2008 Half Year Results

RNS Number : 4855E

KazakhGold Group Ltd

26 September 2008

 



For immediate release

26 September 2008

2008 Half Year Results

(1 January to 30 June 2008)

• First half gold production of 66,863oz*

• Average gold price received of US$ 872 per ounce, on sales of 76,211oz

• Significant work undertaken to modernise and upgrade existing processing capacity to increase its future productivity

• Audited (FSU classified) gold reserves and resources of 59.6** million ounces confirmed, as at 1 January 2008

• Further progress to re-classify the Group's resource base to the JORC standard

• Initial exploration results reveals significant potential for large open pit at the Southern Karaultube deposit

• Additional mills installed at the Aksu, Bestobe and Zholymbet processing facilities

• Positive exploration results from Romaltyn and further pre-production preparation work undertaken

• Eastern Kazakhstan assay laboratory receives ISO 17025 accreditation

• Successful institutional placement of 2.3 million new ordinary shares (via GDRs) at US$ 23.0/GDR

* Includes 3,382oz of gold from the re-processing of flotation concentrate produced in 2007

** Based on former Soviet Union (FSU) classification and audited by Wardell Armstrong International 

Half Year Results Summary (1 January to 30 June 2008)

		2008 (Six months  to 30 June)	2007 (Six months to 30 June)
Revenue (US$ '000)		66,442	41,273
Operating profit (US$ '000)		12,741	7,941
Profit before tax (US$ '000)		12,252	6,614
Cash (US$ '000)		68,180	140,669
Net assets (US$ '000)		831,067	765,395
Earnings per share (basic and diluted - US$)		0.06	0.08
Weighted average number of shares in issue		51,468,231	48,103,472
Total ore extracted (tonnes)		1,435,715	2,396,424
Head grade (grammes/tonne)		2.05	1.54
Recovery rate (%)		72.9	68.9
Gold production (oz)		66,863*	81,531

* Includes 3,382oz of gold from the re-processing of flotation concentrate produced in 2007

Commenting on KazakhGold Group Limited's 2008 first half results, Executive Chairman, Dr Kanat Assaubayev said:

'Our accelerated investment plan is now well underway at the Group's main mines, where facilities are being upgraded and modernised while new capacity is being added. The production enhancements achieved over the period form part of a broader five year plan to produce 1.0 million ounces of gold annually by 2011.'

Further Information:	Issued by
Sanzhar Assaubayev	Citigate Dewe Rogerson
General Manager, London Office	Tel: [phone]
KazakhGold Group Limited
Tel: [phone]
[e-mail]

Chairman's Statement 

In the first half, the Group has focused on its four key priorities for the year - namely to:

• Grow our gold reserves, through further exploration work at our mining properties in Kazakhstan and Romania; 

• Re-classify our resource base to the more widely respected Australasian Joint Ore Reserves Committee (JORC) standard

• Modernisation of our mining methods and the optimisation of our processing technologies, to increase ore extraction

• Active participation in the consolidation of the region's gold assets, in order to ultimately grow gold production. 

Within the priorities, the production enhancements achieved over the period form part of a broader five year plan to produce 1.0 million ounces of gold annually by 2011. Backed by a programme of accelerated investment, we expect to raise total annualised ore processing to over 14 million tonnes by 2011, in order to achieve our gold production target.

Results and Dividend

In the first half to 30 June 2008, the Group produced 66,863oz of gold (H1 2007: 81,531oz) which included 3,382oz from the re-processing of flotation concentrate which was in stock at 1 January 2008. A decision to reprocess this was taken during the period to benefit from the production of higher value cathodic gold. Sales of gold for the first half were 76,211oz (H1 2007: 67,588oz). Production was constrained by work to optimise our plant and equipment, while enhancing their efficiency and longevity. In addition, further planned investment to expand processing capacity at our main mines was made during the period. Although gold production was impacted by this important work, ore continued to be extracted at the Group's main mines in Northern Kazakhstan and also at Akzhal, in Eastern Kazakhstan, for future use.

Revenue for the period was US$ 66.4 million, an increase of 61.0 per cent over H1 2007. This increase reflects the sale of gold from inventory and the benefit of a stronger price environment in 2008. Indeed, the average gold price achieved on sales in the first half was US$ 872 per contained ounce - 42 per cent higher than that achieved in H1 2007. 

