Iron ore primary concentrate produced '000t 8,068 8,783 (8.1)%
Prices
Iron ore concentrate US$/t 102 136 (25.0)%
Iron ore pellet US$/t 137 171 (19.9)%
Unit Costs (1)
Iron ore concentrate US$/t 35 32 9.4%
Iron ore pellet US$/t 50 44 13.6%
--------------------------------------- --------- --------- -------- ---------
(1) Unit costs: Cost of sales divided by sales volumes.
Analysis of third-party revenue by destination:
H1 2012 H1 2011
------------------------------------------------- -------- --------
Russia 54.6% 65.8%
China 36.7% 26.9%
Kazakhstan 8.7% 7.3%
------------------------------------------------- -------- --------
Production
In H1 2012, the Iron Ore Division mined 20,097 kt of iron ore
(H1 2011: 21,332 kt). This was processed into 8,068 kt of primary
iron ore concentrate (H1 2011: 8,783 kt), with saleable concentrate
production of 3,824 kt (H1 2011: 3,680 kt). The balance was used to
produce 3,687 kt (H1 2011: 4,326 kt) of pellet.
Sales and Pricing
Global steel production recovered slightly in H1 2012, with
annual cumulative crude steel production in the period January to
June 2012 up 0.9% year-on-year. During the same period the steel
industry utilisation rate peaked at 81.3% of total capacity in
April, lower than the peak rate of 82.8% in April 2011. The
increase in production was primarily from China and the United
States.
Platts IODEX spot iron ore prices generally held in a narrow
range of US$132-146 per dry metric tonne, with the exception of
mid-April when the price increased to US$150 per dry metric tonne,
as China increased steel production.
Russia and China continued to be the Group's main markets for
its iron ore product, in particular The Magnitogorsk Iron and Steel
Works OJSC ('MMK') in Russia and steel producers in North West
China. As a result of MMK lowering its contractual volumes with
ENRC for 2012, an agreement was reached to supply iron ore
concentrate to Mechel with pricing based on monthly agreements. The
Group's contractual prices with its main Chinese customers are
negotiated on a quarterly basis. Based on an agreement signed at
the end of 2011, ENRC continues to use a monthly pricing mechanism
regarding sales to MMK based on the Platts index.
In H1 2012 61.0% (5 mt) of iron ore sales were to Russia (H1
2011: 66.8%; 5.5 mt) whilst 32.2% (2.6 mt) of sales went to China
(H1 2011: 26.8%; 2.2 mt), with the remaining 6.8% (571 kt) of iron
ore product sold within Kazakhstan (H1 2011: 6.4%, 533 kt). 45.7%
of sales in H1 2012 (3.6 mt) were comprised of pellet (H1 2011:
52.5%, 4.4 mt).
Iron Ore Division
Summary income statement
Six months ended 30
June
In millions of US$ 2012 2011 % Change
------------------------------------- ---------- ---------- ---------
Revenue 983 1,296 (24.2)%
Third parties 983 1,295 (24.1)%
Inter-segment - 1 (100.0)%
Cost of sales (360) (334) 7.8%
------------------------------------- ---------- ---------- ---------
Gross profit 623 962 (35.2)%
Gross margin % 63.4% 74.2%
Distribution costs (128) (82) 56.1%
General and administrative expenses (70) (89) (21.3)%
Exploration costs (7) - n/a
Net other operating expense (2) (5) (60.0)%
------------------------------------- ---------- ---------- ---------
Operating profit 416 786 (47.1)%
Operating profit margin % 42.3% 60.6%
Depreciation, amortisation and
impairment (57) (49) 16.3%
Underlying EBITDA 473 835 (43.4)%
Underlying EBITDA margin % 48.1% 64.4%
------------------------------------- ---------- ---------- ---------
Results for the six months
The Iron Ore Division continued to be the largest contributor to
the Group's Underlying EBITDA, generating US$473 million, or 41.3%
(H1 2011: US$835 million; 43.3%). The US$362 million decline was a
result of lower prices and sales volumes, increased unit cost of
sales and distribution costs.
Lower iron ore sales prices and volumes resulted in a 24.2% drop
in revenue to US$983 million (H1 2011: US$1,296 million). A 25%
fall in prices of concentrate and 20% fall in prices of pellets
reduced the Division's revenue by US$267 million compared to H1
2011. In addition, a shift in product mix to lower-priced
concentrate and screening had an adverse impact on revenue, with a
net decrease of US$46 million. In H1 2012 pellet accounted for
44.3% of sales volumes (H1 2011: 52.5%). The decline in sales
volumes due to lower demand from MMK was largely compensated by
sales to Mechel and higher sales to Chinese customers.
A US$35 million increase in cost of sales was a result of higher
unit cost of sales. This increase was partially offset by a US$17
million reduction in costs due to lower sales volumes. Higher unit
cost of sales was driven by higher prices for fuel, coal, explosive
materials, tyres, electricity, and an increased wage rate. MET
decreased US$19 million to US$39 million (H1 2011: US$58 million)
impacted by the commodity prices decline and lower volumes of
extracted ore. Depreciation and amortisation increased the
Division's cost of sales by US$8 million.
Distribution costs increased 56.1% to US$128 million (H1 2011:
US$82 million) due to higher transportation costs as more products
were shipped to China which has a longer transportation distance in
comparison with rail transportation to Russia and Kazakhstan. In
addition, transportation tariff for the delivery to Mechel was
higher compared to MMK.
General and administrative expenses amounted to US$70 million, a
US$19 million reduction against the comparable period in 2011. This
is primarily due to the timing of social investments which are
expected to be paid later in 2012.
Capital Expenditure
Completion of the main expansionary projects in Kazakhstan will
add three new products to the product portfolio of the Iron Ore
Division namely: high quality concentrate, high quality pellets and
hot briquetted iron ("HBI").
Realization of the Brazilian project will support the Group's
growth strategy and provide access to the seaborne iron ore market.
The progress to date is as follows:
-- Mine expansion Phase 1 in Kazakhstan: work has commenced to
secure the required ore feed for the expansionary projects. The
estimated cost is US$370 million;
-- Concentrator expansion - 7 mtpa high grade concentrate: In H1
2012 we completed framing installation for the crusher, piles
field, transfer units and gallery. Installation works were
performed on a "diaphragm wall", framing for cable bridges, and
wall concreting;
-- Pelletiser expansion: the addition of 5 mtpa of high quality
pellet. Contract for delivery of feasibility studies has been
signed;
-- HBI Plant: development of 1.8 mtpa of HBI. The plant site has
been prepared and is ready for civil works to commence; and
-- BMSA: The preliminary licence for the port has been delayed,
due to location change from Ponta da Tulha to Aritagua. Upon
receipt of the installation licence, we will then proceed with the
construction of the port, with receipt of the port operational
licence from the environmental agency and first operation expected
in 2016.
Alumina and Aluminium Division
Six months ended 30 June
Key Facts 2012 2011 % Change
--------------------------- ---------- -------- -------- ---------
Third-party Sales Volumes
Alumina '000t 469 575 (18.4)%
Aluminium '000t 124 127 (2.4)%
Production
Bauxite mined '000t 2,568 2,689 (4.5)%
Alumina produced '000t 706 813 (13.2)%
Aluminium produced '000t 124 124 0.0%
Prices
Alumina US$/t 316 380 (16.8)%
Aluminium US$/t 2,214 2,564 (13.7)%
Unit Costs (1)
Alumina US$/t 344 274 25.5%
Aluminium US$/t 1,739 1,661 4.7%
--------------------------- ---------- -------- -------- ---------
(1) Unit costs: Cost of sales divided by sales volumes.
Production
In H1 2012, the Alumina and Aluminium Division mined 2,568 kt of
bauxite (H1 2011: 2,689 kt) and produced 706 kt of alumina (H1
2011: 813 kt) and 124 kt (H1 2011: 124 kt) of aluminium.
Sales and Pricing
London Metal Exchange ('LME') aluminium prices were volatile
during H1 2012 with a strongly pronounced downward trend towards
the end of H1. During H1 the LME price peaked at US$2,308 per tonne
in late February, declining to a low of US$1,811 per tonne in June.
Primary aluminium is used to make aluminium semi-finished products
like sheet and plate, extrusions, forgings, and castings. Demand
for semi-finished products in H1 2012 was weaker than in the
comparable period of 2011, with key applications being
transportation, packaging, building and construction, particularly
in developing markets. Global output capacity remained strong in H1
2012, with China, India and the Middle East maintaining their
output and in some instances adding new capacity to the market,
despite rising power costs.
During H1 2012 primary aluminium premiums continued to increase,
reaching a peak of US$200-230 per tonne by end of the period.
Premiums act as an indicator of the metal's physical availability.
Rising premiums were driven by large volumes of aluminium being
tied up in inventory under financing deals, which was unavailable
for immediate consumption.
In H1 2012 the Group shipped 462 kt (H1 2011: 567 kt) of alumina
to United Company RUSAL ('RUSAL') under a long-term supply contract
to supply a minimum annual volume of 1.2 mtpa. The pricing under
this contract is linked as a percentage of the LME price of primary
aluminium. In H1 2012 RUSAL, the Division's largest single customer
accounted for 35% (H1 2011: 38%) of the Division's sales revenue.
The balance of alumina production is consumed by the Group in its
own aluminium smelter (Kazakhstan Aluminium Smelter, or 'KAS') and
also by a local Kazakhstan refractory materials producer
(Kazogneupor).
Alumina and Aluminium Division
Summary income statement
Six months ended 30
June
In millions of US$ 2012 2011 % Change
------------------------------------- ----------- --------- ---------
Revenue 453 577 (21.5)%
Third parties 440 563 (21.8)%
Inter-segment 13 14 (7.1)%
Cost of sales (396) (378) 4.8%
------------------------------------- ----------- --------- ---------
Gross profit 57 199 (71.4)%
Gross margin % 12.6% 34.5%
Distribution costs (26) (27) (3.7)%
General and administrative expenses (28) (30) (6.7)%
Net other operating expense (9) (1) 800.0%
------------------------------------- ----------- --------- ---------
Operating profit (6) 141 (104.3)%
Operating profit margin % (1.3)% 24.4%
Depreciation, amortisation and
impairment (54) (47) 14.9%
Underlying EBITDA 48 188 (74.5)%
Underlying EBITDA margin % 10.6% 32.6%
------------------------------------- ----------- --------- ---------
Results for the six months
The results of the Alumina and Aluminium Division were strongly
affected by a reduction in LME prices and processing problems at
the alumina refinery caused by interruptions to the supply of soda
ash in Q1 2012. The Division contributed US$48 million, or 4.2%, to
the Group's Underlying EBITDA (H1 2011: US$188 million; 9.8%).
The Division's revenue decreased by US$124 million or 21.5%
compared to the H1 2011. US$73 million of this reduction was due to
lower sales prices and US$52 million due to lower sales volumes,
predominately with respect to alumina. Sales of other goods and
services increased Division's revenue by US$1 million.
