annual report 2018 - aix | aix · mining, processing, energy, logistics and marketing operations....

Maintaining leadership. Increasing the potential.

ANNUAL REPORT 2018

The Company is integrated in the Eurasian Resources Group S.à.r.l (‘ERG’), a leading producer of natural resources with integrated mining, processing, energy, logistics and marketing operations.

The Shubarkol Mine consists of two coal mines, the Central and Western mines, where mining takes place using an open-cast method. The Company is equipped with an extensive fleet of mining excavators and dump trucks to aid the transportation of coal and overburden after controlled blasting processes are undertaken. More information on the Company's production chain, including a description of the raw material transportation process, is provided in section 5.

The Company has achieved one of the highest levels of production amongst open-cast coal mining enterprises in the Commonwealth of Independent States (CIS). The high quality and low ash content of Shubarkol coal provides consumers with several advantages:Lower quantities are needed, plus transportation and storage costs are reduced;

Reduced quantities of ash and slag waste are produced, and therefore costs to transport and store these are also reduced;

Reduced wear and tear of equipment;

Reduced emissions of harmful substances are released into the atmosphere.

MESSAGE FROM THE MANAGEMENT ......... 4President's Address ....................................................... 4 Message from the Chairman of the Board of Directors .............................................. 5

ABOUT THE COMPANY ............................... 6General Description ...................................................... 6Company Profile ............................................................ 6Products and Markets ................................................... 7Key Indicators ................................................................. 8

MARKET OVERVIEW ..................................... 9Macroeconomics ........................................................... 9Demand and Supply...................................................... 9Prices ................................................................................ 9Mining in the Republic of Kazakhstan ........................ 9

STRATEGY ................................................... 11

ASSETS AND RESULTS ................................ 12Operation Model.......................................................... 12Reserves and Resources ............................................. 13Mining and Processing ................................................ 14Sales ............................................................................... 14

FINANCIAL STATEMENT ............................ 16Reporting Principles .................................................... 16Profits and Losses Report .......................................... 16Revenue ......................................................................... 16Cost of Sales.................................................................. 17General and Administrative Expenses ..................... 17Capital Expenditures ................................................... 18

RISK MANAGEMENT .......................................19Risk Management System .......................................... 19Key Risks and their Management ............................. 19

SUSTAINABILITY REVIEW .......................... 21Staff Development ....................................................... 21Environmental Protection .......................................... 21Safety ............................................................................. 22Community Participation ........................................... 23

CORPORATE GOVERNANCEShare Capital and Shareholders ............................... 25Subsidiaries of the Company ..................................... 25Organisational Structure ............................................ 26Management Structure .............................................. 26Remuneration .............................................................. 27Dividend Information .................................................. 27Report on the Company’s Compliance with the provisions of the Company's Corporate Governance Code ..................................... 27Data Reliability Statement .......................................... 27

FINANCIAL STATEMENTS .......................... 28

ANNEXES .................................................... 29Annex 1: Board of Directors ...................................... 29Annex 2: Management Board ................................... 30Annex 3: Glossary ........................................................ 31Annex 4: Contacts ........................................................ 33

CONTENTS

54

MESSAGE FROM THE MANAGEMENT

Message from the Chairman of the Board of Directors

President's address

________________________________________

Andrey Safonov President of Shubarkol Komir JSC

________________________________________

Serik ShakhazhanovChairman of the Board of Directors

Dear investors, partners and colleagues,

I am pleased to present the 2018 Annual Report of Shubarkol Komir JSC, which details both the main production and financial performance of the Company and the results of its sustainable development activities.

The increase in demand for coal and semi-coke products in 2018, as well as their relatively high market price and stability (where the average price for coal was about 5,847.50 tenge), had a positive effect on the Company’s sales volumes and revenues.

Production volumes in 2018 increased by 10.9% to 11.6 million tonnes (2017: 10.6 million tonnes). This was due to our increased fleet of dump trucks as well as the replacement of old excavators with new, more efficient ones.

The principles of sustainable development are integrated into the Company’s business strategy and are reflected in its daily activities. The Company strives to minimise its negative impact on the environment, to ensure high standards of safety in the workplace and to build good relationships with all its stakeholders.

The Company implemented a number of projects aimed at supporting the local population and improving their living conditions. Every year, the Company invests in the development of infrastructure in the regions in which it operates, as well as supporting education, culture and sports. The Company also supports local employment through expansion activities it has undertaken over the past few years.

I am confident about the Company’s future. Its continued focus on short and medium-term growth in supplying coal to large metallurgical companies, both in the Republic of Kazakhstan and abroad, will help the Company maintain a strong and competitive market position.

In 2018, Shubarkol Komir JSC continued to increase its production capacity and to focus its efforts on optimising its production processes and expanding its resource base.

The Company’s revenue increased to 124.9 billion tenge in 2018 (2017: 88.3 billion tenge). This growth was driven by an increase in sales volumes and sale prices, as well as a rise in the usage of the Company’s infrastructure by third parties.

Owing to the high-risk nature of the mining sector, the Company continues to reinforce the importance of protecting the health and safety of its workforce and of minimising the environmental impact of its operations.

The Company’s achievements could not have been realised without the competency and commitment of its employees, who the Company considers to be its core asset. The Company continuously seeks to identify opportunities to improve its employees’ welfare. The total number of employees across the Company and its subsidiaries at the end of 2018 was 3,669 people. Staff turnover decreased to 12% in 2018, compared to 15% in 2017.

I am happy to report that in 2018 there were no fatal accidents. The Company is committed to maintaining this record and ensuring it provides a safe and injury-free working environment across its operations.

The Company has implemented a health, safety and environmental management system that complies with the international standard OHSAS 18001: 2007 for occupational health and safety, and the international standard ISO 14001: 2015 for environmental management. The Company regularly audits its quality management and health, safety and environmental management systems. The Company maintains the statutory ‘Declarations of Industrial Safety’ across its production sites, which are reviewed and certified by an external party.

The Company continues to take measures to ensure its future success and has plans to increase production, optimisie efficiency and maximise revenue in 2019.


ABOUT THE COMPANY

MARKET OVERVIEW

STRATEGY ASSETS AND RESULTS

FINANCIAL STATEMENT

RISK MANAGEMENT

SUSTAINABILITY REVIEW

CORPORATE GOVERNANCE

ANNEXESFINANCIAL STATEMENTS

76

About the companyGeneral description

1985 19991996 2000 2000–2002Shubarkol Komir JSC (the ‘Company’) and its subsidiaries are engaged in the extraction, processing and sale of coal and semi-coke.

Since the reclaim of the cross-section in 1985

164,7 million tons of coal have been mined.

to present, more than

Shubarkol Komir JSC 2018 Annual Report

2002 2016 2017 2018

DEVELOPMENT OF THE SHUBARKOL MINE

INTEGRATION OF SHUBARKOL MINE JSC WITH THE EURASIAN FINANCIAL AND INDUSTRIAL COMPANY

INVESTMENT OF OVER ONE BILLION TENGE FOR THE DEVELOPMENT AND IMPROVEMENT OF THE SHUBARKOL MINE

ESTABLISHMENT OF SHUBARKOL KOMIR JSC THROUGH A MERGER OF SHUBARKOL MINE JSC AND SHUBARKOL LOADING AND TRANSPORT DIRECTORATE OJSC

LISTING OF SHUBARKOL KOMIR JSC’S ORDINARY AND PREFERRED SHARES ON THE KAZAKHSTAN STOCK EXCHANGE JSC

0.84Production volume, million tonnes

4.7

8.7

10.5

11.6


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




98

Business model

OUR RESOURCES HOW WE CREATE PRICE

FINANCIAL

The most effective use of all financial assets

NATURAL

HUMAN

OPERATIVEProductive capacities Shubarkol field:

» Central cross-section: » West cross-section

Refining capacities » Three sorting complexes » Two screening installations

Production facilitiesCoking plantShipment capacities

» Railway tracks » Three freight railway stations, » Locomotive-wagon depot » Locomotive stock

PARTNERSHIP » Extensive client base: industrial enterprises of the Republic of Kazakhstan, utility sector in all regions of the Republic of Kazakhstan and export (far and near abroad).

» Sales of products is made in the order of 100% prepayment for products for all consumers.

» Cover ratio with collective bargaining agreements of 97% of employees

» Cooperation agreements with regional authorities and community organizations

968 million tons

>3,000 employees

50 years

Common industrial reserves of coal which are suitable for open pit mining, make up

11.6 mln t

Mining in 2018

1.1 mln t

Enterprises of the Republic of Kazakhstan

184 thousand t

Group Enterprises

4 thousand t

Enterprises of the Republic of Kazakhstan

3.7 mln t

Domestic needs of the Republic of Kazakhstan

6.6 mln t

Export

12.8 mln t

Power

210 thousand t

Power

Professionalism and highqualification of almost

The development period is about

COAL MINING AND CONVERSION

CONVERSION

MANUFACTURING SPECIAL COKE

11.1 mln t

Special Coke Production Plant

Special coke

188 thousand t

OUR CONSUMERS

OUR RESULTS

FOR THE VOLUME OF DELIVERIES TO THE DOMESTIC MARKET

FOR VOLUME OF COAL PRODUCTION IN THE REPUBLIC OF KAZAKHSTAN№ №1 3

59.8 billion tenge

Coal sales

7.2 billion tenge

Special coke sales

4.4 billion tenge

Railway services

2.4 billion tenge

Transport and forwarding

51.1 billion tenge

Other

21.5 million dollars

Investments

COAL

SPECIAL COKE

OPERATING INCOME

Domestic market • Domestic household of the Republic

of Kazakhstan (11 regions)

• industrial enterprises of the Republic of Kazakhstan

Export• enterprises of the Far

and Near Abroad

Domestic market • metallurgical enterprises of Kazakhstan.

priority consumers - enterprises of the Eurasian Group

Export• enterprises of the Far

and Near Abroad

124.9 billion tenge

total

GROWTH FACTORS IN A LONG-TERM PERSPECTIVE

ENVIRONMENTAL PROTECTION AND INDUSTRIAL SAFETYReducing the level of personnel injury to zero and minimizing the negative impact on the environment at each stage of the production process are priorities of the Company

More on page 40

ADVANCED TRAINING OF EMPLOYEESWe contribute to the professional development of staff to improve operational efficiency and motivation of our employees.

More on page 40

RISK MANAGEMENTManagement of external and internal risks in every aspect of the Company's activities allows us to achieve strategic goals and guarantees growth in the long term perspective.

More on page 36

EFFICIENCY IMPROVEMENTInvesting in modern equipment and improvement of production processes make it possible to increase production efficiency and reduce costs.

More on page XX

CORPORATE CULTUREOur corporate culture encourages employees to achieve results without compromising safety, ecology and in compliance with ethical principles.

More on page 44

CORPORATE GOVERNANCEWe strive to adhere to high standards of corporate governance and rely on best practices.

More on page 46


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




1110

Switzerland

Poland

China

Belarus

Ukraine

Uzbekistan

Kyrgyzstan

SSGPO JSC

Aluminum of Kazakhstan JSC

TNK Kazchrome JSC

Great Britain

Regular deliveries of coal for exportSpecial coke deliveries to ERG companiesCoal deliveries to the domestic marketTrial batches in 2018, scheduled deliveries from 2019 are planned.Shubarkol coal fieldSarah Arka Special Coke Plant

Kostanay region Shubarkol

Komir

Akmola region

Pavlodar region

Karaganda region

Jambyl RegionTurkestan

region

Kyzylorda region

Aktobe region

Atyrau region

North-Kazakhstan region

Almaty region

Permanent consumers of Shubarkol coal are industrial enterprises of Kazakhstan, as well as organizations and consumers of the utility sector in all regions of the country. The third direction of sales is export (far and near abroad). Special coke is sold to metallurgical enterprises of Kazakhstan.

Business on the map


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

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1312

The mine is located in the Nura district of the Karaganda region. The closest major settlement is the city of Zhezkazgan, located 150 km south-west of the mine. The Karaganda-Zhezkazgan railway passes 110 km south of the field. The nearest train station is Kyzyl-Zhar.

The Shubarkol Mine (the ‘mine’) is an asymmetrical trough, 15km long and 6.5km wide.

The Company is equipped with an extensive fleet of mining excavators and dump trucks to aid the transportation of coal and overburden after controlled blasting processes are undertaken.

Products and MarketsDOMESTIC MARKET

COAL

Shubarkol Komir JSC delivers coal to most of the territory of Kazakhstan: the supply of the utility sector of Kazakhstan is carried out to all cities of republican significance and 11 out of 14 regions.

SPECIAL COKE (SEMI-COKE)

The special coke is produced by the coke-chemical plant of Shubarkol Komir JSC

and is sold to metallurgical enterprises of Kazakhstan. Among consumers:

» the giant of the mining industry of Kazakhstan SSGPO JSC;

» Kazakhstan’s only enterprise producing alumina (raw material for aluminum production) Aluminum of Kazakhstan JSC;

» the world's leading producer of ferroalloys by volume production and quality of chrome ore by TNK Kazchrome JSC

» as well as third-party producers of non-ferrous metals in the Republic of Kazakhstan.

EXPORT MARKETThe geography of coal deliveries by Shubarkol komir JSC covers the markets of North-Western Europe (Switzerland, Great Britain), and CIS countries (Kyrgyzstan, Uzbekistan, Belarus, Ukraine). In 2018, pilot coal supplies were sent to the promising new markets for Kazakhstan coal in Poland and China, and in 2019 it is planned to begin regular deliveries. The main maritime areas of export coal supplies are the Baltic ports.

Key indicatorsIn 2018, revenue amounted to 125 billion tenge (an increase of 79% on 2016 and 41% on 2017). This growth was driven by an increase in coal sales (by 2.9 million tonnes since 2016 and by 1.1 million tonnes since 2017), and an increase in the price of coal and semi-coke.

Operating Income

Coal Mining

Coal volume sales

125 billion tenge

11,598 thousand t

11,144 thousand t

COAL

2016 2017 2018

8,235

10,062 11,144

2016 2017 2018

69,734,749

88,326,960

124,955,805

2016 2017 2018

207193 188

2016 2017 2018

3,325,632

6,554,819

7,513,210

2016 2017 2018

2019(план)

190 206

186

DYNAMICS OF EXTRACTION AND STRIPPING OF COAL

COAL, ‘000 TONNES

INCOME, ‘000 TENGE

SEMI-COKE, ‘000 TONNES

SEMI COKE, ‘000 TONNES

CAPITAL EXPENDITURES, 000 TENGE

2016

8,672

mining, ‘000 tonnesoverburden, ‘000 m3

2017 2018

2019(план)

10,455 11,598

13 720

25,835 30,082 31,386

37 610

VOLUME OF SALES CONSOLIDATED FINANCIAL PERFORMANCE

2016 2017 2018

2019(план) 15 km

6.5 km

SHUBARKOL MINE


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




1514

Market overview


Coal production in Kazakhstan in 2018 increased by

6% compared with 2017, reaching

112.5 million tons

The main increase came in the mining of coal grade "D"


ABOUT THE COMPANY

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1716

In 2018, global coal markets remained favourable for producers. The average annual quotation for the European benchmark API 21 in 2018 was US$92 / tonne, 10% higher than the average value in 2017 and 53% higher than the average value in 2016. Prices for Australian coal in the Asian market increased even more – by 22% to US$107 / tonne in 2018.

Global demand for coal has remained high due to the continued development of Asian countries, rising industrialisation, as well as significant deviations from

In 2018, global coal prices were consistently high (US$ 92 / tonne on the basis of CIF ARA). There was a seasonal price reduction between the end of 2018

Global demand for coal will continue to remain stable owing to its predominant use for electricity generation, where approximately 80% of coal is currently consumed. According to external analysis, global demand for coal will remain stable in the near future due to a growing demand for electricity in both deleveloping countries, as a result of increased industrialisation – and in developed countries, as a result of the introduction

In 2018, the Company was the third-largest coal producer in Kazakhstan.

In 2018, coal production in the Republic of Kazakhstan reached 112.5 million tonnes, an increase of 6% compared with 2017. The largest increase was in the extraction of D-grade coal (+3.2 million tonnes) as well as other thermal coal types (+2.6 million tonnes). Of the 112.5 million tonnes of coal mined in Kazkahstan, Shubarkol produced 11.6 million tonnes or 10.3% of the country’s coal production.

