TIDMKZG
RNS Number : 8582T
KazakhGold Group Ltd
12 June 2009
Press Release - For immediate release - 12 June 2009
KazakhGold Group Limited - 2008 Audited Results (Year to 31 December)
Highlights
* Gold production of 103,760 ounces (2007: 232,060 ounces), including 4,593 ounces
of gold from the reprocessing of finished product, reflects disruption to
short-term production from investment in mine refurbishment and production
capacity upgrades, and lower than anticipated mining of high grade ore
* 110,929 ounces of gold sold (2007: 253,056 ounces)
* Average gold price received increased 17.1 per cent to US$820 per ounce (2007:
US$700/ounce)
* FSU classified (audited by Wardell Armstrong International) gold reserves and
resources of 59.6 million ounces, as at 1 January 2008
* Essential investment in upgrading and expanding capacity at Aksu, Bestobe and
Zholymbet
* Further progress made to re-classify the Group's resource base to the JORC Code
* Initial exploration results indicate significant potential for a large open pit
mine at Southern Karaultube, near the Zholymbet mine
* Successful institutional placement of 2.3 million new ordinary shares (via GDRs)
at US$ 23.0/GDR
* Recommended partial offer for 50.1 per cent of the Group received from an
indirect wholly-owned subsidiary of Polyus Gold
+---------------------------+--------------------------+------------------------+
| | 2008 | 2007 |
| | (year to 31 December) | (year to 31 December) |
+---------------------------+--------------------------+------------------------+
| | US$ '000 | US$ '000 |
+---------------------------+--------------------------+------------------------+
| Revenue | 91,001 | 176,996 |
+---------------------------+--------------------------+------------------------+
| Operating (loss)/profit | (47,782) | 56,837 |
+---------------------------+--------------------------+------------------------+
| Pre-tax (loss)/profit | (56,804) | 51,232 |
+---------------------------+--------------------------+------------------------+
| EBITDA | (26,816) | 69,395 |
+---------------------------+--------------------------+------------------------+
| Earnings per share (US$) | 2.26 | 0.39 |
| - basic and fully diluted | | |
+---------------------------+--------------------------+------------------------+
| Net assets | 953,841 | 782,478 |
+---------------------------+--------------------------+------------------------+
| Gold production | 103,760* | 232,060 |
+---------------------------+--------------------------+------------------------+
| Average achieved sales | 820 | 700 |
| price (US$ per contained | | |
| oz) | | |
+---------------------------+--------------------------+------------------------+
* Including 4,593 ounces of gold from the reprocessing of finished product
Commenting on KazakhGold Group Limited's 2008 results, Executive Chairman, Dr
Kanat Assaubayev said:
"During 2008 KazakhGold Group undertook further significant work to upgrade and
expand production capacity, as part of a planned programme of investment to
realise the full potential of our world class asset base. As expected, this
essential work constrained production for the year.
"Backed by significant gold reserves and resources, robust demand for gold and
with the added financial and managerial support of Polyus Gold, the Group is
ideally placed to consolidate its position as Kazakhstan's leading gold
producer"
The full Report and Accounts are now available on the Company's website
www.kazakhgold.com and are also extracted in full below.
Further Information:
Sanzhar Assaubayev
Executive Director
KazakhGold Group Limited
Tel: +44 (0) 20 3178 7105
Sanzhar.assaubayev@kazakhgold.com
KazakhGold Group Limited - 2008 Annual Report & Accounts
KazakhGold Group Limited is the leading specialist gold mining company in
Kazakhstan. We have world-class gold reserves and resources, estimated to be the
largest in the country. Our international management team is developing our
position as Kazakhstan's leading gold producer. We are also seeking to
capitalise on international growth opportunities, such as in Romania and
Kyrgyzstan.
KazakhGold Overview
* Combined gold reserves and resources of 59.6* million ounces, estimated to be
the largest in Kazakhstan and over 25 per cent of the country's known gold
resources
* Significant potential for a resource classification upgrade
* Development properties in Kazakhstan and elsewhere
* Modernisation programme underway to upgrade mining methods and processing
technologies and expand production at the three main mines in Northern
Kazakhstan
* Positioned as a low cost producer, with significant scope to achieve improved
economies of scale
* Managed by an international team, with extensive knowledge of the local geology,
business and regulatory environment
*Audited by Wardell Armstrong International to FSU classification as at 1
January 2008.
2008 Highlights
* Gold production of 103,760 ounces (2007: 232,060 ounces), including 4,593 ounces
of gold from the reprocessing of finished product, reflects disruption to
short-term production from investment in mine refurbishment and production
capacity upgrades, together with lower than anticipated mining of high grade ore
* 110,929 ounces of gold sold (2007: 253,056 ounces)
* Average gold price received increased 17.1 per cent to US$820 per ounce (2007:
US$700/ounce)
* FSU classified (audited by Wardell Armstrong International) gold reserves and
resources of 59.6 million ounces, as at 1 January 2008
* Essential investment in upgrading and expanding capacity at Aksu, Bestobe and
Zholymbet
* Further progress made to re-classify the Group's resource base to the JORC Code
* Initial exploration results indicate significant potential for a large open pit
mine at Southern Karaultube, near the Zholymbet mine
* Successful institutional placement of 2.3 million new ordinary shares (via GDRs)
at US$ 23.0/GDR
* Recommended partial offer for 50.1 per cent of the Group received from an
indirect wholly-owned subsidiary of Polyus Gold
2008 Key Results
+--------------------------------------+--------------------+--------------------+
| | 2008 | 2007 |
| | (year to 31 | (year to 31 |
| | December) | December) |
+--------------------------------------+--------------------+--------------------+
| | US$'000 | US$000 |
+--------------------------------------+--------------------+--------------------+
| Revenue | 91,001 | 176,996 |
+--------------------------------------+--------------------+--------------------+
| Operating (loss)/profit | (47,782) | 56,837 |
+--------------------------------------+--------------------+--------------------+
| Pre-tax (loss)/profit | (56,804) | 51,232 |
+--------------------------------------+--------------------+--------------------+
| EBITDA | (26,816) | 69,395 |
+--------------------------------------+--------------------+--------------------+
| Earnings per share (US$) - basic and | 2.26 | 0.39 |
| fully diluted | | |
+--------------------------------------+--------------------+--------------------+
| Net assets | 953,841 | 782,478 |
+--------------------------------------+--------------------+--------------------+
| Gold production | 103,760* | 232,060 |
+--------------------------------------+--------------------+--------------------+
| Average achieved sales price | 820 | 700 |
| (US$/contained oz) | | |
+--------------------------------------+--------------------+--------------------+
* Including 4,593 ounces of gold from the reprocessing of finished product
2009 Progress and Priorities
* Progress the intended firm offer announced by Polyus Gold to acquire 50.1 per
cent of the Group's share capital and a proposed US$100 million equity capital
raising, to be underwritten by Polyus Gold
* Increase production of high grade ore significantly at the Group's three main
mines
* Continue construction of the 2.0 Mtpa tailings re-treatment plants at Bestobe
and Zholymbet and begin construction of a similar plant at Aksu
* Upgrade further resources to reserves, while progressing the ongoing conversion
of FSU classified reserves and resources to the JORC Code
* Upgrade the Group's three main assay laboratories
* Refurbishment and modernisation of the Romaltyn plant in Baia Mare, Romania
* Resolve the future of the Jerooy project in Kyrgyzstan.
CHAIRMAN'S STATEMENT
During 2008 KazakhGold Group undertook further significant work to upgrade and
expand production capacity, as part of a planned programme of investment to
realise the full potential of our world class asset base. As expected, this
essential work constrained production for the year. The situation was also
exacerbated by difficulties in gaining safe underground access to high grade ore
at our main mines. The result was that production fell well short of
expectations. As a consequence, as the year progressed, the Group's financial
resources came under increasing pressure.
Meanwhile, from the second half of 2008, the first signs of a global credit
crunch began to emerge. While this has highlighted the attractions of gold as an
investment, increasing demand and providing a strong pricing environment, it has
severely restricted the overall availability of capital.
In view of this I am pleased to report that Polyus Gold has today announced, in
conjunction with this Report and Accounts, its firm intention to make a revised
offer for 50.1 per cent of KazakhGold's share capital, which is explained in
more detail in the Financial Review. The Group then proposes to raise an
additional US$100 million of equity capital, which Polyus Gold has agreed to
underwrite. These steps will provide the necessary funds and expertise to unlock
the full potential of the Group's gold assets.
Results
Gold production for the year ended 31 December 2008 was 103,760 ounces, which
includes 4,593 ounces from the reprocessing of finished product (2007: 232,060
ounces). The main reasons for the decline have already been mentioned. However,
at our open pit operations, we were also unable to mine the expected volume of
higher grade ore due to the need to first extract large quantities of low grade
ore.
As a result of the production shortfall in 2008, revenue for the year declined
by 48.6 per cent to US$91.0 million (2007: US$177.0 million). The Group
benefited, however, from selling gold at an average price of US$820 per ounce in
2008, a 17.1 per cent increase on the previous year and reflecting stronger
international demand for gold during the period.
KazakhGold made a loss before tax of US$56.8 million for the year (2007: profit
before tax of US$51.2 million). The profit attributable to shareholders was
US$118.8 million in 2008 (2007: US$19.4 million). This increase resulted from
the release of US$177.7 million of deferred tax liability, resulting from a
reduction in the future rate of Kazakh corporation tax.
Capital expenditure during the year was US$192.5 million (2007: US$91.5
million). This was mainly used to refurbish our underground mines at Aksu,
Bestobe and Zholymbet, in order to enable safe and improved access to high grade
ore in the future. We also upgraded our carbon-in-pulp (CIP) processing plants
at Aksu and Zholymbet. During the year we began construction of 2.0 million
tonne per annum capacity tailings retreatment plants at Bestobe and Zholymbet,
and advanced our plans for a similar facility at Aksu.
In February, the Group successfully placed new ordinary shares with
institutional investors, in the form of Global Depository Receipts (GDR). This
raised a net US$50.4 million, which has been used to fund the Group's ongoing
capital expenditure requirements.
Despite the proceeds from the foregoing share placement, the capital expenditure
and production shortfall in 2008 led to a significant deterioration in the
Group's cash balance in the second half of the year. The Group ended 2008 with
US$14.0 million in cash and cash equivalents. In these circumstances, KazakhGold
requires an additional capital injection as a priority.
Exploration
Throughout 2008 exploration continued at our three main mines and other high
potential deposits. At Aksu we made good progress with developing our knowledge
of the Vera zone, within our existing licence area. Elsewhere, initial
exploration of the Southern Karaultube deposit revealed significant potential
for a large open pit operation, within 5 km of the existing Zholymbet mine and
processing facilities.
We continued our ongoing programme to convert our FSU classified reserves and
resources, to the widely respected Australasian Joint Ore Reserves Committee
(JORC) code. This work is important, in order to realise the full benefits of
our gold deposits. The work is now underway and during 2008 we expanded the
content of our database, to include historical and new exploration data relating
to our main mines and other properties with near-term production potential.
Appointment of financial advisers
Bank of America Merrill Lynch was appointed as co-financial adviser in 2008 and
has been working alongside ING and JPMorgan Cazenove, the company's brokers, to
advise the Group on a number of corporate transactions. Following the approach
received from Polyus Gold, Canaccord Adams was appointed as financial adviser on
this specific matter.
Employees
On behalf of the Board, I wish to express my gratitude to the Group's employees
for their enormous contribution in 2008. Their continued dedication and ongoing
support is both appreciated and fundamental to the ongoing transformation of
KazakhGold, so that the Group's full potential can be achieved.
Outlook
With several developed economies in recession and the availability of credit
very restricted, the global macroeconomic environment looks set to remain
challenging throughout 2009.
The decision in February 2009 by the Central Bank of Kazakhstan to devalue the
Kazakh Tenge, by some 25 per cent against the US Dollar, is a welcome
development. With much of our cost base denominated in Tenge, this immediately
enhances the cost competitiveness of our operations.
Backed by significant gold reserves and resources, robust demand for gold and
with the added financial and managerial support of Polyus Gold, the Group is
ideally placed to consolidate its position as Kazakhstan's leading gold
producer. As a consequence, in our partnership with Polyus Gold, I am confident
that KazakhGold has an excellent long-term future.
OPERATIONAL REVIEW
+-------------------+-------------------+-------------------+-------------------+
| Production Summary for 12 months ended 31 December 2008 |
+-------------------------------------------------------------------------------+
| Mining |
+-------------------------------------------------------------------------------+
| | Ore Mined | Grade | Gold Content (oz) |
| | ('000 tonnes) | (g/t) | |
+-------------------+-------------------+-------------------+-------------------+
| Aksu | 1,088 | 1.68 | 58,908 |
+-------------------+-------------------+-------------------+-------------------+
| Bestobe | 493 | 2.35 | 37,321 |
+-------------------+-------------------+-------------------+-------------------+
| Zholymbet | 351 | 4.12 | 46,541 |
+-------------------+-------------------+-------------------+-------------------+
| Totals | 1.932m tonnes | 2.3g/t | 142,770 ounces |
+-------------------+-------------------+-------------------+-------------------+
| |
+-------------------------------------------------------------------------------+
| Processing |
+-------------------------------------------------------------------------------+
| | Ore Treated | Grade | Gold Produced* |
| | | | (oz) |
+-------------------+-------------------+-------------------+-------------------+
| Aksu | 775 | 2.17 | 36,142 |
+-------------------+-------------------+-------------------+-------------------+
| Bestobe | 487 | 2.17 | 29,138 |
+-------------------+-------------------+-------------------+-------------------+
| Zholymbet | 350 | 3.38 | 29,256 |
+-------------------+-------------------+-------------------+-------------------+
| Quartz ore | | | 9,224 |
+-------------------+-------------------+-------------------+-------------------+
| Totals | 1.612m tonnes | 2.0g/t | 103,760** ounces |
+-------------------+-------------------+-------------------+-------------------+
*Total gold produced includes a small amount of gold recovered from quartz ore
and other sources
** Includes 4,593 oz of gold from reprocessing of finished product.
Production
Gold production for the year to 31 December 2008 was 103,760 ounces, which
includes 4,593 ounces of gold from the reprocessing of finished product (2007:
232,060 ounces).
It was anticipated that production would be constrained at our three main mines
in 2007 and 2008, due to short-term disruption arising from the work to upgrade
and expand production capacity. In the second half of 2008, however, it became
necessary to significantly reduce the underground mining of high grade ore at
Aksu, Bestobe and Zholymbet. This was due to the need for essential surface,
shaft and underground rehabilitation work, to provide safe access to the high
grade ore areas. The work was essential, in particular due to the poor condition
of the mostly Soviet era sub-surface mine infrastructure at these deposits. It
is expected that this refurbishment work will facilitate an increase in the
volume of high grade ore mined in 2009.
At the Group's open pit operations, the mining of higher grade ore was
restricted during the year by the need to first extract low grade ore, in order
to gain access to the strata of higher grade ore below. This, together with the
underground refurbishment work at the Group's three main mines, led to much
lower than anticipated production in 2008.
During the year, the Group upgraded its production facilities. This included the
installation of additional mills and cyclone facilities at Aksu and Zholymbet
carbon-in-pulp (CIP) processing plants. Construction of 2.0 million tonne
capacity tailings retreatment plants was begun at Bestobe and Zholymbet.
To complete the necessary investment to enable production levels to be raised
significantly requires additional capital.
Reserves and Resources
Exploration and geology
The main focus of the Group's geological activity over the year was to improve
the geological understanding of the resources adjacent to its existing mining
operations. This will enable future planned expansion of existing operations and
the start of mining in new areas. Activity included site surface and underground
exploration work that comprised underground development, drilling, trenching,
and sampling. In addition, an assessment of the available historical geological
data, and further data entry into a database of both ongoing, historical FSU and
Kazakh geological exploration data was undertaken.
KazakhGold's Soviet classified resources and reserves were audited by Wardell
Armstrong International (WAI) as at 1 January 2008. At that time the reserves
and resources in Kazakhstan were 59.6 million ounces (see table below).
KazakhGold Gold Reserves and Resources (as at 1 January 2008*)
+---------------------+---------------+--------------+--------------+--------------+
| As at 1 January | Ore | Grade | Gold | Gold |
| 2008 | | | | |
+---------------------+---------------+--------------+--------------+--------------+
| | (million | (g/tonne) | (tonnes) | (million oz) |
| | tonnes) | | | |
+---------------------+---------------+--------------+--------------+--------------+
| Kazakh Reserves (B | 158.80 | 2.68 | 426.17 | 13.70 |
| + C1) | | | | |
+---------------------+---------------+--------------+--------------+--------------+
| Kazakh Resources | 138.72 | 3.82 | 530.42 | 17.06 |
| (C2) | | | | |
+---------------------+---------------+--------------+--------------+--------------+
| Kazakh Resources | 235.84 | 2.80 | 895.72 | 28.80 |
| (P1) | | | | |
+---------------------+---------------+--------------+--------------+--------------+
| Romania Reserves | 10.00 | 0.84 | 8.40 | 0.26 |
+---------------------+---------------+--------------+--------------+--------------+
*Audited by Wardell Armstrong International
Under the Former Soviet Union (FSU) and Romanian National Agency for Mineral
Resources (NAMR) classifications codes of reserves and resources, the Group had
a total of 13.96 million ounces of reserves (B + C1 + Romanian reserves) as at 1
January 2008. In addition, gold resources amounted to 45.86 million ounces (C2 +
P1), under the FSU classification.
During 2008 four Gemcom Surpac licences were purchased and the FSU to JORC
resource estimation conversion and work programme commenced. Wire framing of
geological features and ore bodies has begun, so that the Surpac software can
enable three dimensional modelling of gold deposits, for resource estimation.
Reserves and resources are then updated to reflect depletions of mined materials
and also the addition of resources defined by exploration. Database construction
remains ongoing, using both historical data and newly generated information.
Data entry has focused on the zones that it is intended to mine in the short to
medium term. This work is necessary for the conversion of the resources and
reserves to the JORC code.
Over 2008 there was significant growth in the geological development and
understanding of the Group's reserves and resources. At the three principal
mines in Northern Kazakhstan, procedures were implemented that have shown
improvement in grade control methods and sampling methodology undertaken, during
both the open pit and underground mining process.
In January 2008, the Group attained ISO17025 accreditation for the laboratory at
its offices in East Kazakhstan. A contractor will be selected to upgrade and
expand the Group's three main assay laboratories and independently manage the
laboratories under contract. The aim of this is to increase throughput, while
maintaining and increasing the precision and accuracy of assaying and analysis.
The plan is to then obtain ISO17025 accreditation for these three laboratories.
A world class asset base
A significant element of the Group's growth strategy is the ongoing estimation
of its asset base at Aksu, Bestobe and Zholymbet. This work entails the
reclassification of reserves and resources to the more internationally accepted
JORC code. The preliminary results of this reconciliation study were made
available by Wardell Armstrong International in January 2007, and later audited
in 2008. They confirmed a world class asset base, of long-term benefit to the
Group, with significant potential for a resource classification upgrade.
WAI's initial findings showed Aksu, Bestobe and Zholymbet with in excess of 7.0
million ounces of gold likely to be classified as either Measured or Indicated.
WAI estimated that a further 8.0 million ounces of gold are at the Inferred
status, with a realistic likelihood of upgrading to the Indicated category or
better. A significant proportion of this combined 15.0 million ounces lies
within designated open pit zones at each of the deposits.
The Group also holds nearly 20.0 million additional ounces of gold at Aksu,
Bestobe and Zholymbet which WAI designated as unclassified, due to the need to
do further exploration and evaluation work. However, as with the Inferred
category, it is likely that a significant proportion of this will eventually be
classified as indicated or better. An additional 10.0 million ounces currently
remain as FSU classified P1, until further drilling and sampling is carried out
to facilitate conversion to the JORC code.
Exploration progress
Exploration work focused on the three key assets of Aksu, Bestobe and Zholymbet.
Additional work was undertaken at Akzhal and Kaskabulak in East Kazakhstan.
Geological activity during the year comprised 41,888 metres of core drilling,
2,117 metres of hydro-core drilling, and 2,000 metres of reverse air blast
drilling. Further work included 6,811 linear metres of trenching, with 15,274
cubic metres excavated; 668 cubic metres of stripping works to expose near
surface mineralised zones, and 6,437 metres of underground exploration
development. In-pit drilling comprised 52,388 metres of Down the Hole hammer
drilling, of which 1,232 metres were for exploration.
Other key developments during the year were:
* The purchase of three new Atlas Copco Diamec 262 drill rigs, to start a proposed
underground drilling programme at Aksu and Bestobe;
* Contract negotiations were progressed to the final stages with international
drill companies to manage and drill all future underground core drilling
operations;
* Contract negotiations were advanced with reverse circulation drilling companies,
to initiate surface drilling programmes, incorporating the drilling of existing
dumps, pit extensions etc.
KazakhGold will continue to pursue exploration and evaluation work to both
convert FSU/Kazakh classified resources and reserves to the JORC code, and to
upgrade resources to reserves to provide sustainable reserves to meet its
production targets.
PRINCIPAL OPERATING MINES
AKSU (Including Quartzite Hills)
Production highlights
In the year to 31 December 2008, 1.1 million tonnes of ore were mined at Aksu,
with an average grade of 1.68 grammes of gold per tonne and a gold content of
58,908 ounces. 775,000 tonnes of ore were treated at Aksu, enabling production
of 36,142 ounces of gold.
During the year:
* Access to the Vera ore body was obtained, enabling ore extraction to commence
towards the end of 2008, as planned;
* Secondary mills were installed and commissioned at the existing CIP plant;
* A tertiary crushing and screening facility was installed and commissioning
started at the existing CIP plant.
Exploration and geology
Over the year, open pit geological mapping and sampling were undertaken, to
define ore zones and verify drilling profiles. The Group's exploration
department and a Kazakh contract drilling company undertook core drilling work.
Based on the surface drilling exploration results from the Karyernaya zone, a
report was submitted to the State Committee of Reserves (GKZ) showing the work
completed and the resulting resource/reserve calculations.
Geological work undertaken during the year included:
* Surface diamond drilling at the open pit to redefine resources at a lower
cut-off-grade (0.3g/t). 45 drill holes for 7,857 metres were completed.
Estimation of gold reserves based on this work will be made during 2009 and
submitted to the State for approval to mine;
* At the open pit, 27,745 metres of grade control drilling was completed. These
drill holes adequately defined oxidised and transitional ore types, from the
open pit, which were mined and either stockpiled or treated by Heap Leach or the
Carbon-in-Leach (CIL) plant;
* At the open pit extension areas of Kotenko and Area 509, diamond core drilling
intercepted sub-horizontal zones from 1 metre to 5 metres wide, with high-grade
gold intercepts generally contained within large lower grade mineralized zones
to a depth of 300 metres below surface. A total of 35 drill holes for 10,572
metres have been completed, based on a grid of 60 metres by 40 metres. This
drilling targeted zones which can be both mined by extending the current open
pits, as well as accessing the deeper gold from existing underground
development. The drilling programme will continue during 2009;
* A total of 1,571 metres of underground exploration development work was
completed;
* At the Vera ore body which is a new mining operation, diamond core drilling
intercepted sub-horizontal high-grade mineralisation to a depth of 400 metres
below surface. A total of 25 drill holes for 10,255 metres have been completed.
Drilling initially focused on upgrading a C2 category block, as approved by GKZ
(State Commission of Reserves), with drilling over a grid of 40 metres by 20 to
40 metres, to a depth of 400 metres. It is planned to extend underground mining
of the Vera ore body during 2009, following approval of this block for mining;
and
* The geological technical report of the reserves of the tailings management
facility was submitted to GKZ in October 2008 for approval to allow mine
planning. This submission follows satisfaction of the requirement to drill an
additional 99 holes comprising 595 metres and further test work.
Mining
Underground mining of the Vera ore body began by the end of 2008, as planned.
This followed rehabilitation work carried out in Shafts 39 and 41. This is
expected to enable a significant increase in mining from these two shafts in
2009. The mined ore will be treated at Aksu's existing CIP processing plant.
At the Quartzite Hills ore body, surface, shaft and underground rehabilitation
work was undertaken in two separate areas during the year. This rehabilitation
work at Kapitalnaya Shaft and Flangovaya Shaft will continue during 2009. This
is expected to allow mining of this ore body to commence later in 2009.
Ore treatment
In March, secondary mills were installed and commissioned at Aksu's
carbon-in-pulp (CIP) processing plant. A tertiary crushing and screening
facility at the CIP plant was designed and installed in the second half of 2008.
Commissioning of this plant began towards the end of the year. Following
subsequent optimisation, it is expected to enter full operation during the first
half of 2009.
Construction of a new oxygen plant began in the first half and is expected to be
completed in the first half of 2009. The granting of permits has continued to
hinder this project at the existing Aksu processing facility. This plant will
help increase gold recovery, while enabling cyanide consumption to be optimised.
Meanwhile, at the heap leach facility, the size of crushed ore was reduced in
order to improve heap leaching efficiency.
BESTOBE
Production highlights
In the year to 31 December 2008, 493,000 tonnes of ore were mined at Bestobe,
with an average grade of 2.35 grammes of gold per tonne and a gold content of
37,321 ounces. 487,000 tonnes of ore were treated at Bestobe, enabling
production of 29,138 ounces of gold.
During the year:
* Access was gained to the Dalnaya ore body for underground mining later in 2009;
* Good progress was made with the refurbishment of numerous shafts and surface
infrastructure;
* A new mill and gravity concentrator circuit was completed and commissioned at
the existing flotation plant area.
Exploration and geology
The surface drilling programme targeted expansion of the existing open pit
areas. In addition to the core drilling, Down the Hole drilling was carried out,
to define the pit expansion limits.
Geological work undertaken during the year included:
* 14,021 metres of grade control holes were drilled, to define ore blocks on a
northeast extension of the open pit;
* Surface diamond core drilling continued at the Central Zone. Diamond drill core
holes were all drilled to a target depth of about 150 metres. A total of 9,133
metres of drilling have been completed;
* 800 metres of underground drilling from 13 drill holes was completed, that
targeted gold quartz veins on the - 700 metre level for reserve increase and
mine planning;
* A total of 1,750 metres of underground exploration development work was
completed;
* The geological technical report of the reserves of the tailings management
facility was submitted to GKZ (State Commission of Reserves) in January 2009 for
approval to allow mine planning.
Mining
Surface, shaft and underground development and rehabilitation work was
progressed during 2008 and is continuing. This is to allow for future planned
increases in underground mining later in 2009. Access to the Dalnaya ore body
was gained towards the end of 2008, as anticipated. However, mining of this ore
body is not expected to start until later in 2009, following completion of the
rehabilitation work, in order to allow for tramming and hoisting. Refurbishment
of the ventilation shaft and western shaft is ongoing within the Dalnaya ore
body area.
Access to the quartz vein areas towards the eastern section of Bestobe has
progressed well, and the equipping of 655 level has started. The refurbishment
of the Novaya shaft headgear began during the second half of 2008, in
preparation for the winter period, and will continue in 2009.
Ore treatment
In the second half of 2008, a new gravity concentrator was installed and
commissioned at the existing flotation plant. This equipment works within the
same circuit as the new mill that was commissioned earlier in the year. The new
mill and gravity concentrator circuit will increase the availability of
Bestobe's flotation plant, by permitting a reduction in the throughput to the
existing mills. Additional crushing and screening equipment was also delivered
to Bestobe during the year, this will enable a further improvement in the
existing heap leach processing activity in 2009.
The delivery of additional crushing and screening equipment to Bestobe started
during the year, this will enable a further improvement in the existing heap
leach processing activity during 2009.
Construction of a 2.0 million tonnes per annum capacity tailings retreatment
plant was temporarily suspended, awaiting the issue of appropriate permits and
licences from the relevant authorities.
ZHOLYMBET
Production highlights
In the year to 31 December 2008 351,000 tonnes of ore were mined, with an
average grade of 4.12 grammes of gold per tonne and a gold content of 46,541
ounces. During 2008, 350,000 tonnes of ore were treated, enabling production of
29,256 ounces of gold.
During the year:
* Shaft refurbishment and underground development work continued intermittently,
in order to minimise interference with production;
* Two secondary mills and an oxygen generating plant were installed and
commissioned at the existing processing facility.
Exploration and geology
Geological work carried out during the year included:
* A total of 3,116 metres of underground exploration development work. Most of the
exploration development was completed on the southern section of the central ore
body, where underground drilling programmes are planned;
* Surface diamond drilling within the area comprised 16 drill holes with 3,320
metres and surface Down the Hole hammer drilling comprised 8,810 metres.
Mining
During the year, shaft refurbishment and underground development work was
progressed at Zholymbet and remains ongoing, on an intermittent basis, in order
to maximise the availability of shafts and minimise production losses. This
work, including the provision of new skip facilities, is expected to be
completed in the first half of 2010, in order to enable a planned increase in
mining and ore extraction in the second half of 2010.
The possible refurbishment and use of the Glubokaya shaft and ventilation shaft
will be investigated during 2009, with a view to increasing the underground
production from the deeper quartz vein areas.
Ore treatment
Two secondary mills were installed at the mine's CIP processing plant during the
year and were commissioned during the second half of 2008. An oxygen generation
plant was installed into a new building and the oxygen generating equipment was
commissioned in April 2008.
Construction of the 2.0 million tonnes per annum capacity tailings retreatment
plant was temporarily suspended, awaiting the issue of appropriate permits and
licences from the relevant authorities.
EXPLORATION AND DEVELOPMENT PROPERTIES
Northern Kazakhstan
SOUTHERN (Yuzhny) KARAULTUBE
Southern Karaultube (9.3 km2) is located in the Akmola region of Northern
Kazakhstan, near the Group's existing Zholymbet mining operation. It can be
explored and developed efficiently, with the results of earlier exploration work
from the 1980s still available. A revised exploration permit was approved at the
end of 2007, and exploration commenced in 2008 with:
* Phase 1 exploration hydro-core drilling of 51 holes - comprising 2,117 metres
completed at Yuzhny Karaultebe (Zholymbet) that showed the potential for a large
open pit with a strike length of over 2.5km and width up to 100 metres. The
deposit was tested in the upper level only, for open pit planning (to a depth of
about 100 metres) further to prospecting traverse work. It is known from
historical core drilling that the grade increases in the primary deeper
mineralization, and it is planned to test this in the future, once the initial
open pit resource has been converted to reserves;
* 3,973 linear metres of trenches were dug and sampled on a shallow quartz
stockwork zone, with the aim to define ore zones beneath 1 metre to 4 metres of
overburden. The volume of trenching undertaken was 11,068 cubic metres, with
2,453 channel samples taken;
* Geological modelling using Surpac software was initiated and a 12,750 metre
reverse circulation drilling programme was planned.
