Eurasian Natural Resources Corporation PLC Announcement of 2013 Half Year Results

83 Pages·2013·1.36 MB·English

by  Miall, Ben

14 August 2013

Eurasian Natural Resources Corporation PLC

Announcement of 2013 Half Year Results

Financial Highlights for 2013
 Financial performance impacted by poor pricing environment, higher finance costs, increased Effective
Tax Rate and impairment at Boss Mining.
 Revenue declined by 1% to US$3,209 million.
 Cost of sales up 9% to US$1,917 million, primarily driven by growth in operations in Africa.
 Underlying EBITDA fell by 17% to US$944 million; Underlying EBITDA margin of 29.4%.
 Non-cash charges for impairment totalling approximately US$161 million primarily related to Boss
Mining and the Group’s interest in Northam Platinum Limited.
 Basic earnings per share of US 17 cents (2012 earnings per share: US 38 cents); earnings per share
(adjusted) of US 21 cents (2012: US 40 cents).
 No interim dividend proposed (2012 interim dividend of US 6.5 cents).
 Gross available funds of US$789 million; borrowings of US$6,194 million.

Business Highlights for 2013
 Solid cash flow generation from assets in Kazakhstan; increase in production volumes for all key
saleable products against the comparable period.
 Significant increase in African copper volumes as Frontier development phase 1 is completed and
Chambishi SX/EW plant commissioned.
 Cost control and productivity enhancing initiatives kept unit costs for key products well below initial
guidance; material decrease in unit costs in the Ferroalloys Division.
 Capital expenditure cash flows of US$720 million; progressed development of the New Aktobe
Ferroalloys Plant, Frontier, Chambishi Metals PLC, Power Unit 6 and the expansion of logistics
capacity.
 Final maturity of US$1 billion VTB facility extended from April 2014 to June 2018; new US$500 million
facility with Sberbank signed.

Takeover Offer
 Takeover offer received from Eurasian Resources Group B.V., a consortium of the Founder
Shareholders and the Government of the Republic of Kazakhstan, of US$2.65 and 0.230 Kazakhmys
shares per ENRC PLC share; Kazakhmys shareholders have agreed to sell into the offer.
 Offer document released by the consortium on Wednesday 7 August 2013. Response to the offer
document by ENRC’s Independent Committee will be released shortly.

“Our first half results reflect the impact of a weaker pricing environment for the majority of our products. Our
operational achievements, as demonstrated through higher production, solid cashflows, and a rigorous focus on
costs, have helped to mitigate the overall impact of lower prices.

We continued to invest in our business during the period making good progress at key projects in Kazakhstan
and Africa. By extending maturities of our debt facilities we have also strengthened our balance sheet.

“It has been a difficult period for the Company, not least with the on-going SFO investigation. We continue to
work closely with them and remain committed to a full and transparent investigation of all our procedures and
conduct.”

Felix J Vulis, Chief Executive Officer
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Eurasian Natural Resources Corporation PLC

Announcement of 2013 Half Year Results (Unaudited)

Summary Group Financial Information (Unaudited):
H1 2013 vs. H1 2012
H1 2012
As
In millions of US$ (unless stated otherwise) H1 2013 restated +/- %
Revenue 3,209 3,246 (37) (1.1)%
Cost of sales (1,917) (1,759) (158) 9.0%
Gross Profit 1,292 1,487 (195) (13.1)%
Operating profit 474 812 (338) (41.6)%
Profit before income tax 309 696 (387) (55.6)%
Income tax expense (161) (212) 51 (24.1)%
Effective tax rate % 52.1% 30.5%
Profit for the period 148 484 (336) (69.4)%

Profit attributable to owners of the Company 221 492 (271) (55.1)%
Earnings per share - basic and diluted (US cents) 17 38 (21) (55.3)%
Earnings per share - basic and diluted - adjusted
(US cents)1 21 40
Interim dividend per share (US cents) - 6.5

Depreciation and amortisation (355) (324) (31) 9.6%
Impairment (161) - (161) 100.0%
Loss arising related to acquisition of associate - (20) 20 (100.0)%
Acquisition related costs (2) (6) 4 (66.7)%
Total costs2 (2,574) (2,434) (140) 5.8%