The increase in production was due partly to an increase in the supply of coal from a peer mining company in the Republic of Kazakhstan, Bogatyr Komir LLC, to the Ekibastuz GRES-1 and 2 power plants

normal seasonal temperatures2, with colder winters in Asia resulting in higher demand for heating. However, there were also occassional supply interruptions in 2018. China, the largest producer and consumer of coal in the world, struggled to increase production to meet domestic demand; only 3.55 billion tonnes of the planned 3.70 billion tonnes were mined. India had similar challenges in meeting demand, while Colombia, one of the largest exporters of coal, reduced its shipments due to heavy rainfall.

and beginning of 2019 due to relatively warmer winters in Europe, resulting in lower demand for heating.

of electric vehicles. However, the growing demand for electricity is not expected to lead to an increase in coal production as it will be counterbalanced by the increasing demand for renewable resources.

The highest consumption of coal is in the industrially developed and developing markets of the Asia-Pacific region (which consumed 71.7% of world production in 2017), in particular China (50.7%) and

which both saw a rise in the demand for energy. It was also due to an increase in coal shipments from the Vostochny Coal Mine to Omsk Thermal Power Plants and ArcelorMitall Temirtau .

The increase in D-grade coal production was mainly provided by the following companies: Karazhyra LLC (+1.3 million tons), Shubarkol Komir JSC (+1.1 million tons) and Shubarkol Premium JSC (+0.9 million tons). The growth in D-grade coal production is driven by growing demand in export markets: Russia is replacing expensive grades of high-calorific coal with low-calorific D-grade coal, while supplies to European markets have grown due to the partial shift in focus of their traditional suppliers towards premium Asian markets.

Macroeconomics Prices

Demand and supply

Mining in the republic of kazakhstan

Whilst overall global demand for coal remained high, coal demand in the European Union (EU) was slightly lower than demand in 2017, due to relatively warmer winters3. Nonetheless, coal exports to the EU in 2018 exceeded expectations.

Due to falling demand in Europe and, conversely, growth in Asia, the gap in prices between these regions increased to US$15 / tonne in 2018, and continued to increase in early 2019.

India (11.4%). Other major consumers include North America (10.8%) and the CIS, including Russia and Kazakhstan (7.2%). In the medium term, coal production in Russia is expected to grow to meet demand in the Asia-Pacific region. The Russian government has launched a programme to expand the Baikal-Amur and Trans-Siberian highways, as well as to construct new trans-shipment facilities in the Far East.

1 API 2 is the benchmark price reference for coal imported to northwest Europe and is based on the cost, insurance and 2 Compared to average historical temperatures for the winter season. 3 Compared to average historical temperatures for the winter season.

1 This mine is owned by one of ERG’s subsidiaries. 2 This is the largest steel and mining producer in Kazakhstan.

Shubarkol Komir ranks

in coal mining in Kazakhstan,

3occupying

10.3 %of the market

rd place


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




1918

Shubarkol Komir JSC confidently looks to the future and it is focused on creating the necessary conditions for holding leading positions and planned growth"


Strategy

Shakhazhanov S.K.Chairman of the Board of Directors


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




2120

To implement this strategy, it is necessary to:

The Company’s strategy is to provide coal to meet the municipal needs of the population of the Republic of Kazakhstan, to increase sales volumes to premium markets and to high-end metallurgical companies, and to further devleop its coal processing and export capabilities.

» The Company has plans to increase annual production of coal and semi-coke to at least 20 million tonnes, and to identify new end-users including nearby power plants (after successful trial burning), high-end metallurgical companies, and households in Russia.

INCREASE ANNUAL PRODUCTION

» The Company must consider the adequacy of the railway infrastructure that is required to support its growth, and identify measures to improve it.

» This includes the development of reliable forecasts of the volumes of freight traffic along the main routes used to transport the Company’s coal; the implementation of plans to develop the Company’s two railway stations, Shubarkol and Arkalyk; and the improvement of the Company’s communication and coordination efforts with other users of Kazakhstan’s railway infrastructure.

DEVELOP THE INTERNAL AND EXTERNAL RAILWAY INFRASTRUCTURE

» The Company currently operates a semi-coke production plant that was commissioned in 2006. The main consumers of this semi-coke are subsidiaries of ERG: TNC Kazchrome JSC (Workshops No. 1, 2 and 6 of the Aksu Ferroalloy Plant) and the Pavlodar Aluminum Plant, which is part of Aluminum of Kazakhstan JSC.

» The Company plans to construct a new semi-coke production plant with a capacity of up to 400,000 tonnes, as well as to upgrade the existing plant. This will help meet the increased demand for high quality semi-coke at Workshop No. 4 of the Aktobe Ferroalloy Plant at TNK Kazchrome JSC, which is currently undergoing facility upgrades.

INCREASE SEMI-COKE PRODUCTION AND UPGRADE EXISTING SEMI-COKE PRODUCTION FACILITIES

The following initiatives are currently being assessed:

IMPROVE BUSINESS PROCESS INTEGRATION WITH ERG

MAINTAIN LONG-TERM BUSINESS PROFITABILITY


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




2322

Assets and results

Coal production in 2018 increased by

compared to 2017 10.9% and makes up

10.9%

11.6 million tons.



ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




2524

POWER PLANTS PROCESS MATERIAL SUPPLIERS

SHUBARKOL KOMIR JSCCENTRAL MINE WESTERN MINE

» Electricity acquisition from third parties » Acquisition of explosives and blasting agents (for drilling and blasting operations) and acquisition of fuel and lubricant

» Open pit coal mining with a production capacity of 13 million tonnes of coal and semi-coke

» Production capacity of 7 million tonnes p.a.

» Production capacity 6 mln tonnes p.a.

COAL SORTING COMPLEX 1

» Production of 25-100 mm coal fractions used in the production of semi-coke

SEMI-COKE PRODUCTION PLANT

PAVLODAR ALUMINUM PLANT (FOR ALUMINUM OF KAZAKHSTAN JSC)

AKSU FERROALLOYS PLANT (FOR TNK KAZCHROME JSC)

AKTOBE FERROALLOYS PLANT (FOR TNK KAZCHROME JSC)

» Processing of coal into semi-coke

SALES

» Sale to third parties and other ERG companies

COAL SORTING COMPLEX 2

» Production of other coal fractions

Operation model

The Company’s railway infrastructure is a megacomplex that includes:

» Three freight stations (Porodnaya, Central and Western);

» A 188 km network of access roads which includes several connection and loading points;

» Power supply devices, alarm systems, semi-automatic block signal transmission and other traffic control devices;

» Non-mechanised marshaling yards, railway depots, and locomotive fleet;

» Other supporting infrastructure that ensure the functioning of the complex, its devices and facilities.

The access road network connects to the national railway infrastructure at two stations, Kyzylzhar and Shubarkol, which are operated by the national company ‘KTZh-Freight Transportation JSC’.

The Company provides over 10 other companies with access to its railway infrastructure in the absence of alternative routes. This includes wagon delivery, removing services and shunting services. In 2018, income from these services amounted to 98.9 million tenge.

Driveway length

188 km


ABOUT THE COMPANY

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2726

Reserves and resources

The total coal reserves suitable for open-cast mining at the Shubarkol Mine amount to 967.7 million tonnes (as of 1 January 2018), with a mining and development period of up to 50 years.

COMPANY’S RESOURCE BASE

Coal resource category Quality

Volume (million tonnes)

Ash content Ad (%)

Inherent moisture Ad (%)

Total moisture Ad (%)

Sulphur Ad (%)

Calorific value (kcal/kg)

Coal resources measured Western Mine 298.7 11.1 6.0 15.3 0.40 5,250 Central Mine (incl. Eastern)

315.4 11.5 6.0 14.5 0.40 5,250

Total measured 614.1 11.3 6.0 14.9 0.40 5,250 Detected coal resources Western Mine 150.5 11.1 6.0 15.3 0.40 5,250 Central Mine (incl. Eastern)

140.5 11.5 6.0 14.5 0.40 5,250

Total detected 291.0 11.3 6.0 14.9 0.40 5,250 Measured and detected resources Western Mine 449.2 11.1 6.0 15.3 0.40 5,250 Central Mine (incl. Eastern)

455.9 11.5 6.0 14.5 0.40 5,250

Total measured and detected

905.1 11.3 6.0 14.9 0.40 5,250

Estimated coal resources Western Mine 14.5 11.1 6.0 15.3 0.40 5,250 Central Mine (incl. Eastern)

48.2 11.5 6.0 14.5 0.40 5,250

Total estimated 62.7 11.4 6.0 14.7 0.40 5,250 Total coal resources Western Mine 463.7 11.1 6.0 15.3 0.40 5,250 Central Mine (incl. Eastern)

504.1 11.5 6.0 14.5 0.40 5,250

Total 967.7 11.3 6.0 14.9 0.40 5,250

Source: Coal Resources Expert Report prepared by SRK Consulting (UK) Limited. Report is actual for January 1, 2018

Notes: Shubarkol Komir JSC prepares inventory reports for the State Reserves Committee in accordance with the local regulatory requirements of Kazakhstan. SRK company re-classified them as coal resources and reserves in accordance with the terms and definitions in the JORC Code (Australian Institute of Mining and Metallurgy). The JORC Code considers coal resources to be defined as material that has the potential for subsequent cost-effective excavation.

COAL PRODUCTION

2016

8,672

mining, ‘000 tonnesoverburden, ‘000 m3

2017 2018

2019(план)

10,455 11,598

13 720

25,835 30,082 31,386

37 610

2016 2017 2018

2019(план)

2016

3,180

Domestic population Energy companiesExport

2017 2018 2019(план)

3,285 3,735 3 772

975 959 1,105 1 187

4,080 5,817

6,304 8 3578,235 10,061

11,144 13 315

HIGH-CALORIFIC COAL SALES BY TYPE OF CONSUMPTION, ‘000 TONNES

Mining and processingCOAL MININGIn 2018, the Company achieved its planned annual capacity of 12.79 million tonnes of coal per year. This is the highest capacity ever produced at the Shubarkol Mine.

The mining technology involves: ■ using excavators to mine both overburden ledges and coal

ledges (the latter either in bulk or selectively); ■ using dump trucks to transport coal and move rock (including

the external and internal overburden).

During the production process, the Company also undertakes a re-excavation process for the materials transported by the dump trucks.

In addition, a coal crushing and screening unit operates at the mine to ensure the required grades are produced to customer specifications.

The increase in coal production in 2018 is due to upgrades to the Company’s equipment and due to expanding its fleet of dump trucks. Higher production capacities will help the Company expand into new markets and meet the rising demand for coal.

SEMI-COKE PRODUCTIONThe Company was one of the first companies in Kazakhstan to undertake deep coal mining and processing when it commenced semi-coke production in 2006. The coke-chemical plant at Sary-Arka Special Coke LLP was built as part of a government programme to reduce imports and promote industrial innovation in Kazakhstan.

The decline in semi-coke production in 2018 was due to cleaning of the circulating water supply pools, during which the plant was shut down for 35 days.

2016 2017 2018

2019(план)

2016 2017 2018

190 206

186

SEMI-COKE PRODUCTION, ‘000 TONNES

Sales

In 2018, the Company sold 11.1 million tonnes of high-calorific coal, an increase of 10% on 2017 sales. Of this, supplies to the utility market grew by 13%, to the energy market by 15%, and to the export market by 8%. The Company also produced more than 188 thousand tonnes of medium-temperature semi-coke.


ABOUT THE COMPANY

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2928

Financial statement

Consolidated operating income of Shubarkol Komir JSC in 2018 increased by

and amounted to41%

124.9 billion tenge



ABOUT THE COMPANY

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3130

Reporting principlesThe following review presents the trends and major changes associated with the Company’s operating activities and financial performance.

The review has been prepared based on the Company’s audited Consolidated financial statements. All financial data and considerations have been drawn up under International Financial Reporting Standards (IFRS) and in line with the accounting policies

applied in the preparation of consolidated financial statements for the years ended 31 December 2016, 2017 and 2018.

PricewaterhouseCoopers LLP (Kazakhstan) is the Company’s appointed auditor. Audited financial statements with the Auditor’s analysis are given in Section 10. All references to dollars in this report are to US dollars.

Profit and loss reportThe table below shows financial information related to the Company's results for 2016-2018:

Revenue

‘000 tenge 2016 2017 2018

Income 69,734,749 88,326,960 124,955,805

Cost of sales (36,558,251) (47,197,500) (56,718,819)

Recovery of impairment loss on fixed assets 20,768,493 – –

Gross profit 53,944,991 41,129,460 68,236,986

Other operating income 2,888,720 2,513,536 4,706,343

Sales costs (240,876) (193,499) (2,105,950)

General and administrative expenses (9,234,953) (11,106,039) (14,176,622)

Other operating expenses (1,536,235) (1,067,665), (941,542)

Operating profit 45,821,647 31,275,793 55,719,215

Financial income 17,304,312 26,089,770 36,354,143

Financial expenses (17,265,828) (21,755,724), (36,013,143)

Investment impairment – (432,308) -

Profit before tax 45,860,131 35,177,531 56,060,215

Income tax expenses (14,120,719) (12,852,781), (9,369,956),

Profit for the year 31,739,412 22,324,750 46,690,259

Revenue from product sales increased in 2018 relative to 2016 and 2017 by 79% and 41%, respectively. This increase is due to the growth in volume and prices of sales of finished products. The main share of income is from the sale of mined coal: 47.3% in 2016, 48.3% in 2017, and 50% in 2018.

Cost of sales

‘000 tenge 2016 2017 2018

Sales of extracted coal 33,009,451 42,704,191 59,883,573

Operation of wagons and containers 23,064,619 27,352,050 43,700,931

Sales of coke and tar 5,780,405 6,124,697 7,223,344

Income / commission from the sale of purchased coke 2,211,734 5,144,510 5,384,523

Railway services (included in the price of coal) 3,120,561 3,514,327 4,409,135

Forwarding services 1,930,770 1,858,739 2,432,382

Wagon repair services 484,188 1,245,062 1,050,806

Other 133,021 383,384 871,111

Total revenue 69,734,749 88,326,960 124,955,805

The cost of sales increased in 2018 relative to 2016 and 2017 by 55% and 20%, respectively. This growth is due to an increase in expenses for the light running of wagons and containers, payroll and related costs, as well as an increase in the cost of materials.

‘000 tenge 2016 2017 2018

Depreciation of property, plant, equipment and intangible assets 6,967,347 9,947,094 11,546,515

Light running of wagons and containers 8,287,493 8,579,875 11,926,406

Materials 5,564,047 6,842,260 8,494,535

Payroll and related costs 6,125,921 6,735,605 9,238,648

Cost of coke purchased for resale 1,797,248 4,620,104 4,920,178

Repair and maintenance expenses 2,508,942 3,218,337 3,347,576

Electricity 977,607 892,150 891,183

Other taxes 1,236,780 700,978 344,277

Insurance 390,559 409,449 427,653

Security 265,332 224,491 428,056

Agency fees - - 173,424

Staff training 149,132 68,061 52,924

Provision for impairment of inventories 381,739 (335,349) 611,900

Changes in finished goods and work in progress 335,489 (387,580) (25,730)

Other 1,570,615 5,682,025 4,341,274

Total cost of sales 36,558,251 47,197,500 56,718,819


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




3332

General and administrative expensesThe Company's general and administrative expenses increased in 2018 compared to 2016 and 2017 by 54% and 28%, respectively. This was as a result of an increase in fees for management services, consulting and other professional services, and an increase in agency agreement fees.

Capital expenditures

‘000 tenge 2016 2017 2018

Payroll and related costs 3,407,054 3,445,515 3,831,313

Management fees 2,335,144 2,894,820 4,350,972

Sponsorship and other financial aid 1,397,047 1,190,635 1,228,885

Consulting and other professional services 564,035 908,510 2,044,886

Taxes other than income tax 125,250 624,463 202,450

Rent expenses 201,238 192,434 232,987

Depreciation of property, plant and equipment 121,519 142,996 743,277

Business travel and representation expenses 163,039 156,269 150,613

Fines and penalties 25,929 141,391 (51,401)

Repair and maintenance expenses 118,169 65,192 76,503

Bank charges 41,169 45,595 48,859

Communication expenses 44,168 42,169 65,884

Agency agreement fees – 24,503 666,933

Change in provision of impairment of receivables (331,082) (45,501) 32,463,

Other 1,022,274 1,277,048 551,998

Total general and administrative expenses 9,234,953 11,106,039 14,176,622

From 2016 to 2018, the Company invested US$51.15 million; this was divided between US$5.07 million for development projects, US$40.49 million for maintenance projects; and US$5.59 million for other projects.

