DAGOK Kustanaiasbest OJSC (Kazakhstan): brief characteristics

/IRBIS, Feb 13, 01/ - Following is brief characteristics of DAGOK Kustanaiasbest OJSC (company), prepared on the basis of the materials of the Listing commission of the Kazakhstan Stock Exchange (KASE). The characteristics is published due to the entering the first issue bonds (KZ739AVI2A42; KZASb1; $100; $6 mln; Feb 19, 01 - Feb 19, 04; semiannual coupon at 12% APR) of DAGOK Kustanaiasbest OJSC into official list of the KASE securities under category "A". The agency IRBIS is not liable for the reliability of the information presented hereafter, which is taken from the conclusion of the KASE Listing commission and the materials presented by the issuer to the KASE. PRIMARY ACTIVITIES, MEMBERSHIPS Primary activities of the company, based on its charter, are the extraction and concentration of chrysotile-asbestos ore and production of commodity asbestos and by-products on its base). Main product of the company is commodity asbestos. The company is a member of non-governmental and non-commercial association of the asbestos producers, International Asbestos Association (IAA) with the head office located in Canada and Information Association of Asbestos (IAA) with the head office in the USA. GENERAL INFORMATION The date of initial state registration - May 12, 91. Legal status - open joint stock company. Ownership - private. Legal and actual address of the head office - 67, Lenin St., Jetikara, Kostanai region, 459430, Kazakhstan. The number of employees is 3,453. The companies of Kustanaiasbest combine are located in the north of Kazakhstan, near Jetikara in Zaural mine region, known for its iron, aluminum, asbestos, gold and zinc deposit sites. The combine develops Djetygarinsk site, which is the fifth biggest site in chrysotile-asbestos. The combine is one of four asbestos producers in CIS and only one in Kazakhstan. LICENSES - Permanent license issued by the State committee of Kazakhstan on investments on Sep 7, 95 (series MG, #434) granting the right to develop Djetygarinsk site of chrysotile-asbestos in Djetygarinsk district of Kostanai region. By the decision of this committee #R-2/98, dated Feb 19, 98, the changes were made into the license, which gives the company the right to extract talc and nephritic minerals at Djetygarinsk site of chrysotile- asbestos. - Permanent license (general) #0002700 of the Ministry of energy, industry and trade of Kazakhstan issued on June 8, 00 granting the right to transmit and distribute power. - Permanent license (general) #0001255 of the Ministry of energy, industry and trade of Kazakhstan issued on Nov 6, 98 granting the right to engage in activities related to conducting mining and explosion works. - Permanent license (general) #0000337 of the Ministry of energy, industry and trade of Kazakhstan issued on Sep 29, 00 granting the right to collect (stock piling), store, process and sale the scrap of non-ferrous and ferrous metals. - Permanent license (general) #0002701 of the Ministry of energy, industry and trade of Kazakhstan issued on June 8, 00 granting the right to engage in mounting and fixing the boilers, vessels and pipelines that work under pressure. - State license (KST, #000446) of the Kazstroikomitet granting the right to engage in design, construction-mounting works, as well as production of building constructions, items and materials in Kazakhstan based on the list dated June 28, 00. The license is to be approved annually not later than June 28. - State license (AVT, #00110976, #00110977) of the Committee on transportation control of the Ministry of transportation, communication and tourism of Kazakhstan, issued on June 16, 00 granting the right to engage in cargo transportation with automobiles. The license is valid till June 16, 2001. - State license (OGT, #0004893) of the Ministry of energy, industry and trade of Kazakhstan issued on July 5, 00 granting the right to engage in transportation of dangerous cargo on international routes. The license is valid till July 5, 2001. HISTORY Main production capacities of the combine were built and put into service during 1965-1974. In September 1993 the combine was transformed into open joint stock company of open type. In 1997 a tender was announced to sell the state block of shares of the company. Aina Company became the winner, and the major shareholder of the company. In 2000 it transferred ownership rights to Pole Co LLP (Almaty, Kazakhstan), which now owns 88% of the DAGOK Kustanaiasbest OJSC shares and controls the company. CAPITAL, SHARES AND SHAREHOLDERS As of Jan 1, 01 announced, issued and paid authorized capital of the DAGOK Kustanaiasbest