Underlying EBITDA3 944 1,142 (198) (17.3)%
Underlying EBITDA margin %4 29.4% 35.2%

Net cash generated from operations 487 763 (276) (36.2)%
Capital expenditure cash outflow 720 1,075 (355) (33.0)%
Gross available funds5 789 1,565 (776) (49.6)%
Net debt6 (5,453) (3,410) (2,043) 59.9%

1 Earnings per share - adjusted: Profit of the period attributable to owners of the Company adjusted for impairment, onerous
contract provision, loss/gain arising from business combination and associated tax and non-controlling interests’ impact.
2 Total costs: Cost of sales; distribution costs; general and administrative expenses; exploration costs, and other operating
expenses offset by other operating income.
3 Underlying EBITDA: Profit before finance income; finance cost; income tax expense; utilisation of onerous contract
provision; depreciation, amortisation and impairment of property, plant and equipment and other non-current assets; share of
loss of joint ventures and associates; loss arising related to acquisition of associate and acquisition related costs expensed
under IFRS 3 (revised).
4 Underlying EBITDA margin: Underlying EBITDA as a percentage of revenue.
5 Gross available funds: Cash and cash equivalents plus term deposits and other financial assets, less non-current
available-for-sale financial assets and other restricted financial assets.
6 Net debt: Cash and cash equivalents less current and non-current borrowings.
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RESULTS OF OPERATIONS (Unaudited)
The following table sets out selected financial information of the Group’s operations for the six months
ended 30 June 2013 and 30 June 2012:

In millions of US$ (unless stated otherwise)
Alumina Other
2012 and Non- Intra Group
As restated Ferroalloys Iron ore Aluminium Ferrous Energy Logistics Corporate Eliminations Total
Segment revenue
2013 1,235 967 477 361 331 122 - (284) 3,209
2012 1,333 983 453 302 358 164 4 (351) 3,246
Segment operating profit/(loss)
2013 347 395 47 (249) 73 37 (176) - 474
2012 383 416 (6) (109) 176 22 (70) - 812
Segment operating profit/(loss) margin
2013 28.1% 40.8% 9.9% (69.0)% 22.1% 30.3% n/a - 14.8%
2012 28.7% 42.3% (1.3)% (36.1)% 49.2% 13.4% n/a - 25.0%
Underlying EBITDA
2013 380 462 24 (3) 137 52 (108) - 944
2012 451 473 48 (13) 215 35 (67) - 1,142
Underlying EBITDA margin
2013 30.8% 47.8% 5.0% (0.8)% 41.4% 42.6% n/a - 29.4%
2012 33.8% 48.1% 10.6% (4.3)% 60.1% 21.3% n/a - 35.2%
% of Group revenue excluding inter-segmental revenues
2013 38.3% 30.0% 14.8% 11.2% 5.4% 0.3% - - 100.0%
2012 40.8% 30.3% 13.6% 9.3% 4.7% 1.3% - - 100.0%
% of Group underlying EBITDA
2013 40.3% 48.9% 2.5% (0.3)% 14.5% 5.5% (11.4)% - 100.0%
2012 39.5% 41.4% 4.2% (1.1)% 18.8% 3.1% (5.9)% - 100.0%
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For further information, please contact:

ENRC: Investor Relations Mounissa Chodieva [phone]
Charles Pemberton [phone]
Alexandra Leahu [phone]

ENRC: Press Relations: Julia Kalcheva [phone]

Capital MSL (Press Relations Advisor to ENRC):
Ian Brown [phone]

The information set out in this announcement relates to the six months ended 30 June 2013 and, unless otherwise stated, is
compared to the corresponding period of 2012, the six months ended 30 June 2012. The Chief Executive Officer’s Outlook
statement includes an update for the period since 30 June 2013. Where applicable in the document all references to ‘t’ are to
metric tonnes, to ‘kt’ are to thousand metric tonnes, and ‘mt’ to million metric tonnes unless otherwise stated. Unless stated
otherwise, statements relating to market data contained in this announcement are based on external sources, for example
research institutes and industry bodies and are derived from actual and/or estimated data relating to 2012 and 2013 and are
prepared in H1 2013 or early H2 2013.

