Drilling at South mine at the Zhezkazgan Complex

KEY PERFORMANCE INDICATORS

The Group monitors performance against a set of Key Performance Indicators (KPIs) with the aim of delivering its strategic objectives.

Relevance

This is a measure of the underlying profitability of the Group, widely used in the mining sector.

How we measure

EBITDA is earnings before interest, taxation, the non-cash component of the disability benefits obligation, depreciation, depletion, amortisation, mineral extraction tax and royalties, as adjusted for special items.

2016 performance

EBITDA (excluding special items) increased by $149 million compared to 2015, with a $47 million increase in EBITDA from Bozymchak which was operating at design capacity throughout 2016, and the first profit contributions from Aktogay oxide and Bozshakol sulphide which achieved commercial production on 1 July 2016 and 27 October 2016 respectively. Aktogay oxide reported EBITDA of $29 million, which excludes $4 million capitalised during the period prior to commercial production. Bozshakol achieved an EBITDA of $67 million in 2016 from commercial production in the final two months of the year, with $137 million from the first 10 months capitalised. The East Region’s EBITDA declined by 3% compared to the prior year to $227 million as lower copper prices and sales volumes were partially mitigated by cost reductions resulting from a weaker tenge and ongoing cost saving initiatives.

Relevance

Monitors Group cash flows used to reduce debt, fund returns to shareholders and invest in the future growth and development of the business.

How we measure

Net cash flow from operating activities before capital expenditure and non-current VAT associated with expansionary and new projects less sustaining capital expenditure.

2016 performance

Group Free Cash Flow for the year improved by $85 million compared to 2015, reflecting the higher level of profitability in 2016. The Group sought to postpone sustaining capital expenditure where possible and reported investment of $51 million, $17 million below the prior year. The ramp up of the new projects has raised working capital requirements with a working capital outflow of $73 million in 2016 (2015: $37 million). MET payments increased by $19 million with higher extraction volumes due to output at Bozshakol and Aktogay. Interest paid rose compared to the 2015 due to higher borrowing costs. Interest payments of $179 million (2015: $147 million) were incurred largely in respect of the major growth projects.

Relevance

EPS based on Underlying Profit can be used as an indication of profits available to shareholders for distribution or retention in the business.

How we measure

Profit/(loss) before special items and other non-recurring or variable non-trading items, and their resulting taxation impact, divided by the weighted average number of ordinary shares in issue during the year.

2016 performance

Underlying EPS was $0.40 per share compared to a loss of $0.02 in the prior year. Underlying profit improved by $190 million primarily due to a revenue driven $128 million increase in operating profit. The Group benefited from the commencement of sales at Bozshakol and Aktogay oxide, accompanied by strong cost control. Foreign exchange movements also contributed to the increase in Underlying EPS with a net foreign exchange gain of $38 million in 2016 compared with a net loss of $60 million in the prior year, which resulted from the devaluation of the Kazakhstan tenge and Kyrgyz som during the second half of 2015. Interest costs were $19 million higher than in the prior year with the interest on borrowings relating to the Aktogay oxide and Bozshakol sulphide operations being expensed in the income statement from the date the operations achieved commercial production.

Relevance

Ore output indicates our ability to maximise production from existing assets and the growth projects. This KPI should be considered alongside other measures including production costs and maintenance spend, to ensure extraction is valuable.

How we measure

Kilotonnes of ore extracted from our mining operations.

2016 performance

Ore output in 2016 has increased by more than three times compared to 2015 with increased extraction at the two major projects. At Bozshakol, 28,272 kt was extracted (2015: 7,099 kt) of which 14,886 kt was clay bearing ore stockpiled for future processing at the clay plant and 13,386 kt was ore mined to feed the sulphide concentrator. Extraction at Aktogay of 16,086 kt (2015: 3,003 kt), was largely oxide ore for placing on heap leach cells and to expose the sulphide ore body to support the ramp up of the concentrator. Ore extraction at the East Region and Bozymchak mines increased by 5% to 4,664 kt, as a 486 kt increase from the fully ramped up Bozymchak mine offset a 257 kt decline from the East Region, as Yubileyno-Snegirikhinsky mine was fully depleted in December 2016 and output was restricted at Orlovsky mine due to ongoing ventilation shaft maintenance. In 2017, it is the Group’s intention to adopt a processing KPI to replace ore output, to reflect the focus of management on ramping up the two major projects.

Relevance

This measures the performance of the Group in maintaining its low cost base whilst maximising revenues through the sale of by-products.

How we measure

Cash operating costs, excluding purchased copper products, less by-product revenues, divided by the volume of own copper cathode equivalent sales. Net cash cost is calculated over the full year including the periods prior to the achievement of commercial production.

