Russian Copper Company - Альфа-Банк
Transcription
Russian Copper Company - Альфа-Банк
NON-FERROUS METALLURGY Russian Copper Company Olga Gorokhovskaya Viktoriya Kravchuk 31.03.2006 [email protected] (095)786-4877 [email protected] (095) 786-4269 www.alfabank.com Moscow CLN Structure Issuer Borrower Guarantors Volume Expected issue date Maturity Put-option execution Coupon period Circulation Jurisdiction Lead manager EMSP B.V. Russian Copper Company Limited • CJSC Russkaya Mednaya Kompaniya • CJSC Ormet • CJSC Novgorodsky Metallurgichesky Zavod • LLP Aktubinskaya Mednaya Kompaniya $100 mln December 2005 36 months 24 months 6 months Euroclear/Clearstream, OTC English Law Alfa-Bank Investment Summary • Russkaya Mednaya Kompaniya (RMK) is one of the three top copper companies in Russia RMK controls 14% of the copper cathode market and 40% of the non-ferrous scrap market (according to Expert’s data). RMK runs eleven enterprises in four regions in Russia and Kazakhstan. These facilities form a cyclical production turnaround including mining, scrap picking, copper concentrate and black copper production as well as copper hot-rolled rod production and production of finished goods on the base of copper and its alloys. • In 2004 consolidated IAS revenues of RMK totaled $530 mln and assets – $600 mln In 2004 RMK produced 116,000 tons of cathode copper, 36,000 tons of hot-rolled rod, 29,000 tons of zinc, 26,000 tons of copper and bronze alloys and 25,000 tons of non-ferrous mill products. According to experts’ estimates, RMK revenues may amount to $740 mln by the end of 2005 and net income may reach $90 mln. • In October 2005 CJSC “KMEZ” attracted a syndicated loan totaling $100 mln CJSC Kyshtimsky Medeelektrolitny Zavod (one of RMK’s companies) attracted a syndicated loan in the amount of $100 mln. The loan is used for improvement of credit portfolio structure, earlier targeted modernization of fixed assets, and for production acceleration. The annualized gain from debt refinancing according to management estimates will reach $3 mln. • In 2008-2009 RMK plans to conduct an IPO Russian Copper Company 1 RUSSIAN COPPER COMPANY .................................................................................................................... 1 Investment Summary ................................................................................................................. 3 Group overview ..................................................................................................................... 3 Credit Linked Notes (CLNs) .................................................................................................. 4 Russkaya Mednaya Kompaniya ................................................................................................ 6 Group’s Structure .................................................................................................................. 6 Market outlets, market share and distribution ....................................................................... 7 Investments ........................................................................................................................... 8 RMK plans and purposes of fund raising .............................................................................. 9 Description of the Group’s Facilities ........................................................................................ 11 Russkaya Mednaya Kompaniya.......................................................................................... 11 Mining and processing of copper ore .................................................................................. 13 Fire and electrotechnical black copper refining ................................................................... 18 Precision casting and non-ferrous bar rolling ...................................................................... 22 Group Financial Analysis ......................................................................................................... 25 Assets analysis.................................................................................................................... 25 Liabilities analysis................................................................................................................ 26 Financial indicator analysis ................................................................................................. 28 Forecast of RMK revenues.................................................................................................. 29 Copper Market Overview ......................................................................................................... 30 Global copper market dynamics.......................................................................................... 30 Current situation on copper markets ................................................................................... 31 Market segmentation: Key players ...................................................................................... 31 2 Russian Copper Company Investment Summary Group overview RMK controls 14% of the copper cathode market, 24% of Russian cupriferous raw material stocks and 40% of the non-ferrous scrap market (according to Expert’s data). Holding RMK is the third-largest copper producer in Russia after Norilsk Nickel and UGMK. RMK operates eleven enterprises that can be divided into several groups: mining (CJSC Ormet, OJSC Aleksandrinskaya Gornorudnaya Kompaniya et al) and metallurgical enterprises (CJSC Karabashmed, CJSC Kyshtymsky Medeelektrolitny Zavod, LLC Zavod Tochnih Splavov et al). The RMK enterprises are represented in four regions in Russia and Kazakhstan. They form a cyclical production turnaround, including copper mining, scrap picking, copper concentrate and black copper production as well as copper hot-rolled rod production and production of finished goods on the base of copper and its alloys. According to experts’ estimates, RMK revenues may amount to $740 mln by the end of 2005 year and net income may reach $90 mln. Fig. 1. SWOT analysis STREGNTHS + One of the biggest copper companies in Russia with a market share of about 14% + Unique mining assets + Experienced team of managers + High share of exports in total turnover + Modern equipment that meets international standards + Up-to date technologies of copper production + Cyclical production turnaround + Compact geographical situation of fixed assets + Stable growth of revenues and favorable financial indicators WEAKNESSES Ө Leverage growth caused by large investments in production modernization and asset acquisition Ө Demand for large investments for production modernization OPPORTUNITIES ↑ ↑ ↑ ↑ Increase of refining copper output Acquisition of raw material assets Modernization of production and increase of profitability IPO THREATS ↓ Experts’ estimate that world copper prices may stagnate for 2-3 year period ↓ Growth in copper export tariff Sources: Group’s reports, Alfa Bank estimates Russian Copper Company 3 Credit Linked Notes (CLNs) Fig. 2. Credit Linked Note Structure Issuer Borrower Guarantors Issue Volume Issue Date Maturity Put-option execution Coupon period Coupon base Circulation Jurisdiction Lead manager EMSP B.V. Russian Copper Company Limited CJSC Russkaya Mednaya Kompaniya CJSC Ormet CJSC Novgorodsky Metallurgichesky Zavod $100 mln 1H December, 2005 36 months 24 months 6 months Actual/360 Euroclear/Clearstream, OTC English law Alfa Bank Sources: RMK, Alfa Bank In 2005 Alfa Bank registered a Global Repackaging Program in a total amount of $10 bln that can be realized to professional market