Cost of sales increased by US$18 million and amounted to US$396
million (H1 2011: US$378 million). The increase in unit costs of
sales of US$39 million was partially offset by a US$27 million
reduction in costs due to lower sales volumes. Higher unit cost of
sales of alumina reflected an increase in consumption rates for
input materials as a result of processing problems. Additionally
unit costs of sales of alumina and aluminium were driven by higher
prices of certain input materials (fuel, coal and auxiliary
materials), as well as increased repairs and wage rates.
Depreciation and amortisation increased by US$7 million. MET
totalled US$6 million (H1 2011: US$8 million).
Distribution costs stayed broadly unchanged at US$26 million (H1
2011: US$27 million). General and administrative expenses fell by
6.7% to US$28 million (H1 2011: US$30 million), primarily due to
lower social investments.
Capital Expenditure
The Anode plant has a planned capacity of 136 ktpa, thus
reducing our dependence on third party suppliers and providing
sufficient volumes for the Group's increased aluminium production
capacity. In H1 2012 completed parts of the project have received
approval from Kazakhstan State Commission and start up and
adjustment works have begun at the supporting facilities. The
commissioning date and total estimated cost are both unchanged at
H2 2012 and US$240 million respectively.
Other Non-Ferrous Division
Six months ended 30 June
Key Facts 2012 2011 % Change
-------------------------------------- ------------- ----------- ----------- -----------
Third-party Sales Volumes
Total saleable copper contained '000t 18.0 13.4 34.3%
Copper as a by-product '000t 2.7 1.1 145.5%
Total saleable cobalt contained '000t 4.4 4.9 (10.2)%
Cobalt as a by-product '000t 1.9 2.5 (24.0)%
Production (1)
Saleable copper contained '000t 17.5 13.9 25.6%
Saleable cobalt contained '000t 5.4 5.5 (2.2)%
Prices (2)
Saleable copper contained US$/t 7,731 9,072 (14.8)%
Saleable cobalt contained US$/t 30,093 37,485 (19.7)%
Unit Costs (3)
Copper with cobalt by-product credit US$/t 7,088 3,173 123.4%
Cobalt with copper by-product credit US$/t 30,036 33,067 (9.2)%
-------------------------------------- ------------- ----------- ----------- -----------
(1) Production numbers for saleable copper and cobalt refers to
tonnes of contained metal. Contained metal consists of total units,
whether in metal form or metal units contained in concentrate and
sludge, net of internal consumption.
(2) Prices do not include by-products.
(3) Unit cost of copper: Cost of sales for copper less cobalt
concentrate by-product credits at Luita divided by copper metal
sales volumes. Unit cost of cobalt: Cost of sales for cobalt metal
less copper by-product credits at Chambishi divided by cobalt metal
sales volumes.
Overview
Integration of ENRC's copper belt assets continues to be focused
on exploration, resource delineation, mine planning, operational
efficiency, processing methodologies and recoveries. Emphasis is
currently being placed on expanding copper production capacity
through acquisition of the Frontier mine and the Kolwezi Processing
Facility, assets and the further development of the Camrose Mashitu
operation. Power availability remains a high priority for the DRC
assets. Pre-feasibility studies are being conducted in this
regard.
Exploration
In the DRC, the extensive drilling programme continued through
H1 2012 with the completion of 62,688 metres (479 completed holes)
compared to 71,973 metres (455 completed holes in H1 2011) on the
Kakanda, Mukondo, Kabolela and Menda permits. Further exploration
and delineation drilling continued at Camrose with 24,304 metres
(159 completed holes) of diamond drilling completed in the Mashitu
and Kalukundi permits during H1 2012 compared to the 11,216 metres
(108 completed holes) during H1 2011.
In South Africa, there are two separate exploration programmes
underway focusing on manganese and fluorspar. The Kongoni Manganese
feasibility study is expected to be completed by Q3 2012 and a
scoping study is expected to be completed by the end of Q4 2012 at
Doornhoek, the Group's fluorspar project.
In Mozambique, coal exploration continued with key highlights
being the completion of the Estima project feasibility study
currently under internal review and the completion of a competent
person's report on License 869. The engineering study on rail
infrastructure is on target for completion in Q4 2012.
Mining
A total of 1.52 million tonnes of ore were mined during the
period from the Mukondo and Kabolela mines in the DRC. Average
copper grades in H1 2012 were 3.66% compared to the 3.17% in H1
2011 and average cobalt grades in H1 2012 were 1.40% compared to
the 1.37% in H1 2011. Kabolela North extraction decreased slightly
from Q1 2012, in line with processing availability at the plant
which has been constrained by power availability.
Production: Copper
Copper production increased by 25.6% during the period to 17,493
t (H1 2011: 13,933 t). The increase is primarily attributable to
the additional copper ore realised from the Kabolela South and
Kakanda North pre-stripping programme as well as higher grades
achieved.
Production: Cobalt
Cobalt production decreased 2.2% during H1 2012 to 5,351 t (H1
2011: 5,471 t) mainly due to greater internal consumption of Boss
cobalt concentrate at Chambishi.
Sales and Pricing: Copper
Copper prices as traded on the LME rallied during January to
peak at US$8,658 per tonne in late February, before declining
sharply in early May to average US$8,097 per tonne during the first
half of 2012. Having traded in a range of between US$8,000 and
US$8,600 for the majority of H1, macroeconomic concerns primarily
focused on Euro-zone debt and Chinese Industrial Production data
caused prices to break out of this range, declining to a low of
US$7,251 per tonne in early June.
The trend of underperforming mine supply which has been the
persistent feature of the copper market for the past decade
continued in H1 2012 and underpinned the strong demand and prices
for ENRC copper products during the period. During H1 2012 the
Group sold 17,983 t (H1 2011: 13,418 t) of copper products,
primarily produced at the Group's Luita processing facility in the
DRC. The majority of these sales were to China, priced against the
monthly average of the LME depending on the copper grade and terms
of the sale. Sales were also made in other key Asian and European
countries.
Sales and Pricing: Cobalt
The Metal Bulletin cobalt metal price started the year at
US$13.45 per pound and increased to a peak of US$15.20 per pound in
early February 2012. Prices then declined to US$13.20 per pound in
March before stabilising around US$14.00 per pound for most of
April and May 2012. Prices declined to a low of US$12.50 per pound
at the end of H1, the lowest price for 3 years, mainly due to
declining offers for high grade material.
China is the largest refining country of cobalt in the world,
with an estimated production of 34,969 tonnes in 2011. The Group's
sales of cobalt concentrate to China were strong during H1 2012,
fuelled by this Chinese refinery demand. ENRC sales of cobalt metal
for H1 2012 were 6% higher than for the same period in 2011, which
corresponds well with predicted global demand growth for mid-grade
products.
Other Non-ferrous Division
Summary income statement
Six months ended 30
June
2011
In millions of US$ 2012 (restated)(1) % Change
------------------------------------- -------- -------------- ----------
Revenue 302 327 (7.6)%
Third parties 302 327 (7.6)%
Cost of sales (306) (249) 22.9%
------------------------------------- -------- -------------- ----------
Gross (loss)/profit (4) 78 (105.1)%
Gross margin % (1.3)% 23.9%
Distribution costs (11) (6) 83.3%
General and administrative expenses (46) (47) (2.1)%
Exploration costs (52) (26) 100.0%
Net other operating income 4 6 (33.3)%
------------------------------------- -------- -------------- ----------
Operating (loss)/profit (109) 5 (2280.0)%
Operating profit margin % (36.1)% 1.5%
Depreciation, amortisation and
impairment (91) (61) 49.2%
Acquisition related costs (5) - n/a
Underlying EBITDA (13) 66 (119.7)%
Underlying EBITDA margin % (4.3)% 20.2%
------------------------------------- -------- -------------- ----------
(1) The management of the SABOT logistics business was
transferred during H2 2011 to the Other Non-ferrous Division from
the Logistics Division resulting in a restatement to H1 2011.
Results for the six months ended 30 June 2012
The Other Non-ferrous Division reported an EBITDA of US$(13)
million (H1 2011: US$66 million) for the period. Significantly
lower sales prices and higher levels of investment into development
of the Division's greenfield assets offset higher revenues,
received from increased copper sales.
Higher sales volumes of copper and cobalt metal added US$41
million and US$4 million to the Division's revenue respectively. On
the other hand, lower volumes of cobalt concentrate reduced revenue
by US$22 million. A fall in prices for both copper and cobalt
decreased revenue by US$57 million. The contribution of SABOT, the
Group's African logistics business, to the Division's third parties
revenue amounted to US$24 million (H1 2011: US$29 million).
Cost of sales increased as a result of growing sales volumes of
copper and cobalt metal as well as cost inflation driven by higher
prices for acid and an increase in amortisation of mineral
rights.
The unit cost of copper was negatively affected by higher
depreciation and amortisation, while cash cost declined due to the
development of the copper arm which resulted in a higher fixed cost
absorption rate. By-product credits decreased compared to H1 2011
as a result of lower cobalt prices and a proportionally lower
contribution of cobalt concentrate as by-product.
Exploration costs in H1 2012 rose significantly particularly for
copper in the DRC and for coal in Mozambique compared with the same
period in 2011 and amounted to US$52 million (H1 2011: US$26
million).
Capital Expenditure
The Group is undertaking a review of its growth strategy for the
Other Non-ferrous Division taking into consideration recent
acquisitions in Africa. As this continues, the Group may consider a
number of necessary amendments to the previously announced
investment programme.
-- Expansion of copper (oxide) production: Phases 1 and 2 of the
expansion project have been completed. All scheduled works
completed: heap leaching and tank houses are operational. Total
estimated project cost is US$150 million.
-- Expansion of copper (sulphide) production: This project is in
the Planning and Design category and currently has been suspended
due to power constraints and reprioritisation of the project
pipeline.
-- Chambishi copper plant (LME grade A): Construction of a new
solvent extraction and electrowinning (SX/EW) plant at Chambishi is
scheduled to be completed in 2012 and will increase capacity to 55
ktpa from the existing 24 ktpa of grade B copper cathode. The total
projected cost is US$80 million.
