OREANDA-NEWS. October 22, 2010. Chelyabinsk Zinc Plant (LSE, RTS, MICEX: CHZN), Russia's largest producer of zinc and zinc alloys, is pleased to announce its IFRS financial results for the six months ended June 30, 2010.

1H 2010 HIGHLIGHTS

.   Chelyabinsk Zinc Plant’s (CZP) revenue for the first six months 2010 totaled RUB 5,615 million compared to RUB 3,542 million for the same period last year.

.   1H 2010 EBITDA amounted RUB 1,413 million and was equivalent to 25% of revenue compared to an EBITDA of RUB 543 million, equivalent of 15% of 1H 2009 revenue.

.   Net profit for the first six months of 2010 was RUB 678 million compared to RUB 136 million loss for the first six months of 2009.

Consolidated interim financial results for the six months ended June 30

(in millions of Russian Roubles)

2010

2009

Change, %

Revenue

5,615

3,542

59%

Gross profit

1,589

608

161%

Gross margin, %

28%

17%

 

EBITDA

1,413

543

160%

EBITDA margin, %

25%

15%

 

Profit/(loss) before income tax

875

(127)

n/a

Net income/(loss)

678

(136)

n/a

Net margin, %

12%

n/a

 

(1)    EBITDA,    for    any    relevant    period,    represents    operating    profit    before    depreciation    and amortization.

EBITDA is not a measurement of CZP's operating performance under IFRS and should not be considered as an alternative to operating profit or any other performance measure derived in accordance with IFRS.

Reconciliation of EBITDA to net income is as follows for the periods indicated:

 

six months ended June 30

(in millions of Russian Roubles)

2010

2009

Profit/(loss) for the period

678

(136)

Add:

 

 

Depreciation and amortization

422

462

Finance income and costs, net

19

76

Foreign currency exchange loss, net

36

74

Income tax expense

197

9

Impairment of property, plant and equipment

12

-

Impairment of assets held for sale

46

-

Exploration and evaluation costs

3

58

EBITDA

1,413

543

Production and Sales

January through June 2010, CZP produced 80.6 thousand tonnes of salable SHG zinc and zinc based alloys, an increase of 56% as compared to the same period of 2009 (51.7 thousand tonnes).

CZP sales for the six months 2010 were 77.9 thousand tonnes, which is 53% more than for the same period of 2009 (50.9 thousand tonnes). 46% (35.8 thousand tonnes) of zinc and zinc alloys was supplied to the domestic market. 53% (40.9 thousand tonnes) – was supplied under a tolling agreement with UMMC. Export constituted 1.2 thousand tonnes.

CZP’s subsidiary, Nova Zinc LLC, operator of Akzhal zinc and lead ore mine in Kazakhstan produced 14 thousand tonnes of zinc in zinc concentrate for the first six months of 2010 (first six months of 2009: 17.2 thousand tonnes). Lead in lead concentrate production for January through June 2010 totaled 1.8 thousand tonnes (January through June 2009: 2.1 thousand tonnes).

CZP's subsidiary, The Brock Metal Company Limited (the leading UK supplier of zinc die-casting alloys) sold 14.2 thousand tonnes of products for the six months 2010, an increase of 45% as compared to the same period of 2009.

Revenue

CZP's revenue increased by 59% for the six months of 2010, to RUB 5,615 mln. The increase was mainly due to the growth of revenue from sales of zinc and zinc alloys by 25%; from sales of lead concentrate - by 15%; from sales of by-products - by 73%.

Revenue structure for the six months ended June 30

(in millions of Russian Roubles)

2010

2009

Change, %

Zinc and zinc alloys

3,649

2,914

25%

Zinc tolling

985

0

n/a

Lead concentrate

209

181

15%

Other products

772

447

73%

Total revenue

5,615

3,542

59%

Revenue from sale of zinc and zinc alloys increased by 25% for the first six months of 2010, to RUB 3,649 mln. It was caused by the growth of zinc and zinc alloys tonnage sales and also by increase of LME zinc prices by 63%. CZP’s revenue increase was not proportional due to the fact that part of zinc metal was supplied under a tolling agreement.

Zinc tolling revenue was RUB 985 mln. CZP receives fixed processing fee of RUB 24,000 per tonne of zinc.

January through June 2010 revenue of The Brock Metal Company Limited amounted RUB 960 mln (January through June 2009 – RUB 484 mln). The main factors of the growth were increase of sales volume (by more than twice) and increase of LME prices.

Revenue from sale of lead concentrate for the six months 2010 increased by 15% to RUB 209 mln as compared to the same period of 2009, due to CZP’s sales (six months 2010: 1.7 thousand tonnes of lead in lead concentrate; six months 2009: 0)

January through June 2010 revenue from CZP’s other products increased by 73% to RUB 772 mln. It was mainly caused by the increase of sulphuric acid, indium and zinc sulfate sales.

Cost of Sales for the six months ended June 30

(in millions of Russian Roubles)

2010

2009

Raw materials and consumables used in production

2,123

1,520

Utilities and fuel

856

598

Production overheads

44

83

Mineral extraction tax

41

49

Repairs and maintenance

287

185

Depreciation and amortization

379

414

Staff cost

308

271

Change in work-in-progress

48

84

Change in finished goods

(106)

(25)

Reversal of inventory provision

(3)

(381)

Precious metal revaluation

(25)

(51)

Cost of goods and material for resale

63

186

Cost of sales

4,014

2,933

For the six months ended June 30 2010, cost of sales increased by 37% to RUB 4,014 mln as compared to the same period of 2009.

Cost of material and consumables used primarily comprises the cost of zinc concentrate, materials for alloys production, secondary raw materials and auxiliary materials used in the zinc production process. This cost increased by 40% to RUB 2,123 mln. The main reason is the production volumes growth and increase of LME zinc prices. Cost of material and consumables used also increased disproportionately due to the zinc tolling.

For the six months 2010 costs of utilities and fuel increased by 43% to RUB 856 mln as compared for the same period of 2009. This increase was primarily due to a growth of electricity consumption at CZP's production facilities in Chelyabinsk as a result of an increase in overall production levels and growth of electricity tariffs for CZP. Also costs of fuel of Nova Zinc LLC increased significantly due to the growth of the stripping activities, electricity tariffs (by more than 30%) and diesel fuel price (by more than 50%).

Distribution Costs

Distribution costs include primarily transportation costs and customs duties. For the first six months 2010, these costs grew by 43% to RUB 228 mln (vs. RUB 158 for the first six months 2009) due to increase of transportation costs of sulphuric acid and lead concentrate to consumers.

General and Administrative Expenses

General and administrative expenses decreased for the six months 2010 by 7% to RUB 276 mln, as compared to the same period of 2009.

Profit (loss)

Net profit for the six months ended June 30, 2010 was RUB 678 mln compared to RUB 136 mln loss for the six months ended June 30, 2009.