KYZYLSORE
Kyzylsorskoe (60 km2) is located in the Akmola region of Northern Kazakhstan
between the Aksu and Bestobe deposits. Gold veins occur above copper-molybdenum
mineralisation, in both the bedrock and weathered overburden. No significant
work was undertaken here in 2008.
Eastern Kazakhstan
AKZHAL & KASKABULAKSKOE
A subsoil contract from the Kazakh Government has been awarded for Akzhal. Dry
commissioning of a crusher plant has been completed and truck stacking of the
ore has started.
Kaskabulakskoe (491 km2) was one of five licences awarded to Kazakhaltyn in
December 2005. No gold was produced during 2008. Further exploration is planned
during 2009.
Exploration work in Eastern Kazakhstan comprised:
* Surface drilling, trenching, and channel sampling;
* 751 metres of surface core drilling; 1,812 metres of Down the Hole drilling and
2,838 linear metres of trenching and channel sampling.
Central Kazakhstan
ZONES 1 & 2 of AKSHATAU
Zones 1 & 2 of the Akshatau MMC deposit (56.6 km2) are located in the Karaganda
region of Central Kazakhstan. There was no geological site activity in 2008.
Zones have been sampled during field mapping and assays up to 10g/tonne have
been previously determined.
Romania
ROMALTYN
Overview
The Romaltyn assets include a gold recovery plant able to treat 2.5 million
tonnes of tailings and ore per annum. In addition there are some 8.5 million
recoverable tonnes at the central tailings dump, 7.8 km from the plant. Several
exploration tenements, including Sophia and June 11 also formed part of the
acquisition.
Romaltyn has reserves of some 260,000 ounces at the Central Dam according to the
Romanian National Agency for Mineral Resources (NAMR), and an estimated resource
base of some 4.2 million ounces (based on NAMR measurement principles).
Exploration and geology
In 2008 exploration work was undertaken on both the Romaltyn Exploration
tenements (75.1 km2) and the Romaltyn Mining tenements (78.5 km2), located North
of Baia Mare, in Northern Romania. Work on the Romaltyn Exploration tenements
included the collection of 72 geochemical samples. Technical geological
reporting and environmental reports were made for each tenement.
The focus of the activity over the period, to assess production potential, was
at the Romaltyn Mining tenements. During the year work included 9km2 of land
surveying, while trench sampling of 240 linear metres was completed. Core
drilling was carried out at the June 11 property, within the Romaltyn Mining
tenement, to assess the potential for open pit mining. Some 900 metres of road
access, 250 square metres of drill site preparation, and a total of 1,467 metres
was drilled. Technical reporting included six geological and two environmental
reports for the Romanian authorities.
The mineralisation at Romaltyn's tenements is generally formed of free gold or
gold, disseminated in quartz (60-70 per cent) and oxidation minerals. There are
also pyrite, chalcopyrite, blende and galena found below the oxidation area. The
gold grades vary both by direction and inclination from 0.5 to 70 grammes per
tonne.
Licence restructuring
Following the year end a wholly-owned subsidiary of the Group, Romaltyn
Exploration, was awarded three new gold exploration licences (in part formerly
held by Romaltyn Mining) in the highly prospective Northern Carpathian
Mountains. These licences were granted by the National Agency of Mineral
Resources (NAMR) of Romania on 17 March 2009. They have an initial validity of
five years, during which time their automatic conversion to a mining licence is
possible, should the deposits explored prove feasible for gold production.
The three new licence areas cover a total area of 45.9 square kilometres, and
contain the known gold deposits of Hanau, June 11, and Sofia (formerly held by
Romaltyn Mining). These deposits will be the target for stage one exploration
work. All exploration tenements of the Romaltyn Group of companies are now held
by Romaltyn Exploration.
+----------+---------------------------------+------------+------------+-----------+
| Licence | Tenement | Valid | Valid | Area |
| # | | from | until | (km²) |
+----------+---------------------------------+------------+------------+-----------+
| 11795 | Camarzana North | 24.03.2009 | 24.03.2014 | 26.7 |
| | (including part of the former | | | |
| | Bixad licence) | | | |
+----------+---------------------------------+------------+------------+-----------+
| 11796 | Aunis-Piatra Handal | 24.03.2009 | 24.03.2014 | 18.0 |
| | (including part of the former | | | |
| | Ilba-Baita licence) | | | |
+----------+---------------------------------+------------+------------+-----------+
| 11797 | Poprad | 24.03.2009 | 24.03.2014 | 1.2 |
| | (including part of the former | | | |
| | Sasar-Valea Rosie-Dealul Crucii | | | |
| | licence) | | | |
+----------+---------------------------------+------------+------------+-----------+
| 698 | Racsa South-East | 3.08.1999 | 15.02.2010 | 53.6 |
+----------+---------------------------------+------------+------------+-----------+
| TOTAL | | | | 99.5 |
+----------+---------------------------------+------------+------------+-----------+
The Group is interested in the potential to develop hard rock gold mining
prospects. This will allow the increase and extension of production from its
tailings retreatment operation at Baia Mare, Romania, where it is planned to
start production during 2009. It is anticipated that tailings dam drilling will
be undertaken to better define the grade distribution, based on a closely spaced
drill programme, to provide data for detailed mine planning purposes.
Kyrgyzstan
As disclosed in Note 32 of the financial statements, 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 180,000 ounces per annum to be
reached, within a year of starting operations.
SALES
Gold sales of 110,929 ounces were achieved in 2008. The average price received
per ounce of gold was US$820, an increase of 17.1 per cent on the previous year.
The total value of sales in 2008 was US$91.0 million (2007: US$177.0 million),
with the decline reflecting lower than anticipated production levels for the
year as outlined earlier in this Operational Review. Sales were primarily of
Cathodic gold, to customers in Russia, Switzerland and the United Arab Emirates.
HEALTH, SAFETY & ENVIRONMENT
KazakhGold places a high importance on the health and welfare of its employees,
ensuring safe working conditions are maintained at operations and upon
minimising the environmental impact of its activities. These commitments are
formalised by policies designed to ensure the welfare of employees, to benefit
the local communities in which the Group operates and to protect the environment
for future generations.
During 2008, there were no fatalities, serious injuries or safety procedure
violations at KazakhGold's operations. The Group ensures that all employees
engaged in operations receive mandatory safety training and are encouraged to
develop a healthy lifestyle. The Group, through its main operating subsidiary
Kazakhaltyn, continues to ensure that it operates in compliance with
Kazakhstan's health and safety regulations. Furthermore, its ongoing investment
in health and safety and associated training programmes are designed to
progressively move towards best international practice.
COMMUNITY AND EMPLOYEE SUPPORT
During 2008 the Group's main operating subsidiary, Kazakhaltyn, has continued to
provide support for a number of programmes and charitable activities in the
communities in which it operates. More than US$2.0 million in sponsorship and
charitable contributions were made in 2008 to a number of organisations and
activities. The beneficiaries included educational foundations, war veterans and
disabled people.
FINANCIAL REVIEW
Revenue and profit
In the year to 31 December 2008, revenue was US$91.0 million (2007: US$177.0
million), a decline that resulted from a 57.3 per cent reduction in gold
production compared with 2007. The average gold price on sales achieved in 2008
was US$820 per ounce, which was US$120 per ounce higher than the previous year.
The cost of sales in 2008 was US$55.9 million (US$88.2 million), reflecting
lower sales volumes achieved compared with 2007. Gross profit was US$35.1
million (2007: US$88.8 million). During 2008, administrative expenses increased
to US$74.4 million (2007: US$23.0 million). This steep increase was largely due
to abnormal production expenses, which relate to wages and other costs not
utilised in a productive capacity during the period of mine refurbishment - as a
consequence, these costs are included under administrative expenses. There was
also a doubling of other administrative expenses, reflecting increases in
professional fees incurred in relation to the Polyus deal and payments of
contractual bonuses.
As a result of the decline in gold sales and the foregoing increases in costs,
the Group made an operating loss of US$47.8 million for 2008 (2007: profit of
US$56.8 million). Net financing costs for the year increased to US$9.0 million
(US$5.6 million). This increase reflected a decline in finance income compared
with 2007, as funds were invested during 2008.
The Group made a loss before tax of US$56.8 million in 2008 (2007: profit of
US$51.2 million). During the year, the Group benefited from a tax credit of
US$175.6 million. This credit arose is the main from the release of a deferred
tax liability due to a change in future corporation tax rates. Further
information is provided in Notes 14 and 31 of the financial statements. The
abnormal tax credit received by the Group in 2008 enabled the profit
attributable to equity shareholders to increase significantly to US$118.8
million (2007: US$19.4 million).
Earnings and dividends per share
Basic and diluted earnings per share in 2008 were US$2.26 (2007: US$0.39). As
announced previously, the Group does not propose the payment of any shareholder
dividends until the plant modernisation programme is completed, and our
facilities reach their designed output capacity.
Debt
The Group had outstanding debt of US$246.5 million as at 31 December 2008 (2007:
US$238.0 million). This increase reflects the Group's increased use of
short-term bank loans to finance its operations.
Cash flow
Operations during the year absorbed US$18.6 million, this compared with US$71.3
million generated from operations in 2007. The Group had net cash at the end of
2008 of US$14.0 million (31 December 2007: US$160.3 million).
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 USD 23.0 per GDR. The net proceeds of US$50.4 million have been
used to fund the Group's ongoing capital expenditure requirements.
Capital expenditure during 2008 increased significantly over the previous year
to US$192.5 million (2007: US$91.5 million), as the Group continued the
implementation of its production modernisation and expansion plans.
Additional capital requirement
As detailed in the Operational Review, production in the second half of 2008
fell well short of expectations. This led to a significant deterioration in
working capital and a requirement for KazakhGold to secure additional funds in
order to continue to operate as a going concern in its current form.
Offer from Polyus Gold
During the year the Group received an approach from Jenington International Inc,
an indirect wholly-owned subsidiary of Polyus Gold, regarding a possible partial
offer for 50.1 per cent of the Group's existing share capital.
Today Polyus Gold has announced, in conjunction with this Report and Accounts,
its firm intention to make a recommended offer for 50.1 per cent of the Group's
share capital. Under the terms of the Partial Offer, KazakhGold shareholders
will be entitled to receive approximately US$7.18 in cash and 0.064 Polyus Gold
Consideration Shares for each KazakhGold share. Upon completion of the Partial
Offer, KazakhGold intends to raise US$100 million of additional equity capital.
The proceeds of the equity capital raising will be used to fund, in part, the
Group's working capital requirements, including capital investment, and to fund
the solicitation fee payable to the holders of the US$200 million Senior Notes
due in 2013. Jenington International Inc has agreed to underwrite the equity
capital raising.
The Partial Offer is subject to satisfaction of certain conditions including
valid acceptances being received in respect of not less than 50.1 per cent of
the issued and to be issued share capital of KazakhGold. Gold Lion Holdings
Limited has entered into an irrevocable undertaking to accept and vote in favour
of the Partial Offer in respect of its entire holding of 22,100,000 KazakhGold
Shares representing, in aggregate, approximately 41.7 per cent of the existing
issued ordinary share capital of KazakhGold.
In conjunction with Polyus Gold's announcement of a firm intention to make a
Partial Offer, Gold Lion Holdings Limited has entered into two subordinated
shareholder loan facilities with KazakhGold for an aggregate of US$31.025
million, the proceeds of which have been used to finance the Group's immediate
working capital needs, to make the interest payment due under the Senior Notes
and the redemption payment in respect of local Kazakh Bonds.
In evaluating the Partial Offer, the Directors are mindful of the need to
balance the immediate benefits offered with the longer term interests of all
stakeholders, in particular shareholders. After due consideration, the partial
offer and the subsequent equity capital raising have the Board's unanimous
support.
Other post balance sheet event
In February 2009, the Central Bank of Kazakhstan devalued the Kazakh Tenge by
about 25 per cent against the US Dollar, to a rate of approximately KZT150 to
US$1. This will have a positive impact on the Group's operating costs, as a
substantial proportion are payable in Tenge.
BOARD OF DIRECTORS
Kanat Shaikhanovich Assaubayev
Executive Chairman
Kanat Assaubayev was appointed Executive Chairman in 2007, having previously
served as President and Chief Executive Officer since the Group's IPO in 2005.
He has been President of Kazakhaltyn since 1999, and was also a member of the
Board of Directors of Kazakhaltyn from 2001 until 2004, subsequently being
re-elected a Director in February 2005. Between 1991 and 1999, he established
and participated in the management of a number of companies in Kazakhstan, in
several different industrial sectors, some of which provided goods and services
to various Kazakh government ministries.
He graduated from the Kazakh Polytechnic Institute in 1970, and later received a
candidate of science degree from The Institute of Systemic Analysis in Moscow in
1978. In 1985 he was awarded a doctor of science degree from the Institute of
Steel and Alloys in Moscow. In 2006, he was awarded the Kurmet Order by the
President of Kazakhstan.
Member of the Health, Safety and Environment Committee
Baurzhan Kanatovich Assaubayev
Managing Director, Internal Affairs & Government Relations
Baurzhan Assaubayev is a First Vice President of Kazakhaltyn, where he has been
responsible for gold mining and processing operations since 1999. He graduated
from the Kazakh National Technical University in 1992, where he specialised in
system software development. In 1996 he received a candidate of science degree,
from the same university, in the automation of technological processes and
production cycles.
Aidar Kanatovich Assaubayev
Executive Vice Chairman, Corporate Development
Aidar Assaubayev is a Vice President of Kazakhaltyn, which he joined in 1999.
His responsibilities there include the supervision of the legal department,
international activities and introduction of new mining and processing
technologies. In 2000 he graduated with honours from the Kazakh National
Technical University, where he specialised in engineering and economics. In 2006
he received a Doctor of economics degree from the Institute of Systemic Analysis
in Moscow.
Member of the Health, Safety and Environment Committee
Marussya Maralovna Assaubayeva
Director, Human Resources and Corporate Affairs
Marussya Assaubayeva was Vice President of Kazakhaltyn from 2000-2001 and was
Director and Deputy Chairperson of the Board of Directors between 2001 and 2004.
In 2005 she was re-elected as a Director and Deputy Chairperson of the Board of
Directors. She graduated from the pharmaceutical department of the Almaty
Medical Institute in 1972.
Member of the Health, Safety and Environment Committee
Sanzhar Kanatovich Assaubayev
General Manager, London Office
Sanzhar Assaubayev is an Executive Director and General Manager of the London
office of KazakhGold Group Ltd. He was appointed to the Board in June 2007. He
joined Kazakhaltyn in 2004 as a Director of International Affairs. He graduated
from Leysin-American University in Switzerland in 2004, and received a BBA from
the American University in London in 2007.
Darryl Norton
Chief Operating Officer
Darryl Norton joined the Board as an Executive Director and Chief Operating
Officer in 2007. He is responsible for production at KazakhGold's principal
mining operations. He has over 27 years' experience in the engineering and
mining industry, gained most recently as Executive Director at Oxus Gold plc.
Prior to Oxus Gold, he spent 14 years at MAED Limited as Projects Director,
where he led major projects for gold mining companies such as Durban Roodeport
Deep, Anglogold and Oxus Gold, for whom he led the construction and
commissioning of their Amantaytau Goldfields oxide project in Uzbekistan.
Before joining MAED, he worked on capital projects for Fluor, TWP, Bateman and
Gencor, including both surface and underground mining projects.
Toktarkhan Kozhagapanov
Non-Executive Director
Toktarkhan Kozhagapanov has been Chairman of the Board of Kazakhaltyn since
2001. Between 1993 and 1997 he served as Chairman of the Supervisory Board of
JSC Turan Bank, leaving to become a Vice Governor of the Almaty region between
1997 and 2001. He graduated from the Kazakh Polytechnic Institute and the
National Academy of Economics of the USSR Council of Ministers. He also has a
candidate of science degree in Economics. In 1989, he received the title of
Honoured Economist of the Republic of Kazakhstan. In 2005 he was awarded the
Kurmet Order, a prestigious national award, by a decree of the President of
Kazakhstan.
Member of the Audit and Remuneration Committees
David Netherway
Non-Executive Director
David Netherway is a mining engineer with over 30 years of experience in the
mining industry. He is currently the CEO of Shield Mining Limited, an Australian
listed company exploring for gold and base metals in Mauritania. From April 2002
until the completion of its takeover by Eldorado Gold Corporation in 2005, he
served as the President and Chief Executive Officer of the Toronto listed Afcan
Mining Corporation, a China focused gold mining company. He is a mine developer
and operator who was involved in the construction and development of the
Iduapriem, Siguiri, Kiniero and Samira Hill gold mines in West Africa and has
mining experience which includes Australia, Canada, India, Nepal, Oman and
Malaysia. Prior to joining Afcan, he held senior management positions in a
number of mining companies, including Golden Shamrock Mines, Ashanti Goldfields
and Semafo Inc.
He received a B.E. in Mining Engineering from the University of Melbourne in
1975 and a Certified Diploma in Accounting and Finance from the Chartered
Association of Certified Accountants in the United Kingdom in 1985.
Chairman of the Health, Safety and Environment Committee; Chairman of the
Remuneration Committee; Member of the Audit Committee
William (Bill) Trew
Non-Executive Director
Bill Trew has over 30 years' experience in the engineering and mining industry.
He is Chairman of Gold Mines of Uganda, Chairman of Anglo Uganda Corporation and
also Non-Executive Chairman of MAED Limited (Isle of Man). He was formerly Chief
Executive Officer of Oxus Gold plc, the AIM listed Central Asian mining company.
He began his career in 1980 with Gold Fields of South Africa, since which he has
been an engineer for various other companies such as: Chamber of Mines Research
Organisation; Dorbyl Heavy Engineering; and E.L. Bateman Limited. In 1990 he
founded MAED Limited and has been involved as project manager in many of the
company's major assignments, including the Yatela Heap Leach project and the
Syama Gold Mine project - both in Mali, West Africa. He holds a B.Eng. (Mech.)
Hon. from the University of Wales Institute Science and Technology, and an M.Eng
from Rand Afrikaans University, Johannesburg. He is a registered professional
Engineer with the Engineering Council of South Africa.
DIRECTORS' REPORT
The Directors of KazakhGold Group Limited have pleasure in submitting their
Report with the audited financial statements for the year ended 31 December
2008.
PRINCIPAL ACTIVITIES
KazakhGold Group Limited and its subsidiaries (the "Group") is the ultimate
holding company and the indirect parent company of Kazakhaltyn, a company
incorporated in Kazakhstan and the operating company through which the Group
holds its gold mining assets in Kazakhstan and Romania. The principal activities
of the Group are exploration, mining and gold production. KazakhGold Group
Limited was incorporated in Jersey on 26 September 2005 (registered number
91264), and was registered as a Public Company on 18 November 2005. The Group is
centrally managed and controlled in England. It acts as a holding company and
provides financing and management services to its subsidiaries, from its
principal place of business in London.
BUSINESS REVIEW & FUTURE DEVELOPMENTS
A summary of the Group's main business developments for the period 1 January to
31 December 2008 and potential future developments is contained within the
Chairman's Statement, Operational and Financial Reviews.
RESULTS AND DIVIDEND
An overview of the Group's results, covering the period 1 January to 31 December
2008, is provided in the Financial Review on page 15. Detailed financial
information is included from page 28 to page 80 of the report.
The Directors do not propose the payment of shareholder dividends until the
Group's plant modernisation and processing capacity programmes are completed,
and the production facilities reach their designed output capacity. Thereafter,
subject to KazakhGold's performance, the Group plans to commence paying
dividends progressively.
POST-BALANCE SHEET EVENTS
Details of significant post balance sheet events are included within the
Chairman's Statement and Financial Reviews.
KEY PERFORMANCE INDICATORS
(a) Economic
During the 2008, the Group was not able to grow its revenue or its earnings as
measured by EBITDA (earnings before interest, tax, depreciation and
amortisation). The principal reason was a shortfall in production during the
year. The reasons for this are covered in the Chairman's Statement earlier in
this report.
(b) Costs
Kazakhaltyn's direct cash production cost per contained ounce increased by 49.6
per cent to US$392, which excludes abnormal production expenses explained in
Note 8 (2007: US$262/contained oz). This increase reflects the lower volume of
production and utilisation of production facilities.
(c) Health and safety
Throughout the course of 2008, there were no fatalities or serious injuries
reported at the Group's operations. There were no violations of safety
procedures and no fines were levied for improper health and safety conduct.
(d) Environment
The Group is undergoing a programme of continuous improvement, to minimise the
environmental impact of its operations. Progress in this regard is monitored by
an Environment sub-committee of the Board. In 2008 there were no environmental
incidents at the Group's operations.
(e) Community
At the end of 2008, the Group had 3,886 permanent employees. Their safety and
well-being lie at the heart of the Group's operating philosophy. The benefits
that their employment brings to the local communities, in which KazakhGold
operates, are augmented by direct investment in community outreach. The Group
invested over US$2.0 million in such outreach in 2008, with educational
foundations, veterans, past and present employees benefiting.
PRINCIPAL RISKS AND UNCERTAINTIES
(a) Legal claims
In the ordinary course of business, the Group is subject to legal actions and
complaints. The Directors believe that the ultimate liability, if any, arising
from such actions or complaints will not have a materially adverse effect on the
financial condition or results of operations of the Group.
During the year a dispute arose with MAED Limited regarding the completion of
construction work involving various plants at the Group's operations in
Kazakhstan. The matter was resolved on 14 March 2009 and further details are
provided in Note 35. During and following the year end two former employees,
whilst in the employ of the Company, committed fraudulent acts against the
Company and misappropriated approximately US$7,000,000 of Company funds. Further
details are provided in Note 22 and Note 34. Otherwise, the Group was not
involved in any significant legal proceedings, including arbitration as at 31
December 2008 and 2007.
(b) Taxation contingencies
The Group is subject to uncertainties relating to the determination of its tax
liabilities. The tax system and tax legislation in Kazakhstan have been in force
for only a relatively short time and are subject to frequent changes and varying
interpretations. Management's interpretations of such legislation in applying it
to business transactions of the Group may be challenged by the relevant tax
authorities and, as a result, the Group may be assessed on additional tax
payments including fines, penalties and interest charges, which could have a
material adverse effect on the Group's financial position and results of
operations. Such uncertainties may in particular relate to the valuation of the
taxable base for excess profits tax purposes.
(c) Insurance
The insurance industry in Kazakhstan is in a developing state and many forms of
insurance protection common in other parts of the world are not yet generally
available. The Group does not have third party liability coverage in respect of
property or environmental damage arising from accidents on Group property or
relating to the Group's operations. There is a risk that the loss or destruction
of certain assets could have a material adverse effect on the Group's operations
and financial position.
(d) Environmental contingencies
Environmental regulations in Kazakhstan are continually evolving. The outcome of
the environmental regulations under proposed or future environmental legislation
cannot be estimated at present. As obligations are determined, they will be
provided for in accordance with the Group's accounting policies. The Directors
believe that there are no significant liabilities under current legislation not
accrued for in the Group's consolidated financial statements. A provision has
been made for costs associated with restoration and abandonment of mine sites
upon depletion of deposits (see Note 29).
(e) Use of sub-soil rights
In Kazakhstan, all sub-soil reserves belong to the State, with the Ministry of
Energy and Mineral Resources (the 'Ministry') granting exploration and
production rights to third party bodies. Sub-soil rights are not granted in
perpetuity and any renewal must be agreed before the expiration of the relevant
current contract or license. These rights may be terminated by the Ministry if
the Group does not satisfy its contractual obligations in respect of the
individual contract or license granted. The Group believes that it is in
substantial compliance with the terms of its sub-soil agreements.
FINANCIAL RISK MANAGEMENT
Financial risk factors
The Group's multi-national operations expose it to a variety of financial risks:
foreign currency risk, fair value and cash flow interest rate risk, other price
risk, liquidity risk and credit risk. The policy for managing these risks is set
by the Board and all such risks are managed at a Group level within the
organisation. The policies for managing these risks are detailed in Note 33. The
Group also faces a shortage of working capital, if it is to continue operating
in 2009 in its current form. Further detail is provided under the section
entitled Going Concern in the Financial Revue and elsewhere in this Directors'
Report.
(a) Market risk
Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate due to changes in interest rates (interest rate risk),
foreign exchange rates (currency risk) or other market factors (other price
risk).
As an 'unhedged gold producer', the Group is exposed to market price risk from
its current activities. The Group manages this risk centrally, with reference to
annual budgets and periodic forecasts including sensitivity analyses of
projected production rates and gold market prices
(b) Liquidity risk
The liquidity risk of the Group is managed centrally. New borrowings are taken
on where additional funds are required. Surplus funds not allocated to future
investment and working capital requirements are used to repay existing loans and
bonds. The bulk of the Group's cash balances are held in US$ denominated
floating rate deposits as required to fund its short-term requirements.
(c) Credit risk
The Group is exposed to credit risk arising from credit sales of its products to
customers. It is the Board's policy to assess the credit risk of all new
customers before entering into contracts and also, where possible, to trade only
with established entities.
ACCOUNTING POLICIES
The financial information has been prepared in accordance with International
Financial Reporting Standards (IFRS and IFRIC interpretations), as adopted by
the European Union and also in accordance with the Companies (Jersey) Law 1991.
SHARE CAPITAL AND RESERVES
Details of the Group's authorised and issued share capital as at 31 December
2008 are contained in Notes 25 and 26 of the accounts.
DIRECTORS AND THEIR INTERESTS
Details of Directors' remuneration are contained within Note 11 of the accounts.
The following table sets out the interests (both in ordinary shares and global
depositary receipts) of the Directors in KazakhGold Group's issued share capital
as at 31 December 2008 and 12 June 2009.
+----------------------------+------------------------+------------------+
| Director | Number of ordinary | % of issued |
| | shares | share capital |
+----------------------------+------------------------+------------------+
| Kanat Assaubayev1 | 22,100,000 | 41.7 |
+----------------------------+------------------------+------------------+
| Baurzhan Assaubayev1 | 22,100,000 | 41.7 |
+----------------------------+------------------------+------------------+
| Aidar Assaubayev1 | 22,100,000 | 41.7 |
+----------------------------+------------------------+------------------+
| Sanzhar Assaubayev1 | 22,100,000 | 41.7 |
+----------------------------+------------------------+------------------+
| Marussya Assaubayeva1 | 22,100,000 | 41.7 |
+----------------------------+------------------------+------------------+
| Toktarkhan Kozhagapanov | - | - |
+----------------------------+------------------------+------------------+
| David Netherway2 | 3,325 | - |
+----------------------------+------------------------+------------------+
| Darryl Norton2 | 37,711 | - |
+----------------------------+------------------------+------------------+
| William Trew | - | - |
+----------------------------+------------------------+------------------+
1 These interests include those of Kanat Assaubayev, Baurzhan Assaubayev, Aidar
Assaubayev, Sanzhar Assaubayev, Marussya Assaubayeva as discretionary
beneficiaries under the ABM SK Trust, held by Gold Lion Holdings Limited, whose
only named discretionary beneficiaries are members of the Assaubayev family. No
members of the Assaubayev family have a direct interest in the Group. Gold Lion
Holdings Limited holds the shareholding interests of the ABM SK Trust.
2 The interests of David Netherway and Darryl Norton are held in the form of
Global Depositary Receipts.
The following options to purchase the Group's ordinary shares were granted in
2005 and were outstanding at 31 December 2008.
+----------------------------------------------+-----------------------------+
| | David Netherway |
+----------------------------------------------+-----------------------------+
| Number of options granted on 1 December 2005 | 26,667 |
+----------------------------------------------+-----------------------------+
| Exercise price | US$15 |
+----------------------------------------------+-----------------------------+
SUBSTANTIAL SHAREHOLDINGS
The Group is aware of the following beneficial shareholdings, representing 10
per cent or more of the issued ordinary share capital of the Group, as at 31
December 2008.
+----------------------------+--------------------------+--------------------+
| | Number of ordinary | % of issued share |
| | shares | capital |
+----------------------------+--------------------------+--------------------+
| Gold Lion Holdings Limited | 22,100,000 | 41.7 |
+----------------------------+--------------------------+--------------------+
| BNY (Nominees) Limited1 | 30,841,666 | 58.3 |
+----------------------------+--------------------------+--------------------+
1 BNY (Nominees) Limited holds these shares as depository, against which 30.8
million Global Depositary Receipts have been issued, each representing one
ordinary share with a nominal value of GBP0.0001.
CORPORATE GOVERNANCE
There are no corporate governance recommendations applicable to companies
incorporated in Jersey, but the Group intends as far as it is able, taking into
account its size and stage of development, to comply with the recommendations of
the Combined Code on Corporate Governance for UK registered and listed
companies.
Board
The Board of Directors is composed of nine members: six Executive Directors,
including the Executive Chairman and three Non-Executive Directors. The Board
has established: Audit, Health, Safety and Environment and Remuneration
Committees with formally delegated duties, responsibilities and written terms of
reference. From time to time, separate committees may be set up by the Board to
consider specific issues as and when the need arises.
Audit Committee
The Audit Committee helps the Board discharge its responsibilities regarding
financial reporting, external and internal audits and controls as well as
reviewing the Group's annual financial statements. It also assists by reviewing
and monitoring the extent of non audit work undertaken by external auditors,
advising on the appointment of external auditors and reviewing the effectiveness
of the Group's internal audit activities, internal controls and risk management
systems. The ultimate responsibility for reviewing and approving the annual
report and accounts and the half yearly reports remains with the Board.
The Audit Committee comprises two independent Non-Executive Directors
(Toktarkhan Kozhagapanov, David Netherway). The committee aims to meet at least
three times a year and otherwise as required. The Group is currently seeking a
Chairman for the Audit Committee.
Remuneration Committee
The Remuneration Committee assists the Board in determining its responsibilities
in relation to remuneration. This includes making recommendations to the Board
on the Group's policy on executive remuneration, determining the individual
remuneration and benefits package of each of the Executive Directors and
recommending and monitoring the remuneration of senior management below Board
level.
