OREANDA-NEWS. On 1 August 2008 Chelyabinsk Zinc Plant (LSE, RTS, MICEX: CHZN), Russia’s largest producer of zinc and zinc alloys, announced its IFRS consolidated results (unaudited) for the 1st Quarter of 2008.

Production and Sales

January through March 2008, Chelyabinsk Zinc Plant (CZP) produced 42,270 tonnes of SHG zinc and zinc based alloys, an increase of 5.3% as compared to the same period of 2007 (40,146 tonnes). CZP sales for the period reached 37.1 thou tonnes, which is 10% more than a year ago (33.7 thou tonnes). 48% (17.8 thou tonnes) of salable metal was supplied to the domestic market. Export totaled 19.3 thou tonnes or 52% of CZP sales in Q1 2008 (Q1 2007: domestic market - 17.1 thou tonnes, export 16.6 thou tonnes of SHG zinc and zinc based alloys, accordingly).

All zinc concentrate produced by CZP’s subsidiary, Nova Zinc, operator of Akzhal mine in Kazakhstan, has been supplied to the Chelyabinsk Zinc Plant. January through March 2008, Nova Zinc supplied 6.4 thou tonnes of zinc in zinc concentrate to CZP (January through March 2007: 6.9 thou tonnes). Lead in lead concentrate production for the period totaled 931 tonnes.

CZP’s subsidiary, The Brock Metal Company Limited (the leading UK supplier of zinc and aluminum die-casting alloys) sold 7,388 tonnes of products January through March 2008.

Revenues

CZP’s revenue decreased 20% to RUB 2,909 mln for the 3 months ended 31 March 2008 as compared to the same period of last year (Q1 2007: RUB 3,643 mln). Decrease of revenues mainly resulted from decrease of LME zinc prices. January through March 2008, the average zinc prices on the LME decreased by 30% to USD2,425.8/tonne as compared to the Q1 2007 average LME zinc price of USD3,460.4/tonne. This factor was partly compensated by 10 percent sales volumes growth, as well as by consolidation of Brock Metal company from June 29 2007.

Revenues from sale of zinc and zinc alloys decreased by 24% to RUB 2,607 mln (versus RUB 3,427 mln in the first three months of 2007) while volumes of zinc sales grew by 10%. CZP did not sale any lead concentrate in the first three months of 2008 due to dissolution of the agreement with the only customer, Kazzinc. CZP signed a new sales contract for lead concentrate with Euromin S. A. in June 2008.

Revenue from CZP’s other products almost tripled to RUB 302 mln in Q1 of 2008 (Q1 2007: RUB 109 mln) as a results of production volumes growth and structure of feedstock processed.

Cost of Sales

For the first three months, ended 31 March 2008, cost of sales decreased by 3% to RUB 2,593 mln from RUB 2,673 mln for the same period of 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. Despite the production volumes growth that required more raw materials, and consolidation of Brock Metal, cost of material and consumables used decreased by 24% to RUB 1,541 mln (Q1 2007: RUB 2,016 mln) which is equal to 59% of the total cost of sales (Q1 2007: 75%), and was caused by decrease of LME zinc prices and prices for zinc raw materials.

Costs of utilities and fuel increased by 27% up to RUB 365 mln in January-March of 2008 (January-March, 2007: RUB 288 mln). This increase was primarily due to an increase in tariffs for CZP to RUB 1.47 per kWh in Q1 2008 as compared to the CZP tariff of RUB 1.24 per kWh in Q1 2007. The increase was also attributed to an increase in overall production levels (zinc by 5.3%).

Staff costs increased to RUB 139 mln for the first three months ended 31 March 2008, which is 51% more than for the first three months ended 31 March 2007 (RUB 92 mln), reflecting mainly the trend of average salary growth in Russia and Kazakhstan. Cost of sales as a percentage of revenue was 89% in Q1 2008 (vs. 73% in Q1 2007), thus gross profit margin decreased to 11% from 27%.

Distribution Costs

Distribution costs include primarily transportation costs and customs duties. For the first three months of 2008 these costs increased by 3% up to RUB 78 mln (vs. RUB 75 mln for the first three months of 2007). Such growth was caused by increase of export sales by 16% (Q1 2008: 19.3 thou tonnes, Q1 2007: 16.6 thou tonnes of SHG zinc and zinc based alloys).

General and Administrative Expenses

The increase of general and administrative expenses in the first quarter of 2008 by 9% up to RUB 164 mln (versus RUB 149  mln in the same period a year ago) resulted from the consolidation of Brock Metal results in Q1 2008.

Profit

Net profit for the three months ended March 31, 2008 was RUB 109 mln or RUB 2.01 per share compared to RUB 550 mln or RUB 10.21 per share for the same period a year ago.