participants. Within the framework of the above Program, a new structure called Emerging Markets Structured Products B.V. (EMSP B.V.) was founded under Netherlands jurisdiction. EMSP B.V. is run by an independent international management company TMF and acts as an Issuer of the RMK Credit Linked Notes. An Issuer is legally and economically independent from a Borrower and a Lead Manager. EMSP B.V. provides a loan to the Borrower – Russian Copper Company Limited (RCC), the parent company of the Group RMK. The Issuer issues notes, the parameters of which coincide with the relative parameters of the raised loan. The CLNs are served in the same manner as RCC serves the above loan. Major Russian and Kazakh companies of the Group are guarantors of the loan. The list of guarantors comprises one of the biggest Russian producers of cathode copper – OJSC Russkaya Mednaya Kompaniya, the biggest mining asset of the Group; CJSC Ormet, one of the biggest processors of the Group; CJSC Novgorodsky Metallurgichesky Zavod; and LLP Aktubinskaya Mednaya Kompaniya, which mines a unique field – the ore mine “50 Years of October”. In case of default, the Issuer assigns the loan to the Trust company (JP Morgan Trustee). The Trust company triggers the procedure of debt collection for the Issuer and the Guarantors. The international legal company Lovells is responsible for preparation of the legal documents, including legal opinion on the CLN issue. 4 Russian Copper Company Fig. 3. CLN – General Scheme ЗАЕМЩИК BORROWER Amtel RussianHoldings Copper Holland N.V. Company КРЕДИТ LOAN TRUSTEE JP Morgan Переуступка Loan and guarantee прав по кредиту assigningиin case of default поручительству в случае дефолта ISSUER ЭМИТЕНТ EMSP B.V. Principal andосновной Погашение interest rate amortization суммы долгаon и CLN процентов по кредиту ПОРУЧИТЕЛЬСТВО GUARANTEE ПОРУЧИТЕЛИ : GUARANTORS ПЛАТЕЖНЫЙ PAYING AGENT АГЕНТ JP Morgan Chase ИНВЕСТОР INVESTORS Principal andосновной Погашение interest суммы и купона amortization on CLN по кредитным нотам Preliminary Предпоставка денегreservation fund на счет on Эмитента the Issuer account у ПА by PA SALE OF CLN ПРОДАЖА НОТ АЛЬФА ALFA -БАНК BANK Participation об Соглашение участии Agreement CJSC RMK «ШК « Амтел o ОАО CJSC Ormet Поволжье» CLSC NMZ o ООО «ХК « Амтел » LLC Aktubinskaya o ООО « Амтелшинпром » Mednaya Kompaniya Sources: Alfa-Bank CLN placement will increase the Group’s leverage by no more than $25 mln The Credit Agreement that is signed between a Borrower and an Issuer under a CLN issue stipulates a number of financial and management restrictions to avoid a decline of the Group’s financial stability indicators: 1) restriction on the maximum level of holding leverage; 2) restriction on the minimal level of Group shareholder’s equity; 3) restriction on the sale/resale of assets; 4) restriction on Borrower’s investments besides those which are important for maintaining and developing primary activities; 5) restriction on merger, reorganization and etc. besides those which were stated in advance. Not less than 40% of raised funds will be used for refinancing of existing loan portfolio of the Group. Another part will be spent on opening new workshops and finishing the construction of processing plant at “50 Years of October” and on modernization of metallurgic production at CJSC Karabashmed. Implementation of the investment program will result in the possibility to bring in the production the new minefield and the processing plant with the output to 44,000 tones of copper in copper concentrate in 2006. This CLN issuer will also afford to increase the production of black copper under a new technology at CJSC “Karabashmed” to 90,000 tons per year and the production of refining copper to 50,000 tons (margin revenue is about $100 mln and margin profit is $25-27 mln). Russian Copper Company 5 Russkaya Mednaya Kompaniya Group’s Structure RMK Holding is currently the third largest producer of copper in Russia, after Norilsk Nickel and UGMK. It controls 14% of the copper cathode market and 24% of Russian copriferous raw material stocks (according to Expert’s data). RMK operates eleven enterprises that can be divided into several groups: mining (CJSC Ormet, OJSC Aleksandrinskaya Gornorudnaya Kompaniya, OJSC Uralgidromed, OJSC Aleksandrinskaya Gornorudnaya Kompaniya, LCC Aktubinskaya Mednaya Kompaniya, LCC Copper Technology) and metallurgical enterprises (CJSC Karabashmed, CJSC Kyshtymsky Medeelektrolitny Zavod, CJSC Novgorodsky Metallurgichesky Zavod, CJSC Revdinsk Non-ferrous Processing Factory, LLC Zavod Tochnih Splavov). The RMK enterprises operate in four regions in Russia and Kazakhstan, and form the cyclical turnaround containing copper crop, scrap picking, copper concentrate and black copper production as well as copper hot-rolled rod production and production of finished goods on the base of copper and its alloys. In 2004 RMK produced 116,000 tons of cathode copper. The staff of the holding numbers 12,000. Fig. 4. RMK Output in Natural Terms, tons 350 000 123 20 784 20 090 21 876 300 000 118 250 000 24 880 26 200 200 000 115 150 000 26 174 100 000 24 343 10 303 86 577 28 798 19 891 35 742 162 834 135 694 50 000 101 334 0 2003 copper cathod hot rolled rod 2004 zink in zink cathods 2005Е copper and brronze alloys nonferrous mill products gold and silver Source: Group data and estimates RMK exploits four minefields (Djusinskoe, Barsuchiy Log, Aleksandrinskoe, Gumeshevskoe) at three mining and processing plants in Orenburg (CJSC Ormet), in Chelabinsk (OJSC AGK) and in Sverdlovsk (OJSC UGM) regions and owns rights to the subsurface use of three minefields in Chelabinsk region (Chebachye, Maukskoe) and also in Aktubinsk region (Kazakhstan) – 50 Years of October. The above-mentioned pitshafts are the main current and future resources of firsts and ore for the next ten years. The RMK facilities form a cyclical turnover. 6 Russian Copper Company Fig. 5. Operating Pitshafts of Russkaya Mednaya Kompaniya Pitshaft Ore stocks, tons Cu % Zn % 3 838 871 138 500 13 021 700 7 985 300 18 006 000 4 443 000 45 118 900 92 552 271 1.76 1.99 1.88 2.98 0.43 1.59 1.84 1.65 3.62 4.01 3.26 2.43 1. Aleksandrinskoe, Ormet 2. Barsuchiy Log, Ormet 3. Chebachye, AGK 4. Djusinskoe, AGK 5. Gumeshevskoe, UGM 6. Maukskoe, КCF 7. 50 year of October, AMK Total 1.57 0.47 1.13 Pb % Au g/t Ag g/t 0.48 0.30 1.90 11.49 32.75 0.71 1.21 25.54 0.10 3.08 3.90 4.78 0.06 0.13 Source: Group data Market outlets, market share and distribution RMK targets domestic as well as foreign markets for distribution. It controls 14% of the Russian copper market and 0.94% of the global copper market. Fig. 6. Geographical Structure of Export in Physical Terms 100% 0.33% Fig. 7. Export Dynamics, 3Q04/3Q05 140 90% 127.500 65,473 120 24.06% 80% 100 70% 80 60% 50% $ mln. . 