The Remuneration Committee comprises two independent Non-Executive Directors
(Toktarkhan Kozhagapanov and David Netherway) and is chaired by David Netherway.
The committee aims to meet at least twice a year and otherwise as required.
Health, Safety and Environment Committee
The Health, Safety and Environment Committee helps the Board in formulating the
Group's health, safety and environment policies as they affect the Group's
operations. The committee also monitors compliance with national and
international standards and reviews management's investigations of any incidents
or accidents that may occur, in order to assess whether policy improvements are
required.
The Health, Safety and Environment Committee is composed of four members, and is
chaired by an independent Non-Executive Director (David Netherway). The other
members of the committee are Executive Directors (Kanat Assaubayev, Aidar
Assaubayev and Marussya Assaubayeva). The committee aims to meet at least once a
year and otherwise as required.
RELATIONS WITH SHAREHOLDERS
The Directors attach importance to the provision of clear and timely information
to shareholders, including holders of GDRs and the broader investment community.
Information about the company is available on its website (www.kazakhgold.com).
The Group's annual and half year reports are also sent to shareholders and made
available to GDR holders, through the Group's website.
The Group has an ongoing programme of contact with its principal and
institutional shareholders, in addition to sell-side financial analysts. The
Board is provided with feedback from these meetings. Shareholders are also
encouraged to attend the 2008 Annual General Meeting at which members of the
Board will be available to answer questions.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
The Group has in place a Directors and Officers insurance policy to cover
relevant individuals against claims arising from their work on behalf of the
company. The Board intends to keep the level of cover provided under annual or
more frequent review, as appropriate.
GOING CONCERN
As disclosed in Note 2, the Group's production levels and working capital levels
have deteriorated in the last year such that the Group currently does not have
sufficient funds to finance the work programmes to develop its three principal
mines. The Group's ability to continue as a going concern is dependent upon the
successful completion of the partial offer for the Company and the subsequent
proposed equity capital raising.
ANNUAL GENERAL MEETING
Details of the Annual General Meeting, the Notice of Meeting, together with an
explanation of the items of special business, will be provided separately to
shareholders.
DISCLOSURE OF INFORMATION TO AUDITORS
So far as each Director at the date of approval of this report is aware, there
is no relevant audit information of which the Company's auditors are unaware and
each Director has taken all steps that he ought to have taken to make himself
aware of any relevant audit information and to establish that the auditors are
aware of that information.
AUDITORS
A resolution to re-appoint BDO Stoy Hayward LLP as the Company's auditors will
be proposed at the Annual General Meeting.
On behalf of the Board
Sanzhar Assaubayev
Executive Director
12 June 2009
KazakhGold Group Limited
Statement of Directors' responsibilities
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company, for safeguarding the assets, for taking reasonable steps for the
prevention and detection of fraud and other irregularities and for the
preparation of financial statements which comply with the requirements of the
Companies (Jersey) Law 1991.
The Directors have prepared the financial statements in accordance with
International Financial Reporting Standards (IFRS), as adopted by the European
Union.
International Accounting Standard 1 requires that financial statements present
fairly for each financial year the company's financial position, financial
performance and cash flows. This requires the faithful representation of the
effects of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board's 'Framework
for the preparation and presentation of financial statements'. In virtually all
circumstances, a fair presentation will be achieved by compliance with all
applicable International Financial Reporting Standards. A fair presentation also
requires the Directors to:
* consistently select and apply appropriate accounting policies;
* present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information; and
* provide additional disclosures when compliance with the specific requirements in
IFRS is insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity's financial position and
financial performance.
Financial statements are published on the Group's website. The maintenance and
integrity of the Group's website is the responsibility of the Directors. The
Directors' responsibility also extends to the financial statements contained
therein.
The directors confirm to the best of their knowledge:
* The Group financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European
Union and give a true and fair view of the assets, liabilities, financial
position and profit and loss of the Group.
* The annual report includes a fair review of the development and performance of
the business and the financial position of the Group and the parent company,
together with a description or the principal risks and uncertainties that they
face.
Kanat Assaubayev
Executive Chairman
KazakhGold Group Limited
12 June 2009
KazakhGold Group Limited
Independent Auditors' Report to the Shareholders of KazakhGold Group Limited
We have audited the Group and Company financial statements (the "financial
statements") of KazakhGold Group Limited for the year ended 31 December 2008
which comprise the Consolidated and Company Income Statements, the Consolidated
and Company Balance Sheets, the Consolidated and Company Cash Flow Statements,
the Consolidated and Company Statement of Changes in Shareholders' Equity and
the related Notes. These financial statements have been prepared under the
accounting policies set out therein.
Respective responsibilities of Directors and Auditors
The Directors' responsibilities for preparing the Report and the financial
statements in accordance with applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union are set out in the
Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and have been properly prepared in accordance with the Companies
(Jersey) Law 1991. We also report to you if, in our opinion, the company has not
kept proper accounting records, or if we have not received all the information
and explanations we require for our audit.
We read other information contained in the Report and consider whether it is
consistent with the audited financial statements. The other information
comprises only the Directors' Report, Chairman's Statement, Board of Directors,
Statement of Directors' Responsibilities, Highlights, Operational Review and
Financial Review. We consider the implications for our report if we become aware
of any apparent misstatements or material inconsistencies with the financial
statements. Our responsibilities do not extend to any other information.
Our report has been prepared pursuant to the requirements of the Companies
(Jersey) Law 1991 and for no other purpose. No person is entitled to rely on
this report unless such a person is a person entitled to rely upon this report
by virtue of and for the purpose of the Companies (Jersey) Law 1991 or has been
expressly authorised to do so by our prior written consent. Save as above, we do
not accept responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such liability.
Basis of Audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the Directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Group's and Company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
KazakhGold Group Limited
Independent Auditors' Report to the Shareholders of KazakhGold Group Limited -
continued
Opinion
In our opinion:
* the Consolidated financial statements give a true and fair view, in accordance
with IFRSs as adopted by the European Union, of the state of the Group's affairs
as at 31 December 2008 and of its profit for the year then ended;
* the Consolidated financial statements have been properly prepared in accordance
with the Companies (Jersey) Law 1991;
* the Company financial statements give a true and fair view, in accordance with
IFRSs as adopted by the European Union, of the state of the Company's affairs as
at 31 December 2008 and of its loss for the year then ended; and
* the Company financial statements have been properly prepared in accordance with
the Companies (Jersey) Law 1991.
Fundamental uncertainty - Negotiation rights
In forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the negotiation rights in respect of the
Jerooy mining licence. The realisation of these assets included in the
Consolidated and Company financial statements are dependent on the outcome of
the negotiations relating to the granting of the licence by the relevant
government authorities. We draw your attention to the further details given in
Note 32. Our opinion is not qualified in this respect.
Emphasis of Matter - Going Concern
In forming our opinion on the financial statements which is not qualified, we
have considered the adequacy of the disclosures made in Note 2 to the financial
statements concerning the Group's failure to make the scheduled interest payment
in respect of the Senior Loan Notes and the Group's ability to continue as a
going concern, which is dependent upon the successful completion of the partial
offer for the Company. Under the terms of the offer, management expect Polyus
Gold will provide US$100m of financing to fund the current work programme and to
extinguish a number of current liabilities. The partial offer is dependent upon
certain pre-conditions being resolved which include inter alia shareholder
approval. The Directors are confident that these pre-conditions will be cleared
and funds associated with this transaction will be sufficient to fund the Group
for the next 12 months.
These conditions together with the Group other matters referred to in Note 2
indicate the existence of a material uncertainty which may cast significant
doubt about the Group's ability to continue as a going concern. The financial
statements do not include the adjustments that would arise if the Group was
unable to continue as a going concern.
BDO Stoy Hayward LLP
Chartered Accountants
London
12 June 2009
KazakhGold Group Limited
Consolidated Income Statement for the year ended 31 December 2008
+---------------------------------------------+-------+-------------+-------------+
| | | 2008 | 2007 |
+---------------------------------------------+-------+-------------+-------------+
| | Note | US$000 | US$000 |
+---------------------------------------------+-------+-------------+-------------+
| | | | |
+---------------------------------------------+-------+-------------+-------------+
| Revenue | 4 | 91,001 | 176,996 |
+---------------------------------------------+-------+-------------+-------------+
| | | | |
+---------------------------------------------+-------+-------------+-------------+
| Cost of sales | | (55,852) | (88,236) |
+---------------------------------------------+-------+-------------+-------------+
| | | | |
+---------------------------------------------+-------+-------------+-------------+
| Gross profit | | 35,149 | 88,760 |
+---------------------------------------------+-------+-------------+-------------+
| | | | |
+---------------------------------------------+-------+-------------+-------------+
| Other operating income | 6 | 2,496 | 571 |
+---------------------------------------------+-------+-------------+-------------+
| Distribution expenses | | (466) | (3,509) |
+---------------------------------------------+-------+-------------+-------------+
| Abnormal production expenses | | (19,869) | - |
+---------------------------------------------+-------+-------------+-------------+
| Other administrative expenses | | (54,552) | (23,004) |
+---------------------------------------------+-------+-------------+-------------+
| Administrative expenses | | (74,421) | (23,004) |
+---------------------------------------------+-------+-------------+-------------+
| | | | |
+---------------------------------------------+-------+-------------+-------------+
| Other operating expenses | 7 | (10,540) | (5,981) |
+---------------------------------------------+-------+-------------+-------------+
| (Loss)/profit from operations | 8 | (47,782) | 56,837 |
+---------------------------------------------+-------+-------------+-------------+
| | | | |
+---------------------------------------------+-------+-------------+-------------+
| Finance income | 12 | 7,509 | 11,599 |
+---------------------------------------------+-------+-------------+-------------+
| Finance expense | 13 | (16,531) | (17,204) |
+---------------------------------------------+-------+-------------+-------------+
| Net financing costs | | (9,022) | (5,605) |
+---------------------------------------------+-------+-------------+-------------+
| | | | |
+---------------------------------------------+-------+-------------+-------------+
| (Loss)/profit before tax | | (56,804) | 51,232 |
+---------------------------------------------+-------+-------------+-------------+
| | | | |
+---------------------------------------------+-------+-------------+-------------+
| Tax credit/(expense) | 14 | 175,615 | (31,826) |
+---------------------------------------------+-------+-------------+-------------+
| | | | |
+---------------------------------------------+-------+-------------+-------------+
| Profit for the year attributable to equity | | 118,811 | 19,406 |
| shareholders | | | |
+---------------------------------------------+-------+-------------+-------------+
| | | | |
+---------------------------------------------+-------+-------------+-------------+
| Basic and diluted earnings per share | 15 | $2.26 | $0.39 |
| attributable to the equity shareholders of | | | |
| the parent during the year | | | |
+---------------------------------------------+-------+-------------+-------------+
All amounts relate to continuing operations.
KazakhGold Group Limited
Company Income Statement for the year ended 31 December 2008
+----------------------------------------------+------+------------+------------+
| | | 2008 | 2007 |
+----------------------------------------------+------+------------+------------+
| |Note | US$000 | US$000 |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Revenue | | 133 | 90 |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Cost of sales | | - | - |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Gross profit | | 133 | 90 |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Administrative expenses | | (18,549) | (4,847) |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Operating loss | 38 | (18,416) | (4,757) |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Finance income | 39 | 21,584 | 22,448 |
+----------------------------------------------+------+------------+------------+
| Finance expense | 40 | (19,446) | (19,473) |
+----------------------------------------------+------+------------+------------+
| Net financing income | | 2,138 | 2,975 |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Loss before tax | | (16,278) | (1,782) |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Taxation | 41 | - | (1,840) |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Loss for the year attributable to equity | | (16,278) | (3,622) |
| shareholders | | | |
+----------------------------------------------+------+------------+------------+
All amounts relate to continuing operations.
KazakhGold Group Limited
Consolidated Balance Sheet for the year ended 31 December 2008
+--------------------------------------------+------+------------+--------------+
| | | 2008 | 2007 |
+--------------------------------------------+------+------------+--------------+
| |Note | US$000 | US$000 |
+--------------------------------------------+------+------------+--------------+
| | | | |
+--------------------------------------------+------+------------+--------------+
| | | | |
+--------------------------------------------+------+------------+--------------+
| Non-current assets | | | |
+--------------------------------------------+------+------------+--------------+
| Property, plant and equipment | 16 | 1,215,229 | 1,055,840 |
+--------------------------------------------+------+------------+--------------+
| Intangible assets | 17 | 74,518 | 54,777 |
+--------------------------------------------+------+------------+--------------+
| Available for sale investments | 19 | - | 164 |
+--------------------------------------------+------+------------+--------------+
| Other financial assets | | - | 2 |
+--------------------------------------------+------+------------+--------------+
| | | 1,289,747 | 1,110,783 |
+--------------------------------------------+------+------------+--------------+
| | | | |
+--------------------------------------------+------+------------+--------------+
| Current assets | | | |
+--------------------------------------------+------+------------+--------------+
| Inventories | 21 | 22,390 | 24,458 |
+--------------------------------------------+------+------------+--------------+
| Trade and other receivables | 22 | 63,114 | 85,275 |
+--------------------------------------------+------+------------+--------------+
| Investments at fair value through profit | 23 | - | 31,760 |
| or loss | | | |
+--------------------------------------------+------+------------+--------------+
| Cash and cash equivalents | 24 | 13,966 | 160,285 |
+--------------------------------------------+------+------------+--------------+
| | | 99,470 | 301,778 |
+--------------------------------------------+------+------------+--------------+
| Total assets | | 1,389,217 | 1,412,561 |
+--------------------------------------------+------+------------+--------------+
| | | | |
+--------------------------------------------+------+------------+--------------+
| Equity and liabilities | | | |
+--------------------------------------------+------+------------+--------------+
| Share capital | 25 | 9 | 9 |
+--------------------------------------------+------+------------+--------------+
| Share premium | 26 | 220,950 | 170,544 |
+--------------------------------------------+------+------------+--------------+
| Capital contributions | 26 | 510,000 | 510,000 |
+--------------------------------------------+------+------------+--------------+
| Translation reserve | 26 | 64,780 | 62,727 |
+--------------------------------------------+------+------------+--------------+
| Retained earnings | 26 | 158,102 | 39,198 |
+--------------------------------------------+------+------------+--------------+
| Total equity | | 953,841 | 782,478 |
+--------------------------------------------+------+------------+--------------+
| | | | |
+--------------------------------------------+------+------------+--------------+
| Non-current liabilities | | | |
+--------------------------------------------+------+------------+--------------+
| Interest-bearing loans and borrowings | 28 | 204,642 | 231,776 |
+--------------------------------------------+------+------------+--------------+
| Provisions | 29 | 10,189 | 7,910 |
+--------------------------------------------+------+------------+--------------+
| Deferred tax liabilities | 31 | 137,054 | 312,499 |
+--------------------------------------------+------+------------+--------------+
| | | 351,885 | 552,185 |
+--------------------------------------------+------+------------+--------------+
| Current liabilities | | | |
+--------------------------------------------+------+------------+--------------+
| Interest-bearing loans and borrowings | 28 | 41,874 | 6,228 |
+--------------------------------------------+------+------------+--------------+
| Trade and other payables | 30 | 32,645 | 43,207 |
+--------------------------------------------+------+------------+--------------+
| Current tax payable | | 8,972 | 28,46 |
+--------------------------------------------+------+------------+--------------+
| | | 83,491 | 77,898 |
+--------------------------------------------+------+------------+--------------+
| Total liabilities | | 435,376 | 630,083 |
+--------------------------------------------+------+------------+--------------+
| Total equity and liabilities | | 1,389,217 | 1,412,561 |
+--------------------------------------------+------+------------+--------------+
These financial statements were approved and authorised for issue by the Board
on 12 June 2009 and were signed on its behalf by:
Sanzhar Assaubayev
Executive Director
KazakhGold Group Limited
Company Balance Sheet for the year ended 31 December 2008
+-----------------------------------------------+------+------------+------------+
| | | 2008 | 2007 |
+-----------------------------------------------+------+------------+------------+
| |Note | US$000 | US$000 |
+-----------------------------------------------+------+------------+------------+
| | | | |
+-----------------------------------------------+------+------------+------------+
| | | | |
+-----------------------------------------------+------+------------+------------+
| Non-current assets | | | |
+-----------------------------------------------+------+------------+------------+
| Property, plant and equipment | 42 | 223 | 125 |
+-----------------------------------------------+------+------------+------------+
| Investment in subsidiaries | 18 | 79,996 | 579,996 |
+-----------------------------------------------+------+------------+------------+
| Amounts due from group undertakings | 43 | 200,000 | 200,000 |
+-----------------------------------------------+------+------------+------------+
| | | 780,219 | 780,121 |
+-----------------------------------------------+------+------------+------------+
| | | | |
+-----------------------------------------------+------+------------+------------+
| Current assets | | | |
+-----------------------------------------------+------+------------+------------+
| Amounts due from group undertakings | 44 | 119,248 | 82,525 |
+-----------------------------------------------+------+------------+------------+
| Other receivables | 44 | 1,183 | 3,425 |
+-----------------------------------------------+------+------------+------------+
| Cash and cash equivalents | 45 | 11,783 | 8,816 |
+-----------------------------------------------+------+------------+------------+
| | | 132,214 | 94,766 |
+-----------------------------------------------+------+------------+------------+
| Total assets | | 912,433 | 874,887 |
+-----------------------------------------------+------+------------+------------+
| | | | |
+-----------------------------------------------+------+------------+------------+
| Equity and liabilities | | | |
+-----------------------------------------------+------+------------+------------+
| Share capital | 25 | 9 | 9 |
+-----------------------------------------------+------+------------+------------+
| Share premium | 49 | 220,950 | 170,544 |
+-----------------------------------------------+------+------------+------------+
| Capital contributions | 49 | 510,000 | 510,000 |
+-----------------------------------------------+------+------------+------------+
| Retained earnings | 49 | (22,178) | (5,993) |
+-----------------------------------------------+------+------------+------------+
| Total equity | | 708,781 | 674,560 |
+-----------------------------------------------+------+------------+------------+
| | | | |
+-----------------------------------------------+------+------------+------------+
| Non-current liabilities | | | |
+-----------------------------------------------+------+------------+------------+
| Interest-bearing loans and borrowings | 46 | 197,308 | 196,611 |
| | | | |
+-----------------------------------------------+------+------------+------------+
| | | | |
+-----------------------------------------------+------+------------+------------+
| Current liabilities | | | |
+-----------------------------------------------+------+------------+------------+
| Other payables | 47 | 6,344 | 3,716 |
+-----------------------------------------------+------+------------+------------+
| Total liabilities | | 203,652 | 200,327 |
+-----------------------------------------------+------+------------+------------+
| Total equity and liabilities | | 912,433 | 874,887 |
+-----------------------------------------------+------+------------+------------+
| | | | |
+-----------------------------------------------+------+------------+------------+
These financial statements were approved and authorised for issue by the Board
on 12 June 2009 and were signed on its behalf by:
Sanzhar Assaubayev
Executive Director
KazakhGold Group Limited
Consolidated Cash Flow Statement for the year ended 31 December 2008
+----------------------------------------------+------------+------------+------------+
| | | 2008 | 2007 |
+----------------------------------------------+------------+------------+------------+
| | Note | US$000 | US$000 |
+----------------------------------------------+------------+------------+------------+
| | | | |
+----------------------------------------------+------------+------------+------------+
| Cash flows from operating activities | | | |
+----------------------------------------------+------------+------------+------------+
| (Loss)/profit before tax for the year | | (56,804) | 51,232 |
+----------------------------------------------+------------+------------+------------+
| Adjustments for: | | | |
+----------------------------------------------+------------+------------+------------+
| Depreciation, depletion and amortisation | 8 | 20,966 | 12,558 |
+----------------------------------------------+------------+------------+------------+
| Provision for impairment | | 549 | - |
+----------------------------------------------+------------+------------+------------+
| Foreign exchange gain/(loss) | | 2,841 | (167) |
+----------------------------------------------+------------+------------+------------+
| Finance expense | | 15,798 | 16,452 |
+----------------------------------------------+------------+------------+------------+
| Finance income | 12 | (7,509) | (11,599) |
+----------------------------------------------+------------+------------+------------+
| Amortisation of bond issue costs | | 857 | 2,182 |
+----------------------------------------------+------------+------------+------------+
| Loss on disposal of other financial assets | | 164 | - |
+----------------------------------------------+------------+------------+------------+
| Loss on disposal of property, plant and | | 8,957 | 363 |
| equipment | | | |
+----------------------------------------------+------------+------------+------------+
| Equity-settled share-based payment expenses | 26 | 93 | 105 |
+----------------------------------------------+------------+------------+------------+
| Cash flows from operating activities before | | (14,088) | 71,126 |
| changes in working capital and provisions | | | |
+ + +------------+------------+
| | | | |
+----------------------------------------------+------------+----------------------------------------------+------------+
| Decrease in trade and other receivables | 22 | 22,158 | 9,532 |
+----------------------------------------------+------------+------------+------------+
| Decrease in inventories | 21 | 2,068 | 4,662 |
+----------------------------------------------+------------+------------+------------+
| Decrease in trade and other payables | 30 | (10,704) | (11,279) |
+----------------------------------------------+------------+------------+------------+
| Increase in provisions | 29 | 1,420 | 54 |
+----------------------------------------------+------------+------------+------------+
| Taxation paid | | (19,489) | (2,753) |
+----------------------------------------------+------------+------------+------------+
| Cash (absorbed by)/generated from operating | | (18,635) | 71,342 |
| activities | | | |
+----------------------------------------------+------------+------------+------------+
| Cash flows from investing activities | | | |
+----------------------------------------------+------------+------------+------------+
| Transaction costs of acquisitions | 32 | - | (609) |
+----------------------------------------------+------------+------------+------------+
| Proceeds of share issue net of transaction | 26 | 50,406 | - |
| costs | | | |
+----------------------------------------------+------------+------------+------------+
| Additions of property, plant and equipment | 16 | (192,474) | (80,577) |
+----------------------------------------------+------------+------------+------------+
| Additions of intangible assets | 17 | (20,315) | - |
+----------------------------------------------+------------+------------+------------+
| Proceeds from the disposal of property, | | 3,414 | 679 |
| plant and equipment | | | |
+----------------------------------------------+------------+------------+------------+
| Acquisition of fair value through profit or | | - | (29,117) |
| loss investments | | | |
+----------------------------------------------+------------+------------+------------+
| Proceeds on disposal of fair value through | 23 | 31,760 | - |
| profit or loss investment | | | |
+----------------------------------------------+------------+------------+------------+
| Finance income received | | 7,509 | 10,508 |
+----------------------------------------------+------------+------------+------------+
| Net cash from investing activities | | (119,700) | (99,116) |
+----------------------------------------------+------------+------------+------------+
| Cash flows from financing activities | | | |
+----------------------------------------------+------------+------------+------------+
| Proceeds from borrowings | | 23,000 | 6,800 |
+----------------------------------------------+------------+------------+------------+
| Repayment of borrowings | | (4,960) | (570) |
+----------------------------------------------+------------+------------+------------+
| Finance expense paid | | (15,735) | (16,452) |
+----------------------------------------------+------------+------------+------------+
| Repayment of finance lease liabilities | | (10,289) | (6,471) |
+----------------------------------------------+------------+------------+------------+
| Net cash from financing activities | | (7,984) | (16,693) |
+----------------------------------------------+------------+------------+------------+
| | | | |
+----------------------------------------------+------------+------------+------------+
| Net decrease in cash and cash equivalents | | (146,319) | (44,467) |
+----------------------------------------------+------------+------------+------------+
| Cash and cash equivalents at 1 January | | 160,285 | 204,752 |
+----------------------------------------------+------------+------------+------------+
| Cash and cash equivalents at 31 December | 24 | 13,966 | 160,285 |
+----------------------------------------------+------------+------------+------------+
KazakhGold Group Limited
Company Cash Flow Statement for the year ended 31 December 2008
+----------------------------------------------+------------+------------+------------+
| | | 2008 | 2007 |
+----------------------------------------------+------------+------------+------------+
| | Note | US$000 | US$000 |
+----------------------------------------------+------------+------------+------------+
| | | | |
+----------------------------------------------+------------+------------+------------+
| Cash flows from operating activities | | | |
+----------------------------------------------+------------+------------+------------+
| Loss before tax for the year | | (16,278) | (1,782) |
+----------------------------------------------+------------+------------+------------+
| Adjustments for: | | | |
+----------------------------------------------+------------+------------+------------+
| Depreciation | 38 | 62 | 50 |
+----------------------------------------------+------------+------------+------------+
| Amortisation of bond issue costs | | 697 | 723 |
+----------------------------------------------+------------+------------+------------+
| Finance income | | (21,584) | (22,448) |
+----------------------------------------------+------------+------------+------------+
| Finance expense | | 18,750 | 18,750 |
+----------------------------------------------+------------+------------+------------+
| Equity-settled share-based payment expenses | 49 | 93 | 105 |
+----------------------------------------------+------------+------------+------------+
| Cash flow from operating activities before | | (18,260) | (4,602) |
| changes in working capital and provisions | | | |
+ +------------+------------+------------+
| | | | |
+----------------------------------------------+----------------------------------------------+------------+------------+
| Increase in other receivables | | (790) | (2,470) |
+----------------------------------------------+------------+------------+------------+
| Increase/(decrease) in other payables | 47 | 2,628 | 1,375) |
+----------------------------------------------+------------+------------+------------+
| Cash absorbed from operating activities | | (16,422) | (8,447) |
+----------------------------------------------+------------+------------+------------+
| Cash flows from investing activities | | | |
+----------------------------------------------+------------+------------+------------+
| Transaction costs of acquisitions | 32 | - | (609) |
+----------------------------------------------+------------+------------+------------+
| Increase in amounts due from group | | (12,659) | (153,555) |
| undertakings | | | |
+----------------------------------------------+------------+------------+------------+
| Acquisition of property, plant and equipment | 42 | (160) | - |
+----------------------------------------------+------------+------------+------------+
| Finance income received | | 552 | 3,764 |
+----------------------------------------------+------------+------------+------------+
| Net cash from investing activities | | (12,267) | (150,400) |
+----------------------------------------------+------------+------------+------------+
| Cash flows from financing activities | | | |
+----------------------------------------------+------------+------------+------------+
| Proceeds from the issue of shares - net of | | 50,406 | - |
| costs | | | |
+----------------------------------------------+------------+------------+------------+
| Finance expense paid | | (18,750) | (18,750) |
+----------------------------------------------+------------+------------+------------+
| Net cash from financing activities | | 31,656 | (18,750) |
+----------------------------------------------+------------+------------+------------+
| Net increase/(decrease) in cash and cash | | 2,967 | (177,597) |
| equivalents | | | |
+----------------------------------------------+------------+------------+------------+
| Cash and cash equivalents at 1 January | | 8,816 | 186,413 |
+----------------------------------------------+------------+------------+------------+
| Cash and cash equivalents at 31 December | 45 | 11,783 | 8,816 |
+----------------------------------------------+------------+------------+------------+
KazakhGold Group Limited
Consolidated Statement of Changes in Equity for the year ended 31 December 2008
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| | Share | Share | Capital | Translation | Retained | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| | Capital | Premium | Contributions | Reserve | Earnings | Total |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| | US$000 | US$000 | US$000 | US$000 | US$000 | US$000 |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Balance at 1 | 8 | 97,658 | 510,000 | 27,408 | 19,687 | 654,761 |
| January 2007 | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Foreign exchange | - | - | - | 35,319 | - | 35,319 |
| on translation of | | | | | | |
| foreign operations | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Net income | - | - | - | 35,319 | - | 35,319 |
| recognised | | | | | | |
| directly in equity | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Profit for the | - | - | - | - | 19,406 | 19,406 |
| year | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Total recognised | - | - | - | 35,319 | 19,406 | 54,725 |
| income and expense | | | | | | |
| for the year | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Equity-settled | - | - | - | - | 105 | 105 |
| share-based | | | | | | |
| payments | | | | | | |
| | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Issue of shares | 1 | 72,886 | - | - | - | 72,887 |
| net of issue costs | | | | | | |
| (Note 32) | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Balance at 31 | 9 | 170,544 | 510,000 | 62,727 | 39,198 | 782,478 |
| December 2007 | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Balance at 1 | 9 | 170,544 | 510,000 | 62,727 | 39,198 | 782,478 |
| January 2008 | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Foreign exchange | - | - | - | 2,053 | - | 2,053 |
| on translation of | | | | | | |
| foreign operations | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Net income | - | - | - | 2,053 | - | 2,053 |
| recognised | | | | | | |
| directly in equity | | | | | | |
| | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Profit for the | - | - | - | - | 118,811 | 118,811 |
| year | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Total recognised | - | - | - | 2,053 | 118,811 | 120,864 |
| income and expense | | | | | | |
| for the year | | | | | | |
| | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Equity-settled | - | - | - | - | 93 | 93 |
| share-based | | | | | | |
| payment | | | | | | |
| | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Issue of shares | - | 50,406 | - | - | - | 50,406 |
| net of issue costs | | | | | | |
| (Note 26) | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
| Balance at 31 | 9 | 220,950 | 510,000 | 64,780 | 158,102 | 953,841 |
| December 2008 | | | | | | |
+--------------------+---------+----------+---------------+-------------+-----------+----------+
KazakhGold Group Limited
Company Statement of Changes in Equity for the year ended 31 December 2008
+--------------------------------+---------+----------+---------------+----------+----------+
| | | | | | |
+--------------------------------+---------+----------+---------------+----------+----------+
| | Share | Share | Capital | Retained | |
+--------------------------------+---------+----------+---------------+----------+----------+
| | Capital | Premium | Contributions | Earnings | Total |
+--------------------------------+---------+----------+---------------+----------+----------+
| | US$000 | US$000 | US$000 | US$000 | US$000 |
+--------------------------------+---------+----------+---------------+----------+----------+
| | | | | | |
+--------------------------------+---------+----------+---------------+----------+----------+
| Balance at 1 January 2007 | 8 | 97,658 | 510,000 | (2,476) | 605,190 |
+--------------------------------+---------+----------+---------------+----------+----------+
| Loss for the year | - | - | - | (3,622) | (3,622) |
+--------------------------------+---------+----------+---------------+----------+----------+
| Total recognised income and | - | - | - | (3,622) | (3,622) |
| expense for the year | | | | | |
+--------------------------------+---------+----------+---------------+----------+----------+
| Issue of shares net of issue | 1 | 72,886 | | | 72,887 |
| costs (Note 32) | | | | | |
+--------------------------------+---------+----------+---------------+----------+----------+
| Equity-settled share-based | - | - | - | 105 | 105 |
| payments | | | | | |
+--------------------------------+---------+----------+---------------+----------+----------+
| Balance at 31 December 2007 | 9 | 170,544 | 510,000 | (5,993) | 674,560 |
+--------------------------------+---------+----------+---------------+----------+----------+
| | | | | | |
+--------------------------------+---------+----------+---------------+----------+----------+
| Balance at 1 January 2008 | 9 | 170,544 | 510,000 | (5,993) | 674,560 |
+--------------------------------+---------+----------+---------------+----------+----------+
| Loss for the year | - | - | - | (16,278) | (16,278) |
+--------------------------------+---------+----------+---------------+----------+----------+
| Total recognised income and | - | - | - | (16,278) | (16,278) |
| expense for the year | | | | | |
+--------------------------------+---------+----------+---------------+----------+----------+
| Issue of shares net of issue | - | 50,406 | - | - | 50,406 |
| costs (Note 49) | | | | | |
+--------------------------------+---------+----------+---------------+----------+----------+
| Equity-settled share-based | - | - | - | 93 | 93 |
| payments | | | | | |
+--------------------------------+---------+----------+---------------+----------+----------+
| Balance at 31 December 2008 | 9 | 20,950 | 510,000 | (22,178) | 708,781 |
+--------------------------------+---------+----------+---------------+----------+----------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
1. Corporate information
KazakhGold Group Limited ("the Company") is a company incorporated in Jersey.