OJSC equaled KZT460 mln. Total of 4,600,000 shares at KZT100 each were issued, including 4,530,000 common and 70,000 preferred shares. DAGOK Kustanaiasbest OJSC has registered two issues of the securities. The first issue was conducted on Jan 29, 97 and contained 630,000 common inscribed shares (KZ1C21211213) and 70,000 preferred inscribed shares (KZ1P21211218). The second (additional) issue was registered on Aug 11, 00 for KZT390 mln and consisted of 3,900,000 common inscribed shares (KZ1C21211213). All shares were issued in non- documentary form. The shareholders register is maintained by Kazregistr LLP (license #20406200022 issued on Aug 3, 99). Constitutive documents of the issuer do not contain the norms that discriminate or limit the rights of the holders of the company's securities to transfer (alienate) them. Based on registered share issue prospectus of DAGOK Kustanaiasbest OJSC, the minimum guaranteed dividend to preferred shares is 20%. Dividends were not charged in 1997. Based on the decision of the Annual general shareholders meeting of July 16, 99 and May 24, 00, the dividends charged in 1998 and 1999 equaled KZT1,400 th. for each year. The dividends were not paid completely because not all shareholders claimed. In 1998 KZT873.6 th. (remaining amount - KZT526.4 th.) was paid, in 1999 - KZT441.1 th. (remaining amount - KZT958.6 th.). First and second issue common and preferred shares of DAGOK Kustanaiasbest OJSC were traded on non-listed securities floor of the KASE from March 26, 98 through July 7, 99. Two deals were made in common shares on March 30 and 31, 1998 at KZT2,100 and KZT2,250 per share. The list of shareholders of DAGOK Kustanaiasbest OJSC as of Oct 19, 00: Pole Co LLP (Almaty; 88.00% of the authorized capital); NBK Securities LLP (Almaty; 7.39%); Akim administration of Kostanai region (Kostanai; 3.04%). Based on the register of the securities holders, as of indicated dates, two legal entities owned more than 5% of total shares. CHARACTERISTICS OF RAW MATERIAL BASE, RESERVES As it has been noted above, the combine develops Djetygarinsk deposit site (Djetygarinsk district of Kostanai region), which is the fifth biggest chrysotile- asbestos reserves in the world. Based on the data of DAGOK Kustanaiasbest OJSC, initial reserves of the site were 1,074 mln tons of ore. As of late 1992 32.5% of the reserves were depleted and residual reserves equaled 724.9 mln tons. In late 1992 the reserves were recalculated at 3.88% content of asbestos, and they decreased to 705.3 mln tons. As of late 2000 residual reserves were at 684 mln tons. If current production volumes (about 3 mln tons a year) are maintained, these reserves will last for 228 years, and if the combine reaches its projected capacity of 10 mln tons a year, they would last for 70 years. Based on the issuer's data, asbestos content of the ore changed over the last 4 years from 4.82% to 5.74%, at 5.16% on average, which is by one third greater than the figure used in calculations of the reserves in 1992. It means that now the reserves are exaggerated and the next calculations will reduce them noticeably. Correspondingly, the life span of the mine can be decreased. However, even in the case of gradual increase in production and content, the combine is believed to function at least 50 years. In 1997 only nephrite deposit site was discovered within the mountain allotment of the combine. In 1999 the production of this mineral has started. PRODUCTION AND MATERIAL-TECHNICAL BASE Projected capacity of the mines is about 10 mln tons of ore a year, that of concentration factories is 600 th. tons. The most actual production (11 mln tons a year) was reached in late 70's. In early 90's, due to a decline in demand for asbestos, the production declined partially and some companies of the combine were shut down. During all subsequent years Kustaanaiasbest kept working, though by the year 1994 the production fell to 2.8 mln, then after some growth in 1995- 1997 (3-3.2 mln tons a year), it fell back to 2.1 mln in 1999. The demand growth resumed the increase in extraction volumes up to 3 mln tons in 2000. There are 5 major subdivision in the structure of DAGOK Kustanaiasbest OJSC. Significant proportion of wear and tear of fixed assets is typical for them. For separate kinds of fixed assets it varies from 13 to 90%. The least wear and tear is typical to the buildings (13-30%), while the most wear and tear to machinery and vehicles (65-80% on average). Accumulated depreciation of fixed assets at major subdivisions of DAGOK Kustanaiasbest OJSC (data of the issuer) -------------------------------------------------- Subdivision