60 99.67% 40% 40 75.94% 30% 20 20% 0 10% 59.25 6.72 9 month 2004 0% 9 mth 2004 9 mth 2005 In Europe In other countries through a port (St.Petersburg, Novorosiysk) copper hot rolled rod Source: Group data 9 month 2005 copper cathodes Source: Group data CJSC RMK, CJSC NMZ and CJSC KMZ are the key exporters in the RMK Group structure. The Group intends to export 53,000 tons of copper hot-rolled rod (65% of total output in physical terms). Export prices for the company’s production correlate with monthly average quotations on the London Metals Exchange (LME). Fig. 8. Major Consumers of RMK Goods, 2004 Seller Traders CJSC RMK CJSC NMZ CJSC KMEZ Amalko Ltd, Cyprus Gerald Metals, Great Britain Glenkor International AG, Switzerland Goods Hot rolled rod produced by CJSC NMZ Hot rolled rod produced by CJSC KMEZ Hot rolled rod produced by CJSC NMZ Hot rolled rod produced by CJSC NMZ Export tariff No No No Source: Group data Russian Copper Company 7 The final consumer of hot rolled rod: Pirelli Draka Southwire Toyota, Mitsui Gerald Metals Hot rolled rod is exported to many countries of the world (basically in West and East Europe, the Far East and North America) by automobile transport (Great Novgorod – European countries), by automobile and railway transport (Great Novgorod – the port of St. Petersburg further by sea to ports of destination). Investments On September 21, 2005 Russkaya Mednaya Kompaniya began operating the first Russian copper crop facility on the basis of Gumeshevskoe minefield, where the technology of subsurface ore leaching is applied. Total investments in the project amounted to $18.5 mln. The newly created production complex will allow RMK to use small and poor ore minefields that have yet to be regarded as potential sources of raw materials Investments in scientific research, development and adaptation of the unique mining technology to the local environment exceeded $3.5 mln. Specialists of CJSC Uralhydromed together with SNC-Lavalin Europe Ltd (Great Britain) took part in development of the pilot production. Engineering and construction of the project was executed by Outokumpo Technology Oy (Finland). Construction of the solvent extraction and other required facilities cost about $15 mln. First-stage production capacity of the newly created complex (including hydro-technological ground and solvent extraction facilities) is about 5,000 tons of copper cathodes. The industrial rollout of the second stage of the hydro-technological ground will double output by 2006. Subsurface basic crop processes and the absence of human labor make this technology very attractive, as it allows to increase efficiency. Such a technology is the latest development in world hydro-metallurgy, and most European companies have recently started its implementation. RMK is the first company to have launched this technology in Russia (at Uralhydromed). Domestic and foreign experts consider the project to be ecologically safe. A second workshop for electrolytic processes will start operating at KMZ by the end of 2005 By the end of 2005 a second workshop for electrolytic processes will start operating at Kyshtymsky Medeelektrolitny Zavod (KMEZ). Its production capacity is 40,000 tons of cathode copper annually. As a result, general production capacity of the factory will rise to 122,000 tons of cathode copper annually vs. a current 82,000 tons. CJSC RMK has invested more than $20 mln in the project. The newly established workshop will reach the calculated capacity in 2Q06. The key supplier of black copper for CJSC KMZ remains Karabashmed. Major investment is planned to be made in 2005, with 23% of the total amount to be spent in 2006-2007. 8 Russian Copper Company Fig. 9. Investments, 2004-2007, $ ‘000 (including VAT) OJSC Aleksandrinskaya Gornorudnaya Kompaniya: Minefield Chebechye LLP Aktubinskaya Mednaya Kompaniya: Minefield “50 Years of October” CJSC Kyshtimsky Medeelektrolitny Zavod: Reconstruction of electrolyses and rolling capacities CJSC Karabashmed: Modernization of melting and sulphuric capacities Uralhydromed: Construction of facility for cathode production CJSC Novgorodsky Metallurgichesky Zavod:Reconstruction of electrolysis workshop OJSC Revdinsk Non-ferrous Processing Factory: Reconstruction of production Total for all projects 2004 0 19 124 2005 8 333 106 786 2006 28 333 7 145 2007 8 333 0 TOTAL 45 000 133 055 0 23 494 10 290 22 076 24 676 13 343 1 366 7 933 4 768 0 0 0 23 442 56 103 28 401 0 5 436 0 0 5 436 3 510 56 418 0 180 650 9 678 59 224 4 748 13 081 17 937 309 374 Source: Group’s data RMK plans and purposes of fund raising RMK intends to increase its share of the Russian market for cathode copper from 14% to 20% in order to take control over a number of minefields (RMK plans to take part in the tender for Udokan) and in 3-4 years conduct an IPO. In October 2005 RMK raised a 4-year, $100 mln syndicated loan at LIBOR+4.8%. The loan was organized by Moscow International Bank (MMB), Bayerische Hypo und Vereinsbank AG (HVB) and BCEN-Eurobank. RMK intends to use the loan for material resources development and improvement of the credit portfolio structure. RMK estimates the refinancing effect at $3 mln on an annual basis. Modernization is expected to result in growth of pure copper output from current 116,000 tons to 200,000 tons in 2006. RMK is considering two primary directions of modernization: 1. Raw materials development: One of the primary and promising areas of RMK’s development is material resources expansion. By the end of 2005 the new copper sulphide minefield named “50 Years of October” will become operational in Western Kazakhstan (investigated copper stocks total about 900,000 tons). After starting up the mining and concentration complex in Kazakhstan, the share of inventories on RMK’s balance sheet will rise from 30% to 70%. Mineral resource expansion will allow RMK to increase production of copper from a current 116,000 tons annually to 200,000 tons in 2006 and respectively to boost the Group’s market share from 14% to 20%. The Group also plans to implement an aggressive strategy in the area of merging primary and processing copper facilities. 2. Metallurgy complex development - CJSC Karabashmed The end of reconstruction at CJSC Karabashmed and the start-up of the concentration complex are expected in 2006. More than $2 bln was spent for these purposes in 2003-2004 alone. A modern melting furnace Ausmelt Ltd (Australia) is currently in the process of installation, and its start-up is planned for the first quarter of 2006. With the end of reconstruction, Karabashmed integrated plant will become the most modern and cleanest metallurgy production facility in Russia. Russian Copper Company 9 - CJSC Kyshtymsky Medeelektrolitny Zavod The start-up of second priority of electrolysis at Kyshtymsky Medeelektrolitny Zavod is planned in December. This will allow an increase in output of cathodes from 80,000 tons to 120,000 tons. Moreover, in 2-3 years the Company plans to purchase new minefields in Russia and Kazakhstan for the purpose of enhancing the output of copper concentrate in 2006 to 140,000 tons. In 2009 the Group will also start up a new ore mine at Chebachye minefield. According to RMK’s estimates, in the near future there will be a shortage on the copper market, and as a result copper companies should manage to recover capital investment costs. 10 Russian Copper Company Description of the Group’s Facilities The core businesses of RMK are storage, realization and processing of secondary resources including junk, iron-and-steel and non-ferrous waste, fire and electrolytic black copper refining, production of specific profile iron and distribution services on the local and foreign non-ferrous markets. The facilities of the Group form a cyclical turnaround. 1. Mining and processing of copper ore, mining of precious metals: - CJSC Ormet – mining and processing of copper ore, lead-zinc ore, mining of precious metals; - OJSC Aleksandrinsky Mining Company – mining and processing of copper-zinc ore; - OJSC Verkhneuralskaya Ruda, Chelabinsk region – in the process of construction; - LLC Aktubinskaya Mednaya Kompaniya, Kazakhstan – in the process of construction. RMK has the right to the subsurface use of seven minefields with total ore stock of 92,552,271 tons. 2. Purchase of non-ferrous scrap: - CJSC Russkaya Mednaya Kompaniya – purchase of iron-and-steel waste and scrap. 