Energy Division
Six months ended 30 June
Key Facts 2012 2011 % Change
------------------------------------------------------------- ----------- -------- ------- ---------
Third-party Sales Volumes
Third-party coal (EEC) '000t 3,227 3,314 (2.6)%
Third-party coal (Shubarkol)(1) '000t 673 - n/a
Semi-coke '000t 10 - n/a
Third-party electrical energy GWh 1,600 1,351 18.4%
Consumption
Coal (EEC) consumed in the production of electricty '000t 4,415 4,250 3.9%
Coal (Shubarkol) consumed in the production of semi-coke(1) '000t 68 - n/a
Electricity produced and consumed
for own use GWh 542 525 3.2%
Production
Coal (EEC) '000t 10,258 10,165 0.9%
Coal (Shubarkol) (1) '000t 927 - n/a
Semi-coke '000t 34 - n/a
Electricity GWh 7,177 6,900 4.0%
Prices
Coal (EEC) US$/t 22 23 (4.3)%
Coal (Shubarkol) (1) US$/t 23 - n/a
Semi-coke US$/t 130 - n/a
Electricity US$/MWh 38 38 0.0%
Unit Costs(2)
Coal (EEC) US$/t 5.8 5.1 13.7%
Coal (Shubarkol) (1) US$/t 7.2 - n/a
Semi-coke US$/t 91.6 - n/a
Electricity US$/MWh 13.8 11.8 16.9%
------------------------------------------------------------- ----------- -------- ------- ---------
(1) Shubarkol: Numbers provided on a fully consolidated basis
from May, 2012.
(2) Unit costs: Cost of sales divided by sales volumes.
Production
In H1 2012, the Energy Division produced 7,177 GWh (H1 2011:
6,900 GWh), of which 70.2% (H1 2011: 72.5%) was used by other
Divisions internally within the Group. Coal extraction at EEC's
Vostochny mine was broadly flat at 10,258 kt (H1 2011: 10,165 kt).
In addition to sales of surplus electricity, the Energy Division
also sold 3,227 kt of Vostochny coal to third parties (H1 2011:
3,314 kt), which represented 31.5% of total coal mined at Vostochny
(H1 2011: 32.6%). The Group has reported production from Shubarkol,
as of May 2012 until the end of the period, for the first time,
with coal extraction volumes of 927 kt and semi-coke production of
34 kt.
Sales and Pricing - Coal
Kazakhstan coal output was flat at 55.7 mt in H1 2012 (H1 2011:
55.6 mt). The Energy Division's total sales of coal to third
parties were up 18% in 2012, as a result of the acquisition of
Shubarkol Komir, which completed in April 2012. In Kazakhstan, ENRC
sold 1.5 million tonnes of coal to third parties (H1 2011: 1.0
million tonnes), including sales of 0.4 million tonnes of Shubarkol
coal since May 2012. The average sales price of Vostochny coal was
KZT1,179 (US$8.0) per tonne (H1 2011: KZT1,152 (US$7.9) per tonne),
an increase of 2.3% in local currency terms. The average sales
price for Shubarkol coal, which has a higher calorific value and
lower ash content than coal from Vostochny, was KZT3,387 (US$22.9)
per tonne. In Russia, the Energy Division sold 2.2 mt of coal (H1
2011: 2.3 mt), 96% of which is coal from Vostochny, at an average
sales price of US$29.9 per tonne (H1 2011: US$29.0 per tonne).
Since the acquisition of Shubarkol ENRC has expanded its customer
base and sales geography delivering coal to consumers in Europe and
Central Asia.
Sales and Pricing - Electricity
Improvements in industrial demand in Kazakhstan saw electricity
demand continue to grow in 2012 with electricity generation rising
by 5.3% for the country as a whole to 45.6 billion kWh. The Energy
Division's sales of electricity to third parties increased 18.4% in
2012 due to increased electricity generation. The average sales
price to third parties in local currency was unchanged at KZT5.6
(US 3.78 cents) per kWh (H1 2011: KZT5.6 (US 3.83 cents) per
kWh.
Energy Division
Summary income statement
Six months ended 30
June
In millions of US$ 2012 2011 % Change
------------------------------------- ---------- ---------- ---------
Revenue 358 313 14.4%
Third parties 151 127 18.9%
Inter-segment 207 186 11.3%
Cost of sales (145) (106) 36.8%
------------------------------------- ---------- ---------- ---------
Gross profit 213 207 2.9%
Gross margin % 59.5% 66.1%
Distribution costs (38) (38) -
General and administrative expenses (17) (12) 41.7%
Net other operating income (1) 2 (150.0)%
------------------------------------- ---------- ---------- ---------
Operating profit 157 159 (1.3)%
Operating profit margin % 43.9% 50.8%
Depreciation, amortisation and
impairment (38) (29) 31.0%
Loss arising related to acquisition
of associate (14) - n/a
Acquisition related costs (1) - n/a
Underlying EBITDA 210 188 11.7%
Underlying EBITDA margin % 58.7% 60.1%
------------------------------------- ---------- ---------- ---------
Results for the six months ended 30 June 2012
The Energy Division contributed US$210 million, or 18.4%, to the
Group's Underlying EBITDA (H1 2011: US$188 million; 9.8%). The
Division benefited from higher sales of electricity and inclusion
of new coal assets acquired in April 2012, which added US$17
million to the Group's Underlying EBITDA.
The Division's third party revenue increased by US$24 million
compared to H1 2011. A few factors supported the increase. US$19
million was added as a result of the Shubarkol acquisition. US$10
million was received from additional sales of electricity which
became available from 25MW additional capacity installed at the end
of June 2011. On the other hand, a decrease in sales prices for
coal against the comparable period in 2011 reduced the Division's
revenue by US$5 million. The Group signed an agreement with the
Government of Kazakhstan in December 2011 to rollover the selling
price of coal in Q1 2012. Since the beginning of Q2, coal prices in
Kazakhstan increased approximately 8%. The Division's sales to
other Group entities were US$207 million (H1 2011: US$186
million).
Cost of sales increased by US$39 million, US$22 million of which
was due to the Shubarkol acquisition. At EEC costs were impacted by
input costs inflation, namely explosive materials, diesel, higher
depreciation and amortisation as well as labour.
Distribution costs stayed at the same level as in H1 2011 and
amounted to US$38 million (H1 2011: US$38 million). US$3 million
was due to the inclusion of Shubarkol.
General and administrative expenses increased by US$5 million,
to US$17 million (H1 2011: US$12 million) with US$1 million due to
the addition of Shubarkol.
Capital Expenditure
Reconstruction of the Power Unit 6 upgrades its capacity to 325
MW. In H1 2012, due to higher construction rates most of the works
were performed ahead of schedule. Some major equipment was
installed including a boiler carcass, filter and boiler heating
surface. The commissioning date for this project remains unchanged
and it is expected to be delivered in 2013 at a total estimated
cost of US$265 million.
Contract regarding delivery of engineering documentations for
Stripping complex 2 was signed.
Logistics Division
Six months ended 30 June
Key Facts 2012 2011 % Change
------------------------------------ ------------ ------- ------------- ---------
Transportation(1)
Total tonnage transported by rail '000t 28,356 31,261 (9.3)%
Sales Volumes
Third-party freight forwarding (2) '000t 3,315 3,947 (16.0)%
Railway line repairs km 81 88 (8.0)%
Prices
Third-party freight forwarding (2) US$/t 0.7 0.7 0.0%
Railway line repairs '000US$/km 436 213 104.7%
Unit Costs (3)
Third party freight forwarding (2) US$/t 0.2 1.0 (80.0)%
Railway line repairs '000US$/km 417 214 94.9%
------------------------------------ ------------ ------- ------------- ---------
(1) Data includes all internal and third-party rail
transportation.
(2) Data applies to Transsystema only.
(3) Unit costs: Cost of sales divided by sales volumes.
Sales and pricing
For the six months ended 30 June 2011, the Logistics Division
transported 28,356 kt of goods (H1 2011: 31,261 kt), of which 88.2%
(H1 2011: 87.3%) was intra-Group.
Logistics Division
Summary income statement
Six months ended 30
June
2011
In millions of US$ 2012 (restated)(1) % Change
------------------------------------- ------ -------------- ---------
Revenue 164 143 14.7%
Third parties 41 56 (26.8)%
Inter-segment 123 87 41.4%
Cost of sales (118) (99) 19.2%
------------------------------------- ------ -------------- ---------
Gross profit 46 44 4.5%
Gross margin % 28.0% 30.8%
General and administrative expenses (23) (17) 35.3%
Net other operating expense (1) (2) (50.0)%
------------------------------------- ------ -------------- ---------
Operating profit 22 25 (12.0)%
Operating profit margin % 13.4% 17.5%
Depreciation, amortisation and
impairment (13) (12) 8.3%
Underlying EBITDA 35 37 (5.4)%
Underlying EBITDA margin % 21.3% 25.9%
------------------------------------- ------ -------------- ---------
(1) The management of the SABOT logistics business was
transferred during H2 2011 to the Other Non-ferrous Division from
the Logistics Division resulting in a restatement to H1 2011.
Results for the six months ended 30 June 2012
The Logistics Division contributed US$35 million, or 3.1%, to
the Group's Underlying EBITDA (H1 2011: US$37 million, 1.9%). The
lower result reflected an increase in freight forwarding in rented
railcars and the disposal of the railway line repair business, Zhol
Zhondeushy LLP.
The Division's third party revenue decreased US$15 million and
amounted to US$41 million (H1 2011: US$56 million). The main reason
for this being the exclusion of Zhol Zhondeushy, which was disposed
of in May 2012. Revenue from other Group's Divisions increased by
US$36 million, or 41.4%, to US$123 million (H1 2011: US$87
million). This was largely due to higher revenue received from the
iron ore transported in rented wagons by the Kazakhstani logistics
companies.
Cost of sales increased US$19 million, or 19.2%, to US$118
million (H1 2011: US$99 million) due to a larger share of
third-party railcars rented for freight forwarding.
General and administrative expenses were US$23 million (H1 2011:
US$17 million). US$7 million of the increase was due to impairment
of loans and receivables of Zhol Zhondeushy.
The results for H1 2011 have been restated to reflect the
transfer of the SABOT business to the Other Non-ferrous
Division.
Capital Expenditure
The Logistics Division plans to expand its railway fleet to
improve the self-sufficiency of the Group in the transport of its
own materials. The Group's railway fleet expanded in H1 2012, with
the purchase of 626 wagons. In H2 2012 it is envisaged that the
Group will purchase approximately 1,662 wagons.
PRINCIPAL RISKS AND SIGNIFICANT FACTORS AFFECTING THE GROUP'S
RESULTS OF OPERATIONS
The Board is responsible for the Group's systems of Risk
Management and Internal Control and for reviewing their operational
effectiveness.
Details of the Group's key risks were set out in our Group's
Annual Report and Accounts for the year ended 31 December 2011, on
pages 43 to 47.
Since publishing the Group's Annual Report and Accounts for the
year ended 31 December 2011, a number of the key risks disclosed in
that Annual Report and Accounts have been the subject of media
focus and comment. As part of their regular review of risks, the
management and the Board have reconsidered the Group's key risks
and believe that there have been no material changes and that they
remain appropriate.