Depreciation, % ---------------------------------- --------------- Mining administration 40 - 68 Concentration factory 40 - 65 Vehicle division 30 - 70 Railroad transportation enterprise 17 - 90 Power facility 13 - 85 -------------------------------------------------- PRODUCTS AND SALES The main product of DAGOK Kustanaiasbest OJSC is chrysotile-asbestos of 4 groups and 15 brands. The brand of the asbestos is determined based on the content of the certain asbestos group. The number of the group is determined by prevailing length of the asbestos fiber. The varieties with longer fibers are referred to the smallest number groups (starting from zero) and the shortest ones to the sixth and seventh. The grouping is the major factor for pricing, since more longer fibers are the most expensive ones. Additional products of the company account for about 2% and consists of the asbestos of the seventh group, as well as crushed stone, powder used in the production of ruberoid. Most of the products of DAGOK Kustanaiasbest OJSC go to the production of asbestos pipes and roofing sheets. They are also used in the production of pads and hydroinsulating materials, which are used in construction and machinery. The company does not produce 1 and 2 groups of asbestos and textile asbestos (group zero), since corresponding brands of asbestos are absent in Djetygarinsk mines. Although Kazakhstan has its own asbestos producing companies, this material is not used widely, and DAGOK Kustanaiasbest OJSC is mainly export oriented. Exports varied from 81% (1997) to 98% (2000). The company is the major supplier of asbestos to the world market. Based on the information of the company, its exports reached 9% of total supplies of chrysotile-asbestos in the world. The major competitors of DAGOK Kustanaiasbest OJSC are the Russian producers of chrysotile-asbestos: Uralasbest (Asbest, Sverdlov region) and Orenburgasbest (Yasnyi, Orenburg region), which supply the same group of products to the same markets. At that, the production volumes of these companies significantly exceed those of DAGOK Kustanaiasbest OJSC in natural terms: Uralasbest - 3.7 times, and Orenburgasbest - 2.3 times. However, most of their production is consumed on domestic market of Russia, since it is the major consumer of asbestos in the world. It consumed about 500 th. tons (quarter of the world's consumption). And that year Russian companies supplied 159 th. tons of asbestos, or 24% of their total production to the world markets. Corresponding figures for DAGOK Kustanaiasbest OJSC are 107 th. tons or 98% (including 25 th. tons to Russia). During the last two years significant increase in construction is observed in Kazakhstan, which leaves hope for an increase in orders from local companies engaged in the production of construction materials. PRODUCTS AND SALES DAGOK Kustanaiasbest OJSC plans to spend $15 mln for the development of production capacities during 2001-2005. To implement this program $2.950 mln long-term loan was attracted in October 2000 and $6 mln is planned to raise through bond issue. Besides, the company intends to use its own resources for investment programs. Investment projects means the replacement and modernization of existing fixed assets of the company, and the expansion of the production. The management of DAGOK Kustanaiasbest OJSC believes that the extraction, processing and sales volumes will gradually increase as the forecasted demand for the company's products increases and its production capacity grows. Major investment projects of DAGOK Kustanaiasbest OJSC: - Modernization of press-packaging complex - year 2001, production of briquettes at 40 kg each in compliance with international standards. - Purchasing of power saw bench equipment for the production of euro underpans - 2001, packaging based on international standards. - Putting into service piling equipment Signoda - 2001-2003; packaging based on international standards. - Renewal of cargo loading vehicles - 2002-2005; increase in products supply capacities. - Renewal of the equipment of concentration factories - 2002-2005; replacement and modernization of obsolete equipment. - Renewal and increase the number of open pit trucks - from 2001; replacement and modernization of fixed assets, increase in ore extraction. - Renewal of bulldozers, excavators, and cranes - from 2001; replacement and modernization of fixed assets, increase in ore extraction. - Organizing the production and processing of nephrite (KZT19.1 mln) - 2001; production of nephrite for further processing and sales. - Switching the boiler and dryer ovens at concentration factories to gas - 2001-2002; cut the costs of ore concentration processing.