Kazakhmys Annual report and accounts 2010

CHAIRMAN’S STATEMENT

Delivering value for operations, and securing value for the future.

Read the Chairman’s Statement

2010 HIGHLIGHTS

Financial and operational highlights for 2010.

Our business highlights

CORPORATE RESPONSIBILITY

Realising our potential through responsible operations.

CHIEF EXECUTIVE’S REVIEW

Translating action into results across all operations.

Read the Chief Executive’s Review

Photograph of Oleg Novachuk, Chief Executive

OPERATIONAL AND FINANCIAL REVIEW

Detailed market overview and operational performance for our divisions.

Review our performance

DOWNLOAD CENTRE

Visit our download centre for a PDF of the Annual Report or our accounts in Excel format.

The demand for copper is on the rise. Copper is one of the key metals of modern economic development, found in nearly every new apartment or office block, vehicle and electrical appliance. It is one of the best heat and electricity conductors, is resistant to corrosion and is present in various alloys. As global markets recover, and supply remains tight, the outlook for copper is strengthening.

Kazakhmys is the 11th largest producer in the world, and accounts for 90% of all copper produced in Kazakhstan. Based in Central Asia, Kazakhmys is ideally located to sell to the key markets of Europe and China, which together represent around 60% of global demand, with China being the fastest growing market in the world.

With a long heritage in copper, we have a strong and stable customer base, signing annual contracts each year to account for around 90% of our production.
1. Copper anodes from the casting plant at the smelter.
Global refined copper consumption (kt)

Copper consumption grew by an estimated 10% in 2010, driven by a recovery in demand from China and Europe. Supply of copper is constrained by a variety of factors.
1. Source: Brook Hunt - A Wood Mackenzie Company
1. Finished copper cathodes from the refinery.
Chinese refined copper consumption (kt)

China now accounts for 38% of global copper consumption, the largest in the world. Consumption has been driven by industrialisation and urbanisation.
1. Source: Brook Hunt - A Wood Mackenzie Company

Kazakhmys is one of the few fully integrated copper producers in the world. This allows us to exercise control over every stage of the process, from mining ore through to the production of finished copper metal. Our operations are even supplied by energy from our own power plants, which are fuelled by our own coal mines. This fully integrated approach helps make us one of the lowest cost copper producers in the world, and provides us with the flexibility to serve a variety of end markets.
Mining and concentrating

Kazakhmys operates 17 copper mines across Kazakhstan which, in 2010, produced 32.9 million tonnes of copper ore with an average grade, or copper content, of 1.09%.

Kazakhmys operates both underground and open pit mines, and employs a variety of extraction methods depending upon the mine and geological conditions. In addition to copper, we produce significant quantities of zinc, silver and gold, which are sold as by-products. The mined ore is crushed and then processed in one of the Group’s 10 concentrators.
Smelting and refining

Kazakhmys operates two smelting and refining plants, where the copper concentrate is first smelted in furnaces to produce copper plates, or anodes, which have a copper content of around 98%.

The anodes are then sent to the electro-refinery to produce copper cathode. The cathodes have a minimum copper content of 99.95%. We also operate facilities for producing copper rod, which is principally sold in the Chinese market.
Power

We operate our own coal mines and power plants to supply heat and electricity to our operations and the surrounding communities. In 2010, our three captive power facilities produced 5,684 GWh of electricity, 62% of which was used internally. We operate three coal mines which have combined reserves of over 50 years.

Separate to our captive power facilities, Kazakhmys owns 50% of Ekibastuz GRES-1,the largest power station in Kazakhstan. In 2010 the plant produced 11,065 GWh of power, the majority of which was supplied to the Kazakhstan energy market, and around 8% was sold to Russia. Our combined power facilities make us the largest power provider in Kazakhstan, with over 20% of the domestic market.
Support services and logistics

A key aspect of our integrated business model is operating our own support services. From engineering teams which manufacture the key parts and materials we require, through to construction companies to build the infrastructure we depend on.

We also operate our own transport network, including around 1,100 km of railway infrastructure, for transporting material across our sites. This network is linked to Kazakhstan’s main national rail trunk lines. The Group owns over 100 locomotives and over 800 wagons. This provides us with the independence and flexibility to respond quickly to opportunities and developments as they arise.

Our location in Kazakhstan allows us to serve the world’s two largest copper markets and to be flexible in our response to customer demand. Kazakhstan also has a number of key advantages for future development. The land is naturally rich in resources, with a wide range of commercially attractive deposits, and strong and reliable transport links.
1. A senior engineer visiting one of our sites in the East Region.
A Kazakh business

Kazakhstan is the 9th largest country in the world, similar to the size of Western Europe. It has a strong track record in attracting Foreign Direct Investment, which amounts to over $120 billion since independence in 1991.  

Kazakhmys is one of the largest and most influential companies in Kazakhstan, with annual revenues that represent around 2% of the country’s gross domestic product. We are also one of the country’s largest taxpayers and employers with over 60,000 employees.
1. Preparing pipes to take water to Satpayev.
Focused on operating responsibly

Kazakhmys strives to be responsible in all of its operations. This includes providing a fair, safe and healthy workplace, protecting the environment and developing the communities in which we operate. We believe this approach will directly enhance shareholder value, by increasing access to capital and lowering operational costs. Operating responsibly will also maintain our reputation and assist the continued cooperation of local communities, as well as helping us attract and retain the best employees.

We are focused on growth, with a development pipeline in place to increase our production by over 50% in the next seven years. We have $2.7 billion of funding in place for development. Our growth plans include two substantial projects at Bozshakol and Aktogay which are long-life, low-risk copper developments, as well as several medium-sized projects. With our in-house exploration and technical teams, we continue to seek out and acquire attractive and undeveloped natural resources to strengthen our portfolio.
1. Underground exploration
Existing mines

We are working to maximise output and improve efficiency across all of our operations to maintain current production levels well into the future.
1. Mine planning team
Mid-sized project/extensions

There are development projects at Akbastau, Kosmurun, Shatyrkul, Zhaisan and Zhomart. These include mine extensions, new developments and additional processing facilities. They should come into production between 2012 and 2015.
1. Installing air precipitators
Power expansion

There is a $1 billion expansion programme at Ekibastuz GRES-1, which will take this power station from current capacity of 2,500 MW to 4,000 MW. All of the power from Ekibastuz GRES-1 is currently sold to third parties, however, our 50% share in this plant ensures that we have sufficient power for all our future copper growth projects.
1. Core sample drilling
Bozshakol

Bozshakol is currently in feasibility stage, and is a substantial deposit, which should have annual production of around 100 kt of copper and a globally competitive net production cost. The feasibility study is expected to be completed by 2012, with first production in 2015.
1. Core sample testing
Aktogay

Aktogay, with a resource containing nearly 5 MT of copper, is expected to have a similar annual output to Bozshakol. The deposit is split between a large sulphide deposit and a smaller oxide deposit. In 2011, a feasibility study for the sulphide deposit will be started and an existing feasibility study for the oxide deposit will be updated.
1. Exploration team
Future growth

We are continually seeking to expand our future project pipeline. Our dedicated exploration team assesses opportunities around the region, where we believe we have a competitive advantage.