The Company is centrally managed and controlled in the United Kingdom and is
therefore resident in the United Kingdom for the purposes of United Kingdom
taxation liabilities.
1. Basis of preparation and accounting policies
The Group financial statements consolidate those of the Company and its
subsidiaries (together referred to as "the Group"). The parent company financial
statements present information about the Company as a separate entity and not
about its Group.
These financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs and IFRIC interpretations) as adopted by
the European Union and also in accordance with the Companies (Jersey) Law 1991.
The accounting policies set out below have, unless otherwise stated, been
applied consistently in these financial statements.
Judgements made by the Directors in the application of these accounting policies
that have significant effect on the financial statements and estimates with a
significant risk of material adjustment in the next year are discussed in Note
3.
The Group's production levels and working capital levels have deteriorated in
the last year such that the Group currently does not have sufficient funds to
finance the work programmes to develop its three principal mines. In the absence
of these work programmes, the Group will not be able to generate sufficient
production to finance its activities. The Group failed to make the interest
payment on its Senior Loan Notes of US$9.3m on the due date of 5th May 2009.
On 3 June and 11 June 2009 Gold Lion Holdings Ltd, the Company's principal
shareholder, entered into two subordinated loan facilities to provide an
aggregate of US$31.025 million to finance the Group's immediate working capital
needs, to make the interest payment due under the Senior Notes and the
redemption payment in respect of local Kazakh Bonds.
On 12 June 2009 Jenington International Inc, an indirect wholly owned subsidiary
of Polyus Gold made an announcement in accordance with Rule 2.5 of the Takeover
Code to acquire 50.1% of the issued share capital of the Company. Under the
terms of the proposed offer, management expect Polyus Gold will underwrite a
US$100 million equity capital raising. The Partial Offer is dependent upon a
number of conditions including but not limited to there being no acts of default
on any of the Group's existing debt and shareholder approval. The Directors,
having received an irrevocable undertaking to accept and vote in favour of the
partial offer from Gold Lion Holdings Limited, representing 41.7% of the
existing share capital, are confident that these conditions will be met and that
the transaction will complete.
The Directors are confident based upon financial projections that the
US$100 million provided under the terms of the offer will provide funding for
the Group to continue as a going concern for twelve months from the date of this
report.
These conditions indicate the existence of a material uncertainty which may cast
significant doubt over the Group's ability to continue as a going concern. The
financial statements do not include the adjustments that would result if the
partial offer is unsuccessful or if the Group were unable to agree payment terms
with its principal creditors.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
* Amendments to published standards and interpretations to existing standards
effective in 2008 adopted by the Group
- IFRS 7 (effective from 1 July 2008), and IAS 39 amendment - reclassification
of financial instruments. The impact of the adoption of IFRS 7 and the changes
to IAS 39 has been to expand the disclosures provided in these financial
statements regarding the Group's financial instruments and management of capital
(see Note 33).
- IAS 39, Financial Instruments: Recognition and Measurement and IFRS 7
Financial Instruments: Disclosures - Reclassification of Financial Assets
(Amendments) (effective for periods beginning on or after 1 July 2008). This
amendment allows entities to reclassify held for trading assets out of this
category if the assets are no longer held for the purpose of trading. This
amendment is not applicable to the Group's operations as it is not applicable to
instruments designated at fair value through profit or loss at initial
recognition.
- IFRIC 11, (IFRS 2) - Group and Treasury Share Transactions (effective from 1
March 2007). IFRIC 11 requires share-based payment transactions in which an
entity receives services as consideration for its own equity instruments to be
accounted for as equity-settled. This applies regardless of whether the entity
chooses or is required to buy those equity instruments from another party to
satisfy its obligations to its employees under the share-based payment
arrangement. It also applies regardless of whether: (a) the employee's rights to
the entity's equity instruments were granted by the entity itself or by its
shareholders; or (b) the share-based payment arrangement was settled by the
entity itself or by its shareholders. As the Group has not entered into any such
share based payment transactions, adoption of this standard is not expected to
have any impact on the Group's financial statements.
- IFRIC 16, Hedges of a net investment in a foreign operation (effective for
accounting periods beginning on or after 1 October 2008). IFRIC 16 applies to an
entity that hedges its foreign currency risk arising from its net investment in
foreign operations and wishes to qualify for hedge accounting in accordance with
IAS 39. IFRIC 16 is effective for accounting periods commencing on or after 1
October 2008. The IFRIC has not been endorsed by the EU.
* Standards, interpretations and amendments to published standards effective in
2008 but which are not relevant to the Group
The following standards, amendments and interpretations to published standards
are mandatory for accounting periods beginning on or after 1 January 2008 but
are currently not relevant to the Group's operations:
- IFRIC 12, Service Concession Arrangements (effective for accounting periods
beginning on or after 1 January 2008). IFRIC 12 gives guidance on the accounting
by operators for public-to-private service concession arrangements. IFRIC 12 is
not relevant to the Group's operations due to the absence of such arrangements.
The IFRIC has not been endorsed by the EU.
- IFRIC 13, Customer Loyalty Programmes on Arrangements (effective for
accounting periods beginning on or after 1 July 2008). IFRIC 13 addresses sales
transactions in which entities grant their customers award credits that, subject
to meeting any further qualifying conditions, the customers can redeem in future
for free or discounted goods or services. IFRIC 13 is not relevant to the
Group's operations due to the absence of such arrangements.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
- IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction (effective for accounting periods beginning
on or after 1 January 2008). IFRIC 14 clarifies when refunds or reductions in
future contributions should be regarded as available in accordance with
paragraph 58 of IAS 19, how a minimum funding requirement might affect the
availability of reductions in future contributions and when a minimum funding
requirement might give rise to a liability. Management is currently assessing
the impact of IFRIC 14 on the accounts. IFRIC 14 is not relevant to the Group's
operations due to the absence of such arrangements.
* Standards, amendments and interpretations to published standards which are not
yet effective
Certain new standards, amendments and interpretations to existing standards have
been published that are mandatory for the Group's accounting periods beginning
on or after 1 January 2009 or later periods but the Group has decided not to
adopt early. The standards have been endorsed by the EU unless stated otherwise:
- IAS 23, Borrowing Cost (revised) (effective for accounting periods beginning
on or after 1 January 2009). The main change from the previous version is the
removal of the option of immediately recognising as an expense borrowing costs
that relate to qualifying assets, broadly being assets that take a substantial
period of time to get ready for use or sale. As the Group already chooses to
capitalise borrowing costs in respect of qualifying assets, the adoption of this
standard is not expected to have any impact on the Group's financial statements.
- IAS 23, Borrowing Cost (revised) (effective for accounting periods beginning
on or after 1 January 2009). The main change from the previous version is the
removal of the option of immediately recognising as an expense borrowing costs
that relate to qualifying assets, broadly being assets that take a substantial
period of time to get ready for use or sale. As the Group already chooses to
capitalise borrowing costs in respect of qualifying assets, the adoption of this
standard is not expected to have any impact on the Group's financial statements.
- Amendments to IFRIC 9 and IAS 39, Embedded Derivatives (effective for
accounting periods ending on or after 30 June 2009). This Amendment clarifies
the treatment of embedded derivatives in host contracts that are reclassified
out of fair value through profit or loss following the changes introduced by the
Amendments to IAS 39 and IFRS 7: Reclassification of Financial Instruments. The
adoption of this standard is not expected to have any impact on the Group's
financial statements. This amendment has not yet been endorsed.
- Amendments to IFRS 7, Improving Disclosures about Financial Instruments
(effective for accounting periods beginning on or after 1 January 2009). This
Amendment requires the analysis of each class of financial asset and financial
liability, into a three level fair value measurement hierarchy. It requires
additional disclosures in respect of those financial instruments classified as
Level Three (namely those that are measured using a valuation technique which
uses inputs that are not based on observable market data). It also implements
some changes to the definition of and disclosures associated with liquidity
risk. Management is currently assessing the impact of the amendment on the
financial statements. This amendment has not yet been endorsed.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
- Improvements to IFRSs (2009), (effective for accounting periods beginning on
or after 1 January 2009). The improvements in this Amendment clarify the
requirements of IFRSs and eliminate inconsistencies between Standards. The most
significant changes cover the following issues: The classification of assets and
liabilities as held for sale where a non-controlling interest is retained;
accounting by companies that routinely sells assets previously held for rental
to others; accounting for loans given at a nil or below market rate of interest;
the reversal of impairments against investments in associates accounted for
using the equity method; the timing of expense recognition for costs incurred on
advertising and other promotional activity; and, accounting for properties in
the course of construction. Management is currently assessing the impact of the
amendment on the financial statements.
- Improvements to IFRSs (2010), (generally effective for accounting periods
beginning on or after 1 January 2010). The improvements in this Amendment
clarify the requirements of IFRSs and eliminate inconsistencies within and
between Standards. Management is currently assessing the impact of the amendment
on the financial statements. This amendment has not yet been endorsed.
- Revised IFRS 3, Business Combinations and Complementary Amendments to IAS 27,
Consolidated and separate financial statements (both effective for accounting
periods beginning on or after 1 July 2009). This revised standard and amendments
to is still to be endorsed by the EU. The revised IFRS 3 and amendments to IAS
27 arise from a joint project with the Financial Accounting Standards Board
(FASB), the US standards setter, and result in IFRS being largely converged with
the related, recently issued, US requirements. There are certain very
significant changes to the requirements of the IFRS, and options available, if
accounting for business combinations. Management is currently assessing the
impact of revised IFRS 3 and amendments to IAS 27 on the financial statements.
- Amendment to IFRS 2, Share-based payments: vesting conditions and
cancellations (effective for accounting periods beginning on or after 1 January
2009). The amendment to IFRS 2 is of particular relevance to companies that
operate employee share save schemes. This is because it results in an immediate
acceleration of the IFRS 2 expense that would otherwise have been recognised in
future periods should an employee decide to stop contributing to the savings
plan, as well as a potential revision to the fair value of the award granted to
factor in the probability of employees withdrawing from such a plan. Management
is currently assessing the impact of the amendment on the financial statements.
- International Accounting Standard 1 Presentation of Financial Statements (IAS
1) (effective for accounting periods beginning on or after 1 January 2009),
replaces IAS 1 Presentation of Financial Statements (Revised in 2003) as amended
in 2005.
- Amendments to IAS 1 Presentation of Financial Statements: A Revised
Presentation (effective for accounting periods beginning on or after 1 January
2009). The Amendment to IAS 1 affects the presentation of owner changes in
equity and of comprehensive income. An entity will be required to present, in a
statement of changes in equity, all owner changes in equity. All non-owner
changes in equity (i.e. comprehensive income) are required to be presented in
one statement of comprehensive income or in two statements (a separate income
statement and a statement of comprehensive income). In addition, the new
requirements would require the presentation of an opening comparative balance
sheet when there is a change in accounting policy. The standard does not change
the recognition, measurement or disclosure of specific transactions and other
events required by other IFRSs. Management is currently assessing the impact of
the amendment on the financial statements.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
- Amendments to IAS 32 and IAS 1 Puttable Financial Instruments and Obligations
Arising on Liquidation. (effective for accounting periods beginning on or after
1 January 2009). This Amendment results in certain types of financial instrument
that meet the definition of a liability, but represent the residual interest in
the net assets of the entity, being classified as equity. The Amendment requires
entities to classify the following types of financial instruments as equity,
provided they have particular features and meet specific conditions: (a)
Puttable financial instruments; and, (b) instruments, or components of
instruments, that impose on the entity an obligation to deliver to another party
a pro rata share of the net assets of the entity only on liquidation. Management
is currently assessing the impact of the amendment on the financial statements.
- IFRS1, & IAS27 Amendments to cost of an investment in a subsidiary, jointly
controlled entity or associate allows first time adopters to account for the
investment at either 'deemed cost' or fair value in the financial statements.
The dividends derived from the investment must now also be recorded as income in
the investors financial statements. This amendment is effective from accounting
periods beginning on or after 1 January 2009. These have not been endorsed by
the EU.
- Amendment to IAS 39 Financial Instruments: Recognition and Measurement:
Eligible Hedged Items (effective for accounting periods beginning on or after 1
July 2009). This Amendment clarifies how the principles that determine whether a
hedged risk or portion of cash flows is eligible for designation should be
applied in the designation of a one-sided risk in a hedged item, and inflation
in a financial hedged item. Management is currently assessing the impact of the
amendment on the financial statements. This amendment has not yet been endorsed.
- IFRIC 15 (effective for accounting periods beginning on or after 1 January
2009) gives guidance on the construction of real estate or when revenue from
construction should be recognised. IFRIC 15 applies to the accounting for
revenue and associated expenses by entities that undertake such contracts. IFRIC
15 is not relevant to the Groups' operations due to the absence of such
arrangements. The IFRIC has not been endorsed by the EU.
- IFRIC 17 (effective for accounting periods beginning on or after 1 July 2009)
distributions of non-cash assets to owners applies to the entity making the
distribution when the owners are provided with non cash assets. IFRIC 17 is not
relevant to the Group due to the absence of such arrangements. The IFRIC has not
been endorsed by the EU.
- IFRIC 18 Transfer of assets from customers (applies prospectively for
transfers of assets on or after 1 July 2009. Limited retrospective application
is permitted) IFRIC 18 is still to be endorsed by the EU. IFRIC 18 clarifies the
treatment of IFRS, particularly IAS 18 'Revenue' for agreements in which an
entity receives an item of property, plant and equipment from a customer to
connect to an ongoing supply of goods and services. The interpretation
clarifies: the circumstances in which the definition of an asset is met; the
recognition of the asset and the measurement of its cost on initial recognition;
the identification of the separately identifiable services (one or more services
in exchange for the transferred asset), the recognition of revenue; the
accounting for transfers of cash from customers. IFRIC 18 is not expected to be
relevant to the Group's operations due to the absence of such arrangements
* Basis of consolidation
Where the Company has the power, either directly or indirectly, to govern the
financial and operating policies of another entity or business so as to obtain
benefits from its activities, it is classified as a subsidiary. The consolidated
financial statements present the results of the Company and its subsidiaries
("the Group") as if they formed a single entity. Intercompany transactions and
balances between Group companies are therefore eliminated in full.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
* Business combinations
The consolidated financial statements incorporate the results of business
combinations using the purchase method. In the consolidated balance sheet, the
acquiree's identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition date. The results
of acquired operations are included in the consolidated income statement from
the date on which control is obtained.
* Revenue
The Group enters into contracts for the sale of gold. Revenue arising from gold
sales under these contracts is recognised when the price is determinable, the
product has been delivered in accordance with the terms of the contract, the
significant risks and rewards of ownership have been transferred to the customer
and collection of the sales price is reasonably assured. As sales from gold
contracts are subject to customer survey adjustment, sales are initially
recorded on a provisional basis using the Group's best estimate of the contained
metal. Subsequent adjustments are recorded in revenue to take into account final
assay and weight certificates from the refinery, if different from the initial
certificates. The differences between the estimated and actual contained gold
have not been significant historically.
* Foreign currency
In accordance with IAS21, transactions entered into by Group entities in a
currency other than the currency of the primary economic environment in which it
operates (the functional currency) are recorded at the rates ruling when the
transactions occur. Foreign currency monetary assets and liabilities are
translated at the rates ruling at the balance sheet date. Exchange differences
arising on the retranslation of unsettled monetary assets and liabilities are
similarly recognised immediately in the income statement. Non monetary assets
are translated using the exchange rate at the date of the transaction that
resulted in their recognition. The presentational currency for the Group
consolidated financial statements is the US dollar. This is also the functional
currency of the Company and is considered by the Board also to be appropriate
for the purposes of preparing the Group financial statements.
On consolidation, the results of overseas operations are translated into US
dollars, the presentational currency of the Group, at rates approximating to
those ruling when the transaction took place. All assets and liabilities of
overseas operations are translated at the rate ruling at the balance sheet date.
Fair value adjustments arising on the acquisition of an overseas entity are
treated as assets and liabilities of the overseas entity and translated at the
rate ruling at the balance sheet date. The functional currency of JSC
Kazakhaltyn MMC (the main operating company of the Group) is Kazakh tenge.
Exchange differences arising on translating the opening net assets at the
opening rate and the results of overseas operations at the actual rate are
recognised directly in equity (the "translation reserve").
* Property, plant and equipment
Property, plant and equipment are stated at cost less any subsequent accumulated
depreciation and impairment losses.
Where parts of an item of property, plant and equipment have different useful
lives, they are accounted for as separate items of property, plant and
equipment.
Leases in which the Group assumes substantially all the risks and rewards of
ownership of the leased asset are classified as finance leases. Leased assets
acquired by way of finance lease are stated at an amount equal to the lower of
their fair value and the present value of the minimum lease payments at
inception of the lease, less accumulated depreciation and impairment losses.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
Minimum lease payments are apportioned between the finance charge and the
reduction of the outstanding liability. The finance charge is allocated to each
period during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
Depreciation is charged to the income statement within cost of sales and
administrative expenses on a straight-line basis over the estimated useful lives
of each part of an item of property, plant and equipment. Land is not
depreciated. The estimated useful lives are as follows:
Freehold buildings 11 - 50 years
Machinery, equipment and vehicles 2 - 35 years
Expenses incurred in respect of the maintenance and repair of property, plant
and equipment are charged against income when incurred. Refurbishment and
improvement expenditure, where the benefit is expected to be long lasting, is
capitalised as part of the appropriate asset.
Assets under construction are carried at cost less any recognised impairment
loss.
Cost includes capitalised borrowing costs.
* Mining properties
Once a decision is made to proceed with the development of a mining project,
exploration and evaluation expenditure other than that on buildings, machinery
and equipment is capitalised under non-current assets, within property, plant
and equipment as mining properties, together with any amount transferred from
exploration and development. Mining properties are amortised over the estimated
life of the reserves on a 'unit of production' basis.
Commercial reserves are proven and probable reserves. Changes in commercial
reserves affecting unit of production calculations are dealt with prospectively
over the revised remaining reserves.
* Impairment
The Group conducts annual internal assessments of the values of goodwill, other
intangible assets including negotiation rights, and capitalised exploration and
evaluation costs. The carrying amount of the non-current assets of the Group is
compared to the recoverable amount of the assets whenever events or changes in
circumstances indicate that the net book value may not be recoverable. The
recoverable amount is the higher of value in use and the fair value less costs
to sell. In assessing the value in use, the expected future cash flows from the
assets are determined by applying a discount rate to the anticipated pre-tax
future cash flows. Impairment is recognised in the income statement to the
extent that the carrying amount exceeds the assets' recoverable amount. The
revised carrying amounts are amortised in line with the Group's accounting
policies.
Assets are Grouped at the lowest levels for which there are separately
identifiable cash flows (cash generating units) for purposes of assessing
impairment. Such CGUs represent the lowest level for which there are separately
identifiable cash inflows that are largely independent of the cash flows from
other assets or other Groups of assets. This results in the Group evaluating its
non-financial assets on a geographical basis. The estimates of future discounted
cash flows are subject to risks and uncertainties including the future gold
price. It is therefore reasonably possible that changes could occur which may
affect the recoverability of assets.
A previously recognised impairment loss is reversed if the recoverable amount
increases as a result of a reversal of the conditions that originally resulted
in the impairment. This reversal is recognised in the income statement and is
limited to the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognised in prior years.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
* Stripping costs
All stripping costs incurred during the production phase of a mine are treated
as variable production costs and as a result are included in the cost of
inventory produced during the period that the stripping costs are incurred.
* Intangible assets
Expenditure on research activities is recognised in the income statement as an
expense as incurred.
Negotiation rights
Included within intangible assets is an amount for negotiation rights in
relation to the Jerooy project in the Kyrgyz Republic. The negotiation rights
arise in respect of the strong position gained by the Group for negotiating the
grant of the relevant licences at Jerooy. The Group currently owns the plant and
geological data at Jerooy. The Directors are confident that the Group will
eventually be granted a mining licence. Negotiation rights are initially
recognised at cost and assessed for any impairment on an annual basis. No
amortisation has been provided on this amount. Should the licence be granted to
the Group, the carrying value of the negotiation rights will be transferred to
mining licences and/or mining properties as appropriate. Should it become
apparent that the licence is unlikely to be granted, the negotiation rights will
be written down to their net realisable value.
Exploration and evaluation
Exploration and evaluation costs include costs incurred on projects where
insufficient work has been performed to confirm whether significant
mineralization exists or whether the project is economically feasible. Costs are
capitalised as intangible assets until the decision is made to proceed to
development, whereupon the related expenditures are transferred to non-current
assets as mining properties, or until the projects are determined not to be
commercially viable, whereupon the related costs are written off to the income
statement. A test for impairment is carried out on an annual basis when costs
are transferred to mining properties. Pre-licensed costs are recognised as an
expense in the income statement as incurred.
Other intangible assets that are acquired by the Group are stated at cost less
accumulated amortisation and impairment losses.
Amortisation of intangible assets is charged to cost of sales over the following
periods:
Mining and other licenses 3 - 4 years
* Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance
sheet when the Group becomes a party to the contractual provisions of the
instrument.
Financial assets
The Group's financial assets fall into the categories discussed below, with the
allocation depending on the purpose for which the asset was acquired, and is
determined at the time of initial recognition. The Group does not hold any held
to maturity financial assets. Unless otherwise indicated, the carrying amounts
of the Group's financial assets are a reasonable approximation of their fair
values.
Fair value through profit or loss
Financial assets at fair value through profit or loss consists of financial
assets designated upon initial recognition if the following criteria are met:
(a) the designation eliminates or significantly reduces the inconsistent
treatment that would otherwise arise from measuring the assets or recognising
gains or losses on them on a different basis: or (b) the assets are part of a
Group of financial assets which are managed and their performance evaluated on a
fair value basis, in accordance with a documented risk management strategy. The
Group's holdings of these assets is shown in Note 23.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
Loans and receivables
Trade receivables, loans and other receivables, which comprise non-derivative
financial assets with fixed and determinable payments that are not quoted on an
active market and arise principally through the provision of goods and services
to customers (trade receivables) and company loans to subsidiary undertakings,
are stated at amortised cost less any provision for impairment.
Cash and cash equivalents
For cash flow statement purposes cash and cash equivalents comprise cash
balances, call deposits, and other short term highly liquid investments with
original maturities of three months or less.
Available for sale
Non-derivative financial assets not included in the above categories are
classified as available for sale. They are carried at fair value with changes in
fair value recognised directly in the available for sale reserve. Where there is
a significant or prolonged decline in the fair value of an available for sale
financial asset (which constitutes objective evidence of impairment), the full
amount of the impairment, including any amount previously charged to equity, is
recognised in the income statement. Purchases and sales of available for sale
financial assets are recognised on settlement date with any change in fair value
between trade date and settlement date being recognised in the available for
sale reserve. On sale, the amount held in the available for sale reserve
associated with that asset is removed from equity and recognised in the income
statement. Interest on corporate bonds classified as available for sale is
calculated using the effective interest method and is recognised in finance
income in the income statement.
Impairment of financial assets
Financial assets are impaired where there is objective evidence that, as a
result of one or more events that occurred after the initial recognition of the
financial assets, the estimated future cash flows of the investment have been
impacted. For financial assets the amount of the impairment is the difference
between the asset's net carrying amount and the present value of the future
expected cash flows associated with the impaired asset, discounted at the
original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss
directly for all assets with the exception of trade receivables where the
carrying amount is reduced through the use of an allowance account. When a trade
receivable is uncollectible, it is written off against the allowance account.
Changes in the carrying amount of the allowance account are recognised in the
income statement within administrative expenses.
Financial liabilities
There is only one category of financial liabilities in the Group that being
financial liabilities held at amortised cost.
Financial liabilities held at amortised cost
Trade and other payables
Trade payables and other short-term monetary liabilities, are initially
recognised at fair value and subsequently carried at amortised cost using the
effective interest method.
Interest bearing loans and borrowings
Bank borrowings are recognised at fair value net of any transaction costs
directly attributable to the issue of the instrument. Such interest bearing
liabilities are subsequently measured at amortised cost using the effective
interest rate method, which ensures that any interest expense over the period to
repayment is at a constant rate on the balance of the liability carried in the
balance sheet. Other interest-bearing borrowings including bonds and loan Notes
are recognised initially at fair value less attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings are stated at
amortised cost with any difference between cost and redemption value being
recognised in the income statement over the period of the borrowings on an
effective interest basis.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
Share capital
Financial instruments issued by the Group are treated as equity only to the
extent that they do not meet the definition of a financial liability. The
Group's ordinary shares are classified as equity instruments.
The Group considers its capital to comprise its ordinary share capital, share
premium, accumulated retained earnings and capital contributions. There have
been no changes in what the Group considers to be capital since the previous
period.
The Group is not subject to any externally imposed capital requirements.
* Inventories
Raw materials which consist of tools for development activities, spare parts,
diesel fuel and various materials used in mining operations are valued at the
lower of cost and net realisable value. The basis on which cost is derived is a
weighted average cost formula.
Finished goods and work in progress (comprising cathodic sludge, cathodic gold,
free gold, flotation and gravitational concentrate, quartzite ore and doré bars)
are stated at the lower of weighted average cost or net realisable value. Costs
include direct materials, direct labour costs and production overheads
(including the depreciation/depletion of relevant property, plant and equipment
and mining properties). Net realisable value represents the estimated selling
price less all expected costs to completion and costs to be incurred in selling
and distribution.
Long-term inventories comprise ore stockpiles being treated on heap leach pads.
These stockpiles are depleted based upon expected grades and recovery rates. As
product is extracted a charge is made to cost of production of finished goods
for the relevant proportion of costs.
* Pensions
The Group contributes to certain defined contribution pension and employee
benefit schemes on behalf of its employees. These costs are charged to the
income statement on an accruals basis.
* Share-based payment transactions
The Company has awarded share options to certain Company Directors to acquire
shares of the Company. The fair value of options granted is recognised as an
employee expense with a corresponding increase in equity. The fair value is
measured at grant date and spread over the period during which the employees
become unconditionally entitled to the options. The fair value of the options
granted is measured using a binomial option valuation model, taking into account
the terms and conditions upon which the options were granted. The amount
recognised as an expense is adjusted to reflect the actual number of share
options that vest only where vesting is dependent upon the satisfaction of
service and non-market vesting conditions.
* Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and, where appropriate, the risks specific to the
liability. Unwinding of the discount is recognised as a finance cost in the
income statement as it occurs.
Provisions are made for the estimated rehabilitation costs relating to areas
disturbed during the mines' operation up to the reporting date but not yet
rehabilitated. Provision has been made in accordance with local legislation.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
The estimated cost of rehabilitation includes the current cost of re-contouring,
top-soiling and re-vegetation employing legislative requirements. Changes in
estimates are dealt with on a prospective basis as they arise.
Significant uncertainty exists as to the amount of rehabilitation obligations
which may be incurred due to the impact of possible changes in environmental
legislation.
The amount of the provision relating to rehabilitation of mine infrastructure
and dismantling obligations is recognised at the commencement of the mining
project and/or construction of the assets where a legal or constructive
obligation exists at that time. The provision is recognised as a liability with
a corresponding asset included in mining property and development assets.
* Borrowing costs
Borrowing costs comprise interest payable on bank loans, bonds and finance
leases. Interest payable is recognised in the income statement as it accrues,
using the effective interest method unless such interest is directly
attributable to the acquisition, construction or production of a qualifying
asset. A qualifying asset is one that takes a substantial period of time to get
ready for its intended use or sale.
* Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the balance sheet date
together with any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities are recognised where the carrying amount of
an asset or liability in the balance sheet differs from its tax base, except for
differences arising on:
* The initial recognition of an asset or liability in a transaction which is not a
business combination and at the time of the transaction affects neither
accounting or taxable profit; and
* Investments in subsidiaries and jointly controlled entities where the Group is
able to control the timing of the reversal of the difference and it is probable
that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is
probable that taxable profit will be available against which the difference can
be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the balance sheet date and are expected
to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the deferred
tax asset and liabilities related to taxes levied by the same tax authority on
either, the same taxable Group company: or different Group entities which intend
either to settle the liabilities simultaneously, in each future period in which
significant amounts of deferred tax assets or liabilities are expected to be
settled or recovered.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
1. Accounting estimates and judgements
The Group makes estimates and assumptions regarding the future. Estimates and
judgements are continually evaluated based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances. In the future, actual experience may deviate
from these estimates and assumptions. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below:
De-commissioning and rehabilitation
As explained in the accounting policy Note, costs arising from site restoration
works and the de-commissioning of plant, discounted to their net present value
are provided for and capitalised at the start of each project. Management uses
its judgement and experience to provide for these costs.
