Is reliable and consistent data the holy grail and will investors thank

Is reliable and consistent
data the holy grail and will
investors thank you for it
Michael D Lynch-Bell, Senior Independent Director
KAZ Minerals PLC
21 November 2014
IMPORTANT NOTICE
DISCLAIMER
Certain statements included in this presentation contain forward-looking information concerning KAZ Minerals’ strategy, business, operations,
financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which KAZ Minerals
operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not
all of which are within KAZ Minerals’ control nor can they be predicted by KAZ Minerals.
Although KAZ Minerals believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given
that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements.
No part of this presentation constitutes, or shall be taken to constitute, an invitation or inducement to invest in KAZ Minerals PLC, or any other
entity, and shareholders are cautioned not to place undue reliance on the forward-looking statements. Except as required by the Rules of the UK
Listing Authority and applicable law, KAZ Minerals does not undertake to update or revise any forward-looking statements whether as a result of
new information, future events or otherwise.
Neither this presentation, which includes the question and answer session, nor any part thereof may be recorded, transcribed, distributed,
published or reproduced in any form, except as expressly permitted by the Company in writing. By attending this presentation, whether in person
or by webcast or call, you agree with the foregoing and that, upon request, you will promptly return any records or transcript of the presentation
without retaining any copies.
Basis of preparation
As previously announced, under the Restructuring plan, the Group transferred a number of its mature mining and power operations which were
primarily located in the Zhezkazgan and Central Regions (the ‘Disposal Assets’) to Cuprum Holding. The Board approved the Restructuring on 3
July 2014, independent shareholders approved the Restructuring on 15 August 2014 and the Restructuring was completed on 31 October 2014.
At 30 June 2014, as the Restructuring had not been approved by the Board and the independent shareholders, so the Disposal Assets did not
meet the criteria to be classified as assets held for sale and a discontinued operation. Consequently, the results of the Disposal Assets for the six
months ended 30 June 2014 and 30 June 2013 have been included with the results of the Group’s continuing operations as reported in the 2014
Half-Yearly Report.
2
INTRODUCING KAZ MINERALS
TARGET
Delivery of Major Growth Projects
Industry leading cost position
Shareholder value creation
RESTRUCTURING COMPLETE
Company renamed ‘KAZ Minerals’
High margin, cash generative operating assets
DISPOSAL OF NON-CORE ASSETS COMPLETED
$2.2 billion of cash proceeds
Majority free float
3
RESTRUCTURING COMPLETE
Disposal Assets
Copper and other metals
Coal mines
Captive Power
KAZ Minerals
Growth projects
Copper and other metals
4
TRANSFORMING THE BUSINESS MODEL
2013 DISPOSAL ASSETS AND KAZ MINERALS SPLIT
Cu in concentrate
production
EBITDA¹
Sustaining capex
Employees
72%
28%
(228 kt)
(87 kt)
47%
53%
($342 mln)
($389 mln)
85%
15%
($415 mln)
($72 mln)
81%
19%
(43,000)
(10,000)
Disposal Assets
5
KAZ Minerals
Notes:
1. Excludes special items and includes intra-group transactions of $9 million between the Disposal Assets and KAZ Minerals which are eliminated on consolidation to
give the Group’s EBITDA (excluding special items) from continuing operations for the year ended 31 December 2013 of $722 million.
.
HIGH GROWTH PRODUCTION PROFILE
2014 OPERATIONAL & FINANCIAL INDICATORS
COPPER IN CONCENTRATE OUTPUT (kt)
5 mines, 4 concentrators
Positive free cash flow
Estimated 80 – 85 kt of copper cathode
East Region¹
Bozshakol
Aktogay
By-products : 37 – 42 koz of gold,
3,300 – 3,700 koz of silver, 115 – 120 kt of zinc in concentrate
Net cash cost – 120-140 USc/lb
Sustaining capex – $80-$100 million
Employees2 – 10,000
GROWTH PROJECTS
Bozshakol commissioning H2 2015
Aktogay oxide Q4 2015, sulphide 2017
Koksay at scoping stage
Employees estimated for Bozshakol and Aktogay – 3,000 at full
operation
6
Notes:
1. Current estimates for the East Region and Bozymchak.
2. Estimated number of employees of KAZ Minerals.
Today
2018
HIGH GROWTH, LARGE SCALE, LOW COST
COPPER CASH COST1 (USC/LB)
187
185
154
KGHM
Lundin
145
Freeport-McMoRan
Antofagasta
138
First Quantum
120-140
East Region and
Bozymchak 2014²
110-130
102
80-100
Aktogay³
Southern Copper
Bozshakol⁴
COPPER PRODUCTION CAGR5 (2013-2018E)
28%
23%
12%
5%
KAZ Minerals
7
First Quantum
Southern Copper
Freeport-McMoRan
3%
3%
Antofagasta
Lundin
(1)
KGHM
Notes:
1. Lundin C1 2014 guidance for full year. KGHM net cash cost as reported in H1 2014 report. All other companies as reported net cash cost (C1) for Q1 2014.
2. Company estimate for 2014.
3. Estimated net cash cost for copper cathode equivalent sales of 110 to 130 U.S. cents per pound (in 2014 terms) in the first 10 years after the commencement of the sulphide concentrator’s
operation, calculated using a long-term molybdenum price of $30,000 per tonne.