2016 performance

The 2016 net cash cost of 59 USc/lb was below the Group’s net cash cost in 2015. Excluding the impact of by-product credits, the Group’s gross cash cost in 2016 of 156 USc/lb has reduced compared to 230 USc/lb in 2015, reflecting the inclusion of the low cost Aktogay oxide and Bozshakol sulphide operations in 2016 and the beneficial impact of the weakening of the Kazakhstan tenge. Bozshakol reported a gross cash cost of 106 USc/lb in its first year of operation and after the deduction of gold and silver by-product revenues, a net cash cost of 27 USc/lb. Aktogay oxide, also in its first year, recorded gross and net cash costs of 114 USc/lb with no by-products. The East Region benefited from the tenge devaluation and cost saving measures, and together with Bozymchak, reported a combined gross cash cost of 191 USc/lb (2015: 230 USc/lb) and a net cash cost of 68 USc/lb (2015: 109 USc/lb).

Relevance

Copper, the Group’s principal product, represents 69% of Gross Revenue and is the main operational indicator.

How we measure

Copper cathode equivalent produced from own ore either as refined copper cathodes or as recoverable copper in concentrate sold.

2016 performance

Cathode equivalent production in 2016 of 140 kt rose by 59 kt compared to 2015, driven by production from the major projects with 18 kt of copper cathode output from Aktogay oxide (2015: 0.4 kt) and 45 kt of copper cathode equivalent production from Bozshakol sulphide (2015: nil). Bozymchak produced 7.2 kt of copper cathode equivalent (2015: 2.2 kt), with a full year of operating at 100% of design capacity in 2016. East Region cathode output has fallen from 78.5 kt in 2015 to 70.2 kt in 2016 with lower copper in concentrate production from the Orlovsky mine which is operating a six-day week due to ventilation shaft maintenance and delays in processing Yubileyno-Snegirikhinsky ore due to road repairs. In 2017, the Group will move to a copper production KPI, defined as the payable copper metal in concentrate and cathode produced.

Relevance

Indicates how much cash flow is required to maintain current output and how efficient we are at controlling capital expenditure.

How we measure

Sustaining capital expenditure for our mining operations, divided by copper cathode equivalent production volumes. In 2016 the KPI includes only production and capital expenditure from the established operating mines of the East Region and Bozymchak.

2016 performance

2016 Performance Maintenance spend per tonne of cathode has decreased by 22% compared to 2015 with lower sustaining capital expenditure in the year. East Region and Bozymchak sustaining capital expenditure of $50 million was $17 million lower than in 2015, and below the guided range of $70 million to $80 million, with capital expenditure being deferred where possible. Capital expenditure included ongoing improvements to ventilation at Orlovsky mine, the modernisation of the Nikolayevsky concentrator which was completed in 2016, replacement of mining fleet and stripping works at the Bozymchak open pit mine. This KPI will include Bozshakol and Aktogay in the future as their operations become established.

Relevance

A key measure of the Group’s operational health and safety performance.

How we measure

The number of employee and contractor fatalities directly occurring from an occupational injury or disease at the Group’s operations during the year. The definition of an occupational fatality is taken from the ICMM health and safety performance indicators published in January 2014, which the Group adopted in 2015.

2016 performance

Six fatalities occurred in 2016, involving three contractors and three employees, compared to three fatalities in 2015 and seven in continuing operations in 2014. KAZ Minerals considers all fatalities to be avoidable and has a target of zero fatalities. The overall number and frequency of fatal incidents remains significantly lower than five years ago. Three of the six fatalities reported in 2016 resulted from a single incident. Five of the six fatalities occurred in the East Region assets and there was one construction fatality at Aktogay. No fatalities have occurred in any of the operational teams at Bozshakol, Aktogay or Bozymchak from the commencement of production through to the end of 2016. The Group has implemented enhanced safety standards in 2016 and conducted a review of occupational health risks in the East Region. We are also trialling a new pay scheme at the Aktogay project aimed at incentivising safe behaviour and greater engagement between management and staff on safety issues.

*2014 Annual Report and Accounts stated six fatalities from continuing operations and 13 in the full Group. One fatality in 2014 had been initially assessed as due to natural causes but has been subsequently reclassified as work-related.

Relevance

TRIFR measures the frequency of occupational injuries occurring at the Group’s operations and is therefore a key indicator of our health and safety performance.

How we measure

The number of Total Recordable Injury (TRI) cases occurring for every million man-hours worked during the year. The definitions of TRI and TRIFR are taken from the ICMM health and safety performance indicators published in January 2014.

2016 performance

There were 51 TRI cases in 2016, in line with 2015. The number of hours worked increased from 40.8 million to 42.5 million, resulting in a reduction in TRIFR to 1.20 (2015: 1.25). The leading causes of injury in 2016 were falls from height (eight cases), falls from same height (seven cases) and manual handling of tools (six cases). The enhanced safety procedures being implemented by the Group will seek to address these and other key risk areas by introducing stricter controls on working practices.

2 ICMM definitions for TRIFR were adopted by the Group in 2015. The 2014 TRIFR for continuing operations has been estimated by applying the new injury definition to available historic data.

14C represents continuing operations only in 2014

13C represents continuing operations only in 2013