The main capital expenditures for the period between 2016-2018 include:

» The construction of a semi-coke oven gas cleaning system:

The purpose of this project was to recover and clean the gas from tar substances to avoid its release into the atmosphere. The project was completed in 2016, at a capital expenditure of US$0.58 million.

» Increase in production:

The purpose of this project, which was initiated in 2015, was to increase coal production to 10.3 million tonnes per year. Capital expenditure amounted to US$1.26 million in 2016, US$1.18 million in 2017, and US$0.59 million in 2018.

» Increase in production:

The purpose of this project, which was initiated in 2017, was to increase coal production to 11.44 million tonnes per year. Capital expenditure amounted to US$0.47 million in 2017 and US$0.51 million in 2018.

» Construction of new semi-coke production plant with capacity of 350 thousand tonnes per year and upgrade of existing plant:

The purpose of this project was to increase production of medium-temperature coke. Capital expenditures amounted to US$0.47 million in 2018.

CAPITAL COSTS OF JSC "SHUBARKOL KOMIR" FROM 2016 TO 2018, MLN USD

US$ million 2016 2017 2018 Total

Development projects 1.84 1.65 1.58 5.07

• New construction 0.58 0.00 0.47 1.05

• Production expansion 1.26 1.65 1.11 4.02

Maintenance projects 7.40 17.12 15.98 40.49

• Equipment replacement 0.20 6.38 7.66 14.23

• Infrastructure development 3.95 1.22 1.83 7.00

• Capitalised repair and maintenance costs

2.07 3.99 6.14 12.20

• Reconstruction and upgrading 0.00 0.29 0.21 0.50

• Implementation of production and management IT systems

1.18 5.24 0.14 6.56

Other projects 0.55 1.11 3.93 5.59

Total capital expenditures 9.79 19.88 21.49 51.15

Note: the Data are presented on the basis of management data.


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




3534

Risk management

The risk management system of Shubarkol Komir JSC provides sufficient confidence in the achievement of the Company's strategic and operational goals.



ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




3736

Key risks and their management

A potential shortage in high-sided wagons on the rolling stock market, combined with a limitation in the capacity of the railway infrastructure and ports, may result in the Company’s inability to fulfil transport volume obligations in its customer agreements.

KEY RISKS RISK MANAGEMENT APPROACH

The implementation of a programme to increase the share of wagons provided by ERG’s Logistics Division for the transportation of Shubarkol’s coal, and therefore reduce the Company’s reliance on Kazakhstan Temir Trans (KTT);

Ongoing efforts to reduce the logistics leg across certain supply routes;

Enhance the efficiency of the Company’s logistics infrastructure to improve the rate of wagon turnover and optimise the logistics processes.

This includes a potential decrease/volatility in coal prices and/or sales volumes, as a result of market volatility, which may affect the Company’s financial performance and cash flow.


Regular monitoring of market prices, global sales volumes and internal inventory levels;Regular monitoring of market trends and the forecasting of sales volumes and prices;Ongoing monitoring of the conditions of supply agreements to:

» optimise the logistics routes and sales volumes to enhance profitability;

» inform the Company’s price hedging approach.

MARKET RISKS

Risks due to major fluctuations in inflation, USD/KZT exchange rate and bank interest rates

» The majority of the Company’s products are sold in foreign currency, while a significant share of the Company’s payments to its suppliers and contractors are in tenge. The Company can therefore incur greater bank interest rate charges and foreign exchange charges.


» Seek to manage, where possible, the risk of exchange rate volatility by offsetting cash flows in the same currency;

» Develop an appropriate hedging programme if significant foreign currency transactions occur.

FINANCIAL RISKS

LOGISTICAL RISKS

» This includes industrial injuries, negative health impacts or any negative impact to environmentally important areas


Health, safety and security are a priority for the Company

» The Company has undertaken comprehensive improvement programmes across its operations, including the implementation and review of policies and safety standards on a regular basis;

Adherence to international and regional laws and regulations regarding safety and environmental protection.

HEALTH, SAFETY AND SECURITY RISKS

» The Company's operations is subject to extreme weather conditions. These can contribute to accidents and disasters and/or negative environmental impacts, as well as disruption to operations.


» Carry out regular assessments of production risks, using third parties, and formulate and implement corrective action plans;

» Review and renew property damage insurance contracts and business interruption insurance contracts on an annual basis.

PRODUCTION AND OPERATIONAL RISKS

The Company’s risk management system provides the basis for the Company to achieve its strategic and operational objectives. The risk management process covers key areas (strategic management, budgeting and investment activities) and all levels of the Company’s activities. The Company’s employees are involved in the risk management process and are responsible for effective mitigation of emerging risks. The risk management system includes clearly defined oversight functions at the Company level (Management Board, Board of Directors) and at the ERG Group level (Board of Managers and the Executive Committee).

The operational and control functions of risk management are organised in accordance with the following three levels of protection:

» First level of protection: operational managers identify and manage risks. Each risk is owned by a specific manager who responds to and addresses the risk quickly and adequately.

» Second level of protection: the continuous monitoring of the adequacy, effectiveness and efficiency of controls exercised by the first level of protection using the Company’s control services, e.g. risk management, internal control, compliance, quality management, safety, etc.

» Third level of protection: the assessment of the effectiveness of corporate risk management through regular internal and/or external audit.

Risk management system


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




3938

Sustainability review

Shubarkol Komir JSC is aware of the importance of effective management of sustainable development, in particular, issues of labor protection and the environment, as well as ensuring industrial safety"

A. A. SafonovPresident of Shubarkol Komir JSC



ABOUT THE COMPANY

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FINANCIAL STATEMENT

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4140

THE COMPANY’S SUSTAINABLE DEVELOPMENT OBJECTIVES INCLUDE ENSURING:

■ The sustainability of the business as a whole; ■ The wellbeing of employees; ■ The wellbeing of local communities; ■ The efficient management of environmental impacts.

Staff developmentThe Company is committed to supporting the wellbeing of its employees and their continued professional development. At the same time, the Company provides the conditions to ensure a decent standard of living for its employees through material and non-material incentives.

STAFF PROFILE

2017 2018

15

12

ТЕКУЧЕСТЬ ПЕРСОНАЛА 3,669 people Headcount at the end of the reporting period

41 yearsAverage age of employees

7.7 years Average duration of service

In 2018, the Company implemented 64 training programmes at a cost of 260 million tenge. Of these, 11 were seminars, summits and forums, and 53 were a combination of internal and external training programmes.

In 2018, the Company amended its internal policy on personnel evaluation. Staff assessments will be carried out based on the position and responsibilities held; this opens up additional opportunities for personnel development, as it allows the Company to identify and focus on weaknesses and gaps in staff knowledge. The comprehensive assessment of staff is aimed at evaluating the effectiveness of employees and assessing their potential.

The Company works continually to increase wages. The average wage in 2018 increased 28% from the average paid in 2016.

The Company’s primary trade union is a branch of the Public Coal Worker’s Union, which was founded in 1992. As of 1 January 2019, the union consists of 2,792 people, including 2,699 active employees and 93 pensioners.

Environmental protection

136

143

0.18

104

Protection of water resourcesAir quality protection

Waste managementOther capital and operational expenditure

96

94

0.01

86

254

90.01

0.13

383mn tenge

2016 2017 2018

276mn tenge

263mn tenge

INVESTMENTS IN ENVIRONMENTAL PROTECTION, MN TENGE

2015 2016 2017 2018

1.63

0.82

1.21

0- 100%

LOST TIME INJURY FREQUENCY RATE

The Company complies with all legislative requirements for environmental protection. Any projects involving modernisation, reconstruction and expansion of production have successfully passed the mandatory statutory approvals and obtained the relevant permits. There are no nature reserves, main surface water bodies or other specially protected natural territories or objects of cultural heritage near the mine.

In 2018, there were no significant complaints from regulatory authorities made against the Company in relation to its environmental management practices and impacts.

The Company maintains a quality management system that has been certified to the ISO 9001:2015 international standard by the German company ‘TUV Thuringen’. In 2017, the Company successfully passed a re-certification audit for the international standards ISO 9001: 2015, ISO 14001: 2015, and OHSAS 18001: 2007, and it continues to align its operations with international best practice. In 2018, the first external observational audit was successfully completed for these standards.

The Company actively participates in environmental protection initiatives, including:

■ Air quality monitoring and control (emissions cleaning, dust suppression and tree planting);

■ Water quality monitoring and control (waste water monitoring and treatment);

■ Waste management (on-time monitoring, waste re-use, sorting and reduction).

In addition, the Company analyses applicable environmental legislation and regulations to improve its compliance on an ongoing basis.

SafetyLabour protection and industrial safety is one of the Company’s most important priorities. The Company complies with Kazakhstan’s labour protection and safety regulations and monitors compliance across its operations.

Production workers undergo compulsory training, which focuses on relevant health and safety issues related to the activities of workers and measures to prevent accidents.

Over the years, much work has been done to reduce injuries and improve safety at the mines. In 2018, we implemented a new system of behavioural safety audits. This, in combination with other initiatives, allowed the Company to realise zero work-related lost time injuries (LTI) in 2018 and a zero lost time injury frequency rate (LTIFR).

In 2019, the Company plans to implement several safety projects that include: introducing an industrial safety management system, installing in-vehicle monitoring systems, and improving the root cause analysis of hazards across the Company’s activities.

Community participationThe Company seeks to play an active part in the socio-economic development of local communities and in maintaining good relationships with its neighbours. The Company has traditionally supported low-income families in the Kyzylzhar settlement, as well as in the Nurinsky district, providing them with charitable assistance in the form of free coal rations. In 2018, more than 4,329 tonnes of coal were donated to these families.

In addition, the Company actively participates in charitable events, including events aimed at supporting orphanages, children without parental care, and large families.


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

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4342

Corporate governance

Corporate governance at the Company is based on the principles of justice, fairness, responsibility, transparency, professionalism and competence



ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

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4544

The fundamental principles of corporate governance are:

Corporate governance at the Company is based on the principles of justice, fairness, responsibility, transparency, professionalism and competence. An effective corporate governance structure assumes respect for the rights and interests of all persons interested in the Company’s activities, and contributes to the success of the Company, including the growth of its market value and the maintenance of financial stability and profitability.

The Company’s corporate governance principles constitute the basis for all rules and recommendations contained in the Corporate Governance Code approved by the General Meeting of Shareholders of the Company on 27 December 2006.

1. The protection of the rights and interests of shareholders. The Company ensures the implementation of the basic rights of shareholders stipulated by the Law of the Republic of Kazakhstan ‘On Joint Stock Companies’, and ensures the effective participation of shareholders in making key decisions on corporate governance.

2. The effective management of the Company by the Board of Directors and the executive body.

The activity of the Board of Directors is based on the principle of maximum observance of the interests of shareholders, as well as the general management of the Company’s activities, and is aimed at increasing the market value of the Company.

The Board of Directors ensures the effective operation of the risk management system, and controls and regulates corporate conflicts.

The activities of the Management Board are based on the principle of maximum respect for the interests of shareholders and are fully accountable to the General Meeting of Shareholders and the Board of Directors of the Company.

3. Transparent and objective disclosure of information about the activities of the Company

The Company discloses in a timely manner information on the main results, plans and prospects of its activity, which can significantly affect the property and other rights of shareholders and investors; it also responds in full and in a timely manner to shareholders' requests within the deadlines specified in the Company’s Charter.

4. Legality and ethicsThe Company operates in strict accordance with the Laws of the Republic of Kazakhstan, and with the generally accepted principles of business ethics and with the Company’s internal documents; the latter are based on the requirements of the legislation and the norms of corporate and business ethics.

5. An effective dividend policyThe Company’s dividend policy is carried out in strict accordance with current legislation in the Republic of Kazakhstan.

6. An effective personnel policy Corporate governance at the Company is based on the protection of the rights of employees as stipulated by the Republic of Kazakhstan’s labour legislation. It aims to develop partnerships between the Company and its employees to resolve social issues and regulate working conditions, as well as to maintain a favourable and creative working environment, and help to improve the qualifications of the Company's employees.

7. Environmental protectionThe Company ensures a careful attitude to the environment in the course of its activities.

8. Corporate conflict resolution policyIn the event of conflict, within the Company or with third parties, participants seek to resolve this through negotiation in order to ensure that both the rights of a shareholder and the Company’s reputation are protected.

If it is not possible to resolve corporate conflicts through negotiations, these should be resolved strictly in accordance with the legislation of the Republic of Kazakhstan.

In 2018, five General Meetings of Shareholders of the Company and 54 sessions of the Board of Directors were held.

Share capital and shareholdersSHARE CAPITAL AND INFORMATION ON ALL SIGNIFICANT EQUITY TRANSACTIONS

Information about the issue of securities Total Number of ordinary shares Number of preferred shares

Number of authorised shares 4,030,000 3,899,581 130,419

Number of shares offered 3,636,886 3,517,859 119,027

Number of shares repurchased by the Company 87 87 0

The nominal value of one share is 1,000 tenge.

In December 2018, the Company’s major shareholder, TNC Kazchrome JSC, sold their ordinary shares in the Company (1,758,886 shares, which amounted to 48.36% of the total shares offered by the Company). These were bought by SHK Eurasian Holding B.V.

THE GROUP OF SHAREHOLDERS OWNING 5 OR MORE PERCENT OF THE COMPANY'S SHARES (AS OF 31 DECEMBER 2018) ARE:

Shareholder name Total number of shares owned Type of share Percentage ratio of the number of shares owned to the total number of shared offered

by Company

SHK Eurasian Holding B.V. 1,758,886 ordinary 48.36%

EEC JSC 1,758,886 ordinary 48.36%

Subsidiaries of the company Name Main activity Ownership share

Asmare B.V. Holding company 100.00

Research Engineering Center ERG LLP Research activities 100.00

ENRC Logistics LLP Logistics activities 99.76


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




4746

Organisational structure

GOVERNING BODY

FINANCIAL UNIT HR UNIT MAINTENANCE AND REPAIR UNIT PRODUCTION UNIT COMMERCIAL UNIT GENERAL ADMINISTRATIVE UNIT

TAX ACCOUNTING, ACCOUNTING

AND REPORTING

TREASURY DEPARTMENT

BUDGETING AND ANALYSIS

HIRING AND HR ADMINISTRATION

PLANNING

EDUCATION AND DEVELOPMENT

EXPERTISE AND RELIABILITY

SOCIAL PROJECTS AND SPORTS

EXECUTION

MINING PRODUCTION

SEMI-COKE AND BY-PRODUCT PROCESS

PRODUCTION, ENERGY SERVICES

SALES MANAGEMENT

PROCUREMENT, INVENTORY, WAREHOUSE MANAGEMENT

INVESTMENT PLANNING AND CAPITAL CONSTRUCTION

COMPLIANCE, RISKS, INTERNAL CONTROLS, LEGAL SUPPORT

ECOLOGY, PBIT, MINE SURVEY, IT

OPERATIONAL EFFICIENCY, PROJECT MANAGEMENT, PR


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




4948

Management structure

SHAREHOLDER BODY

MANAGEMENT BODY

EXECUTIVE BODY MANAGEMENT BOARD OF THE COMPANY

BOARD OF DIRECTORS OF THE COMPANY

GENERAL MEETING OF SHAREHOLDERS OF THE COMPANY

BOARD OF DIRECTORS

Full name Current position

Serik Shakhazhanov Chairman of the Management Board of Eurasian Group LLP

Daniyar Rakhmatullaev Deputy of the Chairman of the Management Board of Eurasian Group LLP for finance

Andrey Safonov Member of the Board of Directors - President of the Company

Murat Murtazaev Member of the Board of Directors of the Company - Independent Director

Nurlan Ospanov Member of the Board of Directors of the Company - Independent Director

MANAGEMENT BOARD

Full name Current position

Andrey Safonov President of Shubarkol Komir JSC

Rustam Ibrahimov First Vice-President of Shubarkol Komir JSC

Daniyar Abdykadyrov Member of the Management Board - Vice President for Economics and Finance of the Company

Sergey Kim Member of the Management Board - Vice-President for Technical Services of the Company

Darya Savina Member of the Management Board - Head of the Legal Department of the Company

None of the members of the Board of Directors or the Management Board of the Company have interests in the authorised capital of Shubarkol or Shubarkol’s subsidiaries and affiliates.

For detailed information about all members of the Board of Directors and Management Board of the Company, including positions held for the last three years, see Annex 1.

RemunerationIn 2018, the gross remuneration paid to members of the Board of Directors and to the Management Board was 14.1 million tenge and 322 million tenge respectively.

Dividend information For the period 2016 to 2018 (based on the results of year-end 2015 to year-end 2017), dividends on ordinary shares of the Company were not accrued or paid.