The ultimate de-commissioning and site restoration costs are uncertain and can
be impacted by changes to legislation, restoration techniques and changes to the
expected timing of closure resulting from changes to ore reserves. As a result
there could be significant adjustments to the provisions established which would
affect future results.
Capitalised mining costs and mining resources
The Group's reserves of precious metals ("mining properties") are estimates
based upon geological studies. Over the longer term the actual mineable
resources achieved may vary significantly from the current estimates. The Group
periodically updates estimates of reserves and assesses those for indicators of
impairment relating to its capitalised mining costs.
Base of mining operations
The Group's primary base of operations is in Kazakhstan. The laws relating to
commercial operations, taxation and future dividend payments are still under
development and there may be unforeseen changes to the operating and fiscal
environment. The financial statements have been prepared taking into account the
current adverse economic conditions prevailing, with particular attention being
paid to any provisions being required for the impairment of assets.
Carrying values of inventory
The Group monitors internal and external indicators of impairment relating to
its inventory. Management has considered whether any indicators of impairment
have arisen over certain spares, materials, tools and equipment held in
inventory. After assessing these, management has concluded that no impairment
has arisen in respect of these assets during the year and subsequently to 31
December 2008.
Carrying values of property, plant and equipment
The Group monitors internal and external indicators of impairment relating to
its property, plant and equipment. Management has considered whether any
indicators of impairment have arisen over certain assets relating to the Group's
mining operations. After assessing these, management has concluded that no
impairment has arisen in respect of these assets during the year and
subsequently to 31 December 2008. See Note 20 in relation to the impairment
review carried out in the year.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
Useful lives of intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment are amortised or depreciated
over their useful lives. Useful lives are based on the management's estimates of
the period that the assets will generate revenue, which are periodically
reviewed for continued appropriateness. Due to the long lives of certain assets,
changes to the estimates used could result in significant variations in the
carrying value.
Fair value of financial instruments
The Group determines the fair value of financial instruments that are not
quoted, based on estimates using present values or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
discount rates and estimates of future cash flows. Where market prices are not
readily available, fair value is either based on estimates obtained from
independent experts or quoted market prices of comparable instruments. In that
regard, the derived fair value estimates cannot be substantiated by comparison
with independent markets and, in many cases, could not be realised immediately.
Income taxes
The Group is subject to income tax in the Republic of Kazakhstan and significant
judgement is required in determining the provision for income taxes. During the
ordinary course of business, there are many transactions and calculations for
which the ultimate tax determination is uncertain. As a result, the Group
recognises tax liabilities based on estimates of whether additional taxes and
interest will be due. These tax liabilities are recognised when, despite the
Group's belief that its tax return positions are supportable, the Group believes
that certain positions are likely to be challenged and may not be fully
sustained upon review by tax authorities.
The Group believes that its accruals for tax liabilities are adequate for all
open audit years based on its assessment of many factors including past
experience and interpretations of tax law. This assessment relies on estimates
and assumptions and may involve a series of complex judgements about future
events. To the extent that the final tax outcome of these matters is different
than the amounts recorded, such differences will impact income tax expense in
the period in which such determination is made, see Note 31.
Share-based payments
In order to calculate the charge for share-based payments as required by IFRS2,
the Group makes estimates principally relating to assumptions used in its
option-pricing model as set out in Note 27.
Misappropriation of funds
An amount of US$4,652,000 gross (net - US$nil) relating to the recovery of
amounts fraudulently misappropriated from the Company's bank accounts is
included within other receivables, as set out in Note 22. The Company has filed
legal claims and continues to pursue full recovery however the Directors have
made full provision against this balance until such time that any recovery can
be estimated with certainty.
Further amounts were taken after the year end amounting to approximately
$7,000,000, as set out in Note 34, the Directors have made a full provision for
these amounts in assessing future cash flows until such time that any recovery
can be estimated with certainty.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
1. Revenue
+--------------------------------------------+-------------+-------------+
| | Group | Group |
+--------------------------------------------+-------------+-------------+
| | 2008 | 2007 |
+--------------------------------------------+-------------+-------------+
| | US$000 | US$000 |
+--------------------------------------------+-------------+-------------+
| By product | | |
+--------------------------------------------+-------------+-------------+
| Cathodic products | 70,455 | 42,544 |
+--------------------------------------------+-------------+-------------+
| Free gold | 8,334 | 24,429 |
+--------------------------------------------+-------------+-------------+
| Other | 12,212 | 10,023 |
+--------------------------------------------+-------------+-------------+
| | 91,001 | 176,996 |
+--------------------------------------------+-------------+-------------+
| | | |
+--------------------------------------------+-------------+-------------+
| By destination market | | |
+--------------------------------------------+-------------+-------------+
| United Arab Emirates | 42,208 | 138,231 |
+--------------------------------------------+-------------+-------------+
| Russia | 36,583 | - |
+--------------------------------------------+-------------+-------------+
| Switzerland | 12,210 | 28,793 |
+--------------------------------------------+-------------+-------------+
| Other | - | 9,972 |
+--------------------------------------------+-------------+-------------+
| | 91,001 | 176,996 |
+--------------------------------------------+-------------+-------------+
1. Segmental Information
For management purposes, during the year, the Group was organised into two
operating divisions, Mining and Corporate. These divisions are the basis on
which the Group reports its primary segment information.
Principal activities are as follows:
Mining - The mining, production and exploration of gold and other precious
metals in Kazakhstan, Romania, and Kyrgyzstan.
Corporate - The head office activities of the Group are based in the United
Kingdom.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
5 Segmental Information (Continued)
Segment information about these segments is presented below
+--------------------+----------+-----------+-------------+--------------+---------------+
| | Mining | Corporate | Unallocated | Eliminations | Consolidation |
+--------------------+----------+-----------+-------------+--------------+---------------+
| | US$000 | US$000 | US$000 | US$000 | US$000 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| 2008 | | | | | |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Revenue | | | | | |
+--------------------+----------+-----------+-------------+--------------+---------------+
| External sales | 91,001 | - | - | - | 91,001 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Intra-group sales | - | 133 | - | (133) | - |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Total revenue | 91,001 | 133 | - | (133) | 91,001 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Results | | | | | |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Operating | (29,366) | (18,416) | - | - | (47,782) |
| (loss)/profit | | | | | |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Finance income | 6,958 | 21,584 | - | (21,033) | 7,509 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Finance expense | (7,205) | (19,446) | - | 10,120 | (16,531) |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Loss before tax | | | | | (56,804) |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Tax credit | | | 175,615 | | 175,615 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Profit after tax | | | | | 118,811 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| | | | | | |
+--------------------+----------+-----------+-------------+--------------+---------------+
| | Mining | Corporate | Unallocated | Eliminations | Consolidation |
+--------------------+----------+-----------+-------------+--------------+---------------+
| | US$000 | US$000 | US$000 | US$000 | US$000 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| 2007 | | | | | |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Revenue | | | | | |
+--------------------+----------+-----------+-------------+--------------+---------------+
| External sales | 176,996 | - | - | - | 176,996 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Intra-group sales | - | 90 | - | (90) | - |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Total revenue | 176,996 | 90 | - | (90) | 176,996 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Results | | | | | |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Operating | 61,594 | (4,757) | - | - | 56,837 |
| profit/(loss) | | | | | |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Finance income | 7,835 | 22,448 | - | (18,684) | 11,599 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Finance expense | (4,839) | (19,473) | - | 7,108 | (17,204) |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Profit before tax | | | | | 51,232 |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Tax expense | | | (31,826) | | (31,826) |
+--------------------+----------+-----------+-------------+--------------+---------------+
| Profit after tax | | | | | 19,406 |
+--------------------+----------+-----------+-------------+--------------+---------------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
5 Segmental Information (Continued)
+------------------+------------+-----------+-------------+--------------+---------------+
| | Mining | Corporate | Unallocated | Eliminations | Consolidation |
+------------------+------------+-----------+-------------+--------------+---------------+
| | US$000 | US$000 | US$000 | US$000 | US$000 |
+------------------+------------+-----------+-------------+--------------+---------------+
| | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| 2008 | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Capital | 192,314 | 160 | - | - | 192,474 |
| additions | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Depreciation | (12,468) | (62) | - | - | (12,530) |
+------------------+------------+-----------+-------------+--------------+---------------+
| Amortisation | (5) | - | - | - | (5) |
+------------------+------------+-----------+-------------+--------------+---------------+
| | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Balance sheet | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Assets | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Segment assets | 1,376,028 | 912,433 | | (899,244) | 1,389,217 |
+------------------+------------+-----------+-------------+--------------+---------------+
| Consolidated | 1,376,028 | 912,433 | | (899,244) | 1,389,217 |
| total assets | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Liabilities | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Segment | 92,043 | 197,307 | - | - | 289,350 |
| liabilities | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Deferred tax | - | - | 137,054 | - | 137,054 |
| liabilities | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Current tax | - | - | 8,972 | - | 8,972 |
| payable | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Consolidated | 92,043 | 197,307 | 146,026 | - | 435,376 |
| total | | | | | |
| liabilities | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| | Mining | Corporate | Unallocated | Eliminations | Consolidation |
+------------------+------------+-----------+-------------+--------------+---------------+
| | US$000 | US$000 | US$000 | US$000 | US$000 |
+------------------+------------+-----------+-------------+--------------+---------------+
| | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| 2007 | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Capital | 91,462 | - | - | - | 91,462 |
| additions | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Subsidiary | 35,915 | - | - | - | 35,915 |
| assets required | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Depreciation | (12,480) | (50) | - | - | (12,530) |
+------------------+------------+-----------+-------------+--------------+---------------+
| Amortisation | (28) | - | - | - | (28) |
+------------------+------------+-----------+-------------+--------------+---------------+
| | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Balance sheet | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Assets | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Segment assets | ,235,145 | 874,887 | - | (697,471) | 1,412,561 |
| | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Consolidated | 1,235,145 | 874,887 | - | | 1,412,561 |
| total assets | | | | (697,471) | |
+------------------+------------+-----------+-------------+--------------+---------------+
| | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Liabilities | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Segment | 371,319 | 200,327 | - | (282,525) | 289,121 |
| liabilities | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Deferred tax | - | - | 312,499 | - | 312,499 |
| liabilities | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Current tax | - | - | 28,463 | - | 28,463 |
| payable | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
| Consolidated | 371,319 | 200,327 | 340,962 | | 630,083 |
| total | | | | (282,525) | |
| liabilities | | | | | |
+------------------+------------+-----------+-------------+--------------+---------------+
Geographical Segments
The Group has two geographic segments being the Former Soviet Union and
bordering region, and the United Kingdom.
The Group's mining segments are located in the Former Soviet Union and bordering
region, (Kyrgyzstan, Kazakhstan and Romania). The Group's corporate activities
are carried out in the United Kingdom.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| 6 | Other operating income | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | Group | Group |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | 2008 | 2007 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | US$000 | US$000 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Sales of materials | | 2,044 | 464 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Foreign exchange gains | | 452 | 107 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | 2,496 | 571 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| 7 | Other operating expenses | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | Group | Group |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | 2008 | 2007 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | US$000 | US$000 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Loss arising from the disposal of | | 8,957 | 363 |
| | non-current assets | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Foreign exchange losses | | - | 4,750 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Other expenses | | 1,583 | 868 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | 10,540 | 5,981 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| 8 | Operating (loss)/profit | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | This has been stated after charging: | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | Group | Group |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | 2008 | 2007 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | US$000 | US$000 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Depreciation of property, plant and | | 20,961 | 12,530 |
| | equipment | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Amortisation | | 5 | 28 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Loss arising from the disposal of | | 8,957 | 363 |
| | non-current assets | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Abnormal production expenses | | 19,869 | - |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Provision for impairment of intangible | | 549 | - |
| | assets | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Provision for impairment of other | | 6,002 | 2,129 |
| | receivables (see note 22) | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Equity-settled share-based payment expense | | 93 | 105 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Auditors' remuneration (see note 9) | | 1,103 | 450 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Staff costs (see note 10) | | 21,838 | 17,178 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Net foreign exchange (gain)/loss | | (452) | 4,643 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Abnormal production expenses relate to wages and other costs not utilised in |
| | a productive capacity during the period of mine refurbishment, as a |
| | consequence these costs are shown under administrative expenses. |
+---------------------------------------------+------------------------------------------------------------------------------+
| | | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| 9 | Auditors' remuneration | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | Group | Group |
| | | | and | and |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | Company | Company |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | 2008 | 2007 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | US$000 | US$000 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Amounts receivable by auditors and their | | | |
| | associates in respect of: | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Audit of financial statements of the Group | | 500 | 450 |
+ +---------------------------------------------+----------+----------+----------+
| | Other services | | 603 | - |
+---------------------------------------------+---------------------------------------------+---------------------------------------------+----------+----------+
| | | | 1,103 | 450 |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | | | | |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
| | Other services relate to taxation and corporate finance advice given during |
| | the year. |
+---------------------------------------------+---------------------------------------------+----------+----------+----------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+------------------------------------------------+----------+---------+---------+
| 10 | Staff numbers and costs | | |
+----+------------------------------------------------+--------------------+---------+
| | | | |
+----+------------------------------------------------+--------------------+---------+
| | | Group | Group |
+----+------------------------------------------------+----------+-------------------+
| | | 2008 | 2007 |
+----+------------------------------------------------+----------+-------------------+
| | | Number | Number |
+----+------------------------------------------------+----------+-------------------+
| | | | |
+----+------------------------------------------------+----------+-------------------+
| | The average number of persons employed by the | | |
| | Group (including Directors) during the year, | | |
| | analysed by category, was as follows: | | |
+----+------------------------------------------------+----------+-------------------+
| | | | |
+----+------------------------------------------------+----------+-------------------+
| | Management and administration | 227 | 444 |
+----+------------------------------------------------+----------+-------------------+
| | Supply | 47 | 57 |
+----+------------------------------------------------+----------+-------------------+
| | Construction and maintenance | 198 | 61 |
+----+------------------------------------------------+----------+-------------------+
| | Research and exploration | 123 | 189 |
+----+------------------------------------------------+----------+-------------------+
| | Security | 131 | 98 |
+----+------------------------------------------------+----------+-------------------+
| | Mining activities | 3,160 | 3,071 |
+----+------------------------------------------------+----------+-------------------+
| | | 3,886 | 3,920 |
+----+------------------------------------------------+----------+-------------------+
| | | | |
+----+------------------------------------------------+----------+-------------------+
| | For the year ended 31 December 2008 the Company had 11 employees including |
| | six Executive Directors and three Non-executive Directors (2007: 14 employees |
| | including six Executive Directors and four Non-executive Directors). |
+----+-------------------------------------------------------------------------------+
| | | | |
+----+------------------------------------------------+----------+-------------------+
| | | Group | Group |
+----+------------------------------------------------+----------+-------------------+
| | | 2008 | 2007 |
+----+------------------------------------------------+----------+-------------------+
| | | US$000 | US$000 |
+----+------------------------------------------------+----------+-------------------+
| | | | |
+----+------------------------------------------------+----------+-------------------+
| | The aggregate group payroll costs of these | | |
| | persons were as follows: | | |
+----+------------------------------------------------+----------+-------------------+
| | | | |
+----+------------------------------------------------+----------+-------------------+
| | Wages and salaries (including Directors' | 19,338 | 14,486 |
| | emoluments) | | |
+----+------------------------------------------------+----------+-------------------+
| | Social security and other pension costs | 2,407 | 2,587 |
+----+------------------------------------------------+----------+-------------------+
| | Share based payments | 93 | 105 |
+----+------------------------------------------------+----------+-------------------+
| | | 21,838 | 17,178 |
+----+------------------------------------------------+----------+-------------------+
| | | | |
| | | | |
+----+------------------------------------------------+----------+-------------------+
| | | Company | Company |
+----+------------------------------------------------+----------+-------------------+
| | | 2008 | 2007 |
+----+------------------------------------------------+----------+-------------------+
| | | US$000 | US$000 |
+----+------------------------------------------------+----------+-------------------+
| | | | |
+----+------------------------------------------------+----------+-------------------+
| | The aggregate company payroll costs of these | | |
| | persons were as follows: | | |
+----+------------------------------------------------+----------+-------------------+
| | | | |
+----+------------------------------------------------+----------+-------------------+
| | Wages and salaries (including Directors' | 932 | 1,884 |
| | emoluments) | | |
+----+------------------------------------------------+----------+-------------------+
| | Social security and other pension costs | 24 | 244 |
+----+------------------------------------------------+----------+-------------------+
| | Share based payments | 93 | 105 |
+----+------------------------------------------------+----------+-------------------+
| | | 1,049 | 2,233 |
+----+------------------------------------------------+----------+---------+---------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+-----+--------------------------------------+------+------------+------------+
| 11 | Directors' remuneration | | | |
+-----+--------------------------------------+------+------------+------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| | | | Group | Group |
+-----+--------------------------------------+------+------------+------------+
| | | | 2008 | 2007 |
+-----+--------------------------------------+------+------------+------------+
| | | | US$000 | US$000 |
+-----+--------------------------------------+------+------------+------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| | Directors' emoluments: | | | |
+-----+--------------------------------------+------+------------+------------+
| | Salary and bonuses | | 4,936 | 2,452 |
+-----+--------------------------------------+------+------------+------------+
| | Compensations for loss of office | | - | 248 |
+-----+--------------------------------------+------+------------+------------+
| | Social security costs | | 38 | 44 |
+-----+--------------------------------------+------+------------+------------+
| | Share based payments | | 93 | 105 |
+-----+--------------------------------------+------+------------+------------+
| | | | 5,067 | 2,849 |
+-----+--------------------------------------+------+------------+------------+
| | The emoluments of the Chairman were: | | 885 | 530 |
+-----+--------------------------------------+------+------------+------------+
| | | |
+-----+----------------------------------------------------------+------------+
| | The IFRS2 charge in respect of equity-settled share-based payment |
| | expense disclosed in Note 8 relates entirely to options awarded to |
| | Directors and is an expense of the Company. There were no options |
| | exercised in the year (2007:Nil). |
+-----+-----------------------------------------------------------------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| | The Directors' of the Group have the responsibility for planning, |
| | directing and controlling the activities of the Group, there are no |
| | other key management personnel with this responsibility. |
+-----+-----------------------------------------------------------------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| 12 | Finance income | | | |
+-----+--------------------------------------+------+------------+------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| | | | Group | Group |
+-----+--------------------------------------+------+------------+------------+
| | | | 2008 | 2007 |
+-----+--------------------------------------+------+------------+------------+
| | | | US$000 | US$000 |
+-----+--------------------------------------+------+------------+------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| | Finance income | | 7,509 | 11,599 |
+-----+--------------------------------------+------+------------+------------+
| | | | 7,509 | 11,599 |
+-----+--------------------------------------+------+------------+------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| | There were no significant amounts included above in relation to |
| | finance income earned on available-for-sale financial assets, or |
| | changes in market value of fair value through profit or loss |
| | investments (2007: US$1,091,000) |
+-----+-----------------------------------------------------------------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| 13 | Finance expense | | | |
+-----+--------------------------------------+------+------------+------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| | | | Group | Group |
+-----+--------------------------------------+------+------------+------------+
| | | | 2008 | 2007 |
+-----+--------------------------------------+------+------------+------------+
| | | | US$000 | US$000 |
+-----+--------------------------------------+------+------------+------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| | Interest on senior loan notes | | 14,550 | 13,750 |
+-----+--------------------------------------+------+------------+------------+
| | Bank interest | | - | 1,113 |
+-----+--------------------------------------+------+------------+------------+
| | Interest on finance leases | | 1,074 | 1,212 |
+-----+--------------------------------------+------+------------+------------+
| | Other interest | | 173 | 373 |
+-----+--------------------------------------+------+------------+------------+
| | Unwinding of discount on provisions | | 37 | 33 |
+-----+--------------------------------------+------+------------+------------+
| | Unwinding of discount on senior loan | | 697 | 723 |
| | notes | | | |
+-----+--------------------------------------+------+------------+------------+
| | | | 16,531 | 17,204 |
+-----+--------------------------------------+------+------------+------------+
| | | | | |
+-----+--------------------------------------+------+------------+------------+
| | An amount of US$10,140,000 in relation to borrowing costs at a |
| | capitalisation rate of 10.03% is included in plant, property and |
| | equipment, see note 16, (2007: US$7,108,000). |
+-----+--------------------------------------+------+------------+------------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+--------------------------------------------+------+----------+----------+
| 14 | Taxation | | | |
+----+--------------------------------------------+------+----------+----------+
| | | | | |
+----+--------------------------------------------+------+----------+----------+
| | | | Group | Group |
+----+--------------------------------------------+------+----------+----------+
| | | | 2008 | 2007 |
+----+--------------------------------------------+------+----------+----------+
| | |Note | US$000 | US$000 |
+----+--------------------------------------------+------+----------+----------+
| | | | | |
+----+--------------------------------------------+------+----------+----------+
| | Recognised in the income statement | | | |
+----+--------------------------------------------+------+----------+----------+
| | Current tax expense | | - | (27,368) |
+----+--------------------------------------------+------+----------+----------+
| | Deferred tax credit/(expense) | 31 | 175,615 | (4,458) |
+----+--------------------------------------------+------+----------+----------+
| | Total tax charge | | 175,615 | (31,826) |
+----+--------------------------------------------+------+----------+----------+
| | Reconciliation of effective tax rates | | | |
+----+--------------------------------------------+------+----------+----------+
| | (Loss)/profit before tax | | (56,804) | 51,232 |
+----+--------------------------------------------+------+----------+----------+
| | Tax using domestic rates of corporation | | 16,189 | (15,370) |
| | tax of 28.5%,(2007:30%) | | | |
+----+--------------------------------------------+------+----------+----------+
| | Effect of: | | | |
+----+--------------------------------------------+------+----------+----------+
| | Effect of expenses not deductible for tax | | (16,521) | (7,893) |
| | purposes | | | |
+----+--------------------------------------------+------+----------+----------+
| | Release of deferred tax liability due to | | 177,695 | - |
| | change in future tax rates | | | |
+----+--------------------------------------------+------+----------+----------+
| | Foreign tax credits | | - | (1,840) |
+----+--------------------------------------------+------+----------+----------+
| | Tax losses carried forward | | (2,286) | (3,659) |
+----+--------------------------------------------+------+----------+----------+
| | Effect of higher tax rates in Kazakhstan | | 538 | (3,064) |
+----+--------------------------------------------+------+----------+----------+
| | Total tax charge for the period | | 175,615 | (31,826) |
+----+--------------------------------------------+------+----------+----------+
| | | | | |
+----+--------------------------------------------+------+----------+----------+
| | The deferred tax credit for the year primarily relates to revenue |
| | recognised in the income statement during the current year which will |
| | be assessed for corporation tax in 2009. The deferred tax liabilities |
| | have been recalculated taking into account the lower corporation tax |
| | rates resulting from the new Kazakh tax legislation effective from 1 |
| | January 2009, there is a phased reduction from 30% in 2008 to 15% in |
| | 2011. |
+----+-------------------------------------------------------------------------+
| | | | | |
+----+--------------------------------------------+------+----------+----------+
| | Corporation tax in 2008 is calculated at 28.5% being a weighted |
| | average of the UK corporation tax rate that was applicable in the |
| | year |
+----+--------------------------------------------+------+----------+----------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+------------------------------------------------+-------------+-------------+
| 15 | Earnings per share | | |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | | 2008 | 2007 |
+----+------------------------------------------------+-------------+-------------+
| | | Group | Group |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | Basic earnings per share | $2.26 | $0.39 |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | | US$000 | US$000 |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | Profit attributable to ordinary shareholders | 118,811 | 19,406 |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | | Number | Number |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | Weighted average number of shares in issue | 52,532,077 | 49,389,954 |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | Weighted average number of ordinary shares | Number | Number |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | In issue at 1 January | 50,641,666 | 47,100,000 |
+----+------------------------------------------------+-------------+-------------+
| | Issued in the year | 1,890,411 | 2,289,954 |
+----+------------------------------------------------+-------------+-------------+
| | In issue at 31 December | 52,532,077 | 49,389,954 |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | The numerator for the calculation of the basic earnings per share is |
| | the profit after tax of US$118,811,000 (2007: US$19,406,000). The |
| | denominator for the calculation of the basic earnings per share is |
| | 52,532,077 (2007: 49,389,954). |
+----+----------------------------------------------------------------------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | Diluted earnings per share | | |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | In 2008, due to the share price being lower than the exercise price at |
| | 31 December 2008, the potential ordinary shares are anti-dilutive and |
| | therefore diluted earnings per share has not been calculated. Diluted |
| | profit per share for 2007 is based upon the net profit after tax |
| | attributable to the ordinary shareholders of US$19,406,000 and a |
| | weighted average number of shares in issue, for the year to 31 |
| | December 2007 of 49,404,263. |
+----+----------------------------------------------------------------------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | | 2008 | 2007 |
+----+------------------------------------------------+-------------+-------------+
| | | Group | Group |
+----+------------------------------------------------+-------------+-------------+
| | Diluted earnings per share | $2.26 | $0.39 |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | | US$000 | US$000 |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | Profit attributable to ordinary shareholders | 118,811 | 19,406 |
+----+------------------------------------------------+-------------+-------------+
| | | | |
+----+------------------------------------------------+-------------+-------------+
| | Weighted average number of shares in issue | 52,533,446 | 49,404,263 |
+----+------------------------------------------------+-------------+-------------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
16Property, plant and equipment
+------------------------------+-----------+------------+--------------+------------+------------+
| | Freehold | Mining | Assets | Machinery, | |
| | Land & | | Under | Equipment | |
+------------------------------+-----------+------------+--------------+------------+------------+
| | Buildings | Properties | Construction | & | Total |
| | | | | Vehicles | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Group | US$000 | US$000 | US$000 | US$000 | US$000 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Cost | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Balance at 1 January 2007 | 56,167 | 814,832 | 11,663 | 25,298 | 907,960 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Additions | 2,067 | 64,027 | 15,055 | 10,313 | 91,462 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Acquisition of subsidiary | - | 6,500 | 29,415 | - | 35,915 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Transfers from assets under | 14,044 | - | (20,580) | 6,536 | - |
| construction | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Reclassifications | 660 | - | - | 1,397 | 2,057 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Disposals | (304) | - | (291) | (664) | (1,259) |
+------------------------------+-----------+------------+--------------+------------+------------+
| Effect of movements in | 3,226 | 40,791 | 878 | 848 | 45,743 |
| foreign exchange | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Balance at 31 December 2007 | 75,860 | 926,150 | 36,140 | 43,728 | 1,081,878 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Additions | 4,564 | 46,026 | 140,459 | 1,425 | 192,474 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Reclassifications and | 89,812 | 9,062 | (101,085) | 2,211 | - |
| transfers | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Disposals | (6,884) | (75) | (71) | (7,280) | (14,310) |
+------------------------------+-----------+------------+--------------+------------+------------+
| Effect of movements in | (260) | 539 | (76) | 29 | 232 |
| foreign exchange | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Balance at 31 December 2008 | 163,092 | 981,702 | 75,367 | 40,113 | 1,260,274 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Depreciation and impairment | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Balance at 1 January 2007 | 3,429 | 5,240 | - | 4,383 | 13,052 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Depreciation charge for the | 2,628 | 5,890 | - | 4,012 | 12,530 |
| year | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Reclassifications | (222) | - | - | 77 | (145) |
+------------------------------+-----------+------------+--------------+------------+------------+
| Disposals | (103) | - | - | (126) | (229) |
+------------------------------+-----------+------------+--------------+------------+------------+
| Effect of movements in | 123 | 407 | - | 300 | 830 |
| foreign exchange | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Balance at 31 December 2007 | 5,855 | 11,537 | - | 8,646 | 26,038 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Depreciation charge for the | 7,238 | 7,745 | - | 5,978 | 20,961 |
| year | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Disposals | (899) | - | - | (1,055) | (1,954) |
+------------------------------+-----------+------------+--------------+------------+------------+
| Effect of movements in | (16) | 25 | - | (9) | - |
| foreign exchange | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| Balance at 31 December 2008 | 12,178 | 19,307 | - | 13,560 | 45,045 |
+------------------------------+-----------+------------+--------------+------------+------------+
| Net book value | | | | | |
+------------------------------+-----------+------------+--------------+------------+------------+
| At 31 December 2008 | 150,914 | 962,395 | 75,367 | 26,553 | 1,215,229 |
+------------------------------+-----------+------------+--------------+------------+------------+
| At 31 December 2007 | 70,005 | 914,613 | 36,140 | 35,082 | 1,055,840 |
+------------------------------+-----------+------------+--------------+------------+------------+
| At 31 December 2006 | 52,738 | 809,592 | 11,663 | 20,915 | 894,908 |
+------------------------------+-----------+------------+--------------+------------+------------+
Included within assets under construction and land and buildings is an amount
of US$8,860,000 (2007: US$1,408,000), which represents capitalised interest.
Included within mining properties is an amount of US$1,280,000 (2007:
US$5,700,000), which represents capitalised interest, see Note 13.