3. Fire and electrolytic black copper refining: - CJSC Karabashmed – black copper production; - OJSC Kyshtymsky Medeelektrolitny Zavod – refining copper production; - CJSC Novgorodsky Metallurgichesky Zavod – refining copper production; - OJSC Uralgidromed – copper production using hydrometallurgical methods. 4. Precise casting and profile rolling of non-ferrous metals: - LLC Zavod Tochnih Splavov – processing of waste and non-ferrous scrap, production of secondary aluminum alloys and copper-bearing alloys (brass, bronze); - OJSC Revdinsk Non-ferrous Processing Factory – non-ferrous mill products. Currently the main goal of RMK is to create a vertically integrated structure ranging from minefields to final high-tech mill products. Russkaya Mednaya Kompaniya RMK is Russia’s largest producer of cathode copper and functions as the management company of RMK Group. Its facilities form a cyclical turnaround comprising the purchase of secondary non-ferrous metals, copper ore mining, scrap picking, black copper production as well as output of finished goods (copper hot-rolled rod and cathode copper). Russian Copper Company 11 Fig. 10. Balance Sheet, RUR ‘000 Gross property, plant, and equipment Construction in process Long tern financial investments Deferred tax asset Fixed Assets Inventories Value added tax Short-term accounts receivable Short-term financial investments Cash Current Assets TOTAL ASSETS Shareholders equity Retained earnings of current period Liabilities and Shareholder’s equity Deferred tax liabilities Long-term liabilities Loans Account payable Other current liabilities Current liabilities TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY 2004 1H05 9M05 . 4 517 2 000 1 500 S10 8 027 662 740 148 992 524 733 70 012 101 222 1 507 787 1 515 814 14 998 76 773 91 771 90 90 389 384 1 034 527 42 1 423 953 1 515 814 7 911 1 457 1 500 63 10 931 1 118 687 376 674 1 085 094 167 545 45 427 2 808 719 2 819 650 14 998 293 610 308 608 201 201 1 415 376 1 095 453 12 2 510 841 2 819 650 9 398 173 1 600 88 11 721 1 227 392 140 785 967 997 201 161 37 361 2 597 526 2 609 247 14 999 472 061 487 060 331 331 1 388 768 733 048 40 2 121 856 2 609 247 Source: RAS statement of CJSC RMK RMK has demonstrated impressive growth, as it handles a good deal of the Group’s turnover. Thus, total revenues of the Group increased by more than five times in 9M05 compared to the year-ago period. Revenues reached a level of $330 mln. Moreover, productivity highlights – such as the return on gross profit, the return on operating profit and the return on net income – also continued to climb. Fig. 11. Income Statement, RUR ‘000 Revenue COGS Gross profit Return on gross profit Selling expenses General and administration expenses Selling profit Return on selling profit Interest receivable Interest payable Other operating profit Other operating expenses Operating profit Return on operating profit Nonselling profit Nonselling expenses Pretax income Deferred tax assets Deferred tax liabilities Current profit tax Net income of current period Return on net income For reference: Fixed tax liabilities 2004 1H05 9M05 1 757 210 1 627 101 130 109 7.40% 8 881 11 934 109 294 6.22% 733 2 826 47 063 49 188 105 076 5.98% 3 364 6 390 102 060 10 90 25 184 76 796 4.37% 6 143 553 5 614 857 528 696 8.61% 36 018 114 275 378 403 6.16% 5 588 44 682 2 339 806 2 351 448 327 667 5.33% 23 102 58 295 292 474 53 111 75 578 216 838 3.53% 9 283 150 8 348 822 934 328 10.06% 55 881 204 450 673 997 7.26% 9 622 79 023 2 950 379 2 968 127 586 848 6.32% 33 375 69 808 550 415 78 238 140 600 409 655 4.41% 769 5 443 8 661 Source: RAS statement, RMK 12 Russian Copper Company Mining and processing of copper ore Mining-and-processing Integrated Complex Ormet CJSC Ormet was founded on May 5, 1995. Ormet was created on the basis of the former mining and processing integrated complex Ormet. This company mines and processes 1 mln tons of copper-bearing ore annually, and produces copper, zinc and piritic concentrates. Mineral resources of the two minefields – Barsuchiy Log and Djusinskoe – provide Ormet with balanced inventories. The company possesses its own modern processing factory that began operating in 1998. In 2004 the production capacity of the factory was increased to 750,000 tons per year. The total volume of investment amounted to R106.8 mln. Fig. 12. Ormet – Production Output Production unit 2003 2004 1H05 Gold in raw materials Silver in raw materials Copper in raw material Zinc in zinc concentrate kg kg kg. t 836 25 418.9 137 14 802 720 26 870.8 8030 22 178 387 15 123.0 12 880 8 533 Source: Group’s data Fig. 13. Ore Mine Barsuchiy Log Fig. 14. Ore Mine Djusinskoe Source: Group’s data Source: Group’s data Russian Copper Company 13 Fig. 15. Production Plan of Processing Factory Ormet Processing of copper ore Cu, % Zn, % Au, g/t Ag, g/t Copper extraction Gold extraction Silver extraction Copper concentrate (dry meter, t) Copper, t Au, kg Ag, kg Processing of copper-zinc ore Cu. % Zn, % Au, g/t Ag, g/t Cu extraction in copper concentrate Au extraction in copper concentrate Ag extraction in copper concentrate Copper concentrate (dry meter. t) Copper, t Au, kg Ag, kg Zn extraction in zinc concentrate Au extraction in zinc concentrate Ag extraction in zinc concentrate Zinc concentrate (dry meter, t) Zn, t Au, kg Ag, kg 2005 2006 2007 2008 2009 2010 2011 221,952 3.098 0.38 0.818 16.4 82 30 55 36,377 5,638 54 2,002 498,048 2.552 4.32 1.73 33.75 80 33 42 65,601 10,168 284 7,060 65 5.8 11.4 30,403 13,985 50 1,916 247,104 3.05 0.36 0.82 16.02 82 30 55 39,871 6,180 61 2,177 472,896 3.2 4.41 1.54 33.65 80 33 42 78,1104 12,106 240 6,683 65 5.8 11.4 29,469 13,556 42 1,814 256,704 2.93 0.34 0.77 15.61 82 30 55 39,791 6,168 59 2,204 463,296 3 4.32 1.48 32.65 80 33 42 71,736 11,119 226 6,353 65 5.8 11.4 28,281 13,009 40 1,724 285,600 2.92 0.35 0.75 16 82 30 55 44,119 6,838 64 2,513 434,400 2.9 4.08 1.39 32.88 80 33 42 65,020 10,078 199 5,999 65 5.8 11.4 25,044 11,520 35 1,628 238,944 3.14 0.39 0.78 12.81 82 30 55 39,692 6,152 56 1,683 481,056 2.43 3.17 1.22 27.19 80 33 42 60,334 9,352 194 5,494 65 5.8 11.4 21,548 9,912 34 1,491 319,926 3.03 0.35 0.86 12.57 82 30 55 51,182 7,933 82 2,207 400,704 2.41 3.05 1.15 25.97 80 33 42 49,842 7,726 152 4,371 65 5.8 11.4 17,269 7,944 27 1,186 328,032 2.85 0.31 0.83 12.2 82 30 55 49,459 7,666 82 2,201 392,968 2.43 2.99 1.35 25.98 80 33 42 49,286 7,639 175 4,288 65 5.8 11.4 16,603 7,637 31 1,164 Source: Group’s data Fig. 16. Balance Sheet CJSC Ormet, RUR ‘000 Intangible assets PP&E Construction in progress Investments available for sale Long-term financial investments Deferred tax assets Fixed assets Inventories VAT Accounts receivable Short-term finical investments Cash Current assets TOTAL ASSETS Shareholders equity Added capital Reserves Retained earnings of current year Shareholder’s Equity and Liabilities Loan Deferred tax liabilities Long-term liabilities Loan Accounts payable Payable to shareholders Short-term liabilities TOTAL SHAREHOLDER’S EQUITY AND LIABILITIES 2003 2004 1H05 9M05 971 326 317 227 741 82 848 198 638 075 119 680 52 492 59 423 495 647 6 505 733 747 1 371 822 13 594 935 145 897 329 11 251 11 251 356 215 105 261 1 766 463 242 1 371 822 892 618 278 295 415 130 464 238 1 045 287 138 449 98 357 604 224 254 146 205 622 1 300 798 2 346 085 13 594 935 145 309 390 1 258 129 208 139 27 632 235 771 611 749 238 670 1 766 852 185 2 346 085 852 613 259 611 833 247 972 130 464 271 1 604 642 83 213 21 885 712 912 138 133 194 002 1 150 145 2 754 787 13 594 935 145 680 516 154 1 465 573 272 394 33 473 305 867 423 104 558 477 1 766 983 347 2 754 787 833 603 070 646 749 571 181 130 514 251 1 952 598 104 152 22 612 736 359 886 546 145 836 1 895 506 3 848 