During this period, the Company paid dividends at the guaranteed amount of 50 tenge per preferred share, in accordance with the procedure established by the legislation of the Republic of Kazakhstan.

The book value of one ordinary share at 31 December 2018 is 25,489 tenge (31 December 2017: 10,766 tenge).

The book value of one preferred share at 31 December 2018 is 2,355 tenge (31 December 2017: 2,289 tenge).

Basic earnings per share for 2018 amounted to 12.9 thousand tenge.

Report on the company’s compliance with the provisions of the company's corporate governance code

■ Policy on Compliance with Anti-trust and Competition Laws; ■ Policy on Conflict of Interest; ■ Personal Data Protection Policy; ■ Gifts and Hospitality Policy; ■ Policy on Related Party Transactions; ■ International Economic Sanctions Compliance Policy; ■ Information Classification Policy; ■ Policy on Human Rights Observance; ■ Policy on CSR Projects and Sponsorship.

The Company annually compiles a calendar of corporate events for the Company and follows it throughout the year.

The Company is guided by the Corporate Governance Code, which is approved by the decision of the General Meeting of Shareholders of the Company, dated 27 December 2006.

The Company has developed and currently complies with the following internal documents (which have been approved by its authorised bodies):

■ Regulations of the Board of Directors; ■ Regulations of the Management Board; ■ Corporate Code of Conduct; ■ Policy on Compliance with Corporate Rules and Regulations by

Agents; ■ Anti-Money Laundering Policy; ■ Anti-Bribery and Corruption Policy; ■ Anti-Fraud Policy;

Data reliability statementIn accordance with the Company’s Corporate Governance Code, the Board of Directors and the Management Board are responsible for the accuracy of the Company’s annual report and financial statements.


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




5150

Financial statements

Increased demand for coal and coke in 2018, as well as their relatively high market price and stability, had a positive effect on sales and income of the Company"

S.K. ShakhazhanovChairman of the Board of Directors



ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




5352


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




5554


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




5756


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




5958


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




Consolidated Balance Sheet

In thousands of Kazakhstani Tenge Note 31 December 2018 31 December 2017

ASSETS

Non-current assets

Property, plant and equipment 7 117,621,250 98,603,326

Intangible assets 2,113,830 2,581,056

Investments in equity instruments 8 439,756 439,756

Loans receivable 12 7,642,528 5,979,125

Other non-current assets 9 4,791,111 8,050,104

Total non-current assets 132,608,475 115,653,367

Current assets

Inventories 10 3,782,233 4,481,815

Trade and other receivables 11 16,847,459 13,348,062

Loans receivable 12 163,411,810 93,907,411

Current income tax prepaid 46,163 1,053,393

Cash and cash equivalents 13 17,968,173 9,942,511

Total current assets 202,055,838 122,733,192

Total Assets 334,664,313 238,386,559

EQUITY

Share capital 14 9,540,291 9,540,291

Additional paid-in capital 188,565 188,565

Other reserves 1,073,703 772,604

Retained earnings 81,001,008 30,084,541

TOTAL EQUITY 91,803,567 40,586,001

LIABILITIES

Non-current liabilities

Borrowings 16 162,315,362 133,411,500

Financial guarantees 17 2,024,314 5,615,678

Finance lease 18 23,295,741 10,996,623

Trade and other payables 20 235,016 338,811

Provisions for asset retirement obligations 19 1,030,795 681,986

Employee benefit obligations 749,871 695,697

Preference share liabilities 63,529 56,956

Deferred income tax liabilities 28 11,219,044 10,679,375

Total non-current liabilities 200,933,672 162,476,626

Current liabilities

Borrowings 16 5,183,103 3,599,080

Financial guarantees 17 718,250 1,177,466

6160


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




In thousands of Kazakhstani Tenge Note 31 December 2018 31 December 2017

Finance lease 18 2,432,720 1,195,652

Current income tax payable 433,849 5,205,647

Trade and other payables 20 33,037,516 24,016,603

Employee benefit obligations 36,343 45,455

Dividends payable 14 85,293 84,029

Total current liabilities 41,927,074 35,323,932

Total Liabilities 242,860,746 197,800,558

TotAL liabilities and Equity 334,664,313 238,386,559

Signed on 14 May 2019 for approval of the annual general meeting of shareholders:

____________________________

Andrey Safonov,

____________________________

Vadim Lysenko,President Chief Accountant

Consolidated Statement of Profit and Loss andOther Comprehensive Income

In thousands of Kazakhstani Tenge Note 2018 2017

Revenue 21 124,955,805 88,326,960

Cost of sales 22 (56,718,819) (47,197,500)

Gross profit 68,236,986 41,129,460

Other operating income 23 4,706,343 2,513,536

Other operating expenses 24 (941,542) (1,067,665)

Distribution costs (2,105,950) (193,499)

General and administrative expenses 25 (14,176,622) (11,106,039)

Operating profit 55,719,215 31,275,793

Finance income 26 36,354,143 26,089,770

Finance costs 27 (36,013,143) (21,755,724)

Impairment of investments - (432,308)

Profit before income tax 56,060,215 35,177,531

Income tax expense 28 (9,369,956) (12,852,781)

Profit for the year 46,690,259 22,324,750

Other comprehensive income:

Items that will not be reclassified to profit or loss:

Remeasurements of post-employment benefit obligations 7,247 15,087

Income tax recorded directly in other comprehensive income 28 (197) (8,458)

Effects of translation to presentation currency 294,049 52,081

Total other comprehensive income for the year 301,099 58,710

Total comprehensive income for the year 46,991,358 22,383,460

Basic earnings per share for the period 12.92 6.16

6362


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




Consolidated Statement of Changes in Equity

In thousands of KazakhstaniTenge

Note Sharecapital

Additionalpaid incapital

Otherreserves

Retainedearnings

Totalequity

Balance at 1 January 2017 9,540,291 188,565 916,181 7,551,553 18,196,590

Profit for the year - - - 22,324,750 22,324,750

Other comprehensive income forthe year

- - 58,710 - 58,710

Comprehensive income for theyear

- - 58,710 22,324,750 22,383,460

Write-off of preference shareliabilities

- - - 5,951 5,951

Write-off of provisions throughretained earnings of prior years

- - (202,287) 202,287 -

Balance at 31 December 2017 9,540,291 188,565 772,604 30,084,541 40,586,001

Adoption of IFRS 9 2 - - - 4,226,208 4,226,208

Balance at 1 January 2018 9,540,291 188,565 772,604 34,310,749 44,812,209

Profit for the year - - - 46,690,259 46,690,259

Other comprehensive income forthe year

- - 301,099 - 301,099

Comprehensive income for theyear

- - 301,099 46,690,259 46,991,358

Balance at 31 December 2018 9,540,291 188,565 1,073,703 81,001,008 91,803,567

Consolidated Statement of Cash Flows


Cash from operating activities :

Profit before income tax 56,060,215 35,177,531

Adjustments for:

Depreciation of property, plant and equipment and intangibleassets

12,289,792 10,101,191

Reversal of loss from/(provision for) impairment of property,plant and equipment

(515) 54,560

Loss from disposal of property, plant and equipment andintangible assets

83,409 247,407

Impairment of investments - 432,308

Provision for impairment of raw materials and supplies 10 611,900 77,046

Provision for the expected credit loss on trade and otherreceivables

32,463 45,501

Employee benefits 33,746 (65,118)

Foreign exchange difference from operating activities (237,177) (28,812)

Finance income 26 (36,354,143) (26,089,770)

Finance costs 27 36,013,143 21,755,724

Other 1,020,659 (196,126)

Operating cash flows before working capital changes 69,553,492 41,511,442

Decrease / (increase) in inventories 86,454 (1,924,565)

Increase in trade and other receivables (2,756,010) (5,082,027)

Increase in trade and other payables 3,456,037 12,641,635

Cash generated from operations:

Employees benefits paid (41,692) (60,862)

Income tax paid (13,656,175) (12,254,484)

Interest received 6,436,309 6,379,752

Interest paid (11,438,283) (5,063,942)

Net cash from operating activities 51,640,132 36,146,949

Cash flows from investing activities:

Purchase of property, plant and equipment and intangibleassets

(7,459,980) (19,252,207)

Purchase of share in associate - (432,308)

Placement to restricted cash (812,435) (373,291)

Loans issued (137,680,199) (93,009,770)

Repayment of loans issued 87,704,473 84,704,707

Net cash used in investing activities (58,248,141) (28,362,869)

Cash flows from financing activities:

Borrowings received 116,416,100 15,000,000

Repayment of borrowings (99,509,015) (18,262,672)

Dividends paid 14 (4,687) (11,052)

Finance lease paid (2,268,727) (192,604)

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Net cash from / (used in) financing activities 14,633,671 (3,466,328)

Effect of exchange rate changes on cash and cash equivalents -

Net increase in cash and cash equivalents 8,025,662 4,317,752

Cash and cash equivalents at the beginning of the year 13 9,942,511 5,624,759

Cash and cash equivalents at the end of the year 13 17,968,173 9,942,511

Investing and financing transactions that did not require the use of cash and cash equivalents and were excluded from the cash flowstatement include acquisition of property, plant and equipment through a finance lease in the amount of Tenge 20,412,852 thousand(Note 18) in 2018.

Notes to the Consolidated Financial Statements –31 December 2018

1. The Group and its Operations

Background information.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) forthe year ended 31 December 2018 for Shubarkol komir JSC and its subsidiaries (the “Group” or “Shubarkol komir”).

As of 31 December 2018, the shareholders of the Group exercising joint control are Eurasian Energy Corporation JSC and SHK EURASIANHOLDING B.V. Eurasian Resources Group S.à r.l. (“ERG”) is the ultimate controlling entity.

As of 31 December 2017, the shareholders of the Group exercising joint control were Eurasian Energy Corporation JSC and TNCKazchrome JSC. ERG was the ultimate controlling entity.

Principal activity.

The Group’s principal activity is the extraction, processing and sale of coal, production and sale of coke, shipping and forwardingoperations in the railway sector within and outside the Republic of Kazakhstan.

Subsurface use contracts.

The Group concluded a number of subsurface use contracts with the Government of the Republic of Kazakhstan the terms of which areset out below:

Subsurface usecontract

Location Year ofexecution

Year ofexpiry

Extraction of coal Central and Eastern part of the Shubarkol mine, Karagandaoblast

1999 2050

Extraction of coal Western part of the Shubarkol mine, Karaganda oblast 1999 2021

The accounting policy on acquisition of subsidiaries from entities under common control is disclosed in Note 2.

Registered address of the Group’s head office: 18, Asfaltnaya Street, Karaganda city, Karaganda region, Republic of Kazakhstan.

SUBSIDIARIES

Share (%) Parentcompany

Country ofincorporation

Principal activity 2018 2017

Asmare B.V. Shubarkolkomir JSC

Netherlands holding company 100.00 100.00

Xinjiang Hengfa XinlongInternational Trade Co

AsmareB.V.

PeoplesRepublic ofChina

trading activity (sale of coke) 100.00 100.00

ERG Research andDevelopment EngineeringCenter LLP

Shubarkolkomir JSC

Kazakhstan scientific research activity 100.00 100.00

ENRC Logistics LLP Shubarkolkomir JSC

Kazakhstan logistics 99.76 99.76

TransCom LLP ENRCLogisticsLLP

Kazakhstan logistics 100.00 100.00

TransRemVagon LLP ENRCLogisticsLLP

Kazakhstan wagon maintenance 100.00 100.00

RemPut LTD LLP ENRCLogisticsLLP

Kazakhstan development of infrastructure ofrailway sector, shipping andforwarding operations

- 100.00

AktobePromTrans LLP ENRCLogisticsLLP

Kazakhstan development of infrastructure ofrailway sector, shipping andforwarding operations

100.00 100.00

Bereke 2004 LLP TransComLLP

Kazakhstan services of railroad trainmaintenance

99.90 99.90

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2. Basis of Preparation and Significant Accounting Policies

Basis of preparation.

The accounting policies used in preparing these consolidated financial statements are described below and are based on IFRS. Thesestandards are subject to interpretations issued from time to time by the International Financial Reporting Standards InterpretationCommittee (“IFRIC”). These consolidated financial statements are also prepared under historical cost convention, except for revaluation ofcertain assets and liabilities, as described in the corresponding accounting policies below.

The preparation of these consolidated financial statements in conformity with IFRS requires the use of certain critical accountingestimates and assumptions. It also requires management to exercise their judgment applying the Group’s accounting policies. The areasinvolving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidatedfinancial statements are disclosed in Note 3.

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policieshave been consistently applied to all the periods presented, except for new accounting pronouncements.

Going concern principle.

These consolidated financial statements have been prepared in accordance with IFRS on a going concern basis, which assumes therealisation of assets and discharge of liabilities in the ordinary course of business within the foreseeable future.

The Board of Managers reviewed the level of liquidity available for the period until 30 June 2020. Throughout the period under review,ERG generates sufficient cash flow to maintain working capital position at above-minimum level. During 2018 commodity prices haveimproved considerably, which has given the ERG an additional headroom when considering its liquidity.

On 27 June 2018, Standard & Poor’s rating agency updated ERG’s rating from “B-/B” with stable outlook to “B/B” with positive forecast.

On 3 August 2018, Moody’s rating agency updated ERG’s credit rating from “B3” with stable outlook to “B2” with positive forecast.

Loan agreements of ERG include a number of different financial and non-financial covenants. As at 31 December 2018, ERG performed allcovenants.

ERG assesses the dependence of liquidity on commodity prices in key markets and ability to raise additional financing, when required. Toensure adequate liquidity for the performance of contractual obligations, ERG constantly focuses on operational performance,improvement of working capital and allocation of capital expenditure budget.

The Board of Managers therefore consider that ERG can access adequate resources to continue its business operations for theforeseeable future and that the preparation of these consolidated financial statements on a going concern basis is appropriate andaccordingly ERG will be able to realise its assets and discharge its liabilities in the normal course of business.

Based on ERG’s opinion regarding applicability of the going concern to its activities in the foreseeable future and forecasts of the futureoperating activities of the Group, management of the Group believes that the Group has access to sufficient resources to continueoperating activities in the foreseeable future and that preparation of these consolidated financial statements on the continuityassumption is appropriate and, accordingly, the Group will be able to realise its assets and repay liabilities in the normal course ofbusiness

New Accounting Pronouncements

New standards adopted in 2018

IFRS 9 “Financial Instruments” set the requirements to recognition and measurement of financial assets, financial liabilities and certainpurchase contracts for non-financial goods. The standard simplifies the application of hedge accounting.

Adoption of IFRS 9 resulted in the increase in equity by Tenge 4,226,208 thousand as at 1 January 2018, due to recognition of gain frommodification of borrowings in the amount of Tenge 4,776,166 thousand net of deferred income tax benefit in the amount of Tenge1,061,123 thousand and decrease in equity by Tenge 549,958 thousand which is recognition of expected credit losses on loans given.

Before 1 January 2018, the Group applied the following policies to accounting for financial instruments:

■ the effect of modifying the conditions of financial liabilities was reflected by a change in the effective rate and was charged to the profitor loss account over the remaining term of the liability;

■ investments in equity instruments were classified as available-for-sale investments and recognised at acquisition cost less impairment;■ provision for impairment of loans receivable carried at amortised cost was recognised if there was objective evidence that the Group

would not be able to receive the amounts due according to the original terms. The amount of provision was calculated as a differencebetween the asset’s carrying value and the present value of the expected future cash flows discounted at the original effective interestrate.

IFRS 15 “Contracts with customers” provides a single model of accounting for revenue arising from contracts with customers based on theidentification and satisfaction of performance obligations and revenue from contracts with customers that is distinguished from othersources.

Adoption of IFRS 15 did not result in a material effect on equity as at 1 January 2018.

Amendments to IFRS that are not effective yet

IFRS 16 “Lease” sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in thelessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing.Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and,instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with aterm of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest onlease liabilities in the statement of profit or loss and other comprehensive income. IFRS 16 substantially carries forward the lessoraccounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and toaccount for those two types of leases differently.

The Group plans to use the modified retrospective method, as a result the cumulative effect from initial recognition will be recognised at 1January 2019, without restatement of comparatives. It is expected that adoption of IFRS 16 “Lease” will result in recognition of the asset inthe form of the right-of-use and relevant lease liability of Tenge 644,563 thousand.

Functional and presentation currency.