Further details on the risks are included in the relevant
business reviews throughout the document.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors of Eurasian Natural Resources Corporation PLC
('the Company') confirm that to the best of their knowledge this
condensed consolidated half year financial information has been
prepared in accordance with IAS 34, Interim Financial Reporting, as
adopted by the European Union and that this half year financial
report includes a fair review of the information required by the UK
Listing Authority's Disclosure and Transparency Rules 4.2.7R and
4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months of 2012 and their impact on the consolidated
half year financial statements, and a description of the principal
risks and uncertainties for the remaining six months of 2012;
and
-- Material related-party transactions in the first six months
of 2012 and any material changes in the related-party transactions
described in the Group's Annual Report and Accounts for the year
ended 31 December 2011.
The Directors of the Company are listed in the Group's Annual
Report and Accounts for the year ended 31 December 2011, with the
exception of Mr Richard Burrows and Dr Mohsen Khalil who were
appointed with effect from 12 June 2012. A list of current
Directors is maintained on the Group's website at:
www.enrc.com.
By order of the Board
Felix J Vulis
Chief Executive Officer
15 August 2012
Independent Review Report to Eurasian Natural Resources
Corporation PLC
Introduction
We have been engaged by Eurasian Natural Resources Corporation
PLC (the 'Company') to review the condensed consolidated interim
financial information in the Announcement of the 2012 Half Year
Results for the six months ended 30 June 2012, which comprises the
consolidated interim income statement, consolidated interim
statement of comprehensive income, consolidated interim balance
sheet, consolidated interim cash flow statement, consolidated
interim statement of changes in equity and related notes. We have
read the other information contained in the Announcement of the
2012 Half Year Results and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Directors' responsibilities
The Announcement of the 2012 Half Year Results is the
responsibility of, and has been approved by, the Directors. The
Directors are responsible for preparing the Announcement of the
2012 Half Year Results in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Services
Authority. As disclosed in note 1, the annual financial statements
of the Group are prepared in accordance with IFRSs as adopted by
the European Union. The condensed consolidated interim financial
information included in this Announcement of the 2012 Half Year
Results has been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated interim financial information in the
Announcement of the 2012 Half Year Results based on our review.
This report, including the conclusion, has been prepared for and
only for the Company for the purpose of the Disclosure and
Transparency Rules of the Financial Services Authority and for no
other purpose. We do not, in producing this report, accept or
assume responsibility for any other purpose or to any other person
to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated interim
financial information in the Announcement of the 2012 Half Year
Results for the six months ended 30 June 2012 is not prepared, in
all material respects, in accordance with International Accounting
Standard 34 as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Services
Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
15 August 2012
London
Notes:
(a) The maintenance and integrity of the Eurasian Natural
Resources Corporation PLC website is the responsibility of the
directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to
the financial statements since they were initially presented on the
website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
CONSOLIDATED INTERIM INCOME STATEMENT (Unaudited)
Six months ended
30 June
-------------------
In millions of US$ (unless stated otherwise) Note 2012 2011
---------------------------------------------- -----
Revenue 3,246 4,011
Cost of sales 6 (1,757) (1,690)
---------------------------------------------- ----- --------- --------
Gross profit 1,489 2,321
Distribution costs 7 (265) (251)
General and administrative expenses 8 (363) (357)
Exploration costs (59) (26)
Net other operating expense (2) (20)
---------------------------------------------- ----- --------- --------
Operating profit 800 1,667
Finance income 9 40 46
Finance cost 10 (164) (87)
Share of (loss)/profit of joint ventures
and associates (9) 5
---------------------------------------------- ----- --------- --------
Profit before income tax 667 1,631
Income tax expense 11 (212) (449)
---------------------------------------------- ----- --------- --------
Profit for the period 455 1,182
---------------------------------------------- ----- --------- --------
Profit/(loss) attributable to:
Equity holders of the Company 463 1,166
Non-controlling interests (8) 16
Earnings per share - basic and diluted (US
cents) 12 36 91
---------------------------------------------- ----- --------- --------
The above Consolidated Interim Income Statement should be read in
conjunction with the accompanying notes.
CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
Six months ended 30
June
----------------------
In millions of US$ 2012 2011
------------------------------------------------------- ----------- ---------
Profit for the period 455 1,182
Other comprehensive (expense)/income:
Fair value loss on available-for-sale financial
assets, net of tax (44) (39)
Currency translation differences (198) 239
Total comprehensive income for the period 213 1,382
------------------------------------------------------- ----------- ---------
Total comprehensive income attributable to:
Equity holders of the Company 221 1,365
Non-controlling interests (8) 17
213 1,382
------------------------------------------------------- ----------- ---------
The above Consolidated Interim Statement of Comprehensive Income
should be read in conjunction with the accompanying notes.
CONSOLIDATED INTERIM BALANCE SHEET (Unaudited)
As at
----------------------------------------
30 June
30 June 31 December 2011
In millions of US$ Note 2012 2011 As restated(1)
--------------------------------- ----- -------- ------------ ----------------
Assets
Non-current assets
Property, plant and equipment 13 11,896 9,891 8,950
Goodwill and intangible assets 5 2,107 1,410 1,431
Investments in joint ventures
and associates 5 177 389 429
Other financial assets 168 207 336
Loans receivable 290 225 213
Deferred tax assets 72 49 12
Other non-current assets 374 349 354
--------------------------------- ----- -------- ------------ ----------------
Total non-current assets 15,084 12,520 11,725
Current assets
Assets classified as held for
sale 19 75 94
Inventories 1,235 1,027 1,000
Trade and other receivables 1,243 1,259 1,195
Other financial assets 13 11 14
Loans receivable 3 2 4
Cash and cash equivalents 1,529 622 1,565
--------------------------------- ----- -------- ------------ ----------------
Total current assets 4,042 2,996 3,872
Total assets 19,126 15,516 15,597
--------------------------------- ----- -------- ------------ ----------------
Equity
Share capital and share premium 3,257 3,257 3,257
Reserves 7,720 7,643 7,630
--------------------------------- ----- -------- ------------ ----------------
Attributable to equity holders
of the Company 10,977 10,900 10,887
Non-controlling interests 343 336 261
--------------------------------- ----- -------- ------------ ----------------
Total equity 11,320 11,236 11,148
--------------------------------- ----- -------- ------------ ----------------
Liabilities
Non-current liabilities
Borrowings 14 4,578 1,234 1,284
Deferred tax liabilities 1,393 1,277 1,215
Asset retirement obligations 276 124 96
Employee benefit obligations 80 53 44
Other non-current liabilities 27 15 28
--------------------------------- ----- -------- ------------ ----------------
Total non-current liabilities 6,354 2,703 2,667
Current liabilities
Liabilities classified as held
for sale 2 25 46
Borrowings 14 362 360 283
Trade and other payables 885 980 1,098
Current income tax liability 83 130 173
Other taxes payable 120 82 182
Total current liabilities 1,452 1,577 1,782
--------------------------------- ----- -------- ------------ ----------------
Total liabilities 7,806 4,280 4,449
Total liabilities and equity 19,126 15,516 15,597
--------------------------------- ----- -------- ------------ ----------------
(1) See note 1 Accounting polices - basis of preparation.
The above Consolidated Interim Balance Sheet should be read in
conjunction with the accompanying notes.
CONSOLIDATED INTERIM CASH FLOW STATEMENT (Unaudited)
Six months ended 30
June
-----------------------
2011
In millions of US$ Note 2012 As restated
------------------------------------------------- ----- -------- -------------
Cash flow from operating activities
Profit before income tax 667 1,631
Adjustments for:
Depreciation, amortisation and impairment 324 261
Loss arising related to acquisition of
associate 5 14 -
Adjustment to contingent consideration (8) -
for Rubio Holdings
Share of loss/(profit) from joint ventures
and associates 9 (5)
Share based payments 5 5
Impairment loss in receivables 10 11
Net finance cost 124 43
Net foreign exchange loss (5) 14
------------------------------------------------- ----- -------- -------------
1,140 1,960
Changes in inventories (158) (129)
Changes in trade and other receivables 51 (254)
Changes in trade and other payables 67 15
Changes in employee benefit obligations (3) 3
Changes in other taxes payable 42 46
------------------------------------------------- ----- -------- -------------
Cash generated from operating activities 1,139 1,641
Interest and other similar expenses paid (81) (33)
Interest received 7 14
Income tax paid (341) (438)
------------------------------------------------- ----- -------- -------------
Net cash generated from operating activities 724 1,184
Cash flow from investing activities
Purchase of property, plant and equipment (1,020) (821)
Proceeds from sales of property, plant
and equipment 34 11
Purchase of intangible assets (17) (16)
Payment of contingent consideration (108) -
Acquisition of subsidiaries, net of cash
acquired 5 (1,333) -
Purchase of joint ventures and associate - (55)
Purchase of financial assets available-for-sale - (25)
Proceeds from sale of financial assets 25 -
available-for-sale
Proceeds from sale of assets held for sale 15 -
Proceeds from cash deposited as guarantee - 11
Loans and deposits granted (80) (114)
Proceeds from repayment of loans and deposits 19 53
Dividends received - 4
------------------------------------------------- ----- -------- -------------
Net cash used for investing activities (2,465) (952)
Cash flow from financing activities
Borrowings - proceeds 3,035 16
Borrowings - repayments (159) (50)
Payment of deferred consideration (50) -
Purchase of non-controlling interests (29) -
Dividends paid to equity holders of the
Company (141) (232)
Dividends paid to non-controlling interests 1 (7)
------------------------------------------------- ----- -------- -------------
Net cash generated from/(used for) financing
activities 2,657 (273)
------------------------------------------------- ----- -------- -------------
Net changes in cash and cash equivalents 916 (41)
Cash and cash equivalents at beginning
of period 622 1,595
Foreign exchange (loss)/gain on cash and
cash equivalents (9) 11
------------------------------------------------- ----- -------- -------------
Cash and cash equivalents at end of period 1,529 1,565
------------------------------------------------- ----- -------- -------------
The above Consolidated Interim Cash Flow Statement should be read
in conjunction with the accompanying notes.