4. Estimated net cash cost for copper cathode equivalent sales of 80 to 100 U.S. cents per pound (in 2014 terms) for the first 10 years after the concentrator has been commissioned,
calculated using a long-term gold price of $1,300 per ounce.
5. Broker equity research estimates. KAZ Minerals’ production growth estimate excludes the Koksay project.
Contents
‒ Reserves are a Key driver of financial results
‒ Indicative procedures relating to reserves reporting
‒ Reserves reporting requirements
‒ Reserves reporting stakeholders
‒ Stakeholder characteristics
‒ Investor information and investment decisions
‒ Transactions – acquisitions and divestments
‒ Possible benefits of comparable reserves and resources
information?
‒ Other factors to consider
‒ What reserves / resources Information is most useful to
investors
Reserves are a Key driver of financial results
‒ Reserve estimates are a key input for several financial
estimates and calculations
‒ Depreciation, depletion, and amortization
‒ Decommissioning / restoration obligation
‒ Fair value determination
‒ Transactions – acquisitions and divestments
‒ Impairment – recoverability of assets
‒ Financing arrangements with royalty / production payment
features
09
Indicative procedures relating to reserves reporting
► Reserves and resource disclosures are reported as
supplementary information i.e they fall outside of the
scope of the external audit assurance
► An auditors typical procedures include:
►
►
►
►
►
Understanding the company’s process
Assessing the company’s internal controls
Performing “Use of an expert / competent person” procedures
Analytical review procedures
Validating consistency of reserves / resource data to other
information obtained
Reserves reporting requirements are variable
US
Canada
UK
‒ Main market
‒ AIM
Europe
Norway
Hong Kong
Australia
And there’s more
Who are reserves reporting stakeholders?
‒ Users
•
•
•
•
•
•
•
•
Investor community
Lenders
Competitors
M&A
Government / public interest bodies
Technical consultants
Accounting profession
Interested public
Diversity in stakeholder characteristics
‒ Ability to command tailored financial reporting information
‒ Range of information available - financial statements or beyond?
‒ Level of sophistication
‒ Sophisticated users
‒ Industry specialists
‒ Use of information as inputs to own analysis using own assumptions
‒ Use of full range of value relevant information
‒ Less sophisticated users
‒ Greater reliance on financial statements
‒ Conflicts between stakeholders?
‒ Views on cost/ benefit of information
‒ View of what is useful information
‒ Is there one ‘answer’ that meets the needs of all users?
How does an investor obtain information on which to make
investment decisions?
‒ Financial statements, interim results, prospectuses (including
‒
‒
‒
‒
‒
‒
‒
‒
reserves disclosures and management commentary)
Analysts reports
Management statements, press releases, web sites
Site visits
Quality of management, track record and overall reputation
Comparable company and sector issues
Long term forecasts and projections
Company performance measures
Market protection and regulation
Transactions – acquisitions and divestments
‒ Asset valuation techniques are often dependent on reserve
estimates
‒ Discounted cash flow model based on reserves quantities
‒ $ implied value based on comparable market transactions
‒ Seller / purchaser will consider probable quantities and resources
in addition to proved quantities
‒ Understanding the resource profile is a key element in asset
valuation
‒ Nature of asset (location, formation type, development techniques)
‒ Expected development and production costs
‒ Other entity specific considerations
Possible benefits of comparable reserves and resources
information?
‒ Transparency?
‒ Comparability of assessments of asset or company value?
‒ Better data and therefore investment decisions?
‒ Efficiency in investment decisions?
BUT
‒ Does the current lack of comparability hinder investment
‒
‒
‒
‒
‒
decisions?
Can there be comparability?
Is there one ‘answer’ that meets the needs of all users?
Requires understanding and consistency of application
Requires consistency in standard setting
Published information likely to be different to management’s view
/ decision making process
And there are other factors to consider…
‒ Do published reserves and resources information reflect
management’s decision making process or that of an investor?
‒ Published information likely to be different to management’s view
‒ Often not the full resource base / potential
‒ Different assumptions (price / discount rate)
‒ Optimistic view?
‒ May in turn be different to an investor’s view
‒ Different views on risk (eg discount rate assumptions)
‒ Different views on sources of value (eg portfolio fit)
‒ Financial reporting and disclosure is only one source of information
What reserves Information is most useful to investors
► Consistent reserves / resources definitions
‒ Implementation of a single framework- UNECE?
► Proved plus probable reserves plus resources
‒ Range of quantities based on a range of assumptions
► Range of fair values based on a range of assumptions to
supplement Historical Cost
► Transparent and full disclosure of assumptions used:
‒
‒
‒
‒
‒
‒
Method and assumptions for determining reserves / resources
Future expected capital and operating costs
Pricing assumptions and source (eg long term planning price etc)
Uncertainties and key drivers impacting value
Mine life / licence expiry
Taxation
► Additional information relating to the status and expected timing of
asset development
► Independent audit?
The holy grail
Consistency
Comparability
Transparency
Simplicity
Energy and Mineral Studies
Resource management functions
Corporate business processes
Financial reporting standards
Michael D Lynch-Bell
Senior independent director
+44 20 7901 7800
E: [email protected]
21 November 2014

Download Report