104 13 594 935 145 680 615 844 1 565 263 1 244 267 37 082 1 281 349 381 836 617 889 1 766 1 001 492 3 848 104 Source: RAS statement, CJSC Ormet In 2004 the assets of CJSC Ormet rose by 1.7 times, and for 9M05 by more than by 1.5 times. Current and fixed assets have approximately equal shares on the balance sheet. Shareholders equity demonstrates a positive dynamic, 14 Russian Copper Company primarily due to the capitalization of retained earnings (R310 mln in 2004 and R612.8 mln for 9M05). Long-term liabilities amounting to 56.13% of the total comprise the majority of the raised funds. In the past the major part of the liabilities was short-term. The change in the balance sheet structure stems from optimization of the debt portfolio in favor of long-term liabilities. Fig. 17. Income Statement of CJSC Ormet, tons ‘000 Revenues COGS Gross profit Return on gross profit Selling expenses Selling profit Return on selling profit Interest receivable Interest payable Other operating profit Other operating expenses Operating profit Return on operating profit Non-selling profit Nonselling expenses Pretax income Deferred tax assets Deferred tax liabilities Current profit tax Tax sanction payable Fixed tax liabilities (assets) of 2002 Extraordinary charges Net income of the current period Return on net income For reference: Fixed tax liabilities Income tax privilege 2003 2004 1H05 9M05 1 255 293 871 556 383 737 30.57% 109 922 273 815 21.81% 36 41 026 2 616 384 2 629 731 219 478 17.48% 23 162 18 490 224 150 198 11 251 31 535 8 208 5 744 179 098 14.27% 2 322 247 1 639 875 682 372 29.38% 164 273 518 099 22.31% 5 804 57 189 1 779 174 1 806 292 439 596 18.93% 42 840 35 606 446 830 39 16 381 61 433 1 014 5 744 1 497 360 800 15.54% 750 049 428 631 321 418 42.85% 21 606 299 812 39.97% 8 756 29 542 593 217 597 781 274 462 36.59% 51 323 83 949 241 836 33 5 840 28 585 207 444 27.66% 1 073 500 610 341 463 159 43.14% 31 529 431 630 40.21% 16 161 53 225 1 077 817 1 087 318 385 065 35.87% 97 357 121 922 360 500 13 9 450 43 929 307 134 28.61% 15 826 56 312 29 456 109 702 -23 649 - -33 154 - Source: RAS statement, CJSC Ormet Aleksandrinskaya Gornorudnaya Kompaniya Founded in 1995, OJSC Aleksandrinskaya Gornorudnaya Kompaniya mines and processes copper-zinc ore from Aleksandrinsky ore mine. The company’s production capacity is about 400,000 tons of ore per year. This ore mining is unique due to its copper-zinc ore quality characteristics. The mining facility was designed and constructed by Outokumpo and began operations in 2001. Fig. 18. Production indicators of Aleksandrinskaya Gornorudnaya Kompaniya (2001 – 2005) Год Powder ore, dry t % Cu % Zn 160,780 394,111 397,363 420,152 175,381 3.22 3.96 2.85 2.76 3.31 5.59 4.64 4.22 3.28 3.34 2001 2002 2003 2004 2005 (6M) Copper % Cu concentrate, dry t 25,822 87,361 65,968 62,130 31,331 14.77 15.32 15.08 14.93 14.91 Copper extraction, % 73.58 85.75 87.73 80.01 80.52 Zinc concentrate, % Zn dry t 11,478 26,597 20,615 14,423 5,232 46.46 47.34 46.28 43.81 44.33 Zinc extraction, % 59.33 58.64 56.92 45.91 39.59 Source: Group’s data The basic range of final goods includes metals in copper and zinc concentrate: zinc in zinc concentrate, copper in copper concentrate as well as also gold and silver in copper and zinc concentrates. The major consumers of the company’s final products are the following: copper concentrate – LLC UGMK (up to 2004), CJSC Karabashmed; zinc concentrate – OJSC Russian Copper Company 15 Chelabinsky Electrozinkovy Zavod, gold and silver bars – Investment Banking Group NIKoil. Fig. 19. OLSC Aleksandrinskaya Gornorudnaya Kompaniya Production Gold in ore Silver in ore Copper in ore Zinc in zinc concentrate unit kg kg t t 2003 2004 1H05 291.0 17 004.4 9 950.4 9 541.3 319.9 13 287.5 9 897.2 6 620.5 104.0 4 237.9 5 085.0 2 405.0 Source: Group’s data Fig. 20. Ore Mine Aleksandrinskoe Fig. 21. Copper-Zinc Ore Processing Factory Source: Group’s data Source: Group’s data Fig. 22. Production Plan of Aleksandrinskaya Gornorudnaya Kompaniya for 2005 – 2008 Wet milling product (t) % Cu % Zn Cu extraction % Zn extraction % Cu in copper concentrate (t) Zn in zinc concentrate (t) 2005 2006 2007 2008 410,000 2.55 3.60 80.0 60 8 364 8 856 410,000 2.70 3.60 80.0 60 8 856 8 856 410,000 2.70 3.90 80.0 60 8 856 9 594 410,000 2.75 4.40 80.0 60 9 020 10 824 Source: Group’s data Uralhydromed OJSC Uralhydromed was founded in 1999 and began operating in September 2005. Its major business activities are mining and roughing-out at one of the oldest Urals minefields – Gumeshevskoe. The company uses equipment for subsurface dissolution of ore. Together with Outokumpo, Uralhydromed is participating in the construction of a plant for commercial copper production with the use of Outokumpo technology. The total output of cathode copper is 5,000 tons with a potential increase to 10,000 tons in 2006. 16 Russian Copper Company Fig. 23. Production capacities Source: Group’s data Source: Group’s data Verkhneuralskaya Ruda RMK acquired OJSC Verkhneuralskaya Ruda in March 2004. At present the company is preparing the Chebachye ore mine for exploitation. The total amount of investment in this project is $30-45 mln. The ore mine will be put in commission in 2009, with production totaling 800,000 tons annually. Aktubinskaya Mednaya Kompaniya LCC Aktubinskaya Mednaya Kompaniya (AMK) was founded in 2004 for mining the pitshaft named “50 Years of October”. The mining and processing facility at this ore mine is currently in the process of construction. Its potential mining capacity is about 3 mln tons of ore per year. The total amount of the investment required to launch the entire project (2004-2006) is $133 mln. Fig. 24. Balance Sheet of LCC ACC, ‘000 tenge Intangible assets Amortization of intangible assets Residual book value of intangible assets GG&P, total Capital consumption Residual book value of GG&P Investments, total Total fixed assets Inventories, total Short-term account receivable Cash Total current assets TOTAL ASSETS Shareholder’s equity Retained earning (losses) Total Shareholder’s equity Loan Total long-term liabilities Short-term loans and overdraft Short-term account payable, total Tax payments Other accounts payable Total short-term liabilities TOTAL SHAREHOLDER’S EQUITY AND LIABILITIES 2004 1H05 9M05 7 1 6 2 478 131 2 348 9 2 536 2 354 7 950 454 8 407 10 761 1 1 093 1 094 2 421 2 421 972 536 436 903 765 48 288 855 477 0 855 913 155 725 1 264 267 47 755 1 467 747 2 323 660 92 261 300 261 392 0 0 1 730 574 353 737 -16 719 -5 324 2 060 068 2 323 660 990 600 390 1 720 359 58 855 1 661 504 0 1 661 894 393 095 2 407 293 45 260 2 845 648 4 507 542 92 -122 326 -122 234 0 0 4 067 526 428 521 53 082 80 647 4 629 776 4 507 542 6 773 472 1 7 246 10 761 Source: KAS (Kazakhstan Accounting Standards), LLC AMK 1H05: 1 USD = 132.41 tenge, 1 RUR = 4.70 tenge 2004: 1 USD = 130 tenge, 1 RUR = 4.68 tenge Russian Copper Company 17 AMK showed a substantial increase in assets due to the start of the investment program to construct the mining facility. The company is sustaining operating losses, as the project has yet to recover its start-up costs. Fig. 25. Income Statement LCC АCC, ‘000 tenge Revenues GOGS Gross profit Return on gross profit Expenses Operating profits Non-operating profits Pre-tax operating income Corporate profit tax expenses Net operating income Net income Return on net income 2004 1H05 9M05 24 474 18 770 5 704 23.31% 4 142 1 562 0 1 562 469 1 093 1 093 4.47% 287 167 229 334 47 833 16.7% 134 240 0 0 -86 407 0 0 -86 407 n.m. 433 708 290 108 143 600 33.1% 656 665 -513 065 43 032 -470 033 0 0 -470 033 n.m. Source: LLC AMK report under KAS (Kazakhstan Accounting Standards) 1H05: 1 USD = 132.41 tenge, 1 RUR = 4.70 tenge 2004: 1 USD = 130 tenge, 1 RUR = 4.68 tenge Fire and electrotechnical black copper refining Karabashmed Closed Joint Stock Company Karabashmed is formed on the basis of Karabashmed plant for the manufacture of black copper and granulated slag. The ore mine Barsuchiy Log and the Republic of Bashkortostan supply the plant with material inputs – ore and concentrate. The company is currently reconstructing its gas sulphur disposal complex. For the modernization of copper production facilities Karabashmed plans to invest $70 mln. Fig. 26. CLSC Karabashmed Output Production Black copper unit t. 2003 45 573.5 2004 44 682.0 1H05 19 093.0 Source: Group’s data 18 Fig. 27. Production Workshop Fig. 28. Sulphur Disposal Workshop Source: Group data Source: Group data Russian Copper Company Kyshtymsky Medeelektrolitny Zavod (KMZ) Kyshtymsky Medeelektrolitny Zavod (KMZ) is the oldest metallurgical plant in the Urals. Founded by Nikita Demidov in 1757, the factory has long specialized in the manufacture of ore under the “Two Sobols” brand famous throughout the world. At the beginning of 1908 it was transformed and adapted for copper production, making it the first plant in Russia to refine copper. Company’s share in Russia’s copper refining market is about 10% KMZ specializes in fire and electrolytical refining of black copper, processing of copper scrap and cable product waste. Annual estimated capacity of the factory allows to produce 80,000 tons of refining copper, more than 5,000 tons of gold, 50,000 tons of silver, 50,000 tons of copper sulphate as well as nickel, platinum, palladium, selenium, tellurium and rhenium. KMZ is currently the leader in Russia in manufacturing of electrolytic foil copper. The company’s quality system meets the requirement of ISO 9002 and ecological standard 14001. It was certified by GOSSTANDARD in Russia and by the German certification body RW TÜV. Fig. 29. CJSC KMZ Production Gold in bullions Silver in bullions Platinum in bullions Palladium in bullions Copper cathodes Copper hot rolled rod Foil, ribbon, wire unit 2003 2004 1H05 kg kg kg kg t t t 4 246.9 66 810.5 319.1 497.6 78 272.0 10 303.0 4 772.1 2 635.3 69 475.4 304.0 398.7 77 287.0 9 705.0 4 936.0 1 086.5 37 664.2 137.7 165.7 39 332.0 5 267.0 2 732.0 Source: Group’s data Fig. 30. Production Workshop Source: Group’s data Source: Group’s data Aktubinskaya Mednaya Kompaniya The ore mine “50 Years of October” belongs to a group of potential raw materials sources. The required facilities for ore mine utilization have already been built. A pitshaft and mining and processing plant are in the process of construction, which started in 2004. The company plans to start operations at the facilities in 2006. Outokumpo (Finland) has assumed responsibility for the project design and equipment delivery. Caterpillar (US) and Terex are the suppliers of pit-run equipment. Estimated production capacity of the plant is about 2,600 thousand tons of ore per year. The major end products of the plant are copper in copper concentrate (45,000 tons per year) and breakstone (2,700 thousand tons). Russian Copper Company 19 Fig. 31. Ore Mine 50 Years of October, Kazakhstan Fig. 32. Copper Ore Mining and Processing Factory Source: Group’s data Source: Group’s data Fig. 33. Ore Stocks of “50 Years of October” Ore body Ore body 1 South 2, 2а Total Central 1 2 3 Total North Total in section of minefields Stock category Ore stocks, ‘000 tons С1 С2 С1+С2 С2 С1 С2 С1+С2 С1 С1 С2 С1 С2 С1+С2 С2 С1 С2 С1+С2 37 382.5 825.8 38 208.3 1 480.2 37 382.5 2 306 39 688.5 1 971.7 531.4 149.6 2 503.1 149.6 2 652.7 2 777.7 39 885.6 5 233.3 45 118.9 Stocks and average mineral grades in ore Principal Cu, % 1.87 1.36 1.86 2.42 1.87 2.04 1.88 1.15 1.32 1.60 1.19 1.60 1.21 1.77 1.83 1.88 1.84 Additional S, % Co, % Ag, g/t Se, % Zn, % 37.36 - 3.90 0.01 41.48 37.45 0.03 - 0.54 30.73 0.03 - 0.26 37.36 34.58 37.20 0.03 3.67 0.0072 0.53 35.99 0.02 4.00 0.0036 0.12 36.84 0.02 3.60 - 0.08 28.42 0.02 - 0.04 36.17 0.02 3.90 0.0028 0.11 28.42 0.02 35.65 0.02 41.71 0.03 37.29 - 3.90 0.0073 38.14 37.39 0.03 - 0.47 Source: Group’s data Novgorodsky Metallurgichesky Zavod CJSC Novgorodsky Metallurgichesky Zavod (NMZ), situated in Great Novgorod, was founded in 2003 based on the technologies and design of the financial company Outokumpo Technology, the world leader in this area. The factory was built for processing copper-bearing raw materials in high-quality cathode copper meeting the requirements of the London Metals Exchange. The production capacity of the factory is 40,000 tons of cathode copper per year. NMZ obtained the quality management system certificate ISO 9001:2000. The construction of Novgorodsky Metallurgichesky Zavod is a unique project for Russia, representing the first metallurgical factory producing Europeantype goods that meet ISO and the highest ecological quality standards (e.g. ecological standard ISO-14001). 20 Russian Copper Company Fig. 34. Novgorodsky Metallurgichesky Zavod Output Production unit 2003 2004 1H05 kg kg kg kg t. t. 0.0 0.0 0.0 0.0 7 486.0 0.0 12.1 4 454.7 2.0 7.0 39 653.0 26 037.5 8.2 3 046.0 1.2 5.3 19 928.0 38 021.7 Gold in raw mat. Silver in raw mat. Platinum in raw mat. Palladium in raw mat. Copper cathode Copper hot rolled rod Source: Group’s data Fig. 35. Production Capacities Source: Group’s data Source: Group’s data Fig. 36. Balance Sheet of CLSC NMZ, ‘000 tons 2003 2004 1H05 9M05 505 336 347 231 10 100 431 953 008 34 875 7 538 70 489 400 711 612 384 001 96 122 1 192 135 100 953 75 829 1 032 265 1 030 509 531 433 30 1 252 3 161 1 566 385 110 920 161 972 382 264 249 789 41 515 172 946 632 2 513 017 805 590 63 113 868 703 1 014 480 4 393 1 018 873 155 319 470 086 36 625 441 2 513 017 Intangible assets GG&P Construction in progress Long-term financial investments Deferred tax assets Other fixed assets Fixed assets Inventories VAT Short-term accounts payable Short – term financial investments Cash Other current assets Current assets TOTAL ASSETS Shareholder’s equity Retained earning of current year Shareholders equity and reserves Loans Deferred tax liabilities Long-term liabilities Loan Accounts payable Deferred revenue Short-term liabilities 62 12 866 112 964 1 065 972 805 590 - 29 549 779 041 117 571 169 360 0 286 931 1 221 913 2 414 048 805 590 38 481 844 071 708 000 708 000 252 000 609 975 2 861 977 693 667 757 044 30 96 2 899 1 453 736 127 528 123 488 543 200 149 789 1 953 172 1 046 128 2 499 864 805 590 53 174 868 764 1 029 601 3 463 1 033 064 157 373 450 659 4 608 036 TOTAL SHAREHOLDER’S EQUITY AND LIABILITIES 1 065 972 2 414 048 2 499 864 Source: RAS report of CJSC NMZ Russian Copper Company 21 Fig. 37. CJSC NMZ Income Statement Revenue COGS Gross profit Return on gross profit Selling expenses Selling profit (Losses) Return on selling profit Interest receivable Interest payableе Other operating profit Other operating expenses Operating profit Return on operating profit Nonselling profit Nonselling expenses Pre-tax profit (loss) Deferred tax assets Deferred tax liabilities Current profit tax Net income (loss) Return on net income For reference: Fixed tax liabilities (assets) 2003 2004 1H05 9M05 46 450 53 851 -7 401 n.m. -26 514 n.m. 2 220 272 2 102 329 117 943 5.31% 14 499 103 444 4.66% 1 22 492 109 609 105 434 85 128 3.83% 56 146 47 720 93 554 28 524 65 030 2.93% 1 547 364 1 430 468 116 896 7.55% 14 663 102 233 6.61% 1 804 31 439 479 16 478 56 599 3.66% 28 874 66 703 16 570 1 -2 977 5 599 7 995 0.52% 2 379 792 2 206 284 173 508 7.29% 18 663 154 845 6.51% 6 519 52 214 1 075 26 248 83 977 3.53% 49 523 91 