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (Unaudited)
Attributable to equity holders of the
Company
-------------------------------------------------------------------------
Revaluation
reserve
of financial
In millions of Share Share Retained Translation assets Non-controlling Total
US$ capital premium earnings reserve available-for-sale Total interests equity
Balance as at
1 January 2011 258 2,999 7,275 (790) 7 9,749 260 10,009
------------------ -------- -------- --------- ------------ ------------------- ------- ---------------- --------
Profit for the
period - - 1,166 - - 1,166 16 1,182
Other
comprehensive
income/(expense) - - - 238 (39) 199 1 200
------------------ -------- -------- --------- ------------ ------------------- ------- ---------------- --------
Total
comprehensive
income/(expense) - - 1,166 238 (39) 1,365 17 1,382
------------------ -------- -------- --------- ------------ ------------------- ------- ---------------- --------
Dividends - - (232) - - (232) (16) (248)
Share-based
payments - - 5 - - 5 - 5
------------------ -------- -------- --------- ------------ ------------------- ------- ---------------- --------
Balance as at
30 June 2011 258 2,999 8,214 (552) (32) 10,887 261 11,148
------------------ -------- -------- --------- ------------ ------------------- ------- ---------------- --------
Balance as at
1 January 2012 258 2,999 8,823 (1,013) (167) 10,900 336 11,236
------------------ -------- -------- --------- ------------ ------------------- ------- ---------------- --------
Profit for the
period - - 463 - - 463 (8) 455
Other
comprehensive
expense - - - (198) (44) (242) - (242)
------------------ -------- -------- --------- ------------ ------------------- ------- ---------------- --------
Total
comprehensive
income/(expense) - - 463 (198) (44) 221 (8) 213
------------------ -------- -------- --------- ------------ ------------------- ------- ---------------- --------
Dividends - - (141) - - (141) (3) (144)
Buyout of
non-controlling
interests(1) - - (8) - - (8) (21) (29)
Share-based
payments - - 5 - - 5 - 5
Other changes
in
non-controlling
interests(2) - - - - - - 39 39
------------------ -------- -------- ------------ ------------------- ------- ---------------- --------
Balance as at
30 June 2012 258 2,999 9,142 (1,211) (211) 10,977 343 11,320
------------------ -------- -------- --------- ------------ ------------------- ------- ---------------- --------
(1) This relates to the remaining 3.12% in ENRC Africa Holdings
Ltd (formerly Central African Mining and Exploration Company
PLC).
(2) Includes the recognition of non-controlling interests
arising on the Rudnensky Cement Plant being held for sale,
de-recognition of non-controlling interests for Xinjiang Tuoli ENRC
Taihang Chrome Co. Ltd. ('Tuoli') as loss of control (and
subsequently classified as an investment) and recognition of 5%
non-controlling interests as a result of Frontier acquisition.
The above Consolidated Interim Statement of Changes in Equity
should be read in conjunction with the accompanying notes.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES
BASIS OF PREPARATION
Eurasian Natural Resources Corporation PLC (the 'Company') was
incorporated and registered under the laws of England and Wales on
8 December 2006. The address of the Company's registered office and
domicile is 16 St. James's Street, London, SW1A 1ER, United
Kingdom. The condensed consolidated interim financial statements as
at and for the six months ended 30 June 2012 comprised the Company
and its subsidiaries (the 'Group') and the Group's interest in
joint ventures and associates.
The condensed consolidated interim financial statements for the
six months ended 30 June 2012 was approved for issue by the Board
on 15 August 2012.
The condensed consolidated interim financial statements for the
six months ended 30 June 2012 do not comprise statutory accounts
within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2011 were
approved by the Board of Directors on 16 April 2012 and delivered
to the Registrar of Companies. The report of the auditors on those
accounts was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under section 498 of
the Companies Act 2006.
The condensed consolidated interim financial statements for the
six months ended 30 June 2012 have been reviewed, not audited.
The condensed consolidated interim financial statements for the
six months ended 30 June 2012 have been prepared in accordance with
the Disclosure and Transparency Rules ('DTR') of the United
Kingdom's ('UK's') Financial Services Authority ('FSA') and with
International Accounting Standard ('IAS') 34 'Interim Financial
Reporting' as adopted by the European Union ('EU').
The condensed consolidated interim financial statements for the
six months ended 30 June 2012 should be read in conjunction with
the Group's Annual Report and Accounts for the year ended 31
December 2011, which have been prepared in accordance with
International Financial Reporting Standards ('IFRS'), as adopted by
the EU, the Listing Rules of the UK's FSA, the Companies Act 2006
applicable to companies reporting under IFRS and Article 4 of the
EU IAS Regulation.
Where the Group has changed the presentational format of these
condensed consolidated interim financial statements to further
improve the comparability of its results, comparative figures have
been changed accordingly. This occurred in respect of segment
reporting as detailed in note 3, balances and transactions with
related parties in note 4, general and administrative expenses in
note 8 and property, plant and equipment as detailed in note
13.
The accounting policies applied are consistent with those
described in the Group's Annual Report and Accounts for the year
ended 31 December 2011.
The Group has not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective.
Going concern basis
The Group's business activities, together with those factors
likely to affect future performance are set out in the Business
Review (comprised of the Chief Executive Officer's Statement, the
Chief Financial Officer's Review, the Operating and Financial
Reviews, Capital Expenditure and Principal Risks and Significant
Factors Affecting the Group's Results of Operations). In assessing
the Group's going concern status the Directors have taken into
account the financial position of the Group and in particular its
significant balances of cash, cash equivalents and liquid
investments, the borrowing facilities in place and their terms,
medium-term cash flow and liquidity projections, the current
commodity prices and market expectations in the medium-term, the
Group's expected operating cost profile and its capital expenditure
and financing plans. After making enquiries, the Directors have
reasonable expectations that the Group has adequate resources to
continue in operational existence for the foreseeable future. For
this reason, they continue to adopt the going concern basis in
preparing the financial statements.
2. ESTIMATES
The preparation of these condensed consolidated interim
financial statements for the six months ended 30 June 2012 requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed consolidated interim financial
statements for the six months ended 30 June 2012, the significant
judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the
same as those that applied to the Group's Annual Report and
Accounts for the year ended 31 December 2011. As at 30 June 2012
the amount of estimated asset retirement obligation changed by
US$134 million (refer note 13) due to changes in inflation and
discount rates. The long-term inflation rate currently applied in
the calculation is 1.2% - 6.0% as at 30 June 2012 (2011: 1.2%-9.0%)
being the estimate of the rate of inflation over the mine lives.
The discount rate currently applied in the calculation is
5.02%-15.4% at 30 June 2012 (2011: 7.9%-15.4%) being the estimate
of the risk free pre-tax interest rates for long-term government
securities.
3. SEGMENT INFORMATION
The identified operating and reportable segments of the Group
are the same as those that applied to the Group's Annual Report and
Accounts for the year ended 31 December 2011.
Segment assets includes items directly attributable to the
segment as well those that can be allocated on a reasonable basis.
Segment assets consist primarily of property, plant and equipment,
intangible assets, inventories and trade and other receivables, and
mainly exclude investments in joint ventures and associates, other
financial assets, loans receivable, unallocated term deposits and
deferred and current income tax assets.
The management of the SABOT logistics business was transferred
during 2011 to the Other Non-ferrous Division from the Logistics
Division. As a result of this transfer the segment classification
of the SABOT business changed, which has resulted in a restatement
of the information for the period ended 30 June 2011.
On 2 March 2012, the Group acquired Roan Prospecting &
Mining SPRL, Compagnie Minière de Sakania SPRL and Frontier SPRL
which are included within the Other Non-ferrous Division. On 16
April 2012, the Group purchased the remaining 75% of the
outstanding ordinary shares of Shubarkol Komir JSC, 100% of which
is included within the Energy Division.
3. SEGMENT INFORMATION (Continued)
Six months
ended
30 June 2012
Segment Alumina
information Iron and Other Intra
In millions of Ferroalloys Ore Aluminium Non-ferrous Energy Logistics Group
US$ Division Division Division Division Division Division Corporate Eliminations Total
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Revenue 1,325 983 440 302 151 41 4 - 3,246
Inter-segment
revenue 8 - 13 - 207 123 - (351) -
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Segment
revenue 1,333 983 453 302 358 164 4 (351) 3,246
Segment
operating
profit/(loss) 390 416 (6) (109) 157 22 (70) - 800
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Finance income 40
Finance cost (164)
Share of
profit
of joint
ventures
and
associates (9)
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Profit before
income tax 667
Income tax
expense (212)
Profit for the
period 455
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Depreciation,
amortisation
and
impairment (68) (57) (54) (91) (38) (13) (3) - (324)
Acquisition
related
costs - - - (5) (1) - - - (6)
Loss arising
related to
acquisition
of associate - - - - (14) - - - (14)
Underlying
EBITDA 458 473 48 (13) 210 35 (67) - 1,144
(note 15)
Capital
expenditure 257 187 96 270 136 63 38 - 1,047
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Segment assets 3,400 4,284 2,183 2,265 4,631 491 1,244 (265) 18,233
Unallocated
assets 893
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Total assets 19,126
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Average number
of employees 24,412 20,093 14,241 8,503 7,616 3,081 484 - 78,430
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
3. SEGMENT INFORMATION (Continued)
Six months
ended
30 June 2011
Segment
information Alumina
In millions Iron and Other Intra
of US$ Ferroalloys Ore Aluminium Non-ferrous Energy Logistics Group
As restated Division Division Division Division(1) Division Division Corporate Eliminations Total
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Revenue 1,637 1,295 563 327 127 56 6 - 4,011
Inter-segment
revenue 7 1 14 - 186 87 - (295) -
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Segment
revenue 1,644 1,296 577 327 313 143 6 (295) 4,011
Segment
operating
profit/(loss) 595 786 141 5 159 25 (44) - 1,667
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Finance income 46
Finance cost (87)
Share of
profit
of joint
ventures
and
associates 5
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Profit before
income tax 1,631
Income tax
expense (449)
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Profit for the
period 1,182
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Depreciation,
amortisation
and
impairment (60) (49) (47) (61) (29) (12) (2) - (260)
Underlying
EBITDA
(note 15) 655 835 188 66 188 37 (42) - 1,927
Capital
expenditure 129 199 99 97 99 57 17 - 697
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Segment assets 3,091 4,469 2,126 2,493 1,023 334 1,063 (72) 14,527
Unallocated
assets 1,070
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Total assets 15,597
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
Average number
of employees 24,886 18,002 14,360 8,105 6,723 2,592 382 - 75,050
--------------- ------------ --------- ---------- ------------ --------- ---------- ---------- ------------- -------
(1) Dezita Investments Limited, previously provisionally
reported in the Half Year Results for the period ended 30 June 2011
as a business combination, was determined to be an asset purchase
in the Group's Annual Report and Accounts for the year ended 31
December 2011. The balance sheet for 30 June 2011 has been restated
in this respect.
4. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
During the periods ended 30 June 2012 and 30 June 2011, the
Group entered into the following transactions in the ordinary
course of business with related parties:
Founder Joint ventures Associates Other Total
Shareholders(1)
In millions of US$ 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
------------------------ --------- -------- -------- ------- ------ ----- ----- ----- ----- -----
Revenue from sale
of goods 4 4 - - - - - - 4 4
Revenue from the
provision of services 1 1 13 - - - - - 14 1
Purchases of goods (5) (12) - - (23) (24) - - (28) (36)
Purchases of services
and other income/
(expense) (38) (43) - - - - 2 - (36) (43)
Finance income 4 7 8 5 - - - - 12 12
Finance cost - (4) (1) (1) - - - - (1) (5)
Purchase of property,
plant and equipment (5) (23) - - - - - - (5) (23)
------------------------ --------- -------- -------- ------- ------ ----- ----- ----- ----- -----
(1) Includes all entities under the control of the Founder
Shareholders.
4. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
(CONTINUED)
The outstanding balances with related parties as at 30 June 2012
and 31 December 2011 are as follows:
Founder Shareholders(1) Joint ventures Associates Other (4) Total
------------------------------
Eurasian Other
Bank
In millions
of US$ 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
----------------------- ------ ------ ------ ------ -------- ------- ------ ----- ----- ----- ----- -----
Non-current
assets
Loans receivable - - - - 263 199 - - - - 263 199
Other financial
assets(2) 21 16 - - - - - - - - 21 16
Other non-current
assets 6 3 2 2 - - - - - - 8 5
Current assets
Trade and
other receivables(3) 22 36 30 17 13 8 - 4 17 - 82 65
Cash and cash
equivalents 198 175 - - - - - - - - 198 175
Non-current
liabilities
Trade and
other payables - - - - 3 - - - - - 3 -
Current liabilities
Borrowings - - - - - 3 - - 25 75 25 78
Trade and
other payables - - 12 8 - 2 - 2 - - 12 12
----------------------- ------ ------ ------ ------ -------- ------- ------ ----- ----- ----- ----- -----
(1) Includes all entities under the control of the Founder
Shareholders.
(2) Other financial assets held with Eurasian Bank JSC includes
term deposits of US$21 million (2011: US$16 million) for the
retirement of assets in accordance with the requirements of
contracts on subsurface use.
(3) Trade and other receivables with Eurasian Bank JSC include
mainly letters of credit of US$1 million (2011: US$14 million) and
term deposits of US$20 million (2011: US$22 million).
(4) Other includes payable for promissory notes to Cerida Global
Limited (Group's joint venture partner) and trade receivables from
Tuoli.
4. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
(CONTINUED)
Shubarkol Call Option
In April 2012 the Group exercised the option and completed the
acquisition of the remaining 75% of the outstanding ordinary shares
of Shubarkol (full detail in note 5).
Transactions with Government
Government of the Republic of Kazakhstan related entities
The Government of the Republic of Kazakhstan and related
entities are related parties of the Group as a result of the
Government's shareholding in the Group. The Group has a number of
transactions with the Government of the Republic of Kazakhstan and
related entities. The nature of these transactions is typically as
follows:
-- Railroad construction and repair services provided to the
Government - revenue US$35 million for the period ended 30 June
2012 (30 June 2011: US$51 million);
-- Social investment and donations (including donations for the
period ended 30 June 2012 totalling US$nil (30 June 2011: US$64
million) to the Nazarbayev Fund);
-- National railway services received from Kazakhstan Temir
Zholy of US$54 million for the period ended 30 June 2012 (30 June
2011: US$49 million);
-- Supply and transportation of fuel and oil associated gas
through KazTransGaz amounted to US$25 million (30 June 2011: US$19
million);
-- Services received in relation to transportation of
electricity and energy through Kazakhstan Electricity Grid
Operating Company ('KEGOC') of US$16 million for the period ended
30 June 2012 (30 June 2011: US$14 million); and
-- Taxation and similar payments (including royalties and MET).
In 2010, the Group entered into loan agreements with the
Development Bank of Kazakhstan and JSC Sovereign Wealth Fund
'Samruk-Kazyna', entities controlled by the Republic of Kazakhstan
as follows:
Development Bank of Kazakhstan Facility
On 15 April 2010, the Group announced that it had entered into a
loan agreement for the amount of US$400 million with the
Development Bank of Kazakhstan. The facility was provided by the
Development Bank of Kazakhstan using financing from the State-run
Export-Import Bank of China. The facility is for a 15-year period,
bears an interest rate of 4% and was fully drawn as at 30 June
2012. The loan was secured by a corporate guarantee issued by ENRC
PLC and a pledge over 51% of the shares of Kazakhstan Aluminium
Smelter JSC ('KAS').
JSC Wealth Fund 'Samruk-Kazyna'
On 30 November 2010, the Group entered into a US$500 million
facility with the JSC Wealth Fund 'Samruk-Kazyna'. The facility has
an applicable interest rate of 7.5% per annum and is repayable in
10 years by bullet repayment. No security has been pledged as part
of the agreement and it is fully drawn down as at 30 June 2012.
Government of the Democratic Republic of Congo ('DRC') related
entities
Gècamines, the representative entity of the Government of the
DRC, holds 30% interest in the Group's subsidiary Boss Mining. The
Group has a number of transactions with the Government of the DRC
and related entities. The nature of these transactions is typically
as follows:
-- Taxation and similar payments (including royalties); and
-- Electricity received from Société Nationale d'Electricité
amounted to US$5 million for the period ended 30 June 2012 (2011:
US$3 million).
5. BUSINESS COMBINATIONS
Acquisition of Roan Prospecting & Mining SPRL, Frontier SPRL
and Compagnie Minière de Sakania SPRL
On 2 March 2012, the Group completed the acquisition of First
Quantum Minerals Ltd.'s ('FQM') business assets in respect of the
Kolwezi Tailings ('KMT') project, the Frontier and Lonshi mines and
related exploration interests, all located in the Katanga Province
of the Democratic Republic of the Congo ('DRC'), for a total
consideration of US$1.25 billion. The entities acquired were 100%
Compagnie Minière de Sakania SPRL ('COMISA'), 100% Kolwezi
Investment Ltd. ('KI'), 95% Frontier SPRL ('Frontier'), 100% Roan
Prospecting and Mining SPRL ('RPM') and 100% Congo Minerals
Development ('CMD').
The total consideration of US$1.25 billion comprised of the
following:
-- An initial payment of US$750 million which was made in March 2012; and
-- Deferred consideration of US$500 million in the form of a
3-year promissory note with an interest coupon of 3% which is
payable annually in arrears.
The main asset of RPM is the Kolwezi Processing Facility. The
facility consists of solvent extraction and electrowinning
('SX/EW') circuits for the production of cobalt hydroxide and
copper cathodes. The potential ore body to be used is the Kolwezi
tailings which sit adjacent to the facility.
The Kolwezi tailings consist of the Kingamyambo dam and the
Musoni river tailings containing copper and cobalt ore. The Kolwezi
tailings are owned by the Treatment of Kingamyambo Tailings Company
('Metalkol') which is 70% owned by Camrose Resources Limited
('Camrose'). The Group has held a 50.5% interest in Camrose since
August 2010.
The main asset of Frontier is a processing facility which
comprises a mill and a concentrator for the production of copper
concentrate.
5. BUSINESS COMBINATIONS (CONTINUED)
The provisional fair values of the identifiable assets and
liabilities of RPM and Frontier as at the acquisition date are set
out below:
Provisional Provisional
carrying values Provisional fair values
at acquisition fair value at acquisition
In millions of US$ date adjustments date
------------------------------------- ----------------- ------------- ----------------
Property, plant and equipment 555 28 583
Inventories 49 - 49
Other assets 17 - 17
Total assets 621 28 649
------------------------------------- ----------------- ------------- ----------------
Trade and other payables (21) - (21)
Total liabilities (21) - (21)
------------------------------------- ----------------- ------------- ----------------
Net assets 600 28 628
Non-controlling interests (11)
Goodwill and intangible assets 573
Net attributable assets 1,190
------------------------------------- ----------------- ------------- ----------------
Consideration:
Purchase consideration settled
in cash 750
FQM refund for assets not delivered
on closing (1)
Fair value of the US$500 million
promissory notes 441
Total consideration 1,190
------------------------------------- ----------------- ------------- ----------------
The goodwill and intangible assets arises on the acquisition of
RPM primarily because of the strategic location of the asset next
to the Kolwezi tailings and the expectation that the facility will
process these tailings. Goodwill and intangible assets also results
from the acquisition of Frontier due to the expected value and
benefit to the business for the anticipated future processing of
the Frontier mineral resources.
Acquisition costs of US$5.1 million have been expensed and
included in general and administrative expenses in the Consolidated
Interim Income Statement.
The acquired businesses contributed no revenue and no profit
after income tax from the date of acquisition to 30 June 2012. If
the acquisition had taken place at the beginning of the year, there
would have been no impact to the Group's revenue and no impact to
profit after income tax.
On 31 July 2012, the Government of the DRC has decided to grant
Frontier a new mining licence in respect of the Frontier mine for
US$101.5 million. The new Frontier licence will provide feed for
the Frontier processing facility.
5. BUSINESS COMBINATIONS (CONTINUED)
Acquisition of Shubarkol Komir Joint Stock Company
('Shubarkol')
On 16 April 2012 the Group completed the purchase of the
remaining 75% of the outstanding ordinary shares of Shubarkol, a
major semi-coke and thermal coal producer incorporated in the
Republic of Kazakhstan.
The Group exercised the option to acquire the outstanding shares
for a total cash consideration of US$600 million plus assumed debt
of US$50 million following receipt of all necessary legal and
regulatory approvals.
The provisional fair values of the identifiable assets and
liabilities of Shubarkol as at the date of acquisition are set out
below:
Carrying Provisional
values at Provisional fair values
acquisition fair value at acquisition
In millions of US$ date adjustments date
---------------------------------------- ------------- ------------- ----------------
Property, plant and equipment 115 715 830
Intangible assets - 14 14
Investment in Joint Venture 33 (22) 11
Other financial (non-current) assets 11 - 11
Inventory 12 (1) 11
Other financial (current) assets 6 - 6
---------------------------------------- ------------- ------------- ----------------
Total assets 177 706 883
---------------------------------------- ------------- ------------- ----------------
Borrowings (50) - (50)
Deferred tax liabilities (14) (132) (146)
Provisions (11) - (11)
Taxation (12) - (12)
Trade and other payables (11) - (11)
---------------------------------------- ------------- ------------- ----------------
Total liabilities (98) (132) (230)
---------------------------------------- ------------- ------------- ----------------
Net assets 79 574 653
Non-controlling interests (1)
Goodwill 132
---------------------------------------- ------------- ------------- ----------------
Net attributable assets 784
---------------------------------------- ------------- ------------- ----------------
Consideration:
Purchase consideration settled in cash 600
Cash acquired (16)
---------------------------------------- ------------- ------------- ----------------
Net cash outflow on acquisition 584
Loss arising related to acquisition
of associate (14)
Carrying value of initial 25% interest
at acquisition date 214
---------------------------------------- ------------- ------------- ----------------
Total consideration 784
---------------------------------------- ------------- ------------- ----------------
This acquisition is the main reason for the decrease of
investment in joint ventures and associates in the Consolidated
Interim Balance Sheet.
As a result of the acquisition the 25% previously held equity
interest in Shubarkol was required to be re-measured at fair value
as at the acquisition date (IFRS 3), provisionally resulting in a
loss of US$14 million. This loss has been accounted for in the
Consolidated Interim Income Statement.
The goodwill provisionally recognised on acquisition is the
result of the requirement to recognise a deferred tax liability on
the acquired mineral rights (within property, plant and
equipment).