Profit before tax was US$ 12.3 million (H1 2007: US$ 6.6 million), while earnings per share were US$ 0.06 (H1 2007: US$ 0.08). Net assets at 30 June 2008 were US$831.1 million (H1 2007: US$ 765.4 million). Cash absorbed by operating activities over the period was US$ 12.3 million (H1 2007: US$ 1.1 million). Cash and cash equivalents held at 30 June 2008 were US$ 68.2 million (30 June 2007: US$ 140.7 million).

As previously announced, the Group does not propose the payment of shareholder dividends until the plant modernisation programme is completed, and our facilities reach their designed output capacity. 

Reserves and Resources

Following an audit by Wardell Armstrong International, the Group's gold reserves and resources were confirmed as 59.6 million ounces, as at 1 January 2008, under the former Soviet Union (FSU) classification standard. This includes Aksu, Bestobe, Zholymbet, Southern Karaultube and Kyzylsorskoe in Northern Kazakhstan, and Akzhal, Kaskabulak and Vasilevski in Eastern Kazakhstan.

During the first half, further work was undertaken to upgrade gold resources to reserves and to reclassify the Group's FSU reserves to the JORC standard. Construction of a database using both historic and new exploration data, which is necessary part of the JORC conversion work, is progressing. Having concentrated mainly on the underground resource areas and tailings dams, the focus is now on compiling surface exploration data for areas of near term production potential.

Exploration

Exploration in the first half has concentrated on Aksu, Bestobe and Zholymbet, although work has also been undertaken at other Group properties in Kazakhstan and in Romania. At the three main mines in Northern Kazakhstan, exploration activity included some 21 km of core drilling, 2.1 km of hydro-core drilling, trenching and underground exploration development. 

At the Southern Karaultube deposit, initial exploration trench and drilling results indicated significant potential for a large open pit mine. Drilling and trenching work was also undertaken at the Akzhal and Kaskabulak properties in Eastern Kazakhstan. In Romania, core drilling work continues and encouraging results were obtained from the June 11 deposit. 

The Group is currently in advanced discussions with Alex Stewart Limited, the internationally recognized assayers, regarding an upgrade and expansion of the main assay laboratories located at each of Aksu, Bestobe and Zholymbet. The potential for independent contract management of these laboratories, for a three year period, is also part of the discussions. The plan is also to pursue ISO 17025 accreditation for these three laboratories, which relates to the acceptance and sampling of materials. During the first half, the laboratory at our office complex in Eastern Kazakhstan achieved ISO17025 accreditation. This upgrade and expansion of the Group's assay facilities is necessary for both exploration and JORC conversion work.

Operations

As well as developing new processing capacity, modernisation of the Group's mining methods at Aksu, Bestobe and Zholymbet continued throughout the first half. Upgrades were made to production capacity and processing technologies, to enable gold production to be increased. 

We expected this essential work to constrain gold production levels in 2007 and 2008. While first half production was impacted, mining of ore for stockpiling and future gold production continued. In the first half 1.4 million tonnes of ore was extracted (H1 2007: 2.4 million tonnes). The average head grade of the ore was 2.05 grammes/tonne, a significant improvement over the prior period (H1 2007: 1.54 g/t). The recovery rate for the period increased to 72.9 per cent (H1 2007: 68.9 per cent).

During the period, surface, shaft and underground rehabilitation work was undertaken at Aksu. This has enabled access to the Kotenko and Quartzite Hills ore bodies, and will allow underground mining of the Vera ore body to start by the end of 2008. Work to upgrade and improve production efficiency at Aksu continued. In March, secondary mills were installed and commissioned at Aksu's carbon-in-pulp (CIP) processing plant. Construction of a new oxygen plant began in the first half and this is progressing well. This plant will help increase gold recovery, while enabling cyanide consumption to be optimised. Meanwhile, at Aksu's heap leach facility, the size of crushed ore was reduced in order to improve heap leaching efficiency.

Construction of the 2.0 million tonnes per annum tailings re-treatment plants at Bestobe and Zholymbet continued throughout the period. The plant designs have been finalised, the major earthworks and foundations are complete, and the erection of the building housing the plant is underway. Both plants are scheduled to start commissioning in the first half of 2009. Design of a similar tailings re-treatment plant at Aksu, plus the central elution plant at Aksu is progressing, and the site has been cleared to enable construction to start.

