Fitch Rates KazakhGold 'B'; Outlook Stable

/REUTERS, October 13, 06/ - Fitch Ratings has today assigned KazakhGold Group Limited ("KazakhGold") a foreign currency Issuer Default rating ("IDR") of 'B' with Stable Outlook. At the same time, Fitch has assigned KazakhGold's proposed USD150 million senior bond issue an expected rating of 'B'. The final rating for the bond issue is contingent on receipt of final documentation in line with information already received by the agency. KazakhGold is a Kazakhstan-based gold producer, which is undertaking a major expansion and modernisation programme at the company's three operating gold mines. The capital expenditure is being funded by proceeds from the company's IPO on the London Stock Exchange (late 2005) and the proposed bond issue. The expansion is planned to result in a substantial increase in gold production to over 500,000 ounces over the next two to three years, from less than 100,000 oz per annum in 2005. The ratings reflect KazakhGold's extensive gold reserve base, which is expected to support long mine lives (in excess of 15 years) at expanded levels of production. The ratings also reflect its projected low production costs, which are expected to be close to the lowest quartile by world standards. They take into account KazakhGold's modest operating diversity, with production sourced from three mines - each having both underground and open pit reserves with well established infrastructure. The company should also benefit from the recent relatively strong gold prices of over USD500/oz, although these prices may not be sustainable over the longer term and Fitch has therefore based its analysis on longer-term gold price assumption of USD425/oz. On the other hand, KazakhGold has a single commodity focus, is fully exposed to gold price volatility and has a very limited relevant financial track record. Operational and financial results to date provide little indication as to how the company is expected to perform following its expansion programme, while the full benefit (in terms of increased gold production, cash flow and earnings) is expected to be progressively realized only in future years. As such, Fitch's financial analysis has been focused on forward-looking cash flow projections, which carry an inherent degree of uncertainty. Fitch's base case cash flow projections show relatively robust cash flow and coverage ratios and ability to repay the proposed bond by its maturity date, although this ability could be adversely affected by a variety of factors. A major risk involves the company's ability to execute the expansion programme in line with projected capital costs as well as meeting expanded gold production levels at projected operating costs. While Fitch has factored in some downside to these key drivers into its base case assumptions, a material deterioration in these could place downward pressure on the ratings. Conversely, the ratings are constrained at existing levels until KazakhGold is able to demonstrate a sustained period of operational and financial performance at expanded levels of gold production. Other risks include some uncertainty involving the conversion of reserves from former Soviet Union standards to western (JORC) standards. Following discussions with an independent technical consultant, Fitch, however, does not expect to see a material reduction in reported reserves upon adopting the western standard. The agency also notes other traditional risks associated with mining and metals processing projects - both underground and open pit. A credit analysis report on KazakhGold will be available on www.fitchratings.com. Contacts: Michael Hermans, Brisbane, Tel: +61 7 3222 8615; Angelina Valavina, London, +44 20 7417 6270; Oguz Bardak, Istanbul, +90 212 279 1065. Media Relations: Mayra Cunningham, London, Tel: +44 20 7417 3557. [2006-10-16]