323 42 177 1 157 3 907 20 427 19 000 0.80% - - 4 598 11 689 -7 401 n.m. 34 430 6 483 -13 420 n.m. 1 264 14 358 -26 514 - Source: RAS report of CJSC NMZ n.m. – not meaningful The substantial 48x increase in COGS in 2004 can be explained by the fact that the factory achieved its planned capacity. It is estimated that revenue growth could total as much as 40% by the end of 2005. Precision casting and non-ferrous bar rolling Zavod Tochnih Splavov CJSC Zavod Tochnih Splavov (ZTS) was built in 1998 in Polevskoy, Sverdlovsk region. It specializes in alloys on the basis of aluminum and copper. Its major customers include companies such as General Motors and Mitsubishi Corporation, and its production capacity reaches 26,000 tons of aluminum and copper alloys annually. The major clients of the factory are automobile and casting bearing plants. ZTS is one of the first Russian enterprises to have successfully passed certified audit according to three standards at once. The Moscow office of Bureau Veritas Quality International (BVQI) conducted an audit of the company’s integrated quality management system, ecology, health protection, and industrial safety based on ISO 9001:2000; ISO 14001:1996; OHSAS 18001:1999. Fig. 38. LLC ZTS Output Production Ferrotitanium Aluminum Bullions Bronze Bullions Brass Bullions unit t t t t 2003 2004 1H05 901.9 21 624.0 1 799.2 1 848.6 1 531.0 23 051.0 701.0 916.9 1 006.0 8 852.0 138.0 49.0 Source: Group’s Data 22 Russian Copper Company Fig.39. Production capacities Source: Group’s data Source: Group’s data OJSC Revdinsk Non-ferrous Processing Factory OJSC Revdinsk Non-ferrous Processing Factory (RNPF), located in the Urals, was founded on December 6, 1941. The factory is Russia’s leading enterprise in the area of pipes and rod production from copper, nickel, brass, bronze and alloys. The factory delivers 95% of its end products to Russian automobile and electricity plants. The remaining 5% is exported to the US and countries in Eastern Europe. The production capacity of the factory is about 25,000 tons of non-ferrous metals per year. In 1996 the British company Lloyd's Register certified for the first time the company’s quality management system, which met the requirement of ISO 9002:1994. In 2002 the factory was re-certified according to the new version of MS ISO 9001:2000. RNPF elaborated a plan of modernization until 2012. Investment during the first stage of modernization exceeded 350 mln rubles. Fig.40.OJSC RNPF Output Production Nickel mill products Secondary casting bronze Bronze mill product Brass mill product Secondary casting brass Ligature Copper-Nickel mill products Copper mill products unit t t t t t t t t 2003 2004 1H05 2.0 1 380.0 1 771.0 8 732.6 184.5 274.2 1 053.1 6 493.8 1.3 1 738.5 2 063.0 11 898.2 163.4 281.5 888.5 7 845.7 0.6 935.8 662.3 4 629.8 108.8 124.3 533.2 3 397.3 Source: Group’s Data Russian Copper Company 23 Fig. 41. Production Capacities Source: Company’s Data 24 Source: Company’s Data Russian Copper Company Group Financial Analysis Assets analysis Fig. 39. Current Asset Structure in 3Q05 Fig. 40. Fixed Asset Structure in 3Q05 Sort-term accounts receivable 42% Fixed assets 41% Financial investments 6% Current assets Fixed assets 56% 41% Current assets 59% Available for sale 3% Construction in progress 30% Financial investments 14% Inventories 28% Intangibles 6% Cash 8% Source: Group’s report PP&E 56% Source: Group’s report Fig. 41. RMK Consolidated Balance Sheet for 2002-2005, RUR ‘000 Intangible assets PP&E Construction in progress Long term investments (available for sale) Long-term financial investments Deferred tax assets Other fixed assets Fixed assets Inventories raw and other materials expenses in construction in progress final goods and goods for resale goods delivered prepaid expenses other inventories and expenses VTA Long-term accounts receivable Short-term accounts receivable customers Short-term and middle-term financial investments Cash Other current assets Current assets TOTAL 2002 2003 2004 2Q05 445 2 642 748 1 275 372 0 327 896 0 0 4 246 461 1 458 965 821 901 260 703 130 359 131 706 113 756 540 309 739 6 092 3 281 378 3 322 852 890 074 28 126 658 5 975 042 10 221 503 1 126 3 528 863 1 278 653 0 515 349 0 105 925 5 429 916 1 797 125 947 875 417 403 126 767 109 376 195 704 0 0 2 089 697 1 566 413 1 838 949 158 588 1 050 6 277 113 11 707 029 464 789 4 568 128 1 209 589 0 560 857 876 0 6 804 239 2 577 043 1 558 538 487 853 254 590 5 947 270 115 0 0 4 652 006 2 390 422 1 628 682 492 651 626 10 059 646 16 863 885 440 656 5 401 927 2 479 676 571 181 487 307 1 917 3 161 9 385 825 3 383 280 2 333 730 343 451 248 530 9 051 448 308 210 0 4 617 824 3 203 305 2 064 552 883 257 23 608 11 877 307 21 263 133 Source: Group’s data Method of consolidation: Direct addition without excluding correlated calculations Russian Copper Company 25 Liabilities analysis Fig. 42. Shareholder’s Equity Structure, 1H05 Statute capital 30% Liabilities 82% Shareholders' capital Reserve 18% capital 2% Fig 43. Liabilities’ Structure, 1H05 Long-term liabilities 34% Additional paid-in capital 42% Shareholder Liabilities 82% s' capital 18% Retained earnings 27% Source: Group’s report Short-term liabilities 66% Source: Group’s Report Fig. 44. RMK Consolidated Balance Sheet in 2002-2005, RUR ‘000 2002 Shareholder’s equity Additional capital Reserves reserves under law reserves under instruments of incorporation Special purpose receipts Retained earning/ Uncovered losses Shareholders’ Equity and reserves Long-term loans Other long-term liabilities Long-term liabilities Short-term loans Accounts payable Payable to shareholders Deferred revenues Other short-term liabilities Short-term/middle-term liabilities SHAREHOLDER’S EQUITY AND LIABILITIES 152 733 1 636 634 0 0 0 727 279 247 2 069 341 2 403 291 0 2 403 291 2 156 872 3 586 162 5 804 33 0 5 748 871 10 221 501 2003 958 323 0 1 512 923 1 809 0 1 809 - 100 961 2 372 094 4 015 356 20 083 4 035 439 2 462 408 2 831 783 5 273 34 0 5 299 498 11 707 031 2004 1 044 582 0 1 499 830 1 809 1 758 51 790 232 3 336 453 4 710 813 44 717 4 755 530 3 030 783 5 734 844 5 273 4 998 8 771 902 16 863 885 2Q05 1 324 583 0 1 493 555 2 489 2 438 51 1 298 405 4 119 032 6 137 046 58 735 6 195 781 5 034 214 5 892 340 5 273 36 16 457 10 948 320 21 263 133 Source: Group’s data, Method of consolidation: Direct addition without excluding correlated calculations RMK demonstrated sustained growth throughout the period between 20022005. As of July 1, 2005 the balance sheet had nearly doubled, with current assets accounting for 58% of the total. Shareholder’s equity in 2Q05 compared with the respective indicator from 2002 climbed 58%. Leverage of the Group amounts to 48.2% and is mainly comprised of long-term loans (57.8%). 26 Russian Copper Company Fig. 45.Group’s Credit Portfolio as of 31.10.2005 Company RMK Bank-Creditor Sum of Loan, USD Fortis Bank Gazprombank Vneshtorgbank NATEXIS Alfa-Bank 22 500 000 Total KMEZ Alfa-Bank Alfa-Bank Vneshtorgbank Vneshtorgbank BCEN CIB (Chelindbank) Khanty-Mansiisk Bank in Moscow Total Ormet Alfa-Bank Alfa-Bank Alfa-Bank Alfa-Bank Alfa-Bank (guarantor) Alfa-Bank Alfa-Bank Alfa-Bank Amsterdam Bank Total NMZ Severnaya Kazna Raiffeisen Bank Raiffeisen Bank Total Uralgidromed Alfa-Bank Alfa-Bank Alfa-Bank Alfa-Bank Total RNPF Raiffeisen Bank Alfa-Bank AGK MBRR Total Total TOTAL FOR GROUP: Sum of Loan, RUR 44 000 000 4 000 000 5 000 000 5 000 000 32 500 000 2 785 627 5 593 621 Maturity Date 04.05.05 10.05.05 16.09.05 04.10.05 24.12.04 25.11.05 03.04.06 30.03.06 30.03.06 25.01.06 31.03.04 05.04.05 20.07.05 29.07.05 13.10.05 21.01.05 25.05.05 05.03.07 20.01.06 29.01.06 13.10.09 20.01.06 24.04.05 24.04.06 28.01.05 28.01.05 06.09.04 28.10.04 06.12.04 06.04.05 08.04.05 29.07.05 30.06.05 17.08.05 25.04.06 25.04.06 25.07.05 11.07.05 05.09.09 06.10.06 06.10.06 29.06.07 30.06.07 17.09.08 04.03.04. 