Eurasian Natural Resources Corporation PLC (‘ENRC’) will announce its 2013 Half Year Results on Wednesday, 14 August
2013. There will be a conference call for investors and analysts, commencing at 09.30 (London time). Slides for the Half
Year Results conference call are available on the ENRC website (www.enrc.com). Participant dial-in details are as follows:

UK Toll Number: 02031394830
UK Toll-Free Number: 08082370030
Pin: 58589024#

Forward-looking statements
This announcement includes statements that are, or may be deemed to be, ‘forward-looking statements’. These forward-
looking statements can be identified by the use of forward-looking terminology, including the terms ‘believes’, ‘estimates’,
‘plans’, ‘projects’, ‘anticipates’, ‘expects’, ‘intends’, ‘may’, ‘will’, or ‘should’ or, in each case, their negative or other variations
or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These
forward-looking statements include matters that are not historical facts or are statements regarding the Group’s intentions,
beliefs or current expectations concerning, among other things, the Group’s results of operations, financial condition,
liquidity, prospects, growth, strategies, and the industries in which the Group operates. Forward-looking statements are
based on current plans, estimates and projections, and therefore too much reliance should not be placed upon them. Such
statements are subject to risks and uncertainties, most of which are difficult to predict and generally beyond the Group's
control. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and
circumstances. The Group cautions you that forward-looking statements are not guarantees of future performance and that if
risks and uncertainties materialise, or if the assumptions underlying any of these statements prove incorrect, the Group’s
actual results of operations, financial condition and liquidity and the development of the industry in which the Group operates
may materially differ from those made in, or suggested by, the forward-looking statements contained in this announcement.
In addition, even if the Group’s results of operations, financial condition and liquidity and the development of the industry in
which the Group operates are consistent with the forward-looking statements contained in this announcement, those results
or developments may not be indicative of results or developments in future periods. A number of factors could cause results
and developments to differ materially from those expressed or implied by the forward-looking statements including, without
limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in regulation,
currency fluctuations, changes in business strategy, political and economic uncertainty. Subject to the requirements of the
Prospectus Rules, the Disclosure and Transparency Rules and the Listing Rules or any applicable law or regulation, the
Group expressly disclaims any obligation or undertaking publicly to review or confirm analysts’ expectations or estimates or
to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any changes in the
Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement
is based. Nothing in this announcement should be construed as a profit forecast. The forward looking statements contained
in this document speak only as at the date of this document.

Listing Rules
This 2013 Half Year Results Announcement has been prepared to meet the requirements of the Listing Rules of the United
Kingdom’s Financial Conduct Authority to provide additional information to shareholders and should not be relied on for any
other purpose or by any other party.
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CONTENTS
Page
CHIEF EXECUTIVE OFFICER’S STATEMENT 7
CHIEF FINANCIAL OFFICER’S REVIEW 9
DIVISIONAL OVERVIEW 16
OPERATING AND FINANCIAL REVIEW 18
CONSOLIDATED INTERIM INCOME STATEMENT (UNAUDITED) 43
CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) 44
CONSOLIDATED INTERIM BALANCE SHEET (UNAUDITED) 45
CONSOLIDATED INTERIM CASH FLOW STATEMENT (UNAUDITED) 46
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (UNAUDITED) 47
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) 49
SHAREHOLDER INFORMATION 82
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CHIEF EXECUTIVE OFFICER’S STATEMENT

The Group has faced a challenging past six months, with Board and management changes, the
launch of a Serious Fraud Office (‘SFO’) investigation and a weakening commodity price environment,
which has impacted the Group’s financial performance. The Group has reported Underlying EBITDA
of US$944 million, a decrease of 17.3% and a decrease in Earnings per Share (‘EPS’) of 55.3% to US
17 cents.

Takeover Offer
In June of this year the terms of an offer to privatise the Group were announced by Eurasian
Resources Group B.V., a consortium comprised of the Group’s founding shareholders and the
Government of the Republic of Kazakhstan. An offer document in this regard was released on 7
August 2013. Kazakhmys Plc shareholders recently voted in favour of selling their 26% stake in
ENRC, which was a precondition to the offer. An update from the Independent Committee of the
Board of ENRC on the takeover offer, in the form of a response to the consortium’s offer document,
will be released shortly.