All amounts in these consolidated financial statements are presented in Kazakhstani Tenge (“Tenge”), unless otherwise stated. Thefunctional currency of the Group and its Kazakhstani subsidiaries is Tenge; the functional currency of Asmare B.V. is US Dollar; thefunctional currency of Xinjiang Hengfa Xinlong International Trade Co is Chinese yuan (CNY).

Foreign currency transactions.

Monetary assets and liabilities held by the Group and denominated in foreign currencies at 31 December 2018 are translated into Tengeat the official exchange rate of the Kazakhstani Stock Exchange (“KASE”) at that date. On initial recognition, foreign currency transactionsare accounted for at the exchange rate of the KASE prevailing at the date of the transaction. Subsequently, assets and liabilities of theGroup denominated in foreign currency are restated on monthly basis at KASE rate as at the month end. Gains and losses resulting fromthe settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currency arerecognised in profit or loss for the year.

At 31 December 2018, the official rate of exchange used for translating foreign currency balances was US dollar (USD) 1= KZT 384.2 (31December 2017: US dollar 1= KZT 332.33). Exchange restrictions and currency controls exist relating to converting Tenge into othercurrencies. Tenge is not freely convertible in most countries outside of the Republic of Kazakhstan.

Consolidated financial statements.

Subsidiaries are those investees, including structured entities that the Group controls. The Group has control over investees if:

■ has power to direct relevant activities of the investees that significantly affect their returns,■ has exposure, or rights, to variable returns from its involvement with the investees, and■ has the ability to use its power over the investees to affect the amount of investor’s returns.

The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether theGroup has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right whendecisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee evenwhen it holds less than majority of voting power in an investee. In such a case, the Group assesses the size of its voting rights relative tothe size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights ofother investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances, donot prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to theGroup (acquisition date) and are deconsolidated from the date on which control ceases.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised lossesare also eliminated unless the cost cannot be recovered. The Group and all of its subsidiaries use uniform accounting policies consistentwith the Group’s policies.

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Property, plant and equipment.

Property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and impairment provisions. The cost ofself-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads.

The individual significant parts of an item of property, plant and equipment (components), whose useful lives are different from the usefullife of the given asset as a whole are depreciated individually, applying depreciation rates reflecting their anticipated useful lives. Cost ofreplacing major parts or components of property, plant and equipment items are capitalised and the replaced part is retired. Gains orlosses on replaced parts’ write-off are recognised in profit and loss for the year.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probablethat future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All otherrepairs and maintenance costs are charged to profit or loss for the year.

Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit and loss for the year.

Mining assets are recorded at cost less accumulated depreciation and less any accumulated impairment losses. Expenditures, includingevaluation costs, incurred to establish or expand production capacity, as well as to conduct works for mining-construction, and minepreparation during the period of establishing project capacity or during mine reconstruction, are capitalised to mining assets as part ofbuildings and constructions.

Depreciation.

Land is not depreciated. The deemed cost of each item of property, plant and equipment is depreciated over its useful life to residualvalue. Each item’s estimated useful life has due regard to both its own physical life limitations and/or the present assessment ofeconomically recoverable reserves of the mine property at which the item is located.

Depreciation is charged to profit or loss on a straight-line basis over the estimated useful life of the item of property, plant and equipmentor under the unit of production method depending on the order of use of property, plant and equipment.

Mining assets are depreciated using the units-of-production method based on the estimated economically recoverable and feasiblereserves to which they relate. If the estimated useful life of a particular asset is less than the corresponding useful life of the mine, then forsuch mining assets depreciation is calculated using the straight-line method or production method depending on the asset’s productioncharacteristics.

Changes in estimates, which affect unit of production calculations, are accounted for prospectively.

The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less theestimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The residualvalue of an asset is nil if the Group expects to use the asset until the end of its physical life. The assets’ residual values and useful lives arereviewed, and adjusted if appropriate, at each reporting period.

Construction-in-progress is recognised at the historical cost. When construction-in-progress is completed, the assets are transferred toproperty, plant and equipment at their carrying amounts. Construction-in-progress is not depreciated until the asset is ready for its use.

THE EXPECTED USEFUL LIVES ARE PROVIDED IN THE TABLE BELOW.

Useful life (years)

Buildings and constructions 10-60

Machinery and equipment 5-30

Motor vehicles 5-30 or unit-of-production method

Other 2-30

Mining assets unit-of-production method

Stripping costs.

Stripping (i.e. overburden and other waste removal) costs as the result of development of the open-pit before production commences arecapitalised as part of the cost of mining assets, and subsequently amortised using unit-of-production method over the lives of the open-pit. The stripping costs incurred subsequently during the production stage are included in cost of inventory to the extent that the benefitfrom the stripping activity is realised in the form of inventory produced.

In case if the benefit improves the access to the ore body in future, then the Group recognises the subsequent costs as a long-term asset- “stripping activity asset”.

The Group recognises stripping activity asset where the following criteria are met:

■ it is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow to theGroup;

■ the Group can identify the component of the ore body for which access has been improved; and■ the costs relating to the stripping activity associated with that component can be measured reliably.

The Group accounts for a stripping activity asset as an addition to, or as an enhancement of, an existing asset of which it forms part.

The Group initially measures the stripping activity asset at incurred costs that includes accumulated expenses directly incurred for theperformance of stripping activity, which improves access to an identifiable component of coal body plus allocation of costs directly relatingto overheads. After initial recognition, the stripping activity asset shall be accounted for at cost less depreciation and impairment losses inthe same way as an existing asset, which it forms a part. The stripping activity asset is amortised using unit-of-production methodproportionally to production volume.

When the costs of the stripping activity asset and the inventory produced are not separately identifiable, production stripping costs areallocated between the inventory produced (current stripping costs) and the stripping activity asset, the Group allocates costs on the basisof the stripping coefficient.

Intangible assets.

Intangible assets, which are acquired by the Group and have finite useful lives, are recognised at cost less accumulated amortisation andimpairment losses.

Impairment of non-financial assets.

At the end of each reporting period, management assess whether indicators of impairment of fixed assets exist. The carrying amounts ofproperty, plant and equipment and all other non-financial assets are reviewed for impairment if there is any indication that the carryingamounts may not be recoverable.

When a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of: “value in use” (being thenet present value of expected future cash flows of the relevant cash generating unit) and “fair value less costs to sell” (the amountobtainable from the sale of an asset or cash generating unit in an arm’s length transaction between knowledgeable, willing parties, less thecosts of disposal). Where there is no binding sale and purchase agreement or active market, fair value less costs to sell is based on thebest information available to reflect the amount the Group could receive for the cash-generating unit in an arm’s length transaction.

A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cashinflows from other assets or groups of assets.

The estimates used for impairment reviews are based on detailed mine layouts and operating budgets, modified as appropriate to meetthe requirements of IAS 36, Impairment of Assets. Future cash flows are based on:

■ estimates of the volumes of the reserves for which there is a high degree of confidence of economic extraction;■ future production levels;■ future commodity prices (assuming the current market prices will revert to the Group’s assessment of the long term average price,

generally over a period of three to five years); and■ future costs of production, capital expenditures, assets retirement and land restoration.

If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to profit andloss for the year so as to reduce the carrying amount in the consolidated balance sheet to its recoverable amount.

A previously recognised impairment loss is reversed if only, since the last recognition of impairment loss, changes were made in theaccounting estimates used for determination of the asset’s recoverable value. This reversal is recognised in profit and loss for the year,and is limited to the carrying amount that would have been determined, net of depreciation, if no impairment loss was recognised in prioryears.

Financial assets – classification and subsequent measurement.

The Group classifies financial assets in the following measurement categories: fair value through profit or loss (“FVTPL”), fair value throughother comprehensive income (“FVOCI”) and amortised cost (“AC”). The classification and subsequent measurement of debt financial assetsdepends on the Group’s business model for managing the related assets portfolio and the cash flow characteristics of the asset. Financialassets are classified on initial recognition. In 2017 the Group applied the requirements of IAS 39 “Financial Instruments: Recognition andMeasurement”.

The Group classifies financial assets as carried at AC if only both of the following criteria are met: a) according to the business model theasset is held to collect the contractual cash flows; and b) contractual terms provide for solely payments of principal and interest.

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Financial assets carried at AC include loans receivable, trade receivables, and other financial assets held to collect the contractual cashflows.

Financial assets other than investment in equity instruments are recognised initially at fair value and are subsequently carried at AC usingthe effective interest method and net of allowance for expected credit losses (“ECL”). Amortised cost is calculated by taking into accountany discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The amortisation basedon effective interest method is included in finance income in the statement of profit or loss. Impairment losses are charged to profit orloss for the period.

Trade and other receivables.

Trade and other receivables are recognised initially at fair value and are subsequently carried at AC using the effective interest method,net of allowance for ECL.

Investments in equity instruments.

Changes in the fair value of investments in equity instruments are included in profit or loss.

Financial assets impairment.

The Group assesses, on a forward-looking basis, the ECL for financial instruments measured at AC. Provisions for impairment of financialassets are based on assumptions for risk of default and expected credit losses. The Group applies judgement in making suchassumptions and choosing inputs for calculation of impairment provision. This judgement is built upon historical data of the Group giventhe market conditions, and forward-looking estimates that is available at the end of each reporting period. Financial assets measured atAC are presented in the statement of financial position net of the allowance for ECL.

Impairment of trade receivables.

Credit loss allowance for trade receivables is recognised using a simplified approach based on the provision matrix which allows accrual oflifetime ECL allowance. The provision matrix is based on historical credit losses, adjusted to reflect forward-looking information onmacroeconomic factors and updated at each reporting date. Trade receivables are grouped based on the days past due, and ECL aredetermined on the basis of historical analysis of default rates. Changes in ECL allowance are recorded in the statement of profit or loss.Subsequent recoveries of previously recognised ECL allowance are credited against general and administrative expenses in the statementof profit or loss.

Derecognition of financial assets.

The Group derecognises financial assets when (i) the assets are redeemed or the rights to cash flows from the assets have otherwiseexpired or (ii) the Group has transferred substantially all the risks and rewards of ownership of the assets or (iii) the Group has neithertransferred nor retained substantially all risks and rewards of ownership, but has not retained control. Control is retained if thecounterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to imposeadditional restrictions on the sale.

Inventories.

Inventories are recorded at the lower of cost and net realisable value. Cost of inventory is determined on a weighted average basis. Coal isrecognised as raw materials when extracted, and is valued at the average cost of extraction. The cost of finished goods and work inprogress comprises raw material, direct labour, other direct costs and related production overheads (based on normal operating capacity)but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the cost ofcompletion and selling expenses.

Prepayments.

Prepayments are recognised in the consolidated financial statements at cost less provision for impairment. Prepayments paid to suppliersfor future supplies of property, plant and equipment are recognised within other non-current assets. Prepayments for future supplies ofinventories are recognised within other current assets.

Foreign currency denominated prepayments for goods, property, plant and equipment and services represent non-monetary items, andaccordingly, are stated at the exchange rate at the prepayment date, and are not subject to restatement at the reporting date. If there isan indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment iswritten down accordingly, and a corresponding impairment loss is recognised in profit or loss for the year.

Prepayments, related to provision of services of a carrier (railway tariffs).

The amount of prepayment received by the Group from customers consists of two parts: prepayment for services of carrier (railway tariff)or another entity being a provider of services and prepayment of a commission for the operator services, earned by the Group acting asan agent for arrangement of shipment and services of an operator.

The cash prepaid by the customers for the railway tariff and transferred by the Group to the carrier or another entity being a provider ofservices are considered to be monetary items and are recorded in other receivables.

The cash prepaid in foreign currency by the customer as a commission for services provided by the Group on organisation of cargoshipment and operator’s services are regarded as non-monetary items and therefore are recorded at the exchange rate at the date ofprepayment and are not subject to restatement at the end of the reporting period.

Prepayments due to the short-term nature are not subject to assessment for a significant financing component.

Cash and cash equivalents.

Cash and cash equivalents include balances in bank accounts, cash in hand, deposits held at call with banks or mature within threemonths, and other short-term highly liquid investments with original maturity of less than three months.

Cash placed in banks for a period over three months, unless it is restricted, and is available and intended for early withdrawal, is alsoincluded into cash and cash equivalents. However, cash placed in banks for a period over three months in order to generate investmentincome, not intended for early withdrawal, is included into other current and non-current assets. Balances restricted from being used formore than three months are included in other current or non-current assets.

Term deposits.

Term deposits include deposits with the maturity of more than three months. These deposits are classified as other current or non-current assets since management of the Group has an intention to hold the deposits for more than three months and does not intend touse them for short-term cash needs. Term deposits are carried at amortised cost using the effective interest method.

Share capital.

Ordinary shares are classified as equity. Preference shares are compound financial instruments that contain both a liability and an equitycomponent. The liability is initially recognised at its fair value by applying the market interest rate to the amount of mandatory annualdividends using a net present value formula for the period equal to the useful life of the mines estimated by management. The life ofmines is used rather than perpetuity to estimate the liability component since the Group will not generate cash flows or profits beyondthe life of the mines.

Subsequently, the liability is measured at amortised cost. Effects of changes in cash flow estimates on carrying amounts are recognised inthe financial results. At initial recognition, the equity component is the residual, i.e. it is the proceeds received from the issuance of thepreference shares less the fair value of the liability. The equity component of a preference share is not subsequently re-measured.

Dividends.

Dividends, except for the mandatory annual dividends on preference shares, are recognised as a liability and deducted from equity at thereporting date only if they are declared before or on the reporting date. Mandatory annual dividends on preference shares arerecognised as finance costs within profit or loss for the year.

Dividends are disclosed when they are proposed before the reporting date or proposed or declared after the reporting date but beforethe consolidated financial statements are authorised for issue.

Earnings per share.

Earnings per share are determined by dividing the profit or loss attributable to owners of the Group by the weighted average number ofshares outstanding during the reporting year.

Provisions for assets retirement obligations.

Assets retirement obligations are recognised when it is probable that the costs would be incurred and those costs can be measuredreliably. Assets retirement obligations include the costs of rehabilitation and costs of liquidation (demolition of buildings, constructionsand infrastructure, dismantling of machinery and equipment, transportation of the residual materials, environmental clean-up, monitoringof wastes and land restoration).

Provision for the estimated costs of liquidation, rehabilitation and restoration are established and charged to the cost of property, plantand equipment in the reporting period when an obligation arises from the respective land disturbance in the course of mine developmentor environment pollution, based on the discounted value of estimated future costs.

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Provisions for assets retirement obligations do not include any additional obligations, which are expected to arise from actual or futuredisturbances. The costs are estimated on the basis of a closure and restoration plan. The cost estimates are calculated annually duringthe course of the operations to reflect known developments, e.g. updated cost estimates and revised term estimated lives of operations,and are subject to formal reviews on regular basis.

The Group estimates its costs based on feasibility and engineering studies using current restoration standards and techniques forconducting restoration and retirement works.

The amortisation or unwinding of the discount applied in establishing the net present value of provisions is charged to profit and loss ineach reporting period. The amortisation of the discount is disclosed as finance costs.

Other movements in the provisions for assets retirement obligations, resulting from new disturbance as a result of mine development,updated cost estimates, changes to the estimated term of operations and revisions to discount rates are capitalised within property, plantand equipment. These costs are then depreciated over the useful lives of the assets to which they relate using the depreciation methodsapplied to those assets. Movements in the provisions for asset retirement obligations that relate to disturbance caused by the productionphase are charged to profit and loss for the year.

Provisions for liabilities and legal claims.

Provisions for settlement of liabilities and legal claims are accrued when the Group has a present legal or constructive obligation as aresult of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, anda reliable estimate of the amount of the obligation can be made. Where there are a number of similar obligations, the probability that anoutflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even ifthe likelihood of an outflow with respect to any one item included in the same class of obligations may be low. Provisions are measured atthe present value of the expected expenses for settlement of an obligation at a pre-tax rate reflecting the current market estimates of thetime value of money and risks inherent in this obligation. Increase in provisions is recognised as a part of finance costs. When the Groupexpects recovery of the provisions, e.g. under an insurance agreement, the recovered amount is recognised as an individual asset butonly when the Group is absolutely confident of the recovery.

Operating leases.

Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from thelessor to the Group, the total lease payments, including those on expected termination, are charged to profit and loss for the year on astraight-line basis over the period of the lease.

When assets are leased out under an operating lease, the lease payments receivable are recognised as rental income on a straight-linebasis over the lease term.

Finance lease liabilities.

Where the Group is a lessee in a lease which transferred substantially all the risks and rewards incidental to ownership to the Group, theassets leased are capitalised in property, plant and equipment at the commencement of the lease at the lower of the fair value of theleased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and financecharges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of future financecharges, are included in finance lease liability in the balance sheet.