The net book value of non-current assets held under finance leases was:
+---------------------------+-----------+--------------+----------+-----------+
| | | | 2008 | 2007 |
+---------------------------+-----------+--------------+----------+-----------+
| | | | Group | Group |
+---------------------------+-----------+--------------+----------+-----------+
| | | | US$000 | US$000 |
+---------------------------+-----------+--------------+----------+-----------+
| Cost | | | 828 | 14,016 |
+---------------------------+-----------+--------------+----------+-----------+
| Depreciation | | | (464) | (1,619) |
+---------------------------+-----------+--------------+----------+-----------+
| Net book value | | | 364 | 12,397 |
+---------------------------+-----------+--------------+----------+-----------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+------------------------------+----------+-------------+-------------+---------+
| 17 | Intangible assets | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | | Mining | Exploration | Negotiation | |
| | | & | & | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | | Other | Evaluation | Rights | Total |
| | | licenses | costs | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | Group | US$000 | US$000 | US$000 | US$000 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Cost | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | Balance at 1 January 2007 | 1,184 | 950 | | 2,134 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Additions | 308 | 4,243 | | 4,551 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Acquisition of subsidiary | - | | 48,457 | 48,457 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Disposals | (29) | | - | (29) |
+----+------------------------------+----------+-------------+-------------+---------+
| | Reclassifications | (178) | | | (178) |
+----+------------------------------+----------+-------------+-------------+---------+
| | Effect of movements in | 64 | 110 | - | 174 |
| | foreign exchange | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | Balance at 31 December 2007 | 1,349 | 5,303 | 48,457 | 55,109 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Additions | 95 | 20,220 | | 20,315 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Disposals | (13) | - | | (13) |
+----+------------------------------+----------+-------------+-------------+---------+
| | Impairment charge for the | (373) | (176) | | (549) |
| | year | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | Effect of movements in | - | 2 | | 2 |
| | foreign exchange | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | Balance at 31 December 2008 | 1,058 | 25,349 | 48,457 | 74,864 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Amortisation and impairment | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | Balance at 1 January 2007 | 327 | | | 327 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Amortisation for the year | 8 | | | 28 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Disposals | (17) | | | (17) |
+----+------------------------------+----------+-------------+-------------+---------+
| | Reclassifications | (23) | | | (23) |
+----+------------------------------+----------+-------------+-------------+---------+
| | Effect of movements in | 17 | | | 17 |
| | foreign exchange | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | Balance at 31 December 2007 | 332 | | | 332 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Amortisation for the year | 5 | | | 5 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Impairment charge for the | | | | - |
| | year | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | Effect of movements in | 9 | | | 9 |
| | foreign exchange | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | Balance at 31 December 2008 | 346 | - | - | 346 |
+----+------------------------------+----------+-------------+-------------+---------+
| | Net book value | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | At 31 December 2008 | 712 | 25,349 | 48,457 | 74,518 |
+----+------------------------------+----------+-------------+-------------+---------+
| | At 31 December 2007 | 1,017 | 5,303 | 48,457 | 54,777 |
+----+------------------------------+----------+-------------+-------------+---------+
| | At 31 December 2006 | 857 | 950 | - | 1,807 |
+----+------------------------------+----------+-------------+-------------+---------+
| | | | | | |
+----+------------------------------+----------+-------------+-------------+---------+
| | The amount in relation to negotiation rights of US$48,457,000 is in |
| | respect of the Jerooy project, see Note 32. |
+----+------------------------------+----------+-------------+-------------+---------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+-------------------------------+-------------------------------+----+----+------------+------------+-------+------+
| 18 | Investments in subsidiaries | | | | |
+----+---------------------------------------------------------------+---------+------------+--------------------+------+
| | The Company has investments in the following subsidiaries: |
+----+------------------------------------------------------------------------------------------------------------------+
| | | | Country of | Class | Owner-ship |
| | | | | of | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | US$000 | Incorporation | Share | % |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Romanshorn LC AG | 510,000 | United States | Units | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Subsidiaries of Romanshorn LC | | | | |
| | AG: | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | JSC Kazakhaltyn MMC | - | Kazakhstan | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Subsidiaries of JSC | | | | |
| | Kazakhaltyn MMC: | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Visart LLP | - | Kazakhstan | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Rudnik Vasilevskyi LLP | - | Kazakhstan | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Altyn City Group LLP | - | Kazakhstan | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Gorniak LLP | - | Kazakhstan | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Tagam Alakan LLP | - | Kazakhstan | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Hotel Stepnogorsk LLP | - | Kazakhstan | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Sino-Kazakh Mining Company | - | Kazakhstan | Ordinary | 100 |
| | Limited | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Romalytn Limited | - | Isle of Man | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Subsidiaries of Romaltyn | | | | |
| | Limited: | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Romaltyn Mining SRL | - | Romania | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Romaltyn Mining Exploration | - | Romania | Ordinary | 100 |
| | SRL | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Norox Mining Company Limited | 69,996 | Kyrgyzstan | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Subsidiaries of Norox Mining | | | | |
| | Company Limited: | | | | |
+----+ +------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Talas Gold Mining Company | - | Kyrgyzstan | Ordinary | 66.67 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Norox Operating Company | - | Kyrgyzstan | Ordinary | 100 |
| | Limited | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | Kazakhstan Cyprus Limited | - | Cyprus | Ordinary | 100 |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | | | | |
+----+-------------------------------+------------------------------------+-----------------+------------+--------------+
| | | 579,996 | | | |
+----+-------------------------------+-------------------------------+----+----+------------+------------+-------+------+
JSC Kazakhaltyn MMC, Visart LLP, Gorniak LLP and Rudnik Vasilevskyi LLP, are
engaged in mining operations, exploration, and development in Kazakhstan.
Romalytn Limited provides administrative support to Romaltyn Mining SRL and
Romaltyn Exploration SRL, these companies are engaged in mining operations,
exploration, and development in Romania. Norox Mining Company Limited based in
Kyrgyzstan, provides administrative support to Talas Gold Mining Company engaged
in mining operations in Kyrgyzstan. Altyn City Group LLP provides construction
and maintenance services to Group companies in Kazakhstan. Tagam Alakam LLP
provides catering and supply services to Group companies in Kazakhstan. Hotel
Stepnogorsk LLP provides accommodation principally for Group personnel.
Kazakhstan Cyprus Limited provides management services to other Group companies.
Romanshorn LC AG and Norox Operating Company Limited are dormant.
The Group recognises its investments in subsidiaries at cost less any impairment
for permanent diminution in value. The cost of acquisition includes directly
attributable professional fees and other expenses incurred in connection with
the acquisition.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
19Available for sale investments
+-----------------------------+------------+------------+------------+
| | Group | | Group |
+-----------------------------+------------+------------+------------+
| | 2008 | | 2007 |
+-----------------------------+------------+------------+------------+
| | US$000 | | US$000 |
+-----------------------------+------------+------------+------------+
| Non-current | | | |
+-----------------------------+------------+------------+------------+
| Available for sale | - | | 164 |
| financial asset | | | |
| | | | |
+-----------------------------+------------+------------+------------+
The available for sale financial asset related to an interest in Turkey, which
the Group is no longer pursuing.
1. Impairment
An impairment review of the Group's assets resulted in an impairment charge of
US$549,000 (see Note 8) in relation to the carrying value of exploration and
evaluation costs incurred by Rudnik Vasilevskyi LLP (2007: US$Nil).
The Group has assessed whether an impairment is required by comparing the
carrying value of the assets to its recoverable amount. The recoverable amount
is the higher of the asset's fair value less costs to sell and value in use.
This fair value of the assets has been assessed and compared to value in use,
the Group estimates value in use using a discounted cash flow model.
The Group's CGUs are determined on a geographical basis, and have been allocated
to Kazakhstan, Romania, and Kryrgyzstan
The carrying amount of the negotiation rights allocated to Kyrgyzstan has not
been allocated to a CGU as the Group are in negotiations with the Kyrgyzstan
government in obtaining a mining licence. Should a licence be granted, the value
in use of the underlying project is assessed at being significantly higher than
the carrying value of the negotiation rights, based on the project reserves and
a gold price of US$800oz.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
1. Impairment (continued)
The calculation of value in use is most sensitive to the following assumptions:
+-------+--------------------------+
| ? | Production volumes; |
+-------+--------------------------+
| ? | Discount rates; |
+-------+--------------------------+
| ? | Future capital |
| | expenditure; |
+-------+--------------------------+
| ? | Gold prices; and |
+-------+--------------------------+
| ? | Operating costs |
+-------+--------------------------+
Estimated production volumes are based on detailed plans in relation to the life
of the mines,
and incorporate planned capital expenditure in relation to ongoing production.
It is based on
the production being historically achieved as adjusted for the new production
capabilities.
The Group generally estimates value in use using a discounted cash flow model.
The future cash flows are adjusted for inflation and risks specific to the asset
and discounted using a pre-tax discount rate based on the Groups weighted cost
of capital. Management also believes that currently there is no reasonably
possible change in the discount rate, which has been estimated at 10%.
Management has also made an assessment of the estimated future gold price
prudently at US$800 oz, and believes that there are no reasonably possible
changes in these which would reduce the Group's projections as calculated.
Management has also made an assessment of the estimated future operating costs
adjusted for inflation at 2.5% per annum, and believes that there are no
reasonably possible changes in these which would reduce the Group's projections
as calculated.
Based on the projections, and sensitivity analysis conducted on the projections,
which did not cause the net present values to fall below the carrying values, it
has been assessed that no provision for impairment is required against the
carrying values of the individual CGU's. Accordingly no reduction has been made
to the carrying values of the assets, other than a specific provision against
costs incurred by Rudnik Vasilevskyi LLP in relation to exploration and
evaluation costs.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
21Inventories
+--+--------+-----------+-------------------+-------+--+-----------+---------+-------------+
| | | | | | Group | | Group |
+--+--------+-----------+---------------------------+--+-----------+---------+-------------+
| | | | | | 2008 | | 2007 |
+--+--------+-----------+---------------------------+--+-----------+---------+-------------+
| | | | | | US$000 | | US$000 |
+--+--------+-----------+---------------------------+--+-----------+---------+-------------+
| | | | | | | | |
+--+--------+-----------+---------------------------+--+-----------+---------+-------------+
| Long-term inventory and ore stockpile | | 1,950 | | 2,692 |
+---------------------------------------------------+--+-----------+---------+-------------+
| | | | | | | | |
+--+--------+-------------------------------+-------+--+-----------+---------+-------------+
| Raw materials and consumables | | | 11,781 | | 11,782 |
+-------------------------------------------+-------+--+-----------+---------+-------------+
| Work in progress | | | 5,441 | | 3,614 |
+-------------------------------------------+-------+--+-----------+---------+-------------+
| Finished goods | | | 3,218 | | 6,370 |
+-------------------------------------------+-------+--+-----------+---------+-------------+
| | | | | | 20,440 | | 21,766 |
+--+--------+-------------------------------+-------+--+-----------+---------+-------------+
| | | | | | | | |
+--+--------+-----------+-------------------+-------+--+-----------+---------+-------------+
The Group consumed US$57,718,000 of inventories during the year, which has been
recognised as an expense and included in cost of sales, (2007: US$42,965,000).
An expense of US$124,000 was recognised in the year to write inventories down to
net realisable value (2007: US$Nil).
22Trade and other receivables
+--+--------+-----------------+---+---------+-----------+---------+-----------+
| | | | | | Group | | Group |
+--+--------+-----------------+---+---------+-----------+---------+-----------+
| | | | | | 2008 | | 2007 |
+--+--------+-----------------+---+---------+-----------+---------+-----------+
| | | | | | US$000 | | US$000 |
+--+--------+-----------------+---+---------+-----------+---------+-----------+
| | | | | | | | |
+--+--------+-----------------+---+---------+-----------+---------+-----------+
| Trade receivables (net) | | | 957 | | 35,122 |
+-----------------------------+---+---------+-----------+---------+-----------+
| Advances to contractors | | | 47,793 | | 5,252 |
+-----------------------------+---+---------+-----------+---------+-----------+
| Other receivables (net) | | | 13,883 | | 44,808 |
+-----------------------------+---+---------+-----------+---------+-----------+
| Trade and other receivables | | | 62,633 | | 85,182 |
+-----------------------------+---+---------+-----------+---------+-----------+
| Prepaid expenses | | | 481 | | 93 |
+-----------------------------+---+---------+-----------+---------+-----------+
| | | | | | 63,114 | | 85,275 |
+--+--------+-----------------+---+---------+-----------+---------+-----------+
Advances to contractors relate to payments made for plant and equipment to be
delivered and for the completion of construction projects, see Note 35.
The Group records impairment losses on its trade and other receivables
separately from the gross receivable. The movements on this allowance account
during the year are summarised below:
+--+--------+-----------------+---+---------+----------+---------+-----------+
| | | | | | Group | | Group |
+--+--------+-----------------+---+---------+----------+---------+-----------+
| | | | | | 2008 | | 2007 |
+--+--------+-----------------+---+---------+----------+---------+-----------+
| | | | | | US$000 | | US$000 |
+--+--------+-----------------+---+---------+----------+---------+-----------+
| | | | | | | | |
+--+--------+-----------------+---+---------+----------+---------+-----------+
| Opening balance | | | 4,290 | | 6,063 |
+-----------------------------+---+---------+----------+---------+-----------+
| Increase in provisions | | | 6,002 | | 2,129 |
+-----------------------------+---+---------+----------+---------+-----------+
| Written off against | | | (3,243) | | (4,192) |
| provisions | | | | | |
+-----------------------------+---+---------+----------+---------+-----------+
| Foreign exchange movement | | | (685) | | 290 |
+-----------------------------+---+---------+----------+---------+-----------+
| Closing balance | | | 6,364 | | 4,290 |
+--+--------+-----------------+---+---------+----------+---------+-----------+
Included in other receivables is an amount of US$4,652,000 gross (net - US$nil)
relating to the recovery of amounts fraudulently misappropriated from the
Company's bank accounts. The Company has filed legal claims and continues to
pursue full recovery however the Directors have made full provision against this
balance until such time that any recovery can be estimated with certainty.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
23Investments at fair value through profit or loss
+-----------------------------------+----------------+---------------+
| | Group | Group |
+-----------------------------------+----------------+---------------+
| | 2008 | 2007 |
+-----------------------------------+----------------+---------------+
| | US$000 | US$000 |
+-----------------------------------+----------------+---------------+
| Quoted | - | 30,842 |
+-----------------------------------+----------------+---------------+
| Unquoted | - | 456 |
+-----------------------------------+----------------+---------------+
| Exchange differences | - | 462 |
+-----------------------------------+----------------+---------------+
| | - | 31,760 |
+-----------------------------------+----------------+---------------+
| The investments were sold in | | |
| October 2008. | | |
+-----------------------------------+----------------+---------------+
24Cash and cash equivalents
+-----------------------------------+----------------+---------------+
| | Group | Group |
+-----------------------------------+----------------+---------------+
| | 2008 | 2007 |
+-----------------------------------+----------------+---------------+
| | US$000 | US$000 |
+-----------------------------------+----------------+---------------+
| Cash available on demand | 13,309 | 9,664 |
+-----------------------------------+----------------+---------------+
| Short-term deposits | 657 | 334 |
+-----------------------------------+----------------+---------------+
| Short-term investments | - | 150,287 |
+-----------------------------------+----------------+---------------+
| Cash per balance sheet and per | 13,966 | 160,285 |
| the cash flow statement | | |
+-----------------------------------+----------------+---------------+
| Cash available on demand and short-term deposits consist of cash. |
| |
+-----------------------------------+----------------+---------------+
25Share capital
+-----------------------------------+----------------+----------------+
| | 2008 | 2007 |
+-----------------------------------+----------------+----------------+
| | Number | Number |
+-----------------------------------+----------------+----------------+
| Number of ordinary shares | | |
+-----------------------------------+----------------+----------------+
| In issue at 1 January | 50,641,666 | 47,100,000 |
+-----------------------------------+----------------+----------------+
| Issued in the year | 2,300,000 | 3,541,666 |
+-----------------------------------+----------------+----------------+
| In issue at 31 December | 52,941,666 | 50,641,666 |
+-----------------------------------+----------------+----------------+
| | | |
+-----------------------------------+----------------+----------------+
| | 2008 | 2007 |
+-----------------------------------+----------------+----------------+
| | US$000 | US$000 |
+-----------------------------------+----------------+----------------+
| | | |
+-----------------------------------+----------------+----------------+
| Ordinary shares of GBP0.0001 each | 9 | 9 |
+-----------------------------------+----------------+----------------+
| | | |
+-----------------------------------+----------------+----------------+
| | 2008 | 2007 |
+-----------------------------------+----------------+----------------+
| | Number | Number |
+-----------------------------------+----------------+----------------+
| Authorised | | |
+-----------------------------------+----------------+----------------+
| Ordinary shares of GBP0.0001 each | 100,000,000 | 100,000,000 |
| | | |
+-----------------------------------+----------------+----------------+
| Allotted, called up and fully | | |
| paid | | |
+-----------------------------------+----------------+----------------+
| Ordinary shares of GBP0.0001 each | 52,941,666 | 50,641,666 |
| | | |
+-----------------------------------+----------------+----------------+
On 6 March 2008 the company issued 2,301,666 new ordinary shares of GBP0.0001
each at a price of US$23.00 per share for a total consideration of US$50,176,000
net of expenses. The amount raised was used to provide additional working
capital for the Group.
Holders of 30,841,666 (2007:28,541,666) of the ordinary shares hold their shares
through the Bank of New York, which acts as a depository for these shares. These
'deposited shares' are matched to 'Global Depository Receipts' ("GDRs") on a
share for share basis. The GDRs are listed on the London Stock Exchange.
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share. Payments of cash
dividends and other amounts (including cash distributions) will, in the case of
the GDRs issued by the Company, be made by the Depository of the GDRs to the
persons entitled to the receipt of the funds.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
26Reserves
+-----------------+---------+----------+---------------+-------------+----------+----------+-----------------+
| | Share | Share | Capital | Translation | Retained | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| | Capital | Premium | Contributions | Reserve | Earnings | Total |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| | US$000 | US$000 | US$000 | US$000 | US$000 | US$000 |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Balance at 1 | 8 | 97,658 | 510,000 | 27,408 | 19,687 | 654,761 |
| January 2007 | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Foreign | - | - | - | 35,319 | - | 35,319 |
| exchange on | | | | | | |
| translation of | | | | | | |
| foreign | | | | | | |
| operations | | | | | | |
+ + + + + + + +
| | | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+-----------------+
| Profit for the | - | - | - | - | 19,406 | 19,406 |
| year | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Equity-settled | - | - | - | - | 105 | 105 |
| share-based | | | | | | |
| payments | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Issue of shares | 1 | 72,886 | - | - | - | 72,887 |
| (Note 32) | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Balance at 31 | 9 | 170,544 | 510,000 | 62,727 | 39,198 | 782,478 |
| December 2007 | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Balance at 1 | 9 | 170,544 | 510,000 | 62,727 | 39,198 | 782,478 |
| January 2008 | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Foreign | - | - | - | 2,053 | - | 2,053 |
| exchange on | | | | | | |
| translation of | | | | | | |
| foreign | | | | | | |
| operations | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Profit for the | - | - | - | - | 118,811 | 118,811 |
| year | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Equity-settled | - | - | - | - | 93 | 93 |
| share-based | | | | | | |
| payment | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Issue of shares | - | 50,406 | - | - | - | 50,406 |
| | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+
| Balance at 31 | 9 | 220,950 | 510,000 | 64,780 | 158,102 | 953,841 |
| December 2008 | | | | | | |
+-----------------+---------+----------+---------------+-------------+----------+----------+-----------------+
The following describes the nature and purpose of each reserve within owners
equity.
Share capital is the amount subscribed for shares at nominal value.
Share premium represents the excess of the amount subscribed for share capital
over the nominal value of these shares net of share issue expenses. On the 6
March 2008 the company issued 2,301,666 new ordinary shares of GBP0.0001 each at
a price of US$23.00 per share for a total consideration of $50,176,000 net of
expenses. The amount raised was used to provide additional working capital for
the Group.
Capital contributions represent the value of Romanshorn LC AG and its
subsidiaries, the beneficial ownership of which was acquired by the Company in
2005.
Exchange differences arising on translating the net assets and the results of
overseas operations to US dollars are recognised directly in the translation
reserve.
Retained earnings represent the cumulative profit/(loss) of the Group
attributable to the equity shareholders.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
27Equity-settled share-based payment transactions
+-----------------------------------+------------+----------------------+
| | | 2007 & 2008 |
+-----------------------------------+------------+----------------------+
| | | Number of options |
+-----------------------------------+------------+----------------------+
| | | |
+-----------------------------------+------------+----------------------+
| Outstanding at 1 January | | 53,334 |
+-----------------------------------+------------+----------------------+
| Granted in the period | | - |
+-----------------------------------+------------+----------------------+
| Exercised in the period | | - |
+-----------------------------------+------------+----------------------+
| Lapsed during the period | | - |
+-----------------------------------+------------+----------------------+
| Outstanding at 31 December | | 53,334 |
+-----------------------------------+------------+----------------------+
| Exercisable at 31 December | | 53,334 |
+-----------------------------------+------------+----------------------+
US$93,000, (2007: US$105,000) has been charged to the Group and Company income
statements for the year to 31 December 2008 being the apportioned amount of the
fair value of the outstanding options at the date of grant.
The following options to purchase the Company's ordinary shares were outstanding
at 31 December 2008, no new options were granted in the year:
+-----------------------------------------+-----+------------------------+
| | | Total |
+-----------------------------------------+-----+------------------------+
| | | |
+-----------------------------------------+-----+------------------------+
| Number of options granted on 1 December | | 53,334 |
| 2005 | | |
+-----------------------------------------+-----+------------------------+
| Number of employees | | 2 |
+-----------------------------------------+-----+------------------------+
| Share price of options granted on 1 | | US$15 |
| December 2005 | | |
+-----------------------------------------+-----+------------------------+
| Exercise price | | US$15 |
+-----------------------------------------+-----+------------------------+
The options vested on 1 December 2008 and are exercisable until 1 December 2011.
The outstanding options at 31 December 2008 were valued at the date of grant by
the Directors based on advice from an independent valuer who assessed the
valuation using a binomial option valuation model under the assumptions listed
below. Under these assumptions, the total value of the charge arising from these
options is US$5.88 per share option or US$313,000 in total.
The principal assumptions used within the stock option valuation model at the
date of the grant, were as follows:
+-----------------------------------+--------------------+---------------+
| | | |
+-----------------------------------+--------------------+---------------+
| Fair value of the share price at date of grant issued | US$15 |
| (flotation price) | |
+--------------------------------------------------------+---------------+
| Interest rate per annum (zero coupon gilt yield at | 4.20% |
| option grant date) | |
+--------------------------------------------------------+---------------+
| Dividend yield | | 2.50% |
+-----------------------------------+--------------------+---------------+
| Volatility (two year average of volatility of close | 39% |
| competitor companies) | |
+--------------------------------------------------------+---------------+
| Vesting time in years | | 3 |
+-----------------------------------+--------------------+---------------+
| Employee exit rate | | 0% |
+-----------------------------------+--------------------+---------------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
28Interest-bearing loans and borrowings
+--+------+------+------+------+------+------+------+------+------+------+------+-------+
| | | | Group | Group |
+--+--------------------+--------------------+---------------------------+--------------+
| | | Note | 2008 | 2007 |
+--+--------------------+--------------------+---------------------------+--------------+
| | | | US$000 | US$000 |
+--+--------------------+--------------------+---------------------------+--------------+
| | Non-current | | | |
+--+--------------------+--------------------+---------------------------+--------------+
| | Bank loans | 33 | 5,964 | 1,732 |
+--+--------------------+--------------------+---------------------------+--------------+
| | Finance leases | 33 | 1,370 | 10,582 |
+--+--------------------+--------------------+---------------------------+--------------+
| | Bonds | 33 | - | 22,851 |
+--+--------------------+--------------------+---------------------------+--------------+
| | Senior loan Notes | 33 | 197,308 | 196,611 |
| | (secured) 2 | | | |
+--+--------------------+--------------------+---------------------------+--------------+
| | Total non-current | | 204,642 | 231,776 |
| | loans and | | | |
| | borrowings | | | |
+--+--------------------+--------------------+---------------------------+--------------+
| | Current | | | |
+--+--------------------+--------------------+---------------------------+--------------+
| | Bank loans | 33 | 18,296 | 4,504 |
+--+--------------------+--------------------+---------------------------+--------------+
| | Bonds | 33 | 23,010 | - |
+--+--------------------+--------------------+---------------------------+--------------+
| | Finance leases | 33 | 568 | 1,724 |
+--+--------------------+--------------------+---------------------------+--------------+
| | Total current | | 41,874 | 6,228 |
| | loans and | | | |
| | borrowings | | | |
+--+--------------------+--------------------+---------------------------+--------------+
| | | | | |
+--+--------------------+--------------------+---------------------------+--------------+
|2 | The fair value of the Group Senior loan Notes at the balance sheet date was |
| | US$96,000,000, (2007: US$172,940,000) based on the mid market price as quoted on |
| | the Luxembourg Stock Exchange. For the Groups other loans and borrowings the |
| | carrying amounts are a reasonable approximation of the financial instruments to |
| | fair value. |
+--+------------------------------------------------------------------------------------+
| Leases | | | |
+---------+--------------------+---------------------------+----------------------------+
| | | | |
+---------+--------------------+---------------------------+----------------------------+
| Finance | | | |
| leases | | | |
+---------+--------------------+---------------------------+----------------------------+
| | | | |
+---------+--------------------+---------------------------+----------------------------+
| The Group leases vehicles and machinery with a net carrying value US$364,000, (2007: |
| US$12,397,000). Such assets are generally classified as finance leases as the rental |
| period amounts to the estimated useful economic life of the assets concerned and |
| often the Group has the right to purchase the assets outright at a the end of the |
| minimum lease term by paying a nominal amount. |
+---------------------------------------------------------------------------------------+
| | | | |
+----------------+----------------------------------+---------------------------+-------+
| | Minimum | | |
+----------------+--------------------+---------------------------+---------------------+
| | lease | | Present |
+----------------+--------------------+---------------------------+---------------------+
| | payment | Interest | value |
+----------------+--------------------+---------------------------+---------------------+
| | 2008 | 2008 | 2008 |
+----------------+--------------------+---------------------------+---------------------+
| | US$000 | US$000 | US$000 |
+----------------+--------------------+---------------------------+---------------------+
| Not later than | 657 | 73 | 584 |
| one year | | | |
+----------------+--------------------+---------------------------+---------------------+
| Later than one | 1,473 | 119 | 1,354 |
| year and not | | | |
| later than | | | |
| five years | | | |
+----------------+--------------------+---------------------------+---------------------+
| Later than | - | - | - |
| five years | | | |
+----------------+--------------------+---------------------------+---------------------+
| | | | |
+----------------+--------------------+---------------------------+---------------------+
| | 2,130 | 192 | 1,938 |
+----------------+--------------------+---------------------------+---------------------+
| | Minimum | | |
+----------------+--------------------+---------------------------+---------------------+
| | lease | | Present |
+----------------+--------------------+---------------------------+---------------------+
| | payment | Interest | value |
+----------------+--------------------+---------------------------+---------------------+
| | 2007 | 2007 | 2007 |
+----------------+--------------------+---------------------------+---------------------+
| | US$000 | US$000 | US$000 |
+----------------+--------------------+---------------------------+---------------------+
| Not later than | 2,036 | 312 | 1,724 |
| one year | | | |
+----------------+--------------------+---------------------------+---------------------+
| Later than one | 7,607 | 600 | 7,007 |
| year and not | | | |
| later than | | | |
| five years | | | |
+----------------+--------------------+---------------------------+---------------------+
| Later than | 3,614 | 40 | 3,574 |
| five years | | | |
+----------------+--------------------+---------------------------+---------------------+
| | | | |
+----------------+--------------------+---------------------------+---------------------+
| | 13,257 | 952 | 12,305 |
+--+------+------+------+------+------+------+------+------+------+------+------+-------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
29Provisions
+-------------+-------+----------+----------+--+----+----+----------+-----------+-----------+-------------+
| | | | | | Group | Group |
+-------------+-------+-----------------------------+----+----------+-----------+-----------+
| | | | | | 2008 | 2007 |
+-------------+-------+-----------------------------+----+----------+-----------+-----------+
| | | | | | US$000 | US$000 |
+-------------+-------+-----------------------------+----+----------+-----------+-----------+
| Within non-current liabilities | | | | |
+---------------------------------------------------+----+----------+-----------+-----------+
| Balance at 1 January | | | | | 7,910 | 401 |
+--------------------------------+-------------+----+----+----------+-----------+-----------+
| Additions | | | | | - | 955 |
+--------------------------------+-------------+----+----+----------+-----------+-----------+
| Acquisition of subsidiary | | | | | - | 6,500 |
+--------------------------------+-------------+----+----+----------+-----------+-----------+
| Foreign exchange adjustments | | | 859 | 21 |
+---------------------------------------------------+----+----------+-----------+-----------+
| Charged to the income statement | | | 1,420 | 33 |
+---------------------------------------------------+----+----------+-----------+-----------+
| Balance at 31 December | | | | | 10,189 | 7,910 |
+-------------------------------------------+--+----+----+----------+-----------+-----------+
| | | | | | | |
+-------------------------------------------+--+----+----+----------+-----------+-----------+
| Limited environmental rehabilitation regulations currently exist in Kazakhstan and the |
| provision represents the cost of meeting the statutory cost for potential future |
| liabilities in respect of site closure and environmental 'clean up' costs. There are no |
| current plans for the early closure of any of the Group's mines. |
+ +
| | |
+ +-------------+
| | |
+ +-------------+
| | |
+-------------+-------+----------+----------+--+----+----+----------+-----------+-----------+-------------+
30 Current liabilities - trade and other payables
+-------------+----------------+-----------------+--+--+----------+-----------+-----------+
| | | | | | Group | Group |
+-------------+----------------------------------+--+--+----------+-----------+-----------+
| | | | | | 2008 | 2007 |
+-------------+----------------------------------+--+--+----------+-----------+-----------+
| | | | | | US$000 | US$000 |
+-------------+----------------------------------+--+--+----------+-----------+-----------+
| Trade | | | | | 21,829 | 17,599 |
| payables | | | | | | |
+-------------+----------------------------------+--+--+----------+-----------+-----------+
| Other taxes and social security payable | | | | 5,092 | 8,167 |
+------------------------------------------------+--+--+----------+-----------+-----------+
| Interest payable | | | | | 2,865 | 2,867 |
+------------------------------+-----------------+--+--+----------+-----------+-----------+
| Other payables and accruals | | | | 2,859 | 14,574 |
+------------------------------------------------+--+--+----------+-----------+-----------+
| Total trade and other payables | | | | 32,645 | 43,207 |
+-------------+----------------+-----------------+--+--+----------+-----------+-----------+
31 Deferred tax assets and liabilities
+-------------+-----+--+---------+-----+--+-----+-----+------+-----+--------+-----+------------+
| | | | | | Group | Group |
+-------------+--------+---------------+--+------------------------+--------+------------------+
| | | | | | 2008 | 2007 |
+-------------+--------+---------------+--+------------------------+--------+------------------+
| | | | | | US$000 | US$000 |
+-------------+--------+---------------+--+------------------------+--------+------------------+
| Recognised deferred tax assets and | | | | |
| liabilities | | | | |
+--------------------------------------+--+------------------------+--------+------------------+
| Deferred tax assets and liabilities are attributable to the following: |
+----------------------------------------------------------------------------------------------+
| Temporary differences relating | | | | |
| to: | | | | |
+--------------------------------+--------+------------------+--------------------+------------+
| Non-current | | | | | 134,053 | 315,290 |
| assets | | | | | | |
+-------------------+--+---------+--------+------------------+--------------------+------------+
| Other | | | | | 3,001 | (2,791) |
+-------------------+--+---------+--------+------------------+--------------------+------------+
| Net deferred tax | | | | | 137,054 | 312,499 |
| liabilities | | | | | | |
+-------------------+--+---------+--------+------------------+--------------------+------------+
| The movement on the deferred tax account is as shown below: |
+----------------------------------------------------------------------------------------------+
| At 1 | | | | | 312,499 | 293,155 |
| January | | | | | | |
+-------------+--------+---------+--------+------------------+--------------+------------------+
| Short term differences relating to revenue | | - | (5,546) |
| recognition | | | |
+-----------------------------------------------------+------+--------------+------------------+
| Tax losses available for | | | (7,208) | - |
| relief | | | | |
+--------------------------------+--------------+------------+--------------+------------------+
| Release of deferred tax liability due to change in future | (177,695) | - |
| tax rates | | |
+------------------------------------------------------------+--------------+------------------+
| Temporary differences arising in respect of property, | 10,143 | 11,793 |
| plant and equipment | | |
+------------------------------------------------------------+--------------+------------------+
| Amount credited to income statement in respect of | (855) | (1,789) |
| amortisation of mining property | | |
+------------------------------------------------------------+--------------+------------------+
| Foreign exchange adjustments arising in respect of | 142 | 14,206 |
| deferred taxation on mining property | | |
+------------------------------------------------------------+--------------+------------------+
| Foreign exchange adjustments arising in respect of | 28 | 680 |
| subsidiary companies | | |
+------------------------------------------------------------+--------------+------------------+
| Net deferred tax | | | | | 137,054 | 312,499 |
| liabilities | | | | | | |
+-------------+-----+--+---------+-----+--+-----+-----+------+-----+--------+-----+------------+
Release of deferred tax liability relates to changes in future tax rates, and
represents the directors best estimate of the future movements in future tax
rates, see Note 14.