Serious Fraud Office (‘SFO’) Investigation
The SFO opened its formal investigation into the activities of the Group in April of this year and we
have retained the legal services of Fulcrum Chambers LLP (‘Fulcrum’) and Debevoise & Plimpton
LLP to assist us with this investigation. Earlier this year in March the SFO served a Section 2 Notice
on the Company’s previous lawyers, Dechert LLP (‘Dechert’), requiring delivery up of all non-
privileged documentation. This has since been effectively transferred to Fulcrum, in the form of two
Section 2 Notices. We are pleased with this move as it allows our legal team to properly address the
relevant issues and progress the investigation. The first Notice requires the delivery of certain Dechert
materials by the end of August 2013 and the second Notice requires that the remainder of the Dechert
materials are submitted to the SFO by the end of October 2013. An initial tranche of documents was
provided at the end of July. The Group continues to cooperate fully with the SFO and are committed
to a full and transparent investigation of all of our procedures and conduct.

Operational Performance
Operationally, the Group has performed well in the first half of 2013. With the exception of iron ore
sales volumes, production and sales for all of our key commodities have either been in line or ahead
of comparable period in 2012. Our focus on cost control has yielded positive results, with ferroalloys
unit costs having fallen almost 10% and iron ore unit costs increasing only 4% - 6%, both well below
earlier market guidance.

Development Projects and Financing
Our investment programme continues to reflect our determination to maintain our leading low cost
position, to expand our product portfolio and develop our existing asset base. In Kazakhstan, the
development of the New Aktobe Ferroalloys Plant remains on budget and on-track for commissioning
in Q4 2013. The reconstruction of Power Unit 6 and all major construction works on the anode plant
were completed in H1 2013 and the Group’s railway fleet was expanded through the acquisition of
further wagons and containers. All of these projects aim to continue to strengthen our integrated and
low-cost model in Kazakhstan.

In Africa, the first phase of development of the Group’s Frontier Mine is now complete and
Chambishi’s solvent extraction and electrowinning (‘SX/EW’) plant was commissioned, leading to a
significant increase in copper contained production.

The Group’s capital expenditure cashflows for H1 2013 amounted to US$720 million (H1 2012:
US$1,075 million), a decrease of 33%. The majority of expenditures were incurred by the Ferroalloys
Division, followed by the Other Non-ferrous and Iron Ore Divisions.
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The Group entered into two new financing agreements in H1 2013. Firstly, an amendment to the
US$1 billion loan from VTB Group was signed, which extends the date of maturity from 25 April 2014
until 25 June 2018. Secondly, a new US$500 million facility was entered into with Sberbank of Russia.
The Group has also negotiated to delay the remaining BML acquisition payment to June 2014 at the
earliest, providing additional relief during the current period of intensive capital spend.

Safety Performance
There were seven fatalities at our operations in H1 2013 (H1 2012: 12). Of these, five were
employees (H1 2012: 6) and two contractors (H1 2012: 6). The Board and senior management team
would like to express their sincere condolences to the families involved in these unacceptable and
tragic events. Following these accidents the Group reviewed plans for the roll-out of corporate
standards on fatal risk control to ensure full implementation of the most critical risks across our
Divisions during 2013.

There were 40 employee lost time injuries (‘LTI’) recorded during H1 2013 (H1 2012: 44) with a
corresponding LTIFR of 0.56 (H1 2012: 0.62). Our LTI definition is aligned with international practices,
and we continue to work with our contractors to develop reliable lost-time injuries reporting. In
addition, we have further improved our contractor management processes following several
contractor working-at-height accidents during construction of our new ferroalloys plant in Aktobe.

As part of our zero injuries aspiration, we continue to focus on developing our safety culture and
improving safety behaviours as well as paying increased attention to risk assessment and process
safety improvements.

As a Group, we employ almost 80,000 employees across four continents. Our people are the very
core of our business and I would like to thank all of our employees for their commitment and passion,
particularly during such challenging times.