The interest cost is charged to profit or loss over the lease period using the effective interest method. The assets acquired under financeleases are depreciated over their useful life or the shorter lease term, if the Group is not reasonably certain that it will obtain ownershipby the end of the lease term.

Classification of financial liabilities.

The Group classifies financial liabilities in the following measurement categories: financial liabilities measured at FVTPL and financialliabilities carried at AC. Management classifies its financial liabilities at initial recognition.

Borrowings.

Borrowings are recognised initially at fair value, net of transaction costs incurred and are subsequently carried at AC using the effectiveinterest method.

Where a loan is obtained at interest rates different from market rates, the loan is measured at origination at its fair value, being futureinterest payments and principal repayments discounted at market interest rates for similar loans.

The difference between the fair value of the loan at origination, net of transaction costs and net proceeds from the loan, represents anorigination gain/loss. The origination gain/loss is recognised in the statement of profit or loss and other comprehensive income withinfinance income/costs.

Subsequently, the carrying amount of the borrowings is adjusted for amortisation of the gains on origination and the effective interestrate credit is recorded as finance costs.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at leasttwelve months after the end of reporting period.

Derecognition of financial liabilities.

The Group ceases recognition of a financial liability when it is executed, or cancelled, or expired.

If an existing financial liability is replaced by another financial liability with the same creditor or if there has been a significant change in theterms of the existing financial liability, such substitution or change should be accounted for as a repayment of the original financial liabilityand recognition of a new financial liability.

The Group estimates the materiality of the change on the basis of qualitative and quantitative factors. If the existing financial liability isreplaced by another financial liability with the same creditor on terms that are insignificantly different from the original ones, or if thechanges in the terms of the existing liability are insignificant, such replacement or change is not accounted for as a repayment of theoriginal financial liability and recognition of a new financial liability. The difference in the respective carrying amounts is charged to theprofit or loss for the reporting period.

Financial guarantees.

Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder of the guarantee for a lossit incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financialguarantees are initially recognised at their fair value, which is usually evidenced by the amount of fees received, and subsequently carriedat amortised cost. Financial guarantees are recognised when a premium is paid or in case of premium-free guarantees (intra groupguarantees) when the borrower receives the money from the financing entity.

When the Group issues a premium-free guarantee or a guarantee at a premium different from market premium, fair value is determinedusing valuation techniques (e.g. market prices of similar instruments, interest-rate differentials, etc.).

Losses at initial recognition of a financial guarantee liability are recognised in profit or loss for the year within finance costs. Financialguarantee liabilities are amortised on a straight line method basis over the life of the guarantees with respective income presented withinfinance income. At the end of each reporting period, the guarantees are measured at the higher of (i) the unamortised balance of theamount at initial recognition and (ii) the best estimate of expenditure required to settle the obligation at the end of reporting period.

Trade and other payables.

Trade and other payables are accrued when the counterparty performed its obligations under the contract. The Group recognises tradepayables at fair value. Subsequently, trade payables are carried at amortised cost using the effective interest method. The Group does notaccrue for interest on long-term advances received which are recorded as non-financial liabilities.

Advances received.

Advances received are stated at actual amounts received from counterparties. Advances received are derecognised once the Group fulfilsits contractual obligations in full by providing related goods or services.

Value added tax (“VAT”).

VAT related to sales is payable to the tax authorities when goods are shipped or services are rendered. Purchase VAT can be offsetagainst sales VAT upon the receipt of a tax invoice from a supplier. Tax legislation allows the settlement of VAT on a net basis. Accordingly,VAT related to sales and purchases unsettled at the end of the reporting period is stated on a net basis by each taxpayer.

Income tax.

Income taxes have been provided for in the consolidated financial statements in accordance with Kazakhstani legislation enacted on theend of reporting period. The income tax charge comprises current (corporate and excess profit tax) and deferred taxes and is recognisedin profit or loss for the year, except for taxes relating to transactions recognised in the same or a different reporting period within othercomprehensive income or directly in equity.

Current tax is the amount expected to be paid to or recovered from the state budget in respect of taxable profits or losses for the currentand prior periods. Taxable profits or losses are based on estimates if consolidated financial statements are authorised prior to filingrelevant tax returns. Taxes other than on income are recorded within operating expenses. Deferred income tax is provided using thebalance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements. In accordance with the exception for initial recognition, the deferredincome tax is not accounted for temporary differences arising from initial recognition of an asset or liability in a transaction other than abusiness combination that at the time of the transaction affects neither accounting nor taxable profit. The deferred tax assets andliabilities are netted only within each separate subsidiary included in the consolidated financial statements of the Group.

Deferred tax balances are measured at corporate income tax rate enacted at the end of the reporting period, which is expected to applyto the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets for deductibletemporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will beavailable against which the deductions can be utilised.

Revenue recognition.

Revenue from contracts with customers is recognised when control over goods or services (normally upon delivery) is transferred to acustomer in the amount of consideration to which the Group expects to be entitled in exchange for transferring control over such goodsor services. Revenue is recognised in the amount of transaction price, net of VAT and discounts. In 2017, the Group applied therequirements of IAS 18 “Revenue”.

Sales of services.

The Group provides services under fixed-price contracts. Revenue from providing services is recognised in the accounting period in whichthe services are rendered. For fixed-price contracts, revenue is recognised based on the actual service provided to the end of thereporting period as a proportion of the total services to be provided because the customer receives and uses the benefits simultaneously.

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Revenue from sales of coal extracted, coke and tar, and other revenue is recognised at a point in time. Revenue from operating wagonsand containers, forwarding services, wagon repair services is recognised over time.

Segment reporting.

Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decisionmaker. Reportable segments whose revenue, result or assets are ten percent or more of all the segments are reported separately.

Payroll expenses and related charges.

The expenses for salaries, social tax, social insurance fund contributions, annual paid vacations and sick leaves, bonuses and benefits inkind are accrued as the respective services are provided by the Group’s employees.

In accordance with the legal requirements of the Republic of Kazakhstan, the Group withholds pension contributions from employees’salary. In addition, in accordance with legislation, the Group at its own expense, is responsible for the payment of professional pensioncontributions for its employees engaged in operations with harmful (especially harmful) working conditions. The Group transfers theabove pension contributions to the United Accumulation Pension Fund of Kazakhstan JSC. Upon retirement of employees, all pensionpayments are administered by the abovementioned united pension fund.

Employee benefits.

The Group provides long-term employee benefits to employees at the end of employment (lump-sum payments at retirement, financialassistance) and other long-term employee benefits (financial aid for employees’ disability, significant anniversaries and funeral aid to theGroup’s employees) as in accordance with the provisions of the Group’s collective agreements.

The entitlement to some benefits is usually conditional on the employee remaining employed until the retirement age and the completionof a minimum service period.

Post-employment benefit of the Group are unfunded defined benefit plans and are valued in accordance with IAS 19, Employee Benefits.In this case, actuarial and investment risks related to the unfunded defined benefit plans remain with the Group.

When measuring the obligation in respect of the unfunded defined benefit plans the Group determines the gross amount of paymentsdue to employees for their services rendered in the current and prior periods; actuarial assumptions are developed at this stage. Afterthat, the discounted value of the obligations in respect of the post-employment defined benefit plans is determined and current servicecost is calculated using the projected credit unit method.

The Group recognises as part of its profit or loss:

■ current service cost;■ past service cost and any profit or loss, which originates from remeasurement of the plan obligations; and■ net amount of the interest related to the defined pension benefit plan obligation.

The Group recognises the actuarial gains or losses from the remeasurement of the net defined pension benefit plan obligation as part ofother comprehensive income.

The entitlement to other long-term benefits is conditional on the completion of a minimum service period. The expected cost of thesebenefits is accrued over the period of employment using the same accounting methodology as used for the unfunded defined pensionbenefit plan. In respect of the other long-term employee benefits the Group recognises the current and past service cost, net interestexpense for the net liability, actuarial gains and losses (remeasurement of the net liability) as part of Group’s profit or loss.

Actuarial gains and losses include both the impact of changes in actuarial assumptions and the effect of the past experience ofdifferences between the actuarial assumptions and actual data. Actuarial assumptions include demographic assumptions (mortality rates,staff turnover, disability growth rates and early retirement rates) and financial assumptions (discount rate, future salary growth rates, andaverage labour turnover rates). The most significant assumptions used in accounting for defined benefit obligations and other long-termbenefits are the discount rate and the mortality assumptions. The discount rate is used to determine the net present value of futureliabilities and each year the unwinding of the discount on those liabilities is charged to profit or loss for the year as interest cost. TheGroup uses market yields on government bonds with similar terms as the discount rate. The future salary growth and staff turnoverassumptions are used to project the future stream of benefit payments, which is then discounted to arrive at a net present value ofliabilities.

These obligations are valued annually by independent qualified actuaries.

Finance income and finance costs.

Finance income includes income related to unwinding of discount of present value, amortization of financial guarantees, interest incomeon deposits, loans issued and other investments. Financial costs include interest expenses on loans, expense on recognition of financialguarantees, interest expense from unwinding of the discount on provisions for mining asset retirement obligations, etc. Finance incomeand costs also include foreign exchange gains and losses relating to respective financial assets and liabilities.

Interest income/expense is recognised on the timing basis using the effective interest rate method. All interest and other expensesattributable to borrowings are recognised within finance costs unless such expenses are related to borrowings received to finance theconstruction of property, plant and equipment. In this case, such expenses are capitalised in the period required for construction of anasset and bringing it for intended use.

3. Critical Accounting Estimates and Judgments in Applying AccountingPolicies

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial period.Estimates and judgements are continually evaluated and are based on management’s experience and other factors, includingexpectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements,apart from those involving estimations, in the process of applying the accounting policies. Judgements that have significant effect on theamounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carryingamount of assets and liabilities within the next financial period include:

Going concern basis.

Note 2 provides details of going concern assessment for the Group.

Impairment of loans receivable.

Impairment of loans receivable is determined based on ECL. Measurement of allowance requires significant assumptions includingprobability of default, collectability, and terms of expected recovery of future cash flows on loans. Changes in such assumptions may haveimpact on recoverable value or provisions for such assets. Management reviews assumptions on a regular basis. Expected credit losseson loans receivable were calculated based on the credit risk of entities with comparable rating.

Fair value of financial guarantees.

The fair values of premium-free financial guarantees issued by the Group are determined using valuation techniques. The Group appliesits judgement in determining fair value of the financial guarantees issued. The Group applies interest rate differential and credit defaultswaps methods to determine the fair value of the financial guarantees. The fair value of the financial guarantee liability is calculated as thenet present value of the interest rate differential or credit default swap rate multiplied by the guaranteed loan amount and discounted atthe weighted average cost of Group’s debt. For loan facility agreements where the Group is liable jointly and severally with otherguarantors the market commission determined with reference to credit default swaps or interest rate differential is apportioned betweenthe guarantors. This represents management’s best estimate of the Group’s exposure to credit risk associated with the issued guarantees.

Management concluded that it is unlikely that the Group will be required to settle the guaranteed obligations (Note 17). Thismanagement’s judgment is based on the assessment of the Group’s going concern assessment provided in Note 2. The Group measuredallowance for ECL on financial guarantees at 31 December 2018. The value of allowances for ECL did not exceed carrying amounts offinancial guarantees.

Estimated useful lives of property, plant and equipment.

The estimation of the useful lives of items of property, plant and equipment is a matter of judgment based on experience with similarassets. The future economic benefits embodied in the assets are consumed principally through use. However, other factors, such astechnical or commercial obsolescence and wear and tear, often result in the diminution of the economic benefits embodied in the assets.Management assesses the remaining useful lives in accordance with the current technical conditions of the assets and estimated periodduring which the assets are expected to earn benefits for the Group. The following primary factors are considered: (a) expected usage ofthe assets; (b) expected physical wear and tear, which depends on operational factors and maintenance program; and (c) technical orcommercial obsolescence arising from changes in market conditions.

Management reviews the appropriateness of assets useful economic lives at least annually; any changes could affect prospectivedepreciation rates and asset carrying values.

Impairment of non-current assets.

At the end of each reporting period, management reviews property, plant and equipment to determine whether there is any indication ofimpairment. If any such characteristics exist, management estimates the recoverable amount, which is the higher of the fair value lesscosts to dispose and its value in use. Calculating the value in use requires the application of evaluation data and professional judgmentfrom management, which are considered justified in the circumstances.

On the basis of internal and external factors review, management revealed no indications of asset impairment at the end of the reportingperiod.

Provision for assets retirement obligations.

In accordance with the terms of the subsurface use contracts and environmental legislation, the Group has a legal obligation to repairdamage caused to environment as a result of its operating activities and decommission its mining assets, and restore a landfill site after itsclosure. Provision is made based on net present values for site restoration and rehabilitation costs as the obligation arises from pastmining activities.

The provision for assets retirement obligations is estimated based on the current environmental legislation in the Republic of Kazakhstan.The assets retirement obligations are estimated based on the Group’s interpretation of current environmental legislation in the Republicof Kazakhstan and the Group’s related program for liquidation of subsurface use consequences supported by the feasibility study andengineering researches in accordance with the existing restoration and retirement standards and techniques. As at 31 December 2018the carrying amount of the provisions for assets retirement obligations was Tenge 1,030,795 thousand (2017: Tenge 681,985 thousand).

The estimates of assets retirement obligations are subject to potential changes in environmental regulatory requirements and theinterpretation of the legislation. Mining assets retirement obligations are recognised when there is a probability of their occurrence and apossibility to measure their amounts reliably. According to the current environmental legislation, management believes that there are nosignificant retirement obligations except for those recognised in these consolidated financial statements.

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Obligations on professional education and social sphere development under subsurface use contracts.

In accordance with the subsurface use contracts, the Group has obligations to finance professional training programmes for theKazakhstani personnel and social sphere development programmes. The Group’s management believes that even though the subsurfaceuse contracts specify a minimal amount that has to be spent for social obligations, the funding of these projects is not substantiallydifferent from the funding of other costs and production and should therefore be recorded when incurred. Therefore, no liabilities forsocial and training obligations for future years were recognised in these consolidated financial statements as of 31 December 2018 and31 December 2017.

Tax and transfer pricing legislation.

Kazakhstani tax and transfer pricing legislation is subject to varying interpretations (Note 28).

Going concern principle.

Note 2 provides details of going concern assessment for the Group.

4. Employee Information

Key management personnel compensation was:

1. Key management personnel are the persons with direct or indirect authority and responsibility for planning, coordination and control ofthe Group’s operations.

THE AVERAGE NUMBER OF EMPLOYEES (INCLUDING EXECUTIVE DIRECTORS) EMPLOYED BY THE GROUP DURING THE YEAR WAS:

2018 2017

Production 1,890 2,149

Auxiliary production 852 788

Administrative and other corporate functions 927 827

Total employees 3,669 3,764

TOTAL STAFF COSTS (INCLUDING EXECUTIVE DIRECTORS) FOR THE GROUP WERE:

In thousands of Kazakhstani Tenge 2018 2017

Salaries, other bonuses and related expenses 11,080,313 10,446,283

Social tax and social contributions 916,372 962,845

Post-employment benefits 109,763 140,015

Mandatory professional pension contributions 141,089 108,472

Mandatory social health insurance 122,489 40,282

Total staff costs 12,370,026 11,697,897

1


Wages, salaries and other short-term benefits 206,109 828,095

Total key management compensation 206,109 828,095

5. Balances and Transactions with Related Parties

For the purposes of these consolidated financial statements, parties are generally considered to be related if one party has the ability tocontrol the other party, is under common control, or can exercise significant influence over the other party in making financial andoperational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship,not merely the legal form.

The Group discloses balances and transactions with the following related parties:

Entities exercising joint control: Information on the investors exercising joint control over the Group is disclosed in Note 1.

Entities under common control: entities under control of ERG, except for SHK EURASIAN HOLDING B.V. and Eurasian EnergyCorporation JSC.

Entities under control of Class B Managers: Class B Managers and all entities under their control are related parties of the Group as aresult of Class B Managers’ indirect interests in the ordinary shares of ERG. Class B Managers of the Company are Mr. AlexanderMachkevitch, Mr. Alijan Ibragimov, and Mr. Patokh Chodiev.

Government related entities: the Republic of Kazakhstan and related legal entities (hereinafter - “government entities”). The Republic ofKazakhstan is the Company’s related party due to its significant influence on ERG.

Joint ventures: Xingjiang Aismir Coking Coal Co. Ltd.

Key management: persons with direct or indirect authority and responsibility for planning, coordination and control of the Group’s andERG’s operations.