The deferred tax liability recognised in respect of the temporary differences
relating to non-current assets arose principally as a result of the fair value
adjustment to mining properties, which arose on the acquisition of Romanshorn LC
AG.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+---+----------------------------------+-----+----------+----------+----------+
| | | | | | | |
+----+---+----------------------------------+-----+----------+----------+----------+
| | No deferred tax asset has been recognised in respect of the carried forward |
| | tax losses of approximately US$6,275,000 (2007: US$5,879,000) arising in |
| | the Company as the recoverability of excess management expenses in future |
| | periods is uncertain. |
+----+-----------------------------------------------------------------------------+
| | | | | | | |
+----+---+----------------------------------+-----+----------+----------+----------+
| | 32 Prior period acquisition | | | | |
+----+--------------------------------------+-----+----------+----------+----------+
| | On 26 April 2007 the company announced that it had signed a "Sale and |
| | Purchase Agreement" with Oxus Gold Plc for the acquisition of Norox Mining |
| | Limited, the 50 per cent share of Romaltyn Limited joint venture Company in |
| | Romania not owned by the Group and certain other assets. |
+----+ +
| | |
+----+-----------------------------------------------------------------------------+
| | | | | | | |
+----+---+----------------------------------+-----+----------+----------+----------+
| | Norox Mining Limited owns 66.67 percent of Talas Gold Mining Company, which |
| | owns the Jerooy project in Kyrgyzstan. The Jerooy Project primarily |
| | consists of production plant and the ability to negotiate with the |
| | Kyrgyzstan government for the resumption of the project and the renewal of |
| | the lapsed mining licences. Should these negotiations prove successful, a |
| | further sum to be negotiated of up to US$80m, will be payable to Oxus Gold |
| | Plc on the grant of the appropriate mining and operations licence to the |
| | Group by the Kyrgyz government. |
+----+ +
| | |
+----+ +
| | |
+----+ +
| | |
+----+ +
| | |
+----+ +
| | |
+----+-----------------------------------------------------------------------------+
| | | | | | | |
+----+---+----------------------------------+-----+----------+----------+----------+
| | The details of the fair values of the identifiable assets and liabilities |
| | acquired are as follows: |
+----+---+----------------------------------+-----+----------+----------+----------+
+----+----------------------------------+-----+-----------+------------+------------+----+
| | | | Book | Fair | Fair |
| | | | | value | |
+----+----------------------------------+-----+-----------+------------+------------+
| | | | Value | Adjustment | Value |
+----+----------------------------------+-----+-----------+------------+------------+
| | | | US$000 | US$000 | US$000 |
+----+----------------------------------+-----+-----------+------------+------------+
| Property plant and equipment |(a) | 39,918 | (4,003) | 35,915 |
+---------------------------------------+-----+-----------+------------+------------+
| Negotiation rights |(b) | - | 48,457 | 48,457 |
+---------------------------------------+-----+-----------+------------+------------+
| Deferred mining property expenditure |(c) | 34,084 | (34,084) | - |
+---------------------------------------+-----+-----------+------------+------------+
| Other financial assets | | - | 164 | 164 |
+---------------------------------------+-----+-----------+------------+------------+
| Net current liabilities |(d) | (308) | (732) | (1,040) |
+---------------------------------------+-----+-----------+------------+------------+
| Non current liabilities |(e) | (3,500) | (6,500) | (10,000) |
+---------------------------------------+-----+-----------+------------+------------+
| | | | 70,194 | 3,302 | 73,496 |
+----+----------------------------------+-----+-----------+------------+------------+
| Consideration | | | | |
+---------------------------------------+-----+-----------+------------+------------+
| Shares issue |(f) | | | 72,887 |
+---------------------------------------+-----+-----------+------------+------------+
| Acquisition costs | | | | 609 |
+---------------------------------------+-----+-----------+------------+------------+
| | | | | | 73,496 |
+----+----------------------------------+-----+-----------+------------+------------+
| | | | | | |
+----+----------------------------------+-----+-----------+------------+------------+
| Deferred taxation has not been provided on the acquisition of the assets as |
| the transaction was not deemed to be a business combination, in accordance |
| with the IFRS3 "business combinations". The transaction has been accounted |
| for as an asset purchase. |
+ +
| | |
+ +----+
| | |
+-----------------------------------------------------------------------------------+----+
| a. | The property, plant and equipment of the Jerooy project and Romaltyn |
| | were fair valued by the directors, having regard to reports by |
| | independent experts which resulted in a fair value adjustment. |
+----+------------------------------------------------------------------------------+
| b. | Negotiation rights are in relation to the Jerooy mining licence. These |
| | rights arise in respect of the strong position gained by the Group for |
| | negotiating the grant of the relevant licences at Jerooy. The Group |
| | currently owns the plant and geological data at Jerooy. The Directors |
| | are confident that the Group will eventually be granted a mining |
| | licence, however there is no guarantee that the licence will be granted. |
| | Should the licence be granted to the Group, the carrying value of the |
| | negotiation rights will be transferred to mining licences and/or mining |
| | properties as appropriate. Should it become apparent that the licence is |
| | unlikely to be granted, the negotiation rights will be written down to |
| | their net realisable value. |
+----+------------------------------------------------------------------------------+
| c. | Due to the circumstances relating to the Jerooy licence the directors |
| | have fair valued the deferred mining property expenditure in relation to |
| | the Jerooy licences as US$nil. |
+----+----------------------------------+-----+-----------+------------+------------+----+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+---+-----+-----+-----+-----------------+-----+-----+-----+-----+-----+-----+-----+-------+
| d | The fair value adjustment of US$732,000 to non-current liabilities relates to |
| | the additional potential liabilities identified during due diligence which |
| | relate to goods and services under contracts entered into prior to the |
| | acquisition. |
+---------+-------------------------------------------------------------------------------+
| | | | | |
+---------+-----------+-----------------+-----------------------+-------------------------+
| e | Included within the above non-current liabilities is an estimate for |
| | rehabilitation provisions of US$6,500,000, in respect of Romaltyn Limited. In |
| | accordance with IFRS a corresponding asset has been recognised. |
+---------+-------------------------------------------------------------------------------+
| | | | | |
+---------+-----------+-----------------+-----------------------+-------------------------+
| f | On the 10 May 2007 the company issued 3,541,666 new ordinary shares of |
| | GBP0.0001 each at a price of US$20.58 per share for a total consideration of |
| | US$72,887,000. |
| | |
+---------+-------------------------------------------------------------------------------+
| 33Financial instruments | | | |
+---------------------------------------------------+-----------------+-----------+-------+
| | Categories of financial asset |
+---+-------------------------------------------------------------------------------------+
| | | | Note | 2008 | 2007 |
+---+-----------+-----------------------------+-----------------+-----------+-------------+
| | | | | US$000 | US$000 |
+---+-----------+-----------------------------+-----------------+-----------+-------------+
| | Current financial assets | | |
+---+-----------------------------------------------------+-----------------------+-------+
| | Loans and receivables at amortised | | | |
| | cost: | | | |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Current net trade and other | 22 | 62,633 | 85,182 |
| | receivables | | | |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Cash and cash equivalents | 24 | 13,966 | 60,285 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Fair value through profit or loss | 23 | - | 31,760 |
| | investments | | | |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Total current financial assets | | 76,599 | 277,227 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | | | | | |
+---+-----------+-----------------------------+-----------------+-----------+-------------+
| | Non-current financial assets | | | |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Available for sale financial assets | 19 | - | 164 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Total non-current financial assets | | - | 164 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | | | | | |
+---+-----------+-----------------------------+-----------------+-----------+-------------+
| | Total financial assets | | 76,599 | 277,391 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | | | | | |
+---+-----------+-----------------------------+-----------------+-----------+-------------+
| | Categories of financial liabilities | Note | 2008 | 2007 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | | | | US$000 | US$000 |
+---+-----------+-----------------------------+-----------------+-----------+-------------+
| | Current financial liabilities | | | |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Financial liabilities held at amortised | | | |
| | cost: | | | |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Trade and other payables | 30 | 27,553 | 35,040 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Loans and borrowings | 28 | 41,874 | 6,228 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Total current financial liabilities | | 69,427 | 41,268 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | | | | | |
+---+-----------+-----------------------------+-----------------+-----------+-------------+
| | Non-current financial liabilities | | | |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Financial liabilities held at amortised | | | |
| | cost: | | | |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Loans and borrowings | 28 | 204,642 | 231,776 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | Total non-current financial liabilities | | 204,642 | 231,776 |
+---+-----------------------------------------+-----------------+-----------+-------------+
| | | | | | |
+---+-----------+-----------------------------+-----------------+-----------+-------------+
| | Total financial liabilities | | 274,069 | 273,044 |
+---+-----+-----+-----+-----------------+-----+-----+-----+-----+-----+-----+-----+-------+
Risk and sensitivity analysis
There have been no substantial changes in the Groups exposure to financial
instrument risks, its objectives, policies and processes for managing those
risks or the methods used to measure them from previous periods unless otherwise
stated in this Note.
The Group and Company are exposed through its operations to one or more of the
following financial risks:
Foreign currency risk, fair value and cash flow interest rate risk, other price
risk, liquidity risk and credit risk. The policy for managing these risks is set
by the Board and all such risks are managed at a Group level within the
organisation. The policies for these risks are described further below:
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
Market risk
Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in interest rates (interest rate
risk), foreign exchange rates (currency risk) or other market factors (other
price risk).
Foreign currency risk
Foreign exchange risk arises due to the Group's primary revenues being in US
dollars, which is also the presentational currency whilst the Group's principal
operating costs are denominated in Kazakhstan Tenge which is the principal
functional currency of the Group's operating subsidiaries.
In February 2009 the Kazakh Tenge was devalued against the US dollar by
approximately 25% for its year end rate of 120 Kazakh Tenge to one dollar. The
effect of a 25% weakening of the Kazak Tenge against the US dollar at the
balance sheet date would, all other variables held constant, have resulted in an
decrease in post-tax losses for the year and increased net assets by
US$12,300,000 (2007 - US$8,040,000). A 25% strengthening in the exchange rate
would, on the same basis, have increased post-tax losses and decreased net
assets by US$12,300,000 (2007 - US$8,040,000).
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| | | | Kazakh | Romanian | Russian | Kyrgyz | Total |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| 2008 | US$ | GBPGBP | Tenge | Leu | Rouble | Som | US$000 |
| | | | KZT | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Loans and receivables at | | | | | | | |
| amortised cost: | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Current net trade and | 46,788 | 707 | 10,489 | 1,122 | - | 3,527 | 62,633 |
| other receivables | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Cash and cash | 11,602 | 181 | 2,057 | 86 | - | 40 | 13,966 |
| equivalents | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Financial liabilities | | | | | | | |
| held at amortised cost | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Trade and other | - | (7,009) | (16,075) | (136) | - | (4,333) | (27,553) |
| payables | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Loans and borrowings | (220,308) | - | (26,192) | - | (16) | - | (246,516) |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| | | | Kazakh | Romanian | Russian | Kyrgyz | Total |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| 2007 | US$ | GBPGBP | Tenge | Leu | Rouble | Som | US$000 |
| | | | KZT | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Loans and receivables at | | | | | | | |
| amortised cost: | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Current net trade and | 50,446 | 6 | 28,643 | 474 | 117 | 5,496 | 85,182 |
| other receivables | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Cash and cash | - | - | 31,760 | - | - | - | 31,760 |
| equivalents | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Fair value through | 8,806 | 12 | 151,289 | 140 | - | 38 | 160,285 |
| profit or loss | | | | | | | |
| investments | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Financial liabilities | | | | | | | |
| held at amortised cost | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Trade and other | (3,156) | (684) | (27,094) | (864) | - | (3,242) | (35,040) |
| payables | | | | | | | |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
| Loans and borrowings | (202,847) | - | (35,157) | - | - | - | (238,004) |
+--------------------------+-----------+---------+----------+----------+---------+---------+-----------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
The Group has a general policy of not hedging against foreign currency risk. In
managing interest rate and currency risks, the Group aims to reduce the impact
of short-term fluctuations on the Group's earnings. Over the longer-term,
however, permanent changes in foreign exchange rates could have an impact on
consolidated earnings.
Fair value and cash flow interest rate risk
The Group utilises fixed and rate loans and bonds. The Board sets a policy for
each material borrowing dependent upon the prevailing market conditions and the
terms available in respect of each particular financial instrument and the
interest rates attaching thereto. The Board seeks to achieve an appropriate
balance of exposure to these risks.
The directors believe that the exposure to interest rate risk from these
activities is acceptable in the Group's circumstances.
The effect of a 0.5% decrease in interest rates during the year would, all other
variables held constant, have resulted in a decrease in the post-tax loss for
the year and increased the net assets by US$44,900 (2007 - US$31,220). A 0.5%
increase would, on the same basis, have increased post-tax losses and decreased
net assets by US$44,900 (2007 - US$31,220).
Fixed and floating rate analysis
In respect of income-earning financial assets and interest-bearing financial
liabilities, the following table indicates their interest rates at the balance
sheet date and the periods in which they mature or, if earlier, are re-priced.
+------+----------+----------+----------+-----------+----------+-----------+---------+----------+
| 2008 | Fixed | Floating | Group | Group | Group | Group |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| | Interest | Interest | Total | 0-1 | 1-5 | 5-10 |
| | Rate | Rate | | Years | Years | Years |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| | % | % | US$000 | US$000 | US$000 | US$000 |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Cash and cash | - | 4.5% | 13,966 | 13,966 | - | - |
| equivalents | | | | | | |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Bank loans | 11.0% | - | (16,914) | (12,562) | (4,352) | - |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Bank loans | 16.0% | - | (7,346) | (5,734) | (1,612) | - |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Senior loan | 9.375% | - | (197,308) | - | (197,308) | - |
| notes 3 | | | | | | |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Bonds 4 | | 10.4% | (23,010) | (23,010) | - | - |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Leases 5 | 17.0% | - | (1,938) | (568) | (1,370) | - |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| | | | (232,550) | (27,908) | (204,642) | - |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| | | | | | | |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| 2007 | Fixed | Floating | Group | Group | Group | Group |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| | Interest | Interest | Total | 0-1 | 1-5 | 5-10 |
| | Rate | Rate | | Years | Years | Years |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| | % | % | US$000 | US$000 | US$000 | US$000 |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Cash and cash | - | 4.5% | 160,285 | 160,285 | - | - |
| equivalents | | | | | | |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Bank loans | 9.0% | | (3,747) | (3,747) | - | - |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Bank loans | 14.0% | | (2,489) | (757) | (1,732) | - |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Senior loan | 9.375% | - | (196,611) | - | (196,611) | - |
| notes 3 | | | | | | |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Bonds 4 | | 10.4% | (22,851) | - | (22,851) | - |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| Leases 5 | 10.5% | - | (12,306) | (1,724) | (6,583) | (3,999) |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| | | | (77,719) | 154,057 | (227,777) | (3,999) |
+-----------------+----------+----------+-----------+----------+-----------+---------+
| 3 | The Senior loan Notes have been issued by the Company and are listed on the |
| | Luxembourg Stock Exchange. The loan Notes are repayable in full in 2013. The |
| | loan Notes are unconditionally and irrevocable guaranteed on a joint and |
| | several basis by JSC Kazakhaltyn MMC, and certain other wholly owned |
| | subsidiaries. |
+------+----------------------------------------------------------------------------------------+
| 4 | The bonds are capped at 10.4%, this was the effective rate paid in 2008 and the |
| | previous year. |
+------+----------------------------------------------------------------------------------------+
| 5 | The leases are finance leases contracted in Kazakhstan in respect of plant and |
| | equipment in use by the Group within that country. The holders of the finance |
| | leases have a lien over the plant and equipment specific to the item or Group |
| | of items being financed. |
+------+----------+----------+----------+-----------+----------+-----------+---------+----------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+---------------+-----+-----+-----+-----+-----+-----+-----+-----+-----+-----+-----+-----+-----+
| Other price | | | | | | |
| risk | | | | | | |
+---------------+-----------+-----------+-----------+-----------+-----------+-----------+
| As an 'unhedged gold producer', the Group is exposed to market price risk from its |
| current activities. The Group manages this risk centrally with reference to annual |
| budgets and periodic forecasts including sensitivity analyses of projected production |
| rates and gold market prices. |
+ +
| | |
+ +---------------+
| | |
+---------------------------------------------------------------------------------------+---------------+
| | | | | | | |
+---------------+-----------+-----------+-----------+-----------+-----------+-----------+
| At 31 December 2008, if the gold spot price per ounce had been 10% higher with all |
| other variables held constant, loss after tax would have decreased and the net assets |
| would have increased by US$9,100,000 (2007 - US$12,180,000). A 10% drop in the gold |
| spot price per ounce would, on the same basis, have increased the loss after tax and |
| decreased net assets by US$9,100,000 (2007 - US$12,180,000). |
+---------------------------------------------------------------------------------------+
| | | | | | | |
+---------------+-----------+-----------+-----------+-----------+-----------+-----------+
| Liquidity | | | | | | |
| risk | | | | | | |
+---------------+-----------+-----------+-----------+-----------+-----------+-----------+
| The liquidity risk of the Group is managed centrally. New borrowings are taken on |
| where additional funds are required. Surplus funds not allocated to future investment |
| and working capital requirements are used to repay existing loans and bonds. The |
| Group intends to maintain a balance of funding designed to reduce liquidity risks |
| whilst also seeking to minimise the costs of borrowing. Due to the lower than |
| expected levels of production in 2008 the Group are in the process of establishing |
| further credit lines to maintain working capital requirements see Note 1. |
+ +
| | |
+ +---------------+
| | |
+ +---------------+
| | |
+---------------------------------------------------------------------------------------+---------------+
| | | | | | | |
+---------------+-----------+-----------+-----------+-----------+-----------+-----------+
| Maturity analysis of financial liabilities | | |
+---------------------------------------------------------------+-----------+-----------+
| 2008 | > 5 years | 1-5 years | 6-12 | 3-6 | < 3 | Total |
| | | | months | months | months | |
+---------------------+-----------+-----------+-----------+-----------+-----------+-----------+
| | US$000 | US$000 | US$000 | US$000 | US$000 | US$000 |
+---------------------+-----------+-----------+-----------+-----------+-----------+-----------+
| Trade and other | - | - | 732 | 2,865 | 23,956 | 27,553 |
| payables | | | | | | |
+---------------------+-----------+-----------+-----------+-----------+-----------+-----------+
| Loan and borrowings | - | 204,625 | 3,669 | 3,685 | 34,537 | 246,516 |
+---------------------+-----------+-----------+-----------+-----------+-----------+-----------+
| | | | | | | |
+---------------------+-----------+-----------+-----------+-----------+-----------+-----------+
| 2007 | > 5 years | 1-5 years | 6-12 | 3-6 | < 3 | Total |
| | | | months | months | months | |
+---------------------+-----------+-----------+-----------+-----------+-----------+-----------+
| | US$000 | US$000 | US$000 | US$000 | US$000 | US$000 |
+---------------------+-----------+-----------+-----------+-----------+-----------+-----------+
| Trade and other | 525 | 12,631 | - | - | 21,884 | 35,040 |
| payables | | | | | | |
+---------------------+-----------+-----------+-----------+-----------+-----------+-----------+
| Loan and borrowings | 3,270 | 228,506 | 6,228 | - | - | 238,004 |
+---------------+-----+-----+-----+-----+-----+-----+-----+-----+-----+-----+-----+-----+-----+
+------+------+------+------+------+------+------+------+------+------+------+------+--------+------+
| Credit risk | | | | | | |
+-------------+-------------+-------------+-------------+-------------+-------------+--------+
| The Group is exposed to credit risk arising from credit sales of its product to customers. |
| Due to the nature of the market, the Group's principal customers are concentrated on a |
| small number of significant entities. It is the Board's policy to assess the credit risk |
| of all new customers before entering into contracts and also, where possible, to trade |
| only with established entities. |
+--------------------------------------------------------------------------------------------+
| | | | | | | |
+-------------+-------------+-------------+-------------+-------------+-------------+--------+
| The Group's maximum exposure to credit risk by class of financial instrument amounts to |
| their carrying value of US$82,269,000 (2008: US$277,229,000). |
+--------------------------------------------------------------------------------------------+
| | | | | | | |
+-------------+-------------+-------------+-------------+-------------+-------------+--------+
| Quantitative disclosures of the credit exposure in relation to trade and other |
| receivables, which are neither past due nor impaired, are disclosed in the Note 22. |
+ +
| | |
+--------------------------------------------------------------------------------------------+------+
| | | | | | | |
+-------------+-------------+-------------+-------------+-------------+-------------+--------+
| The Group generated the vast majority of revenue from a small number of customers. These |
| customers are well established businesses with good credit ratings. On average trade |
| receivables are settled within 60 days from the date the invoice is issued. |
+ +
| | |
+--------------------------------------------------------------------------------------------+------+
| | | | | | | |
+-------------+-------------+-------------+-------------+-------------+-------------+--------+
| A maturity analysis of trade and other receivables is as follows: |
+--------------------------------------------------------------------------------------------+
| | >120 Days | 90-120 days | 60-90 days | 30-60 days | <30 days | Total |
+------+-------------+-------------+-------------+-------------+-------------+----------------------+
| | US$000 | US$000 | US$000 | US$000 | US$000 | US$000 |
+------+-------------+-------------+-------------+-------------+-------------+----------------------+
| 2008 | 52,259 | - | - | - | 10,374 | 62,633 |
+------+-------------+-------------+-------------+-------------+-------------+----------------------+
| 2007 | 11,920 | 10,050 | 527 | 4,747 | 57,938 | 85,182 |
+------+------+------+------+------+------+------+------+------+------+------+------+--------+------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+---+-----------------------------------------------+------------+--------+
| | Capital | | |
+----+---------------------------------------------------+------------+--------+
| | The Group considers its capital to comprise its ordinary share capital, |
| | share premium and accumulated retained earnings as its capital |
| | reserves. In managing its capital, the Group's primary objective is to |
| | ensure its continued ability to provide a consistent return for its |
| | equity shareholders through capital growth. In order to achieve this |
| | objective, the Group seeks to maintain a gearing ratio that balances |
| | risk and returns at an acceptable level and also to maintain a |
| | sufficient funding base to enable the Group to meet its working capital |
| | and strategic investment needs. In making decisions to adjust its |
| | capital structure to achieve these aims, either through new share |
| | issues or the reduction of debt, the Group considers not only its |
| | short-term position but also its long-term operational and strategic |
| | objectives. |
+----+-------------------------------------------------------------------------+
| | | | | |
+----+---+-----------------------------------------------+------------+--------+
| | There have been no other significant changes to the Group's capital |
| | management objectives, policies and processes in the year nor has there |
| | been any change in what the Group considers to be its capital. |
+----+-------------------------------------------------------------------------+
| | | | | |
+----+---+-----------------------------------------------+------------+--------+
| 34 | Post-balance sheet events | | |
+----+---------------------------------------------------+------------+--------+
| | | | | |
+----+---+-----------------------------------------------+------------+--------+
| | On 12 June 2009 Jenington International Inc, an indirect wholly owned |
| | subsidiary of Polyus Gold made an announcement in accordance with Rule |
| | 2.5 of the Takeover Code to acquire 50.1% of the issued share capital |
| | of the Company. Under the terms of the proposed offer, management |
| | expect Polyus Gold will underwrite a US$100 million equity capital |
| | raising. |
+----+ +
| | |
+----+ +
| | |
+----+-------------------------------------------------------------------------+
| | On 3 June and 11 June 2009 Gold Lion Holdings Ltd, the Company's |
| | principal shareholder, entered into two subordinated loan facilities to |
| | provide an aggregate of US$31.025 million to finance the Group's |
| | immediate working capital needs, to make the interest payment due under |
| | the Senior Notes and the redemption payment in respect of local Kazakh |
| | Bonds. |
| | |
+----+ +
| | |
+----+ +
| | |
+----+-------------------------------------------------------------------------+
| | Devaluation of Kazakh Tenge | | |
+----+---------------------------------------------------+------------+--------+
| | In February 2009 the Kazakh Tenge was devalued by about 25 per cent to |
| | a rate of approximately KZT 150 to US$1. A substantial proportion of |
| | the Group's costs are payable in Tenge, the effect of the reduction of |
| | the Tenge is discussed in Note 33. |
+----+-------------------------------------------------------------------------+
| | Misappropriation of funds | | |
+----+---------------------------------------------------+------------+--------+
| | Following the year end two previous employees whilst in the employ of |
| | the Company committed fraudulent acts against the Company and |
| | misappropriated approximately US$7,000,000 of Company funds. |
+----+ +
| | |
+----+-------------------------------------------------------------------------+
| | | | | |
+----+---+-----------------------------------------------+------------+--------+
| | The Company and its advisors are conducting a detailed investigation |
| | into these fraudulent acts and those disclosed in Note 22. |
| | Approximately US$4,300,000 of the above US$7,000,000 has been traced to |
| | recipient bank accounts in Cyprus which have been frozen pursuant to |
| | court orders in the UK and Cyprus. The Directors are confident that the |
| | US$4,300,000 currently frozen will be recovered in due course from |
| | Cyprus in due course. |
+----+ +
| | |
+----+ +
| | |
+----+ +
| | |
+----+-------------------------------------------------------------------------+
| | | | | |
+----+---+-----------------------------------------------+------------+--------+
| | The Company is actively and aggressively pursuing the recovery of all |
| | misappropriated amounts. As a consequence of this the Company has |
| | commenced proceedings against the company's bankers in Jersey and |
| | against the two previous employees in London and in Cyprus. |
+----+---+-----------------------------------------------+------------+--------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+---+--+------------+---------------------------------------------------+
| 35 | Commitments and contingencies |
+----+-----------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | Construction projects - Kazakhstan |
+----+-----------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | During the year the company entered into contracts for the completion |
| | of three processing plants and a central elution plant with MAED |
| | Limited (now known as Central Asian Capital Projects Limited - CACP), |
| | for an amount of US$69,015,000. Prior to the year end a dispute arose |
| | in relation to completion of the plants, which was concluded on 14 |
| | March 2009, with the Group making a payment of US$2,000,000. This |
| | resulted in CACP adopting a role of project management, with the |
| | majority of the construction responsibilities being transferred to |
| | other contractors. Under the settlement agreement with CACP, |
| | US$4,500,000 will be paid to CACP 90 days from the contract |
| | resolution date, with further amounts totalling US$5,200,000 to be |
| | paid on completion of agreed delivery targets. |
+----+-----------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | Advance payments have been made in relation to future capital |
| | commitments amounting to US$47,793,000, and are included within trade |
| | and other receivables see Note 22. |
+----+-----------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | Construction projects - Kyrgyzstan |
+----+-----------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | As explained in Note 32 the Group is committed to making an |
| | additional payment of up to US$80,000,000 to Oxus Gold PLC, if the |
| | negotiations on the resumption of mining rights in respect of the |
| | Jerooy project are successful in Kyrgyzstan. |
+----+ +
| | |
+----+-----------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| 36 | Immediate and ultimate parent company |
+----+-----------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | There is no ultimate controlling party of KazakhGold Group Limited. |
+----+-----------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| 37 | Related party transactions |
+----+-----------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | The related party transactions arising in the Group and Company |
| | during the year were as follows: |
+----+-----------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | - | Transactions in which a non-executive director, William (Bill) |
| | | Trew, had an interest are disclosed below: |
+----+---+ +
| | | |
+----+---+-------------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | | -| Transactions with Oxus Gold Plc are as detailed in Note 32. |
| | | | William (Bill) Trew was a director of that company in the |
| | | | period ended 31 December 2008. |
+----+---+--+ +
| | | | |
+----+---+--+----------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | | | William (Bill) Trew is beneficially interested in certain |
| | | | service agreements with Central Asian Capital Projects |
| | | | Limited, (CACP), in that MAED IOM Ltd has a contract to supply |
| | | | design, FIDIC contractual advice and other consultancy |
| | | | services to, CACP (formerly MAED Limited BVI). CACP has |
| | | | contractual agreements with the Group to construct processing |
| | | | plants as detailed in Note 35. |
+----+---+--+----------------------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | | | | |
+----+---+--+------------+---------------------------------------------------+
| | - | Refer to Note 11 for details of transactions with key management |
| | | personnel. |
+----+---+--+------------+---------------------------------------------------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+----------------------------------------------+-----------+-----------+
| | Company only notes | | |
+----+----------------------------------------------+-----------+-----------+
| | | | |
+----+----------------------------------------------+-----------+-----------+
| 38 | Operating loss | | |
+----+----------------------------------------------+-----------+-----------+
| | | | |
+----+----------------------------------------------+-----------+-----------+
| | | Company | Company |
+----+----------------------------------------------+-----------+-----------+
| | | 2008 | 2007 |
+----+----------------------------------------------+-----------+-----------+
| | | US$000 | US$000 |
+----+----------------------------------------------+-----------+-----------+
| | This has been stated after charging: | | |
+----+----------------------------------------------+-----------+-----------+
| | Equity-settled share-based payment expense | 93 | 105 |