In the first half, surface, shaft and underground development was undertaken at several locations in Bestobe. As a result, by the end of 2008, access to the Dalnaya ore body is expected. Meanwhile, on the processing side, a new mill was installed and commissioned at the Bestobe flotation plant. Additional crushing and screening equipment was delivered to Bestobe during the period, to enable further improvement of heap leach processing activity.

Mining work at Zholymbet during the period included further shaft refurbishment and development of underground areas. Two mills were installed at the mine's CIP processing plant and these are being commissioned in the second half of 2008. An oxygen generation plant was installed into a new building and the oxygen generating equipment commissioned in April 2008.  

At the Akzhal deposit, ore stacking began immediately following the commissioning of the crusher plant at the end of 2007. A heap leach pad has been constructed and irrigation is expected to commence on receipt of the necessary production licences and following completion of the adsorption plant later this year.

In Romania, pre-production preparations continued at Romaltyn during the first half. A new lime plant was completed and the carbon-in-leach processing tanks were fully refurbished. A central dam monitoring and pumping station was also finished, while the central dam lime plant was refurbished. Production will start in Romania following the grant of the appropriate permits.

Corporate

On 28 February KazakhGold successfully placed 2.3 million new ordinary shares with institutional investors, in the form of Global Depository Receipts (GDR), at a price of US$ 23.0 per GDR. The proceeds will be used to fund future acquisitions and for the Group's ongoing capital expenditure requirements.

As disclosed in note 7 of the accounts, the Group is in negotiations with the Government of Kyrgyzstan to secure a mining licence for the Jerooy gold project at Talas, to allow gold production to begin. The Directors believe that the Group will eventually be granted such a licence, enabling potential gold production of up to 180,000oz per annum to be reached, within a year of starting operations.

JPMorgan Cazenove is advising us on the benefits of a potential move of KazakhGold's GDR listing to the full listing on the London Stock Exchange Main Market. The firm is also working alongside our other joint brokers and financial advisors ING Bank and Merrill Lynch, appointed in September 2008, to help us identify opportunities to participate in the anticipated future consolidation of gold assets in Central Asia.

People

With an experienced international management team in place at our operational headquarters in Stepnogorsk, KazakhGold has the necessary expertise to complement existing local knowledge to realize its full potential. The Board is grateful to all other employees for their continuing dedication and support, without which the achievements of the first half would not have been possible and the significant opportunities that lie ahead would remain beyond our grasp.

Outlook

In 2008 we have already seen a significant tightening of international credit markets and the re-emergence of inflationary pressures, which have an impact on the Group's cost base. Against this macroeconomic background, the price of gold has held up well. Gold ended the first half some 10 per cent above its opening value, having peaked at over US$ 1,000/oz in March. At such a time of economic instability, we expect the price of gold to remain firm for the foreseeable future, especially given the enduring attractions of gold as a store of value.

After the intensive work undertaken in the first half to optimise and upgrade our existing production assets, we expect gold production to increase over the second half.

The KazakhGold Group is estimated to have over 25 per cent of Kazakhstan's known gold reserves. With this excellent base and the potential of our other international properties, we have a strong platform to support future production growth. Our accelerated investment plan is now well underway at the Group's main mines, where facilities are being upgraded and modernised while new capacity is being added. KazakhGold is also well placed to play an active part in the consolidation of gold assets in Central Asia. These important factors mean that the Group continues to face the future with confidence. 

Kanat Assaubayev

Executive Chairman

-End-

Consolidated income statement
		Six months	Six months	Year ended
		to 30 June	to 30 June	31 December
		2008	2007	2007
		US$000	US$000	US$000
	Note	Unaudited	Unaudited	Audited
Revenue	4	66,442	41,273	176,996
Cost of sales		(36,548)	(24,923)	(88,236)
Gross profit		29,894	16,350	88,760
Other operating income		1,389	991	571
Distribution expenses		(215)	(156)	(3,509)
Administrative expenses		(17,892)	(7,625)	(23,004)
Other operating expenses		(435)	(1,619)	(5,981)
Profit from operations		12,741	7,941	56,837
Finance income		8,558	1,243	11,599
Finance expense		(9,047)	(2,570)	(17,204)
Net financing costs		(489)	(1,327)	(5,605)
Profit before tax		12,252	6,614	51,232
Tax expense		(9,312)	(2,703)	(31,826)
Profit for the period attributable to equity shareholders		2,940	3,911	19,406
Basic and diluted earnings per share attributable to the equity shareholders of the parent during the period	5	US$0.06	US$0.08	US$0.39
All amounts relate to continuing operations.