The nature of relations with those related parties with whom the Group entered into significant transactions or had significant balancesoutstanding at 31 December 2018 and 2017 is detailed below.

AT 31 DECEMBER 2018, THE OUTSTANDING BALANCES WITH RELATED PARTIES WERE AS FOLLOWS:

In thousands ofKazakhstani Tenge

Entities exercisingjoint control

Entities undercommon control

Entities under control ofClass B Managers

Governmentrelated entities

Restricted cash - - 3,692,531 -

Investments in equityinstruments

- - 439,756 -

Trade and otherreceivables

- 2,857,593 94,886 6,405,785

Prepayments - 72,968 - 481,188

Loans receivable - 167,330,920 - -

Cash and cashequivalents

- - 13,961,232 -

Trade and otherpayables

- - 10,862 -

Advances received 57,964 8,064,523 79,413 477,768

Borrowings 32,031 8,343,829 2,420 8,911

Financial guarantees - 52,257,025 - -

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AT 31 DECEMBER 2017, THE OUTSTANDING BALANCES WITH RELATED PARTIES WERE AS FOLLOWS:


Entities exercisingjoint control

Entities undercommon control

Entities under control ofClass B Managers

Governmentrelated entities

Restricted cash - - 2,916,399 -

Investments in equityinstruments

- - 439,756 -

Trade and otherreceivables

197,672 1,449,015 90,280 5,145,559

Prepayments - - 19,190 401,295

Loans receivable 1,200 98,588,003 - -

Cash and cashequivalents

- - 8,143,303 -

Dividends payable - - 9,834 -


3,557,989 3,914,366 42,018 136,365

Advances received 259,940 3,007,663 4,696 -

Borrowings - 55,492,001 - -

Financial guarantees 3,489,266 4,380,498 - -

THE INCOME AND EXPENSE ITEMS WITH RELATED PARTIES FOR THE YEAR ENDED 31 DECEMBER 2018 WERE AS FOLLOWS:

In thousands ofKazakhstaniTenge

Entitiesexercising

joint control

Entities undercommon

control

Entities undercontrol of Class B

managers

Governmentrelatedentities

Keymanagement

Revenue 17,512,233 27,725,238 7,717 752,692 -

Cost of sales (859) (667,902) (707,109) (11,012,824) -

Other operatingincome

1,707,838 2,580,480 24,949 9,401 -

Other operatingexpenses

- (194,136) (15) (81,053) -

General andadministrativeexpenses

(18,481) (7,429,562) (91,918) (64,556) (206,109)

Finance income 3,505,597 47,447,258 4,200,195 - -

Finance costs (479,362) (16,871,543) (2,571,914) - -

Entities exercising joint control and entities under common control. During 2018 and 2017, the Group mainly sold coal andprovided operating and transport-forwarding services to these companies. Transactions were performed on an arm's length basis.

Entities under control of Class B Managers: balances and transactions with entities under control of founder shareholders mainlyrepresent treasury transactions performed through a bank under the control of founder shareholders and insurance services.

Individually significant acquisitions of goods and services from entities under common control performed by the Group representmanagement services for the total amount of Tenge 4,744,008 thousand (2017: Tenge 3,208,926 thousand);

Government related entities: the Group performs transactions on purchase and sale of goods and services with government relatedentities. Such transactions are usually performed on an arm's length basis or based on tariffs established for all market participants.Transactions with the Government of the Republic of Kazakhstan also include tax transactions performed in accordance with taxlegislation of the Republic of Kazakhstan.

Individually significant acquisitions of goods and services from government related entities performed by the Group represent railwayservices for the total amount of Tenge 10,764,773 thousand (2017: Tenge 7,588,787 thousand).

THE INCOME AND EXPENSE ITEMS WITH RELATED PARTIES FOR THE YEAR ENDED 31 DECEMBER 2017 WERE AS FOLLOWS:

In thousands ofKazakhstaniTenge

Entitiesexercising

joint control

Entities undercommon

control

Entities undercontrol of Class B

Managers

Governmentrelatedentities

Keymanagement

Revenue 16,330,280 16,559,214 17,942 92,728 -

Cost of sales (3,425) (77,707) (587,418) (8,661,379) -

Other operatingincome

687,488 1,320,174 40,068 33,588 -

Other operatingexpenses

(236) (71,552) (16) (331,825) -

General andadministrativeexpenses

(22,121) (5,739,529) (98,751) (239,388) (828,095)

Finance income 448,547 35,529,966 2,282,042 - -

Finance costs (928,590) (23,158,069) (2,415,698) - -

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6. Segment Information

Chief Operating Decision Maker (the “CODM”) is the person or group of persons who allocates resources and assesses the performancefor the Group’s operating segments. The CODM has been identified as the Group CEO.

The CODM determined operating segments based on the reports used for strategic decision making.

The Group is organised on the basis of two main business segments:■ energy segment – includes extraction and sale of coal, and production and sale of semi-coke, coke; and■ logistics segment – includes provision of logistics services for ERG entities, and forwarding cargos for third parties.

Transactions between segments are performed on an arm’s length basis similarly to transactions with third parties.

2018 in thousandsof KazakhstaniTenge

Energy segment Logistics segment Intragroupeliminations

Total

Revenue 77,192,162 47,763,643 - 124,955,805

Revenue withinGroup segments

64,865 2,462,301 (2,527,166) -

Segment revenue 77,257,027 50,225,944 (2,527,166) 124,955,805

Operating profit ofthe segment

35,667,173 20,052,042 - 55,719,215

Finance income 36,354,143

Finance costs (36,013,143)

Profit before tax 56,060,215

Income tax expense (9,369,956)

Profit for the year 46,690,259

2017 in thousandsof KazakhstaniTenge

Energy segment Logistics segment Intragroupeliminations

Total

Revenue 57,516,591 30,810,369 - 88,326,960

Revenue withinGroup segments

4,526 2,864,608 (2,869,134) -

Segment revenue 57,521,117 33,674,977 (2,869,134) 88,326,960

Operating profit ofthe segment

24,057,490 7,218,303 - 31,275,793

Finance income 26,089,770

Finance costs (21,755,724)

Impairment ofinvestments

(432,308)

Profit before tax 35,177,531

Income tax expense (12,852,781)

Profit for the year 22,324,750

Geographic information

Major customers

Energy segment includes two major customers, each of which generates 10% or more of the total revenues (2017: three majorcustomers).

Logistics segment includes four major customers, each of which generates 10% or more of the total revenues (2017: four majorcustomers).

7. Property, Plant and Equipment

In thousandsofKazakhstaniTenge

Land,buildings

andconstruc-

tions

Machineryand

equipment

Motorvehicles

Miningassets

Other Construc-tion in

progress

Total

Cost at 1January 2017

11,245,717 16,782,209 100,370,774 1,842,167 813,178 1,580,882 132,634,927

Accumulateddepreciation

(5,932,617) (9,584,479) (31,966,839) (269,635) (329,193) - (48,082,763)

Carryingamount at1 January 2017

5,313,100 7,197,730 68,403,935 1,572,532 483,985 1,580,882 84,552,164

Additions 57,851 1,274,098 18,582,450 - 12,144 4,207,681 24,134,224

Transfers 603,660 611,295 1,327,806 - 1,155 (2,543,916) -

Changes inestimates

324,388 - - - - - 324,388

Effects oftranslation topresentationcurrency

- 198 602 - - - 800

Reclassification (106,118) 642,732 (11,506) - (657,112) (4,465) (136,469)

Depreciation (677,452) (1,789,451) (7,498,689) (39,170) (85,328) - (10,090,090)

Impairment - - - - - (54,560) (54,560)

Disposals (1,725) (154,624) (857,334) - - (174,791) (1,188,474)

in thousands of Kazakhstani Tenge 31 December 2018 31 December 2017

Assets Liabilities Assets Liabilities

Energy segment 296,216,357 188,695,159 230,596,886 157,918,322

Logistics segment 127,418,276 56,358,815 98,496,904 42,901,150

Elimination (88,970,320) (2,193,228) (90,707,231) (3,018,914)

Total 334,664,313 242,860,746 238,386,559 197,800,558

REVENUES OF THE GROUP FROM EXTERNAL CUSTOMERS ARE AS FOLLOWS:


Energysegment

Logisticssegment

Energysegment

Logisticssegment

Europe 22,973,209 - 12,230,200 -

Eurasia 18,697,193 - 15,996,146 -

Kazakhstan 35,586,625 50,225,944 29,294,771 33,674,977

Total revenue 77,257,027 50,225,944 57,521,117 33,674,977

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In thousandsofKazakhstaniTenge

Land,buildings

andconstruc-

tions

Machineryand

equipment

Motorvehicles

Miningassets

Other Construc-tion in

progress

Total

Accumulateddepreciationon disposals

247 126,645 814,175 - - - 941,067

Reclassificationof depreciation

25,040 (258,509) 11,617 - 342,128 - 120,276

Cost at 31December2017

12,123,773 19,155,908 123,873,690 1,842,167 169,365 3,010,831 160,175,734


(6,584,782) (11,505,794) (43,100,634) (308,805) (72,393) - (61,572,408)

Carryingamount at 31December2017

5,538,991 7,650,114 80,773,056 1,533,362 96,972 3,010,831 98,603,326

Additions 529,757 3,594,434 22,790,888 - - 3,774,562 30,689,641

Transfers 735,831 665,272 2,611,977 - 15,902 (4,028,982) -

Changes inestimates

280,619 - - - - - 280,619

Effects oftranslation topresentationcurrency

- 251 742 - - - 993

Reclassification - 3,485 988,076 - - (991,561) -

Depreciation (717,695) (1,950,429) (9,068,380) (38,641) (11,797) - (11,786,942)

Reversal ofimpairment

- - - - - 515 515

Disposals - (145,428) (1,474,321) - (13,698) (20,517) (1,653,964)

Accumulateddepreciationon disposals

- 122,326 1,434,531 - 13,698 - 1,570,555

Reclassificationof depreciation

4,234 (4,234) - - - - -

Othermovements

(109,987) 108,852 53 1 (80) (82,332) (83,493)

Cost at 31December2018

13,669,980 23,384,301 148,792,152 1,842,167 171,489 1,662,516 189,522,605


(7,408,230) (13,339,658) (50,735,530) (347,445) (70,492) - (71,901,355)

Carryingamount at 31December2018

6,261,750 10,044,643 98,056,622 1,494,722 100,997 1,662,516 117,621,250

At 31 December 2018 the gross carrying amount of fully depreciated property, plant and equipment, which were still in use, was Tenge12,826,600 thousand (2017: Tenge 9,035,613 thousand).

As at 31 December 2018 motor vehicles included assets under finance lease with the carrying amount of Tenge 34,213,569 thousand(2017: Tenge 14,445,382 thousand).

8. Investments in Equity Instruments

All investments in equity instruments are denominated in Tenge. Investments in these companies are recorded in the consolidatedbalance sheet at estimated fair value.

9. Other Non-Current Assets

Restricted cash represents bank deposits for the creation of a special fund to cover the cost of site restoration and the decommissioningof the mining assets after its expected closure in accordance with the requirements of the subsurface use contracts with maturity inJanuary 2022. The Group has no access to these funds. At 31 December 2018, all financial non-current assets are denominated in USDollar (2017: all financial non-current assets are denominated in US Dollar).

10. Inventories

Company name Country ofincorporation

Principal activity 31 December 2018 31 December 2017

Tengethousand

Interest(%)

Tengethousand

Interest(%)

BTS LLP Kazakhstan ERP systemimplementation and

support

406,100 2.05% 406,100 2.05%

КТ ENRC Credit LLP Kazakhstan Crediting 33,656 0.027% 33,656 0.027%

Total investments inequity instruments

439,756 439,756


Restricted cash 3,670,785 2,858,349

Total financial non-current assets 3,670,785 2,858,349

Prepayments for property, plant and equipment and investments 1,120,326 5,191,755

Total other non-current assets 4,791,111 8,050,104


Spare parts 2,116,043 2,127,416

Materials for resale 1,212,848 1,370,473

Raw materials and consumables 764,893 880,054

Finished goods 850,306 824,576

Fuel 422,825 353,557

Work in progress 14,607 22,686

Other materials 182,456 289,555

Provisions for impairment of raw materials and supplies (1,781,745) (1,386,502)

Total inventories 3,782,233 4,481,815

MOVEMENTS IN THE PROVISION FOR IMPAIRMENT OF INVENTORIES ARE AS FOLLOWS:


Balance at 1 January (1,386,502) (1,463,548)

Accrual of provision (611,900) (30,476)

Write-off against provision 216,657 107,522

Balance at 31 December (1,781,745) (1,386,502)

8584


ABOUT THE COMPANY

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11. Trade and Other Receivables


Trade receivables 5,639,214 6,106,387

Other receivables 6,575,181 5,295,129

Minimum deposit level 131,415 83,623

Impairment provision (25,392) (210,989)

Total financial trade and other receivables 12,320,418 11,274,150

Prepayments to suppliers and contractors 2,756,130 1,271,406

Prepayment for other taxes 859,239 265,371

Other receivables 911,672 537,135

Total trade and other receivables 16,847,459 13,348,062

THE CARRYING AMOUNT OF THE GROUP’S FINANCIAL ASSETS INCLUDED IN TRADE AND OTHER RECEIVABLES IS DENOMINATED INTHE FOLLOWING CURRENCIES:


Tenge 8,857,394 6,789,217

US Dollar 2,618,909 2,302,023

Chinese Yuan 462,276 615

Russian Rouble 381,280 2,182,295

Euro 559 -

Total financial trade and other receivables 12,320,418 11,274,150

In thousands 31 December 2018 31 December2017

Gross carryingamount

ECL Gross carryingamount

ECL

Current 15,527,477 (3,238) 15,524,239 12,342,129

Less than 3 months overdue 1,266,193 (4,882) 1,261,311 986,626

3 to 6 months overdue 10,893 (377) 10,516 11,363

6 to 12 months overdue 57,685 (6,406) 51,279 7,944

Over 12 months overdue 568 (454) 114 -

Total past due 1,335,339 (12,119) 1,323,220 1,005,933

Current and past due 16,862,816 (15,357) 16,847,459 13,348,062

Individually determined to be impaired 10,035 (10,035) - -

Total individually determined to beimpaired

10,035 (10,035) - -

Total trade and other receivables – net 16,872,851 (25,392) 16,847,459 13,348,062

The carrying amounts of the Group’s financial assets within trade and other receivables approximate their fair values due to the short-term nature of these instruments.

12. Loans Receivable

In 2018, parent company loans were provided at the rate of 7.31 percent per annum to 9.01 percent per annum in USD (2017: 7.11percent per annum to 11 percent per annum in USD). In 2018, loans to entities under common control were provided at the rate of 5.29percent per annum to 7.5 percent per annum in USD and 1% per annum in Tenge (2017: 7.5 percent per annum in USD and 1 percentper annum in Tenge).


Credit loss allowance at 1 January 210,989 272,177

Expense 32,463 128,020

Recovery/write-off (218,060) (189,208)

Credit loss allowance at 31 December 25,392 210,989


Short-term portion of loans receivable 164,496,377 93,907,411

Long-term portion of loans receivable 7,779,514 5,979,125

Impairment provision for loans receivable (1,221,553) -

Total loans receivable 171,054,338 99,886,536

In thousands of Kazakhstani Tenge Carrying amount Fair value

2018 2017 2018 2017

Loans receivable 171,054,338 99,886,536 171,739,977 100,264,766


US Dollar 170,556,935 99,403,550

Tenge 497,403 482,986

Total loans receivable 171,054,338 99,886,536

In thousands of Kazakhstani Tenge 2018

Credit loss allowance at 1 January under IFRS 39 -

Changes in accounting policy 682,876

Credit loss allowance at 1 January under IFRS 9 682,876

Loans receivable 1,103,346

Loans repaid (564,669)

Credit loss allowance at 31 December 1,221,553

8786


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




13. Cash and Cash Equivalents

14. Share Capital

Outstanding common shares are fully paid. The preference shares do not participate the obligatory redemption by the Group (issuer) andparticipate in the dividends distribution. Preference shareholders have a priority over ordinary shareholders to receive dividends of thepre-determined guaranteed amount established by the charter and a part of the Group’s properties, in the case of liquidation.

Dividends on ordinary shares are not distributed until dividends on preference shares are paid in full.

The dividends on the preference shares in excess of the guaranteed amount are controllable but not contractual since such distributionscan be avoided if the dividends on ordinary shares are not distributed. Therefore, the preference share represents the compoundinstrument which consists of equity and liability components.

