OREANDA-NEWS. On 18 June 2008 Chelyabinsk Zinc Plant, Russia’s largest producer of zinc and zinc alloys, announced its IFRS consolidated results for the full year of 2007.

Production and Sales

In 2007 Chelyabinsk Zinc Plant produced 165,007 tonnes of SHG zinc and alloys, 11% more than in 2006 (148,384 tonnes). CZP sales for the twelve months of 2007 totaled 147.3 thou. tonnes, an increase of 10% compared with the previous year (133.8 thou. tonnes). CZP’s domestic sales accounted for 49% of the total sales or 72.2 thou. tonnes, export sales totaled 75.1 thou. tonnes or 51% of CZP’s total sales in 2007 (2006: domestic sales – 77.1 thou. tonnes, export sales – 56.7 thou. tonnes of zinc and zinc based alloys). Since the beginning of the year all zinc concentrate produced by CZP’s subsidiary, Nova Zinc, operator of Akzhal mine in Kazakhstan, has been supplied to the Chelyabinsk Zinc Plant. In 2007 Akzhal’s supply to CZP totaled 30.0 thou. tonnes of zinc in zinc concentrate, production of lead in lead concentrate by Akzhal mine totaled 4.8 thou. tonnes.

Revenues

CZP’s revenue increased by 4% to RUB 15,527 mln in the 12 months of 2007 as compared to the same period of last year (2006: RUB 14,985 mln). Growth resulted from increased sale volumes (by 10%), as well as from the consolidation of Brock Metal company. At the same time the decrease of US\\$ to RUB exchange rate entailed lower growth rate of revenues compared to the growth of sale volumes. In 2007 49% of consolidated revenue was generated by CZP sales to the domestic market.

Revenues from sale of zinc and zinc alloys increased by 8% up to RUB 13,933 mln (versus RUB 12,913 mln in 2006) while volumes of zinc sales grew by 10% and  average zinc prices on the LME decreased by 0.7% down to US\\$3,250/tonne as compared to the 2006 average zinc LME price of US\\$3,273/tonne.

Revenue from CZP’s other products (which principally comprises sales of by products obtained in the zinc production process, including sulfuric acid, cadmium and indium) increased by 81% up to RUB 1,205 mln in 2007 from RUB 664 mln in 2006.

Revenues from sale of lead concentrate increased by 87% up to RUB 389 mln compared to RUB 208 mln received in 2006 primarily as a result of an average price growth on the LME up to US\\$2,595/tonne (versus US\\$1,287/tonne in 2006).

Cost of sales

Cost of sales increased by 16% up to RUB 11,742 mln in 2007 from RUB 10,126 mln in

2006, primarily as a result of an increase in the cost of materials and consumables used and as a result of increased production, and the consolidation of the cost of sales of Brock Metal from 29 June 2007.

Cost of material and consumables used primarily comprises the cost of purchases of zinc concentrate, secondary raw materials and auxiliary materials used in the zinc   production process.

In 2007 cost of material and consumables used increased by 8% up to RUB 8,479 mln from RUB 7,860 mln in 2006 and represented 72% of total costs of sales in 2007, as compared with 78% in 2006. This increase was primarily attributed to an increase in purchases of zinc concentrate and higher prices of zinc concentrate.

Costs of utilities and fuel increased by 32% up to RUB 1,192 mln in 2007 from RUB 904 mln in 2006. This increase was primarily due to an increase in average tariffs to RUB 1.27 per kWh in 2007 as compared to at an average tariff of RUB 1.11 per kWh in 2006. The increase was also attributed to an increase in overall production levels.

Cost of sales as a percentage of revenue was 76% in 2007, compared to 68% in 2006, and consequently gross profit margin decreased to 24% from 32%.

Profit

Net profit in 2007 was RUB 1,914 mln or RUB 35 per share compared to RUB 2,872 mln or RUB 53 per share in 2006.

2007 Highlights

In January 2007 Chelyabinsk Zinc Plant and the Russian Federal Agency for Subsoil Use (Rosnedra) signed a 25-year licence agreement for the exploration and extraction of zinc ores in the Amurskoye Deposit located in Bredinsky district, Chelyabinsk region. Over a very short period, Chelyabinsk Zinc Plant practically completed its geological survey works at Amurskoye Deposit. Final data of appraisal and prospecting works at the deposit are expected to be obtained by the Company experts in the second half of 2008, upon approval of the figures at the State Commission for Reserves of Minerals and complete of a JORCcompliant mineral resources and reserves audit.

Within the CZP’s strategy aimed on debottlenecking and increasing zinc production capacity to 200,000 tonnes per year by 2010 the construction Waelz-Kiln No.5 was completed and new highly efficient large-capacity Waelz kiln was put into operation in March 2007. The new facility allows CZP to increase capacity of treating secondary zinc-containing raw materials by means of Waelz processing as well as increase processing of stockpiled zinc cake.

One of important events for the Company was the acquisition of 100% ordinary voting shares in Brock Metal company for Ј8.9 mln in June 2007. In the 2nd half of 2007 the Brock Metal sold 13,190 tons of alloys, while the estimated sales in 2008 will be 28,000 tons.

Commenting the results, Mr. Moiseyev noted: “The year 2007 was a successful year for Chelyabinsk Zinc Plant. We continued to implement our strategy aimed at increasing zinc production capacity to 200,000 tonnes per year by 2010, on ensuring Chelyabinsk Zinc Plant self-sufficiency in the raw materials, and increasing CZP presence on the new markets. This year, we expect that LME zinc prices would not be so favorable as in late 2006 – early 2007. Our efforts will be aimed at further enhancement of the Company’s operations efficiency, and we are convinced that all our goals that were set for 2008 will be achieved.”