Felix J Vulis
Chief Executive Officer
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CHIEF FINANCIAL OFFICER’S REVIEW

INCOME STATEMENT

The Group’s performance continued to be impacted by lower commodity prices. The Group generated
Underlying EBITDA of US$944 million, down 17.3% from the comparable period in 2012. The Group
continued its efforts to control costs in this challenging economic environment.

Basic EPS for the period was US 17 cents (June 2012: US 38 cents) and adjusted EPS was US 21
cents (June 2012: US 40 cents).

Revenue

Revenue was significantly impacted by lower market prices. Nevertheless higher sales volumes
across all Divisions, except for the Iron Ore Division, helped to maintain H1 2013 revenue broadly
level when compared to the H1 2012 at US$3,209 million (H1 2012: US$3,246 million). Higher
revenue was reported in the Alumina and Aluminium and Other Non-ferrous Divisions where
production and sales volumes increased.

Sales prices were lower for all of the Group’s commodities, except for iron ore which stayed flat.
Reduction in prices significantly impacted the financial results.

The average realised prices for ferroalloys were 10.9% below the average prices in the same period
last year. The chrome ore average price was 18.0% down and the manganese concentrate average
price was 1.3% below the corresponding period of 2012. Sales volumes of LC and MC FeCr as well
as other ferroalloys also had an adverse impact on the Division’s revenue. Sales of chrome ore, high-
carbon ferrochrome and FeSiCr increased revenue.

Average realised prices for iron ore were broadly flat compared to the first half of 2012 with a 2.9%
reduction in the realised prices for pellets and a 1.0% increase in concentrate price. The product mix
was more favourable to the Iron Ore Division’s revenue in H1 2013 with a higher share of pellets and
lower volumes of sold concentrate and screening.

The Alumina and Aluminium Division reported higher sales volumes in H1 2013. The division is now
operating at full production capacity following the technological problems experienced at the alumina
refinery in early 2012.

The Other Non-ferrous Division had the highest increase in revenue fully attributable to higher sales
volumes, with the majority coming from Frontier’s start-up and commissioning of the copper solvent
extraction plant at Chambishi. Average realised prices for cobalt metal were 11.9% below H1 2012
and 8.3% below for copper metal.

The Ferroalloys Division accounted for 38.3% of the Group revenue, the Iron Ore Division 30.0%, the
Alumina and Aluminium Division 14.8%, the Other Non-ferrous Division 11.2%, the Energy Division
5.4% and the Logistics Division 0.3%.

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Cost of sales

Higher costs of sales were driven mainly by growth of the scale of our operations and greater
production output, particularly in the Other Non-ferrous Division. In addition, increased wage rates,
higher depreciation and Mineral Extraction Tax (‘MET’) has also contributed to cost of sales growth.
These were partially offset by the lower cost of some input materials and management efforts to keep
costs under control by continuing process optimisation and cost cutting initiatives.

Distribution costs

Distribution costs rose by 5.7% to US$280 million (H1 2012: US$265 million). The increase was
mainly driven by higher volumes in the Other Non-ferrous and Energy Divisions, partially offset by
lower transportation costs in the Ferroalloys Division as a result of shipping to less remote
destinations.

General and administrative costs

General and administrative costs reduced by 6.3% to US$340 million (H1 2012: US$363 million).
This is predominantly due to lower social investments and staff costs, partially offset by increased
professional and consultancy costs including costs incurred for the Group’s bid defence and related
regulatory costs which totalled US$25 million at 30 June 2013.

Exploration expenses

Exploration expenses were 18.6% down and amounted to US$48 million (H1 2012: US$59 million).

Net other operating income

Net other operating income comprised mainly foreign exchange gains and losses from operating
activities.

Net finance costs

Net finance costs increased by 88.5% to US$164 million (H1 2012: US$87 million) as a result of the
increased borrowings to support the Group’s capital expenditure projects and strategic development.
Total finance costs capitalised were US$43 million for the six months ended 30 June 2013 (2012:
US$16 million).

Share of loss of joint ventures and associates

The net share of joint ventures and associates results amounted to a US$0.6 million loss (H1 2012:
US$9 million). This is comprised of the Group’s share in the loss of its joint venture investments in
Taurus Gold Limited of US$1.1 million and the Group’s share in the profits of Asmare Coking Coal of
US$0.5 million.

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