Consolidated balance sheet
			As restated
	Note	30 June	30 June	Year end Dec
		2008	2007	2007
		US$000	US$000	US$000
		Unaudited	Unaudited	Audited
Non-current assets
Property, plant and equipment	6	1,194,043	1,032,445	1,055,840
Intangible assets	7	78,909	52,288	54,777
Available for sale investments		164	164	164
Other financial assets		36	37,931	2
		1,273,152	1,122,828	1,110,783
Current assets
Inventories		18,816	32,910	21,766
Long-term inventory and ore stockpile		2,287	6,058	2,692
		21,103	38,968	24,458
Trade and other receivables		109,714	38,509	85,275
Investments at fair value through profit or loss		463	-	31,760
Cash and cash equivalents		68,180	140,669	160,285
		199,460	218,146	301,778
Total assets		1,472,612	1,340,974	1,412,561
Equity and liabilities
Share capital		9	9	9
Share premium	8	220,720	170,544	170,544
Capital contributions		510,000	510,000	510,000
Translation reserve		58,153	61,186	62,727
Retained earnings		42,185	23,656	39,198
Equity attributable to shareholders of the parent		831,067	765,395	782,478
Total equity		831,067	765,395	782,478
Non-current liabilities
Interest-bearing loans and borrowings		212,951	236,148	231,776
Provisions		8,385	401	7,910
Deferred tax liabilities		314,907	297,226	312,499
		536,243	533,775	552,185
Current liabilities
Interest-bearing loans and borrowings		44,951	6,699	6,228
Trade and other payables		47,458	33,630	43,207
Current tax payable		12,892	1,475	28,463
		105,301	41,804	77,898
Total liabilities		641,545	575,579	630,083
Total equity and liabilities		1,472,612	1,340,974	1,412,561

Consolidated cash flow statement
		Six months	Six months	Year ended
		to 30 June	to 30 June	31 December
		2008	2007	2007
		US$000	US$000	US$000
		Unaudited	Unaudited	Audited
Cash flows from operating activities
Profit before tax for the period		12,741	6,614	51,232
Adjustments for:
Depreciation, depletion and amortisation		8,894	4,493	12,558
Foreign exchange (loss)/gain		(4,883)	6,036	(167)
Finance expense		9,047	2,570	16,452
Finance income		(8,558)	(1,243)	(11,599)
Amortisation of bond issue costs		343	-	2,182
Loss on disposal of property, plant and equipment		2,323	94	363
Equity-settled share-based payment expenses		47	58	105
Cash flows from operating activities before changes in working capital and provisions		19,954	18,622	71,126
(Increase)/decrease in trade and other receivables		(17,569)	19,057	9,532
Decrease/(increase) in inventories		3,355	(8,661)	4,662
Increase/(decrease) in trade and other payables		4,004	(12,990)	(11,279)
Increase in provisions		475	-	54
Taxation paid		(22,529)	(14,889)	(2,753)
Cash (absorbed by)/generated from operating activities		(12,310)	1,139	71,342
Cash flows from investing activities
Transaction costs of acquisitions		-	(609)	(609)
Additions of property, plant and equipment		(148,863)	(68,786)	(80,577)
Additions of intangible assets		(24,132)	-	-
Proceeds from the disposal of non-current assets		-	1,434	679
Proceeds from sale/(acquisition) of financial assets		31,263	-	(29,117)
Finance income received		1,688	1,243	10,508
Net cash from investing activities		(140,044)	(66,718)	(99,116)
Cash flows from financing activities
Proceeds from issue of shares		52,938	-	-
Share issue costs		(2,762)	-	-
Proceeds from borrowings		22,966	7,756	6,800
Repayment of borrowings		(3,035)	-	(570)
Finance expense paid		(8,683)	(2,570)	(16,452)
Repayment of finance lease liabilities		(1,175)	(3,690)	(6,471)
Net cash from financing activities		60,249	1,496	(16,693)
Net decrease in cash and cash equivalents		(92,105)	(64,083)	(44,467)
Cash and cash equivalents at the beginning of the period		160,285	204,752	204,752
Cash and cash equivalents at the end of the period		68,180	140,669	160,285

 

END

 

 

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