Acquisition costs of US$1.2 million have been expensed and
included in general and administrative expenses in the Consolidated
Interim Income Statement.
The acquired business contributed revenues of US$18 million and
profit after income tax of US$10 million from the date of
acquisition. If the acquisition had taken place at the beginning of
the year, the impact to the Group's revenue would have been an
additional US$48 million, whilst the impact to the profit after
income tax would have been an additional profit of US$21
million.
Goodwill and intangible assets
The acquisition of Shubarkol and FQM's assets in respect of the
KMT project, the Frontier and Lonshi mines and related exploration
interests are the main reason for the increase in goodwill and
intangible assets in the Consolidated Interim Balance Sheet.
Fair value estimates
The provisional values of assets and liabilities recognised on
acquisition are their estimated fair values at the date of
acquisition. Accounting standards permit up to 12 months for
provisional acquisition accounting to be finalised following the
acquisition date if any subsequent information provides better
evidence of the item's fair value at the date of acquisition.
For all business combinations, the Group either undertook or is
in the process of finalising its review of the fair value of assets
and liabilities recognised at the date of acquisition. Such reviews
may include engaging third party advisors to determine the fair
values of the cash-generating units of the entities acquired.
6. COST OF SALES
Six months ended 30
June
----------------------
In millions of US$ 2012 2011
----------------------------------------------- ---------- ----------
Materials and components used (725) (725)
Staff costs (339) (281)
Depreciation, amortisation and impairment (314) (251)
Mineral extraction taxes, royalties and other
taxes (166) (211)
Power and energy (101) (97)
Repairs and maintenance (58) (48)
Changes in inventories of finished goods and
work-in-progress 107 45
Other (161) (122)
----------------------------------------------- ---------- ----------
Total cost of sales (1,757) (1,690)
----------------------------------------------- ---------- ----------
7. DISTRIBUTION COSTS
Six months ended 30
June
----------------------
In millions of US$ 2012 2011
---------------------------- ---------- ----------
Transportation costs (214) (199)
Agency and commission fees (11) (12)
Taxes and duties (6) (8)
Other (34) (32)
---------------------------- ---------- ----------
Total distribution costs (265) (251)
---------------------------- ---------- ----------
8. GENERAL AND ADMINISTRATIVE EXPENSES
Six months ended 30
June
-----------------------
In millions of US$ 2012 2011
------------------------------------------- ----------- ----------
Staff costs (140) (113)
Sponsorship and donations (58) (92)
Professional and other services (59) (43)
Depreciation, amortisation and impairment (10) (9)
Taxes other than on income (18) (20)
Travel and entertainment (14) (12)
Impairment of loans and receivables (10) (11)
Other (54) (57)
------------------------------------------- ----------- ----------
Total general and administrative expenses (363) (357)
------------------------------------------- ----------- ----------
9. FINANCE INCOME
Six months ended 30
June
------------------------
In millions of US$ 2012 2011
------------------------ ----------- -----------
Interest income 16 17
Foreign exchange gains 16 19
Other 8 10
------------------------ ----------- -----------
Total finance income 40 46
------------------------ ----------- -----------
10. FINANCE COST
Six months ended 30
June
-----------------------
In millions of US$ 2012 2011
------------------------------------------------ ------------ ---------
Interest expense on borrowings (87) (46)
Foreign exchange losses (27) (14)
Unwinding of discount on long term provisions (7) (2)
Amortisation of financial instruments discount (9) (2)
Other (34) (23)
------------------------------------------------ ------------ ---------
Total finance cost (164) (87)
------------------------------------------------ ------------ ---------
11. INCOME TAXES
Income tax expense comprises the following:
Six months ended 30 June
---------------------------
In millions of US$ 2012 2011
----------------------------------------- ------------- ------------
Current tax
Corporate income tax - current period (208) (329)
Corporate income tax - prior periods (7) (34)
Withholding taxes (9) (45)
----------------------------------------- ------------- ------------
Total current tax (224) (408)
----------------------------------------- ------------- ------------
Deferred tax
Deferred income tax - current period -
origination
and reversal of temporary differences 10 (39)
Deferred income tax - prior periods 2 (2)
Total deferred tax 12 (41)
----------------------------------------- ------------- ------------
Total income tax expense for the period (212) (449)
----------------------------------------- ------------- ------------
The income tax expense is accrued based on the expected annual
effective tax rate applied to the actual pre-tax income for the six
months ended 30 June 2012, further adjusted for one-off items
arising within the interim period. Withholding tax on dividends is
treated as a one-off item and is accrued in full in the period in
which the obligation to pay dividends becomes unconditional.
The Effective Tax Rate ('ETR') for the period of 31.8% (2011:
27.5%) was higher than the applicable Corporate Income Tax ('CIT')
rate of 20%. This is mainly due to losses not recognised for
deferred tax purposes in jurisdictions where the Group has a lack
of income and, therefore, tax capacity, which added 7.3 percentage
points to the ETR, Excess Profits Tax charges in Kazakhstan which
increased the ETR by 2.6 percentage points, and items not taxable
or deductible for tax purposes which added 2.6 percentage points.
The applicable rate of 20% refers to the CIT rate in Kazakhstan,
where the majority of the Group's operations are located.
12. EARNINGS PER SHARE
Six months ended 30 June
------------------------------
In millions of US$ (unless stated otherwise) 2012 2011
---------------------------------------------- -------------- --------------
Profit for the period attributable to equity
holders of
the Company 463 1,166
---------------------------------------------- -------------- --------------
Number of shares:
Weighted average number of ordinary shares
in issue for basic earnings per share 1,287,750,000 1,287,750,000
Adjusted for:
Potential share based awards under Long-term
Incentive Plan - -
Weighted average number of ordinary shares
for
diluted earnings per share 1,287,750,000 1,287,750,000
---------------------------------------------- -------------- --------------
Basic and diluted earnings per share (US
cents) 36 91
---------------------------------------------- -------------- --------------
13. PROPERTY, PLANT AND EQUIPMENT
Buildings
and Plant Assets
In millions of Freehold mining Mineral and under
US$ land assets rights equipment Vehicles construction Total
-------------------------- --------- ---------- -------- ----------- --------- -------------- --------
Cost at 1 January
2012 55 2,153 3,138 3,659 1,113 1,950 12,068
Additions 4 39 1 212 40 714 1,010
Additions on business
combinations - 52 661 237 44 419 1,413
Change in asset
retirement costs - 120 - 14 - - 134
Transfers - 106 - 137 111 (354) -
Transfer to assets
classified as held
for sale - - - - - (3) (3)
Disposals (9) (11) - (69) (18) (12) (119)
Exchange differences (1) (15) (125) (26) (9) (23) (199)
-------------------------- --------- ---------- -------- ----------- --------- -------------- --------
At 30 June 2012 49 2,444 3,675 4,164 1,281 2,691 14,304
-------------------------- --------- ---------- -------- ----------- --------- -------------- --------
Accumulated depreciation
at
1 January 2012 - (528) (75) (1,181) (393) - (2,177)
Disposals - 12 - 56 17 - 85
Depreciation charge - (68) (49) (165) (52) - (334)
Exchange differences - 5 - 9 4 - 18
-------------------------- --------- ---------- -------- ----------- --------- -------------- --------
At 30 June 2012 - (579) (124) (1,281) (424) - (2,408)
-------------------------- --------- ---------- -------- ----------- --------- -------------- --------
Carrying value
at
30 June 2012 49 1,865 3,551 2,883 857 2,691 11,896
-------------------------- --------- ---------- -------- ----------- --------- -------------- --------
Prepayments for property, plant and equipment and related
services as at 30 June 2012 totalled US$307 million (31 December
2011: US$310 million). The Group's capital expenditure commitments
as at 30 June 2012 amounted to US$693million (31 December 2011:
US$1,031 million).
13. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Buildings Assets
In millions of Freehold and mining Mineral Plant under
US$ land assets rights and equipment Vehicles construction Total
-------------------------- --------- ------------ -------- --------------- --------- -------------- --------
Cost at 1 January
2011 54 1,870 2,669 2,960 833 1,485 9,871
Additions - 38 - 63 43 539 683
Additions relating
to acquisition
of assets(1) - - 195 - - - 195
Change in asset
retirement costs - 1 - - - - 1
Transfers - 74 - 321 46 (441) -
Transfer to assets
classified as held
for sale - - - - - (5) (5)
Disposals - (1) - (14) (7) (10) (32)
Exchange differences 1 25 135 33 9 23 226
-------------------------- --------- ------------ -------- --------------- --------- -------------- --------
At 30 June 2011 55 2,007 2,999 3,363 924 1,591 10,939
-------------------------- --------- ------------ -------- --------------- --------- -------------- --------
Accumulated depreciation
at 1 January 2011 - (434) (28) (934) (329) - (1,725)
Disposals - 1 - 12 7 - 20
Depreciation charge - (61) (14) (148) (41) - (264)
Exchange differences - (6) - (10) (4) - (20)
-------------------------- --------- ------------ -------- --------------- --------- -------------- --------
At 30 June 2011 - (500) (42) (1,080) (367) - (1,989)
-------------------------- --------- ------------ -------- --------------- --------- -------------- --------
Carrying value
at
30 June 2011 55 1,507 2,957 2,283 557 1,591 8,950
-------------------------- --------- ------------ -------- --------------- --------- -------------- --------
(1) Dezita Investments Limited, previously provisionally
reported in the Half Year Results for the period ended 30 June 2011
as a business combination, was determined to be an asset purchase
in the Group's Annual Report and Accounts for the year ended 31
December 2011. The balance sheet for 30 June 2011 has been restated
in this respect.
14. BORROWINGS
As at
---------------------------
31 December
In millions of US$ Note 30 June 2012 2011
---------------------------------------- ----- ------------- ------------
Non-current
Bank borrowings 3,233 325
Term borrowings 2 2
Bonds - 14
Promissory notes 449 -
Non-current borrowings - third party 3,684 341
---------------------------------------- ----- ------------- ------------
Bank borrowings 394 393
Term borrowings 500 500
Non-current borrowings - related party 4 894 893
---------------------------------------- ----- ------------- ------------
Total non-current borrowings 4,578 1,234
---------------------------------------- ----- ------------- ------------
Current
Bank borrowings 305 263
Term borrowings - 1
Bonds 14 -
Current borrowings - third party 319 264
---------------------------------------- ----- ------------- ------------
Bank borrowings 7 7
Term borrowings 11 14
Promissory notes 25 75
Current borrowings - related party 4 43 96
---------------------------------------- ----- ------------- ------------
Total current borrowings 362 360
---------------------------------------- ----- ------------- ------------
Total borrowings 4,940 1,594
---------------------------------------- ----- ------------- ------------
In addition to draw downs and repayments on existing facilities,
during the first six months of 2012 the Group entered into the
following additional borrowing facilities:
Sberbank of Russia
On 1 February 2012, the Group entered into a credit facility
agreement with Sberbank of Russia for US$2 billion. The facility
has an applicable interest rate of LIBOR plus 6.3% and is repayable
in 5 years. The facility is available as follows; 25% of the
facility was available on 1 February 2012; 50% after 3 months; 75%
after 6 months and 100% after 9 months. The facility is to be used
for general corporate purposes. At 30 June 2012 US$1 billion was
drawn down.