01.04.05 25.06.04 25.04.09 01.03.06 26.06.07 08.04.05 25.04.05 26.04.05 27.04.05 07.04.06 24.04.06 26.04.06 27.04.06 22.11.04 31.07.08 10.02.05 09.02.06 48 000 000 122 000 000 5 511 259 90 000 000 303 210 104 193 717 1 500 000 1 500 000 2 101 880 2 792 184 20 967 290 956 085 2 230 865 9 000 000 3 500 000 22 000 000 66 548 304 3 036 725 5 450 000 17 062 400 25 549 125 1 500 000 300 000 600 000 2 600 000 5 000 000 12 868 422 1 109 937 13 978 359 15 000 000 15 000 000 262 769 504 Issue Date 200 000 000 RUR 322 000 000 RUR 0 0 0 0 0 370 000 000 Source: Group’s data The Group’s credit portfolio as of October 30, 2005 totaled $275.8 mln. Thus, the total amount of open credit limits exceedes $370 mln. The Group has no outstanding accounts payable. As of October 1, 2005 acounts payable comprised 33.2% of the total, the major portion of which was formed by accounts payable to suppliers and other creditors. Russian Copper Company 27 Financial indicator analysis Fig. 46. Consolidated Income Statement (Accrued Total), RUR ‘000 Revenues COGS Gross profit Return on gross profit, % Selling expenses Administrative expenses Selling profit Return on selling profit, % Interest receivable Interest payable Profits from participation in other companies’ equity Other operating profits Other operating expenses Operating profit Return on operating profit, % Other non-selling profits Other non-selling expenses Pre-tax income Income tax Retain earnings Return on retain earnings, % Quarter amortization (form 5). EBITDA EBITDA margin, % Indicators Asset debt ratio, % Current liquidity Quick liquidity Absolute liquidity 2002 2003 2004 2Q05 6 827 456 6 066 392 761 064 11.15% 116 335 30 026 614 703 9,00% 327 157 442 98 3 331 876 3 439 203 350 359 5.13% 3 063 554 3 215 221 198 692 130 386 68 306 1.00% 76 186 8 698 440 7 756 188 942 252 10.83% 231 073 218 453 492 726 5.66% 2 611 172 846 98 4 923 401 5 023 585 222 405 2.56% 2 943 870 3 133 959 32 316 163 689 -136 301 -1.57% 166 425 15 196 944 13 522 725 1 674 219 11.02% 327 977 125 933 1 220 309 8.03% 18 692 267 120 102 4 259 426 4 358 452 872 957 5.74% 3 504 870 3 307 166 1 070 661 262 559 808 102 5,32% 578 085 21 114 755 19 484 639 1 630 116 7,72% 201 386 320 137 1 108 594 5.25% 34 274 1 552 515 102 4 649 346 4 749 120 -509 319 -2,41% 1 255 221 1 770 199 -1 024 297 845 762 - 1 870 059 -8,86% 984 078 432 320 6.33% 371 587 4.27% 1 915 866 12,61% 1 512 296 7,16% 44.61% 1.04 0.83 0.16 55.50% 1.18 0.76 0.38 45.91% 1.15 0.85 0.24 52.54% 1.08 0.78 0,27 Source: Group’s data Method of Consolidation: Direct addition without excluding correlated calculations 28 Russian Copper Company Forecast of RMK revenues Fig. 47. Financial Indicators Forecast, USD ‘000 Revenue EBITDA Return on EBITDA Net income Return on net income Operating cash flow Debt (long- and short-term loans) EV EV/EBITDA P/E P/CF EBITDA/V ROE Financial debt DEBT 2004 2005 2006 2007 2008 2009 2010 2011 526 081 72 685 13.82% 30 945 5.88% 40 295 217 973 704 831 9.70 18.44 14.16 0.14 0.08 217 973 217 973 738 500 165 421 22.40% 90 635 12.27% 106 449 323 363 907 031 5.48 7.61 6.48 0.22 0.18 495 756 323 363 854 848 230 359 26.95% 151 465 17.72% 142 180 379 087 1 078 488 4.68 5.56 5.92 0.27 0.28 551 480 379 087 686 399 184 745 26.92% 138 314 20.15% 141 615 301 640 1 139 920 6.17 7.08 6.92 0.27 0.32 474 033 301 640 759 452 207 032 27.26% 163 964 21.59% 176 268 168 550 1 136 141 5.49 6.98 6.49 0.27 0.34 340 943 168 550 820 288 243 906 29.73% 200 174 24.40% 206 121 26 936 1 015 516 4.16 6.71 6.52 0.30 0.40 199 328 26 936 843 043 252 890 30.00% 210 351 24.95% 216 143 0 982 788 3.89 7.39 7.19 0.30 0.42 172 393 0 844 127 246 996 29.26% 204 732 24.25% 211 217 0 976 303 3.95 8.59 8.33 0.29 0.40 172 393 0 Source: Group’s forecast Russian Copper Company 29 Copper Market Overview Global copper market dynamics Copper is a financial instrument with high liquidity and is included in the calculation of major commodity indices. Most of the contracts are negotiated on futures markets in the US (COMEX) and the UK (LME). The situation on the copper market is currently quite favorable. For the past three years the catalyst for the global increase in prices has been a deficit of copper alongside high demand from major consumers. At the beginning of 2002 the price of copper stood at $1,446 p/t. In 2003 and 2004 the price of copper rose 38% and 42%, respectively. Since the beginning of the 2005 the copper price is up another 27%, including a rise of 10% during the summer months. In addition to global factors, speculation connected with the decline in exchange stocks also contributed to the summer rally in copper prices. On October 1, 2005 copper prices reached a 12-year high ($4,271 p/t) on the Shanghai Stock Exchange. By the end of September the correction in stock volumes had ended, which pushed down copper prices to a level of $3,500 p/t. Nevertheless, prices continued to test new highs. On October 20, 2005 the price reached a new all-time high, breaking through $4,000 p/t and testing the $4,500 p/t mark during one trading session. Fig. 48. Prices for Copper on LME, 10-1$/t Source: Bloomberg 30 Russian Copper Company Current situation on copper markets In 2004 world copper consumption posted annual growth of around 6.3% (to 16,625 thousand tons). Asia remains the major consumer of copper, primarily due to increasing demand for copper concentrate in China, the world’s largest copper importer. For the past ten years, demand for copper in China has shown sustained 18% growth annually. In 2004 demand reached 4.1 mln tons, or one-third of world copper consumption. According to forecasts, the copper deficit in the global market will break the 1.05 mln ton mark by 2010. In 2004 copper consumption was at a level of 17,818 thousand tons. GFMS Metals Consulting expects a further positive dynamic in copper consumption in 2005-2006. By its estimate, growth in 2005 will amount to 4.2% and in 2006 will total 6.2%. In 2004 South-East Asia accounted for the main growth in copper consumption, led by Taiwan (+11.4%), China (+3.6%) and South Korea (+3.0%). The rise in prices for copper concentrate has stimulated producers to accelerate production. At the same time, growing demand in the major copper consuming regions, especially China (+10-12%) and India (+6-7%), will compensate for increasing copper supply in the medium term, while maintaining a deficit in 2005-2006. Market segmentation: Key players There are three dominant players in the Russian copper market – OJSC GMK Norilsk Nickel, CJSC UGMK and Russkaya Mednaya Kompaniya. In 2004 world cathode copper output totaled 16 mln tons, including 925,000 tons in Russia (according to International Copper Study Group data). The percentage distribution is the following: 447,000 tons (48.3%) from GMK Norilsk Nickel, 342,000 tons (37%) from UGMK and 116,000 tons (14.7%) from RMK. Fig. 49. Market Share of Russian Copper Companies UHCC 37% Global production 95% RCC 15% Russia 5% Norilsk Nickel 48%% Source: GMK Norilsk Nickel, UHEC, RMK Russian Copper Company 31 Contact Information Corporate bonds and new issues Anna Komova (7 095) 786-9671 Maria Habarova (7 095) 786-4893 Evgeniya Lubimova (7-095)-788-0309 Viktoriya Kravchuk (7-095)-786-4269 Igor Pankov (7 095) 786-4892 Mikhail Grachev (7 095) 785-7404 Fixed Income Trading REPO and Finance Operations Oleg Artemenko (7 095) 785-7405 12 Akad. 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