+----+----------------------------------------------+-----------+-----------+
| | Provision for impairment of other | 4,652 | - |
| | receivables (see note 22) | | |
+----+----------------------------------------------+-----------+-----------+
| | Depreciation | 62 | 50 |
+----+----------------------------------------------+-----------+-----------+
| | Staff costs (see note 10) | 56 | 2,128 |
+----+----------------------------------------------+-----------+-----------+
| | Auditors' remuneration (see note 9) | 1,103 | 450 |
+----+----------------------------------------------+-----------+-----------+
| | | | |
+----+----------------------------------------------+-----------+-----------+
| 39 | Finance income | | |
+----+----------------------------------------------+-----------+-----------+
| | | | |
+----+----------------------------------------------+-----------+-----------+
| | | Company | Company |
+----+----------------------------------------------+-----------+-----------+
| | | 2008 | 2007 |
+----+----------------------------------------------+-----------+-----------+
| | | US$000 | US$000 |
+----+----------------------------------------------+-----------+-----------+
| | Bank interest receivable | 551 | 3,764 |
+----+----------------------------------------------+-----------+-----------+
| | Group interest receivable | 21,033 | 18,684 |
+----+----------------------------------------------+-----------+-----------+
| | | 21,584 | 22,448 |
+----+----------------------------------------------+-----------+-----------+
| | | | |
+----+----------------------------------------------+-----------+-----------+
| 40 | Finance expense | | |
+----+----------------------------------------------+-----------+-----------+
| | | | |
+----+----------------------------------------------+-----------+-----------+
| | | Company | Company |
+----+----------------------------------------------+-----------+-----------+
| | | 2008 | 2007 |
+----+----------------------------------------------+-----------+-----------+
| | | US$000 | US$000 |
+----+----------------------------------------------+-----------+-----------+
| | Senior loan note interest | 18,750 | 18,750 |
+----+----------------------------------------------+-----------+-----------+
| | Amortisation of issue costs | 696 | 723 |
+----+----------------------------------------------+-----------+-----------+
| | | 19,446 | 19,473 |
+----+----------------------------------------------+-----------+-----------+
| | | | |
+----+----------------------------------------------+-----------+-----------+
| 41 | Taxation | | |
+----+----------------------------------------------+-----------+-----------+
| | | | |
+----+----------------------------------------------+-----------+-----------+
| | | Company | Company |
+----+----------------------------------------------+-----------+-----------+
| | | 2008 | 2007 |
+----+----------------------------------------------+-----------+-----------+
| | | US$000 | US$000 |
+----+----------------------------------------------+-----------+-----------+
| | Recognised in the income statement | | |
+----+----------------------------------------------+-----------+-----------+
| | Current tax expense | - | (1,840) |
+----+----------------------------------------------+-----------+-----------+
| | Deferred tax income | - | - |
+----+----------------------------------------------+-----------+-----------+
| | Total tax charge | - | (1,840) |
+----+----------------------------------------------+-----------+-----------+
| | | | |
+----+----------------------------------------------+-----------+-----------+
| | Reconciliation of effective tax rates | | |
+----+----------------------------------------------+-----------+-----------+
| | Loss before tax | (16,278) | |
| | | | (1,782) |
+----+----------------------------------------------+-----------+-----------+
| | Tax using domestic rates of corporation tax | (4,639) | (535) |
| | of 28.5%, (2007:30%) | | |
+----+----------------------------------------------+-----------+-----------+
| | Effect of: | | |
+----+----------------------------------------------+-----------+-----------+
| | Effect of expenses/income not deductible for | 2,120 | (218) |
| | tax purposes | | |
+----+----------------------------------------------+-----------+-----------+
| | Tax effect of timing differences | 587 | - |
+----+----------------------------------------------+-----------+-----------+
| | Foreign tax credits | - | (1,840) |
+----+----------------------------------------------+-----------+-----------+
| | Unrelieved tax losses arising in the period | 1,932 | 753 |
+----+----------------------------------------------+-----------+-----------+
| | Total tax charge for the year | - | (1,840) |
+----+----------------------------------------------+-----------+-----------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+------------------+--+--------+--------+-----+-----+-------+-----+-----+-------------+
| 42Property, plant and equipment |
+------------------------------------------------------------------------------------------+
| | | | | | | | | US$000 |
+----+------------------+--+--------+--------+-----------+-------+-----------+-------------+
| | Company | |
+----+-----------------------------------------------------------------+-------------------+
| | Cost | |
+----+-----------------------------------------------------------------+-------------------+
| | Balance at 1 January 2007 | 200 |
+----+-----------------------------------------------------------------+-------------------+
| | Acquired in the year | - |
+----+-----------------------------------------------------------------+-------------------+
| | Balance at 31 December 2007 | 200 |
+----+-----------------------------------------------------------------+-------------------+
| | Acquired in the year | 160 |
+----+-----------------------------------------------------------------+-------------------+
| | Balance at 31 December 2008 | 360 |
+----+-----------------------------------------------------------------+-------------------+
| | Depreciation and impairment | |
+----+-----------------------------------------------------------------+-------------------+
| | Balance at 1 January 2007 | 25 |
+----+-----------------------------------------------------------------+-------------------+
| | Depreciation charge for the year | 50 |
+----+-----------------------------------------------------------------+-------------------+
| | Balance at 31 December 2007 | 75 |
+----+-----------------------------------------------------------------+-------------------+
| | Depreciation charge for the year | 62 |
+----+-----------------------------------------------------------------+-------------------+
| | Balance at 31 December 2008 | 137 |
+----+-----------------------------------------------------------------+-------------------+
| | Net book value | |
+----+-----------------------------------------------------------------+-------------------+
| | At 31 December 2008 | 223 |
+----+-----------------------------------------------------------------+-------------------+
| | At 31 December 2007 | 125 |
+----+-----------------------------------------------------------------+-------------------+
| | At 31 December 2006 | 175 |
+----+-----------------------------------------------------------------+-------------------+
| | | |
+----+-----------------------------------------------------------------+-------------------+
| 43Amounts due from group undertakings | | |
+--------------------------------------------------+-------------------------+-------------+
| | | | |
+----+---------------------------------------------+-------------------------+-------------+
| | | Company | Company |
+----+---------------------------------------------+-------------------------+-------------+
| | | 2008 | 2007 |
+----+---------------------------------------------+-------------------------+-------------+
| | | US$000 | US$000 |
+----+---------------------------------------------+-------------------------+-------------+
| | | | |
+----+---------------------------------------------+-------------------------+-------------+
| | Non-current receivables | 200,000 | 200,000 |
+----+---------------------------------------------+-------------------------+-------------+
| | | | |
+----+---------------------------------------------+-------------------------+-------------+
| | Amounts due from group undertakings comprises amounts due from JSC Kazakhaltyn MMC. |
| | The amount is due to be repaid by JSC Kazakhaltyn MMC on 5 November 2013 in |
| | accordance with a loan agreement dated 6 November 2006. |
+----+-------------------------------------------------------------------------------------+
| | | | |
+----+---------------------------------------------+-------------------------+-------------+
| 44Trade and other receivables | | |
+--------------------------------------------------+-------------------------+-------------+
| | | | |
+----+---------------------------------------------+-------------------------+-------------+
| | | Company | Company |
+----+---------------------------------------------+-------------------------+-------------+
| | | 2008 | 2007 |
+----+---------------------------------------------+-------------------------+-------------+
| | | US$000 | US$000 |
+----+---------------------------------------------+-------------------------+-------------+
| | Amounts due from group undertakings | 119,248 | 82,525 |
+----+---------------------------------------------+-------------------------+-------------+
| | Other receivables | 1,095 | 3,404 |
+----+---------------------------------------------+-------------------------+-------------+
| | Prepaid expenses | 88 | 21 |
+----+---------------------------------------------+-------------------------+-------------+
| | | 120,431 | 85,950 |
+----+------------------+--+--------+--------+-----+-----+-------+-----+-----+-------------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+-------------------------+---------+--+----+----+----------------------------+----+----+----+----+-----+----+--------+---+
| 45 | Cash and cash | | | | | |
| | equivalents | | | | | |
+----+-------------------------+---------+-------+---------------------------------+---------------------------------------+---+
| | | | | | | |
+----+-------------------------+---------+-------+---------------------------------+---------------------------------------+---+
| | | Company | Company |
+----+ +------------------------------------------------+-----------------------+
| | | 2008 | 2007 |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | | US$000 | US$000 |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | Cash available on demand | 11,126 | 5 |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | Short-term deposits | 657 | 8,811 |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | Cash per balance sheet and per the cash flow | 11,783 | 8,816 |
| | statement | | |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | | | | | | |
+----+-------------------------+---------+-------+---------------------------------+---------------------------------------+---+
| | Cash available on demand and short-term deposits consist of cash. |
+----+-------------------------------------------------------------------------------------------------------------------------+
| | | | | | | |
+----+-------------------------+---------+-------+---------------------------------+---------------------------------------+---+
| 46 | Interest-bearing loans and borrowings |
+----+-------------------------------------------------------------------------------------------------------------------------+
| | | | | | | |
+----+-------------------------+---------+-------+-------------------------------------------+-----------------------------+---+
| | | | Company | Company |
+----+--------------------------------------+-------------------------------------------+-------------------------+------------+
| | | Note | 2008 | 2007 |
+----+--------------------------------------+-------------------------------------------+-------------------------+------------+
| | | | US$000 | US$000 |
+----+--------------------------------------+-------------------------------------------+-------------------------+------------+
| | Non-current | | | |
| | Senior loan notes (secured) | | | |
+----+ +-------------------------------------------+-------------------------+------------+
| | | 33 | 197,308 | 196,611 |
+----+--------------------------------------+-------------------------------------------+-------------------------+------------+
| | | | | | | |
+----+-------------------------+---------+--+------------------------------------------------+-----------------------------+---+
| 6 | The fair value of the Group Senior loan notes at the balance sheet date was US$96,000,000 |
| | (2007:US$172,940,000) based on the mid market price as quoted on the Luxembourg Stock |
| | Exchange. |
+----+-------------------------------------------------------------------------------------------------------------------------+
| | | | | | | |
+----+-------------------------+---------+-------+------------------------------------------------+------------------------+---+
| 47 | Current liabilities |
+----+-------------------------------------------------------------------------------------------------------------------------+
| | | | | | | |
+----+-------------------------+---------+-------+---------------------------------+---------------------------------------+---+
| | | Company | Company |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | | 2008 | 2007 |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | | US$000 | US$000 |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | | | |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | Senior loan note interest | 2,865 | 2,865 |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | Other creditors and accruals | 3,479 | 851 |
| | | | |
+----+------------------------------------------------+------------------------------------------------+-----------------------+
| | | | | | 6,344 | 3,716 |
+----+-------------------------+---------+-------+---------------------------------+-------------------------+-----------------+
| | | | | | | |
+----+-------------------------+---------+-------+---------------------------------+---------------------------------------+---+
| 48 | Equity-settled share-based payment | | | |
| | transactions | | | |
+----+-------------------------------------------+---------------------------------+---------------------------------------+---+
| | | | | | | |
+----+-------------------------+---------+-------+---------------------------------+---------------------------------------+---+
| | Refer to Note 27 for | | | | | |
| | details. | | | | | |
+----+-------------------------+---------+--+----+----+----------------------------+----+----+----+----+-----+----+--------+---+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| 49| Reserves | | | | | |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | | | | |
+--+----------------------------------------------------+---------------+-----------+-----------+
| | | | | | | |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | | Share | Share | Capital | Retained | |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | | Capital | Premium | Contributions | Earnings | Total |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | | US$000 | US$000 | US$000 | US$000 | US$000 |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | | | | | | |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | Balance at 1 January 2007 | 8 | 97,658 | 510,000 | (2,476) | 605,190 |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | Loss for the year | - | - | - | (3,622) | (3,622) |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | Issue of shares | 1 | 72,886 | - | - | 72,887 |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | Equity-settled share-based | - | - | - | 105 | 105 |
| | payments | | | | | |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | Balance at 31 December 2007 | 9 | 170,544 | 510,000 | (5,993) | 674,560 |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | | | | | | |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | Balance at 1 January 2008 | 9 | 170,544 | 510,000 | (5,993) | 674,560 |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | Loss for the year | - | - | - | (16,278) | (16,278) |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | Issue of shares | - | 50,406 | - | - | 50,406 |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | Equity-settled share-based | - | - | - | 93 | 93 |
| | payments | | | | | |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
| | Balance at 31 December 2008 | 9 | 220,950 | 510,000 | (22,178) | 708,781 |
+--+-----------------------------+---------+------------+---------------+-----------+-----------+
The following describes the nature and purpose of each reserve within owners
equity.
Share capital is the amount subscribed for shares at nominal value.
Share premium represents the excess of the amount subscribed for share capital
over the nominal value of these shares net of share issue expenses. On the 6
March 2008 the company issued 2,301,666 new ordinary shares of GBP0.0001 each at
a price of US$23.00 per share for a total consideration of US$50,176,000 net of
expenses. The amount raised was used to provide additional working capital for
the Group.
Capital contributions represent the value of Romanshorn LC AG and its
subsidiaries, the beneficial ownership of which was acquired by the Company in
2005.
Retained earnings represent the cumulative profit/(loss) of the Company
attributable to the equity shareholders.
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+----+------------------+---------+----+-----+----+----+-------+----+------+------+----+----------+
| 50 | Financial | | | | | | |
| | instruments | | | | | | |
+----+------------------+---------+----------+---------+------------+-------------+---------------+
| | Risk and sensitivity | | | | | |
| | analysis | | | | | |
+----+----------------------------+----------+---------+------------+-------------+---------------+
| | | | | | | | |
+----+------------------+---------+----------+---------+------------+-------------+---------------+
| | Details are provided in Note 33. | | |
+----+--------------------------------------------------------------+-------------+---------------+
| | | | | | | | |
+----+------------------+---------+----------+---------+------------+-------------+---------------+
| | | | | | | | Total |
+----+------------------+---------+----------+---------+------------+-------------+---------------+
| | | | | | US$ | GBPGBP | US$000 |
+----+------------------+---------+----------+---------+------------+-------------+---------------+
| | 2008 | | | | | |
+----+----------------------------+----------+---------+------------+-------------+---------------+
| | Trade and other receivables | 119,248 | 1,183 | 120,431 |
+----+-------------------------------------------------+------------+-------------+---------------+
| | Cash and cash equivalents | 11,111 | 672 | 11,783 |
+----+-------------------------------------------------+------------+-------------+---------------+
| | Interest bearing loans and borrowings | (197,308) | - | (197,308) |
+----+-------------------------------------------------+------------+-------------+---------------+
| | Trade and other payables | (3,144) | (3,200) | (6,344) |
+----+-------------------------------------------------+------------+-------------+---------------+
| | | | | |
+----+-------------------------------------------------+------------+-------------+---------------+
| | | | | Total |
+----+-------------------------------------------------+------------+-------------+---------------+
| | | US$000 | GBPGBP000 | US$000 |
+----+-------------------------------------------------+------------+-------------+---------------+
| | 2007 | | | |
+----+-------------------------------------------------+------------+-------------+---------------+
| | Trade and other receivables | 85,950 | - | 85,950 |
+----+-------------------------------------------------+------------+-------------+---------------+
| | Cash and cash equivalents | 7,591 | 1,225 | 8,816 |
+----+-------------------------------------------------+------------+-------------+---------------+
| | Interest bearing loans and borrowings | (196,611) | - | (196,611) |
+----+-------------------------------------------------+------------+-------------+---------------+
| | Trade and other payables | (3,032) | (684) | (3,716) |
+----+-------------------------------------------------+------------+-------------+---------------+
| | | | | |
+----+-------------------------------------------------+------------+-------------+---------------+
| | Fair value and cash flow interest rate risk | | | |
+----+-------------------------------------------------+------------+-------------+---------------+
| | | | | |
+----+-------------------------------------------------+------------+-------------+---------------+
| | 2008 | Fixed | Floating | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | Interest | Interest | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | Rate | Rate | Company | Company | Company | Company |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | % | % | US$000 | US$000 | US$000 | US$000 |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | | | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | Cash and cash | - | 4.5% | 11,783 | 11,783 | - | - |
| | equivalents | | | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | Senior loan | 9.375% | - | (197,308) | - | (197,308) | - |
| | Notes 7 | | | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | | | (185,524) | 11,783 | (197,308) | - |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | | | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | 2007 | Fixed | Floating | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | Interest | Interest | Company | Company | Company | Company |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | Rate | Rate | Total | 0-1 | 1-5 | 5-10 |
| | | | | | Years | Years | Years |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | % | % | US$000 | US$000 | US$000 | US$000 |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | | | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | Cash and cash | - | 4.5% | 8,816 | 8,816 | - | - |
| | equivalents | | | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | Senior loan | 9.375% | - | (196,611) | - | (196,611) | - |
| | Notes 7 | | | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | | | (187,795) | 8,816 | (196,611) | - |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| | | | | | | | |
+----+------------------+--------------+----------+------------+-----------+-----------+----------+
| 7 | The Senior loan Notes have been issued by the Company and are listed on the |
| | Luxembourg stock exchange. The loan Notes are repayable in full in 2013. The loan |
| | Notes are unconditionally and irrevocable guaranteed on a joint and several basis |
| | by JSC Kazakhaltyn MMC, and certain other wholly owned subsidiaries. |
+----+------------------+---------+----+-----+----+----+-------+----+------+------+----+----------+
KazakhGold Group Limited
Notes forming part of the financial statements for the year ended 31 December
2008
+--------------+----------+----------+-----------+----------+----------+-----------+
| A maturity analysis of trade and other receivables is as follows: |
+----------------------------------------------------------------------------------+
| | | | | | | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| | >120 | 90-120 | 60-90 | 30-60 | <30 | Total |
| | days | days | days | days | Days | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| | US$000 | US$001 | US$002 | US$000 | US$000 | US$000 |
+--------------+----------+----------+-----------+----------+----------+-----------+
| | | | | | | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| 2008 | 119,352 | | - | - | 1,079 | 120,431 |
+--------------+----------+----------+-----------+----------+----------+-----------+
| 2007 | 82,525 | | - | - | 3,425 | 85,950 |
+--------------+----------+----------+-----------+----------+----------+-----------+
| | | | | | | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| There are no amounts included above that are past due and impaired in this |
| or the previous year. |
+----------------------------------------------------------------------------------+
| | | | | | | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| Maturity analysis of financial liabilities | | | |
| is as follows: | | | |
+------------------------------------------------+----------+----------+-----------+
| | | | | | | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| | | 5-10 | 1-5 | 3-12 | < 3 | Total |
| | | years | years | months | months | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| | | US$000 | US$000 | US$000 | US$000 | US$000 |
+--------------+----------+----------+-----------+----------+----------+-----------+
| 2008 | | | | | | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| Trade and other | - | - | - | 6,344 | 6,344 |
| payables | | | | | |
+-------------------------+----------+-----------+----------+----------+-----------+
| Loan and borrowings | - | 197,308 | - | - | 197,308 |
+-------------------------+----------+-----------+----------+----------+-----------+
| | | | | | | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| | | | | | | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| | | 5-10 | 1-5 | 3-12 | < 3 | Total |
| | | years | years | months | months | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| | | US$000 | US$000 | US$000 | US$000 | US$000 |
+--------------+----------+----------+-----------+----------+----------+-----------+
| 2007 | | | | | | |
+--------------+----------+----------+-----------+----------+----------+-----------+
| Trade and other | - | - | - | 3,716 | 3,716 |
| payables | | | | | |
+-------------------------+----------+-----------+----------+----------+-----------+
| Loan and borrowing | - | 196,611 | - | - | 196,611 |
+--------------+----------+----------+-----------+----------+----------+-----------+
+----+------------------+--------+----------+--------+----------+---------+----+
| 51 | Related party | | | | | |
| | transactions | | | | | |
+----+---------------------------+----------+--------+----------+---------+----+
| | | | | | | | |
+----+------------------+--------+----------+--------+----------+---------+----+
| | Related party transactions with the subsidiary companies are as a | |
| | follows: | |
+----+--------------------------------------------------------------------+----+
| | | | | | | | |
+----+------------------+--------+----------+--------+----------+---------+----+
| | - Amounts received and included within the income statement from Group |
| | companies amounted to US$21,033,000 (2007: US$18,684,000) see Note 39. |
+----+-------------------------------------------------------------------------+
| | | | | | | | |
+----+------------------+--------+----------+--------+----------+---------+----+
| | - Loans amounting to US$15,900,000 (2007: US$9,967,000), were advanced |
| | to Group companies, of this amount US$3,300,000 (2007: US$1,068,000), |
| | was fully provided for by the parent company. Details of balances with |
| | subsidiary companies at the 31 December 2008 are provided in Notes 43 |
| | and 44. |
+----+-------------------------------------------------------------------------+
| | | | | | | | |
+----+------------------+--------+----------+--------+----------+---------+----+
| | Details of related party transactions with Directors are provided | |
| | in Note 37. | |
+----+--------------------------------------------------------------------+----+
| | | | | | | | |
+----+------------------+--------+----------+--------+----------+---------+----+
| 52 | Post balance sheet events | | | | | |
+----+---------------------------+----------+--------+----------+---------+----+
| | | | | | | | |
+----+------------------+--------+----------+--------+----------+---------+----+
| | Details are provided in Note 34. | | | |
+----+------------------+--------+----------+--------+----------+---------+----+
Directors, Company Secretary and Advisers
+--------------------------------+------+-------------------------------+
| Directors | | Registered Office |
+--------------------------------+------+-------------------------------+
| Kanat Shaikhanovich Assaubayev | | KazakhGold Group Limited |
| Executive Chairman | | La Motte Chambers |
| Baurzhan Kanatovich Assaubayev | | St. Helier |
| Managing Director, Internal | | Jersey JE1 1BJ |
| Affairs & Government Relations | | Channel Islands |
| Aidar Kanatovich Assaubayev | | Company Secretary |
| Executive Vice Chairman, | | Abacus Secretaries (Jersey) |
| Corporate Development | | Limited |
| Marussya Maralovna Assaubayeva | | La Motte Chambers |
| Director, Human Resources & | | St. Helier |
| Corporate Affairs | | Jersey JE1 1BJ |
| Sanzhar Kanatovich Assaubayev | | Channel Islands |
| General Manager, London Office | | Principal Place of Business |
| Toktarkhan Kozhagapanov | | KazakhGold Group Limited |
| Non-Executive Director | | 6th Floor |
| David Netherway | | 8 Grafton Street |
| Non-Executive Director | | London W1S 4EL |
| Darryl Norton | | England |
| Chief Operating Officer | | GDR Depositary |
| William Trew | | The Bank of New York |
| Non-Executive Director | | 101 Barclay Street |
| Legal Advisers | | 22nd floor |
| As to English law | | New York, NY 10286 |
| Withers LLP | | United States of America |
| 16 Old Bailey | | Brokers |
| London EC2M 7EG | | ING Bank N.V. |
| England | | 60 London Wall |
| As to Jersey law | | London EC2M 5TQ |
| Bedell Cristin | | England |
| 26 New Street | | JPMorgan Cazenove Limited |
| St. Helier | | 20 Moorgate |
| Jersey JE2 3RA | | London EC2R 6DA |
| Channel Islands | | England |
| | | Bank of America Merrill Lynch |
| | | 2 King Edward Street |
| | | London EC1A 1HQ |
| | | England |
| | | Auditors |
| | | BDO Stoy Hayward LLP |
| | | 55 Baker Street |
| | | London W1U 7EU |
| | | England |
| | | Company Number |
| | | 91264 |
| | | |
+--------------------------------+------+-------------------------------+
Glossary
Ore reserves and resources estimation
Under the FSU Classification explored reserves are designated as either A, B, or
C1, evaluated reserves are designated as C2 and prognostic resources are
designated as either: P1; P2 or P3.
Category A
The reserves in place are known in detail. Trenching, drilling, or underground
workings have outlined the boundaries of the deposit. The quality and properties
of the ore are known in sufficient detail to ensure the reliability of the
projected exploitation.
Category B
The reserves in place have been explored but are only known in fair detail.
Trenching, drilling, or underground workings have outlined the boundaries of the
deposit. The quality and properties of the ore are known in sufficient detail to
ensure the basic reliability of the projected exploitation.
Category C1
The reserves in place have been estimated by a sparse grid of trenches, drill
holes or underground workings. This category also includes reserves adjoining
the boundaries of A and B reserves, as well as reserves of very complex deposits
in which the distribution cannot be determined even by a very dense grid. The
quality and properties of the deposit are known provisionally by analyses and by
analogy with known deposits of the same type. The general conditions for
exploitation are known tentatively.
Category C2
The reserves have been extrapolated from limited data, probably from a single
hole. This category includes reserves that are adjoining A, B, and C1 reserves
in the same deposit. Prognostic resources are estimated for mineralisation
outside the limits of areas that have been explored in detail and are often
based on data from trenches and from geochemical and geophysical surveys.
Category P1
Resources under the P1 category may extend outside the actual limits of the ore
reserves defined in the C2 category. The outer limits of P1-type resources are
determined indirectly by extrapolating from similar known mineral deposits in
the area. P1 is the main source from which C2 reserves can be increased.
Category P2
These resources represent possible mineral structures in known mineral deposits
or ore-bearing regions. They are estimated based on geophysical and geochemical
data. Morphology, mineral composition and the size of the ore body are estimated
by analogy with similar mineralised geologic structures in the area.
Category P3
Any potential ore-bearing deposits are classified as resources in the P3
category. The presence of these resources relies on the theoretical definition
of a "favourable geological environment". Resource figures are derived from
figures of similar deposits in the region. Estimates of prognostic resources
routinely depend on assumptions and projections regarding the probable
dimensions (i.e. length, width and depth) and grade of the deposit that are
subject to confirmation by more detailed investigations.
Au
The chemical symbol for gold.
CIS
Confederation of Independent States, or Former Soviet Union.
Carbon-in-leach or CIL
Process in which carbon is added to the solution following leaching in order to
extract gold.
Carbon-in-pulp or CIP
An established method of gold recovery using cyanide and activated carbon. It is
the most efficient method to process both oxide and sulphide ores, with recovery
rates of over 90 per cent.
Cathodic gold
The gold product that arises following the processing of mined ore by the CIP
and HL methods, which ends with the gold bearing solution being treated by
electrolysis. The gold is deposited on the cathodes of the cell, which are then
washed to remove the deposited gold, which can be further smelted into doré
bars.
Cathodic sludge
The gold residue in the electrolysis cell from that part of the solution that is
not deposited on the cathodes.
Company
KazakhGold Group Limited.
FSU
Former Soviet Union.
FSU Classification
The former Soviet Union system of classification of geological reserves and
resources.
Flotation concentrate
The product of a processing method used to separate gold sulphide particles in
slurry, by causing them to selectively adhere to froth and float to the surface.
The resultant gold concentrate is then filtered to form flotation concentrate.
Free gold
Gold uncombined with other substances; gold not found in chemical combination
with other minerals; found largely in placer gold form.
g/t or g/tonne
Grammes per metric tonne.
GDR
Global Depositary Receipt equivalent to one underlying ordinary share of the
Group, with a nominal value GBP0.0001.
Gold doré
Unrefined gold bullion bars, which will be further refined to almost pure metal
(99.9 per cent Au) See also Doré bars.
Grade
Relative quantity or the percentage of ore mineral or metal content in an ore
body, usually expressed in grammes per metric tonne.
Gravitation
Gold particles in slurry are separated based on their specific gravity.
Group
KazakhGold Group Limited and its subsidiaries.
Heap Leaching or HL
An ore processing technology used to process low-grade oxide ores. Although it
is the lowest-cost method of processing, recovery rates are only approximately
60 per cent.
IFRS
International Financial Reporting Standards.
JORC
Joint Ore Reserves Committee.
JSC
Joint Stock Company.
KZT
Kazakhstan Tenge, the official currency of Kazakhstan.
Kazakhaltyn
JSC Kazakhaltyn MMC - a company registered in Kazakhstan and the Group's
principal operating subsidiary.
LLP
Limited liability partnership.
MMC
Mining Metallurgical Concern.
Mineralisation
Process of formation and concentration of elements and their chemical compounds
within a mass or body of rock.
Mtpa
Million tonnes per annum.
NAMR
Romanian National Agency for Mineral Resources classification code
Open-pit
A large scale hard rock surface mine.
Ore
Rock that can be mined and processed at a profit.
Ore body
A solid mass of mineralised rock, which can be mined profitably under current or
immediately foreseeable economic conditions.
Ounce or oz
Troy ounce, equal to 31.1035 grammes.
Pounds sterling
The currency of the United Kingdom and "GBP".
Quartzite ore
A mass of mineralised quartzite rock containing gold.
Recovery
Proportion of valuable material obtained in the processing of an ore, stated as
a percentage of the material recovered compared with the total material present.
$/t or $/tonne
US dollars per metric tonne.
Shaft
Vertical or inclined excavation into mine workings.
Silicification
The introduction of silica into a rock, either filling pore spaces or replacing
pre-existing minerals.
Tailings
Material that remains after all metals/minerals considered economic have been
removed from the ore.
Tenge
The official currency of Kazakhstan.
Vein
A tabular deposit of mineralized rock.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR KGGMVVZGGLZM
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