Revolving Credit Facility
On 16 February 2012, the Group signed the refinancing of the
US$500 million revolving credit facility. The amount of the
facility was reduced to US$467 million and has been arranged on a
club deal basis with Credit Agricole acting as the coordinating
bank. This is a two year facility and bears an interest rate of
LIBOR plus 2.5%. As at 30 June 2012 there were no drawings under
this facility.
First Quantum Minerals Limited Promissory Note
As part of the FQM transaction, announced on 2 March 2012, the
total consideration included deferred consideration of US$500
million. This is in the form of a 3-year promissory note with an
interest coupon of 3% which is payable annually in arrears. In
accordance with IAS 39 Financial Instruments, this was measured at
fair value of US$441 million.
Russian Commercial Bank (Cyprus) Limited (part of the VTB
Group)
On 25 April 2012, the Group entered into a second US$1,000
million term loan facility with Russian Commercial Bank (Cyprus)
Limited (part of the VTB group). The facility bears an applicable
interest rate of LIBOR plus 6.25% per annum and is repayable in 2
years by bullet repayment. The facility is available for general
corporate purposes. The full amount was drawn down at 30 June
2012.
15. RECONCILIATION OF NON-GAAP MEASURES
1. Underlying EBIT, EBITDA and EBITDA margin
Six months ended 30
June
-----------------------
In millions of US$ (unless stated otherwise) Note 2012 2011
---------------------------------------------- ------ ----------- ----------
Profit for the period 455 1,182
Adjustments for:
Finance cost 164 87
Income tax expense 212 449
Transaction costs expensed under IFRS 3
(revised) 6 -
Share of loss/(profit) of joint ventures
and associates(1) 9 (5)
Finance income (40) (46)
Loss arising related to acquisition of
associate 14 -
---------------------------------------------- ------ ----------
Underlying EBIT 820 1,667
------------------------------------------------------ ----------- ----------
Add back:
Depreciation, amortisation and impairment 324 260
------------------------------------------------------ ----------- ----------
Underlying EBITDA(2) 1,144 1,927
------------------------------------------------------ ----------- ----------
Divide by:
Revenue 3,246 4,011
------------------------------------------------------ ----------- ----------
Underlying EBITDA Margin(3) 35.2% 48.0%
------------------------------------------------------ ----------- ----------
(1) Joint ventures and associates for 2011 and 2012 include
Shubarkol as an associate from February 2009 to April 2012, Camrose
as a joint venture from August 2010, and Taurus as a joint venture
from December 2010.
(2) Underlying EBITDA: Profit before finance income, finance
cost, income tax expense, depreciation, amortisation and impairment
of property, plant and equipment and intangible assets, net gains
and losses on derivatives not qualifying for hedge accounting,
share of profit or loss of joint ventures and associates, loss
arising related to acquisition of associate and acquisition related
credit/costs now expensed under IFRS 3 (revised).
(3) Underlying EBITDA margin: Underlying EBITDA as a percentage
of revenue.
15. RECONCILIATION OF NON-GAAP MEASURES (CONTINUED)
2. Return on capital employed
Six months ended 30
June
----------------------
In millions of US$ (unless stated otherwise) 2012 2011
----------------------------------------------------- ---------- ----------
Underlying EBIT 820 1,667
Divide by:
Capital employed weighted average(1)
Borrowings 3,267 1,599
Equity including non-controlling interests 11,278 10,579
----------------------------------------------------- ---------- ----------
Total capital employed weighted average 14,545 12,178
----------------------------------------------------- ---------- ----------
Return on capital employed 5.6% 13.7%
----------------------------------------------------- ---------- ----------
(1) The capital employed used in this calculation is a two point
average based on the opening and closing consolidated balance sheet
for each six month period.
3. Gearing
Six months ended 30
June
----------------------
In millions of US$ (unless stated otherwise) 2012 2011
-------------------------------------------------- ---------- ----------
Net debt 3,411 2
Divide by:
Net debt 3,411 2
Equity attributable to equity holders of the
company 10,977 10,887
-------------------------------------------------- ---------- ----------
14,388 10,889
-------------------------------------------------- ---------- ----------
Gearing 23.7% 0.0%
-------------------------------------------------- ---------- ----------
15. RECONCILIATION OF NON-GAAP MEASURES (CONTINUED)
4. Gross available funds, net available funds
and net debt
Six months ended 30
June
----------------------
In millions of US$ 2012 2011
--------------------------------------------------------- ---------- ----------
Gross available funds
Cash and cash equivalents 1,529 1,565
Term deposits (included in trade and other receivables) 22 21
Other financial assets 181 350
Less:
Investment in quoted equity shares (non-current) (146) (324)
Other restricted financial assets (21) (12)
--------------------------------------------------------- ---------- ----------
Total gross available funds 1,565 1,600
--------------------------------------------------------- ---------- ----------
Borrowings - current (362) (283)
Borrowings - non-current (4,578) (1,284)
--------------------------------------------------------- ---------- ----------
Total net available funds (3,375) 33
--------------------------------------------------------- ---------- ----------
Net (debt)
Cash and cash equivalents 1,529 1,565
Borrowings - current (362) (283)
Borrowings - non-current (4,578) (1,284)
--------------------------------------------------------- ---------- ----------
Total net (debt) (3,411) (2)
--------------------------------------------------------- ---------- ----------
16. EVENTS AFTER BALANCE SHEET DATE
2012 Interim Dividend
The Board has approved a 2012 interim dividend of US 6.5 cents
per share, amounting to US$84 million, to be paid on 4 October 2012
to shareholders on the register at the close of business on 24
August 2012.
Frontier Licence
On 31 July 2012, the Group announced that the Government of the
DRC has decided to grant the Group's subsidiary Frontier a new
mining licence in respect of the Frontier mine for US$101.5
million. This licence has now been granted. The new Frontier
licence will provide feed for the Frontier processing plant.
SHAREHOLDER INFORMATION
Registered Office
Eurasian Natural Resources Corporation PLC
16 St James's Street
London SW1A 1ER
United Kingdom
Telephone: +44 (0) 20 7389 1440
Fax: +44 (0) 20 7389 1441
Website: www.enrc.com
Registered in England and Wales
Company number: 06023510
Listing
The principal trading market for Eurasian Natural Resources
Corporation PLC Ordinary Shares is the London Stock Exchange
('LSE'). The shares are also listed on the Kazakhstan Stock
Exchange ('KASE').
Major interests in shares
As at 14 August 2012, the Company had been advised, in
accordance with the Disclosure and Transparency Rules of the UK's
Listing Authority, of the following notifiable interests (whether
directly or indirectly held) in its voting rights:
Number of Nature of
voting rights % Holding
------------------------------------------------------------------------------- --------------- -------- ----------
Kazakhmys Eurasia BV 334,824,860 26.00 Indirect
Mr Patokh Chodiev (1) 154,052,625 11.97 Indirect
Mr Alijan Ibragimov (2) 113,836,250 8.83 Indirect
Mr Alexander Machkevitch 187,836,250 14.59 Indirect
The State Property and Privatisation Committee of the Ministry of Finance of
the Republic
of Kazakhstan 150,047,116 11.65 Direct
------------------------------------------------------------------------------- --------------- -------- ----------
1 Mr Chodiev's total holdings amount to 187,836,250 shares
(14.59%) and he has transferred a total of 33,783,625 shares to
entities where he is the beneficial owner. The entities are managed
by amongst others, certain members of Mr. Chodiev's family. A TR1
has been received in respect of the shares notified above.
2 Mr Ibragimov's total holdings amount to 187,836,250 shares
(14.59%), however, some are held on a discretionary basis by a fund
management vehicle owned and operated by, amongst others, Mr
Ibragimov's family. A TR1 has been received in respect of the
shares notified above.
Exchange rates
The following table sets out, for the periods indicated, the
relevant period-end and average exchange rates of the Kazakhstani
tenge ('KZT') to the US dollar ('US$'), as applied in the
preparation of the Group's consolidated financial information for
the relevant periods and expressed in KZT per US$.
Rate
Period end Average
------------------------------- ----------- --------
Six months ended 30 June 2012 149.42 148.16
Year ended 31 December 2011 148.40 146.62
Six months ended 30 June 2011 145.83 146.01
------------------------------- ----------- --------
Results timetable
Wednesday, 22 August 2012 Ex-dividend date
Friday, 24 August 2012 Interim dividend record date
Thursday, 4 October 2012 Interim dividend payment date
Thursday, 8 November 2012 November 2012 Interim Management Statement and Q3 2012 Production Report
Wednesday, 6 February 2013 Q4 2012 Production Report
Wednesday, 20 March 2013 2012 Preliminary Results Announcement
Thursday, 9 May 2013 May 2013 Interim Management Statement and Q1 2013 Production Report
Q2 2013 Production Report
Wednesday, 7 August 2013 2013 Half Year Results Announcement
Wednesday, 21 August 2013
All future dates are provisional and subject to change.
Dividends on ordinary shares
On 21 June 2012 the Company paid a final dividend for the year
ended 31 December 2011 of US 11 cents per ordinary share.
The Directors of the Board have approved an interim dividend for
the six months ended 30 June 2012 of US 6.5 cents per ordinary
share in the Company, to be paid on 4 October 2012 to all
registered shareholders on the Register of Members at the close of
business on 24 August 2012.
As the Group's financial results are reported in US dollars, the
interim dividend will be declared and paid in US dollars.
Registered shareholders may elect to receive their dividend in
pounds Sterling instead. This payment will be based on an exchange
rate of US$1.5704/(GBP)1 (being the rate published in the London
Financial Times on 14 August 2012, the business day prior to
announcement of the Group's Half Year Results for the six months
ended 30 June 2012).
Registered shareholders may, at any time, elect to receive their
dividends in pounds sterling by submitting a currency election form
to the Company's Registrars, Computershare Investor Services PLC.
However, in order for a currency election to be effective for the
2012 interim dividend payment, the form must have been lodged with
the Registrars by the close of business on the day immediately
preceding the dividend announcement. For the dividend payable on
the 4 October 2012, this means that the currency election form
should have been received by the Registrars by the close of
business on 14 August 2012. Any shareholders wishing to change
their currency election in the future should contact the Company's
Registrars in advance of the dividend announcement date.
Registered shareholders who elect to receive their dividend in
pounds sterling may also complete a mandate form allowing payment
directly into their sterling bank account. The mandate form is
available from the Registrars. Otherwise, US dollar dividend
payments shall be made by cheque.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGUGCRUPPGBC
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