Preference shares do not give the holder the right to participate in management of the Group except as follows:

■ general shareholders’ meeting considers an issue, which if solved would restrict the rights of the preference shareholder;■ general shareholders’ meeting considers approval of amendments to the valuation methods for preference shares when they are

repurchased by the Group on a unorganised market;■ general shareholders’ meeting considers reorganisation or liquidation of the Group;■ dividends on preference shares are not paid in full within three months from the expiry of the period fixed for their payment till the

moment of payment.


Universal bank deposits 14,641,934 7,098,772

Cash at bank in USD 1,359,154 171,444

Cash at bank in Chinese Yuan 1,318,352 1,242,733

Cash at bank in Russian Roubles 520,525 86,952

Cash at bank in Tenge 118,346 1,340,628

Cash at bank in Euro 6,542 -

Cash on hand in Tenge 3,320 1,982

Total cash and cash equivalents 17,968,173 9,942,511

UNIVERSAL DEPOSITS INCLUDE FOLLOWING DEPOSITS AT 31 DECEMBER 2018 AND 31 DECEMBER 2017:


Currency Contractual interestrate

Effective interestrate

2018 2017

Eurasian Bank JSC USD 2 2 9,274,006 6,217,799

RUR 10 10 - 86

KZT 9 9 4,321,161 776,519

VTB JSC KZT 7 7.2 370,852 -

Sberbank of Russia SB JSC USD 3 3 9,188 117

RUR 4 4.1 - 1,215

KZT 8 8 106,930 103,036

Industrial Bank of China CNY 4 4 559,797 -

Total universal bank deposits 14,641,934 7,098,772

In thousands of Kazakhstani Tenge 31 December 2018 31 December 2017

Numberof shares

Amount Numberof shares

Amount

Common shares (excluding treasury shares) 3,517,772 9,408,802 3,517,772 9,408,802

Preference shares 119,027 131,489 119,027 131,489

Total share capital 9,540,291 9,540,291

According to the Kazakhstani legislation, distributable profits of the Group are limited by the amount of retained earnings recorded in theIFRS consolidated financial statements of the Group.

Dividends declared and paid during the year were as follows:

All dividends are declared and paid in Kazakhstani Tenge. During the years ended 31 December 2018 and 31 December 2017, dividendson preference shares at a guaranteed fixed amount of Tenge 50 per share were accrued as a part of non-current preference sharesliabilities of Tenge 5,951 thousand.

15. Earnings per Share

Basic earnings per share are calculated by dividing the profit for the period attributable to owners of the Group by the weighted averagenumber of ordinary shares in issue during the year.

Since the Group does not issue convertible financial instruments, the basic earnings per share equals the diluted earnings per share.

The table below presents information about profit and number of shares used to calculate the basic earnings per share.

Carrying amount of one ordinary share as at the reporting date is Tenge 25,489 (at 31 December 2017: Tenge 10,766). Carrying amount ofone preference share as at the reporting date is Tenge 2,355 (at 31 December 2017: Tenge 2,289). Carrying amounts of ordinary andpreference shares are calculated according to Annex 5.7 of the Listing Rules of Kazakhstani Stock Exchange.

НИЖЕ ПРЕДСТАВЛЕНЫ ОБЪЯВЛЕННЫЕ И ВЫПЛАЧЕННЫЕ В ТЕЧЕНИЕ ГОДА ДИВИДЕНДЫ.


Commonshares

Preferenceshares

Commonshares

Preferenceshares

Dividends payable at 1 January - 84,029 - 89,130

Dividends declared during the year - 5,951 - 5,951

Dividends paid during the year - (4,687) - (11,052)

Dividends payable at 31 December - 85,293 - 84,029

НИЖЕ ПРИВОДИТСЯ ИНФОРМАЦИЯ О ПРИБЫЛИ И КОЛИЧЕСТВЕ АКЦИЙ, КОТОРАЯ БЫЛА ИСПОЛЬЗОВАНА В РАСЧЕТАХБАЗОВОЙ ПРИБЫЛИ НА АКЦИЮ.


Total comprehensive income for the year 46,991,358 22,383,460

Accruals of dividends in terms of long-term liabilities on preferred shares 5,951 5,951

Total accruals for distribution to shareholders of the Group 46,997,309 22,389,411

Net profit attributable to ordinary shareholders 45,459,158 21,656,639

Weighted average number of ordinary shares in issue 3,517,772 3,517,772

Basic and diluted earnings per ordinary share (expressed in Tenge pershare)

12.92 6.16


Assets 334,664,313 238,386,559

Intangible assets 2,113,830 2,581,056

Liabilities 242,860,746 197,800,558

Charter capital, preference shares 131,489 131,489

Net assets for ordinary shares 89,558,248 37,873,456

Number of ordinary shares (thousands) 3,517,772 3,517,772

Carrying amount of 1 ordinary share (in Tenge) 25,489 10,766

8988


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MARKET OVERVIEW


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RISK MANAGEMENT




16. Borrowings

VTB Bank (PJSC). In the second half of 2018, the Group repaid in full principal amount of USD 250,000 thousand to VTB Bank PJSC.

Sberbank of Russia PJSC. In the second half of 2018, the Group jointly with a range of ERG entities entered into a new loan agreementwith Sberbank of Russia PJSC. Loan amount attributable to the Group was USD 300,000 thousand. According to the agreement, maturityfor principal debt is set until September 2025. Interest rate on loan is 6.5 percent per annum.

Entities under common control. In May 2017, the credit facility agreement was entered into with an entity under common control forTenge 15,000,000 thousand. The agreement was executed for 7 years. The interest rate is 1.0 percent per annum. Principal amount andinterest are repaid on monthly basis.

As at 31 December 2018, the fair value of borrowings was Tenge 166,728,895 thousand (31 December 2017: Tenge 139,925,325thousand).

The table below sets out an analysis of the movements in the Group’s liabilities from financing activities. Cash movements of theseliabilities are reported in financing and operating activities in the statement of cash flows:

CARRYING AMOUNT OF PREFERENCE SHARE IS CALCULATED AS FOLLOWS:


Liabilities on accrued but unpaid dividends 85,293 84,029

Charter capital, preference shares 131,489 131,489

Equity attributable to preference shareholders 216,782 215,518

Debt component of the first group preference shares,accounted for within liabilities

63,529 56,956

Number of preference shares (thousands) 119,027 119,027

Carrying amount of 1 preference share (in Tenge) 2,355 2,289


US Dollar 115,241,439 86,326,847

Tenge 52,257,026 50,683,733

Total borrowings 167,498,465 137,010,580

(In thousands of KazakhstaniTenge)

Liabilities from financing activities

Borrowings Financelease

Financialguarantees

Dividends Total

Financial liabilities at 31December 2017

137,010,580 12,192,275 6,793,144 140,985 156,136,984

Cash movements 5,468,802 (2,268,727) - (4,687) 3,195,388

Fair value movements (385,348) - - - (385,348)

Foreign exchange differences 13,329,414 508,046 - - 13,837,460

Other non-cash movements 12,075,017 15,296,867 (4,050,580) 12,524 23,333,828


167,498,465 25,728,461 2,742,564 148,822 196,118,312

17. Financial Guarantees

At 31 December 2018 and 31 December 2017, the carrying amount of financial guarantees is a non-amortised amount recorded at initialrecognition.

Fair values of financial guarantees were estimated based on period remaining until maturity of guaranteed loan amounts, market rate ofcommission allocated between guarantors and discounted using the weighted average cost rate of the Group’s borrowings.

18. Finance Lease

In 2017, the Group signed the finance lease agreement for supply of property, plant and equipment of Tenge 695,601 thousand. Theagreement is signed for a 5-year period. The interest rate is 7 percent per annum. Principal amount is repaid annually, interest is paid ona monthly basis.

In 2017, the Group signed another finance lease agreement for supply of property, plant and equipment of Tenge 2,557,843 thousand.The agreement is signed for a 5-year period. The interest rate is 6.5 percent per annum. Principal amount is repaid annually, interest ispaid on a monthly basis.

In 2017, the Group signed finance leases for supply of property, plant and equipment in the total amount of Tenge 32,105,743 thousand.The agreements are signed for 10 years. The interest rate is 10 percent per annum. Principal amount and interest are repaid on amonthly basis.

(In thousands of KazakhstaniTenge)

Liabilities from financing activities

Borrowings Financelease

Financialguarantees

Dividends Total


143,319,841 - 7,127,728 136,951 150,584,520

Cash movements (8,326,614) (192,604) - (11,052) (8,530,270)

Fair value movements 1,009,624 - - - 1,009,624

Foreign exchange differences (213,534) 149,833 - - (63,701)

Other non-cash movements 1,221,263 12,235,046 (334,584) 15,086 13,136,811


137,010,580 12,192,275 6,793,144 140,985 156,136,984

>

Company Amount of the guaranteed liabilities Guarantee term

31 December 2018 31 December 2017

Entities under common control 30,849,096 976,123,367 2018-2025

Entities exercising joint control 622,009,811 820,865,137 2018-2025

Total 652,858,907 1,796,988,504


Carrying value at 31December 2018

Fair value at 31December 2018

Carrying value at 31December 2018

Fair value at 31December 2018

Finance leasepayables

25,728,461 26,443,848 12,192,275 12,533,577

In thousands of Kazakhstani Tenge Due in 1year

Due between 1 and5 years

Due over 5years

Total

Total minimum lease payments at 31 December2018

4,745,685 17,706,149 15,487,892 37,939,726

Less future finance charge (2,325,876) (7,047,415) (2,837,974) (12,211,265)

Present value of minimum lease payments at31 December 2018

2,419,809 10,658,734 12,649,918 25,728,461

9190


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19. Provisions for Assets Retirement Obligations

The Group has a legal obligation to landfill site restoration during the mining operations and decommissioning of its mining property afterits expected closure of assets. The breakdown of provisions for assets retirement obligations is detailed below:

The amount of the provisions for assets retirement obligations is determined using the nominal prices effective at the end of reportingperiod by applying the forecast rate of inflation for the expected period of the life of the mine and waste polygons, and discount rates atthe end of reporting periods.

Principal assumptions used in the calculation of assets retirement obligations are presented below:

The estimate of the discount rate is based on risk-free rates on government bonds. At 31 December 2018 the discount rate decreasedfrom 10.0 percent down to 8.7 percent (2017: decreased from 12.2 percent down to 10.0 percent) due to respective changes in long-termrisk-free rates on government bonds.

The Group transfers funds to finance mine site restoration activities to special bank deposit accounts (Note 8). In accordance with thesubsurface use contracts, the amount transferred to the bank account should be equal to 2 percent and 0.1 percent of the annualproduction costs in Central and Western parts of the Shubarkol mine, respectively.

In thousands of Kazakhstani Tenge Due in 1year

Due between 1 and5 years

Due over 5years

Total

Total minimum lease payments at 31 December2017

2,281,462 8,695,203 6,978,385 17,955,050

Less future finance charge (1,085,810) (3,196,957) (1,480,008) (5,762,775)

Present value of minimum lease payments at 31December 2017

1,195,652 5,498,246 5,498,377 12,192,275

In thousands of Kazakhstani Tenge Expected closing date 31 December 2018 31 December 2017

Minefield

Central and east parts of the Shubarkol mine 2050 710,117 468,872

Western part of the Shubarkol Mine 2050 302,998 201,525

Kuduk mine 2020 17,680 11,589

Total provisions for assets retirement obligations 1,030,795 681,986

MOVEMENTS IN PROVISIONS FOR ASSETS RETIREMENT OBLIGATIONS ARE PROVIDED BELOW:


Carrying amount at 1 January 681,986 318,725

Changes in estimates charged to the increase in assets 7 280,618 324,388

Unwinding of the discount 28 68,191 38,873

Carrying amount at 31 December 1,030,795 681,986

In percent 2018 2017

Discount rate 8.7 10.0

Inflation rate 5.1 5.4

20. Trade and Other Payables

Revenue of Tenge 5,398,309 thousand was recognised in the current reporting period for advances received at 1 January 2018.

21. Revenue


Trade payables 235,016 338,811

Total long-term trade payables 235,016 338,811

Trade payables 9,309,624 8,664,826

Other payables 8,308,216 7,611,438

Total short-term trade and other payables 17,617,840 16,276,264

Total financial liabilities 17,852,856 16,615,075

Advances received 11,802,060 5,398,309

Other taxes payable 1,763,757 736,404

Unused vacation provisions 968,304 704,312

Payables to employees 568,469 543,334

Other payables and accrued expenses 317,086 357,980

Total non-financial liabilities 15,419,676 7,740,339

Total trade and other payables 33,272,532 24,355,414

FINANCIAL LIABILITIES ARE DENOMINATED IN THE FOLLOWING CURRENCIES:


Tenge 14,462,942 12,078,503

US Dollar 1,588,277 3,238,198

Russian Rouble 1,441,035 1,252,797

Chinese Yuan 352,027 45,577

Euro 8,575 -

Total financial liabilities 17,852,856 16,615,075


Sales of extracted coal 59,883,573 42,704,191

Operation of wagons and containers 43,700,931 27,352,050

Sales of coke and tar 7,223,344 6,124,697

Revenue/ commission on sales of purchased coke 5,384,523 5,144,510

Railway services included into cost of coal 4,409,135 3,514,327

Forwarding services 2,432,382 1,858,739

Wagon repair services 1,050,806 1,245,062

Other 871,111 383,384

Total revenue 124,955,805 88,326,960

9392


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

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22. Cost of Sales

23. Other Operating Income

1. Foreign exchange gain is presented on a net basis. Amounts of foreign exchange gain and loss on a gross basis for the year ended 31December 2018, were Tenge 2,097,934 thousand and Tenge 1,860,757 thousand, respectively (31 December 2017: Tenge 4,470,267thousand and Tenge 4,441,455 thousand, respectively).


Depreciation of property, plant and equipment and intangible assets 11,546,515 9,947,094

Light running of wagons and containers 11,926,406 8,579,875

Payroll and related costs 9,238,648 6,735,605

Materials 8,494,535 6,842,260

Cost of coke purchased for resale 4,920,178 4,620,104

Repair and maintenance expenses 3,347,576 3,218,337

Electricity 891,183 892,150

Security 428,056 224,491

Insurance 427,653 409,449

Other taxes 344,277 700,978

Agency fee 173,424 -

Personnel education 52,924 68,061

Changes in finished goods and work in progress (25,730) (387,580)

Accrual / (reversal) of provision for impairment of inventories 611,900 (335,349)

Other 4,341,274 5,682,025

Total cost of sales 56,718,819 47,197,500


Research services 3,361,321 1,311,197

Income from sale of metal scrap from handling and repairs of wagons 601,564 491,333

Foreign exchange gains less losses 237,177 28,812

Net gain from disposal of property, plant and equipment 121,517 115,503

Reusable materials /spare parts 32,987 17,400

Insurance compensation 15,741 29,168

Foreign exchange gain from operating activity (indexation) 7,003 -

Other income 329,033 520,123

Total other operating income 4,706,343 2,513,536

1

24. Other Operating Expenses


Region social development 200,747 180,226

Foreign exchange gain from operating activity (indexation) 171,260 -

Business interruption expenses 114,073 -

Research and development expenses 103,264 41,804

Catering - 67,043

Fines, penalties under contracts and extra-budgetary funds 73,516 58,877

Expenses on purchase of currency 56,110 7,688

Expenses on insured event 21,706 1,415

Inventory provision - 365,825

Other 200,866 344,787

Total other operating expenses 941,542 1,067,665

25. General and Administrative Expenses

Contributions to a number of different non-recurring individual social development infrastructure projects at the national level inKazakhstan amounted to nil (2017: Tenge 500,000 thousand), and primarily related to education, cultural and recreation projects.

2018 2017

Management fees 4,350,972 2,894,820

Payroll and related costs 3,831,313 3,445,515

Consulting and other professional services 2,044,886 908,510

Sponsorship and other financial aid 1,228,885 1,190,635

Depreciation of property, plant and equipment and intangible assets 743,277 142,996

Agency agreement fees 666,933 24,503

Rent expenses 232,987 192,434

Taxes other than on income 202,450 624,463

Business travel and representation expenses 150,613 156,269

Repair and maintenance expenses 76,503 65,192

Communication expenses 65,884 42,169

Bank charges 48,859 45,595

Decrease in credit loss allowance for impairment of receivables 32,463 (45,501)

Penalties and fine (51,401) 141,391

Other 551,998 1,277,048

Total general and administrative expenses 14,176,622 11,106,039

9594


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




26. Finance Income

27. Finance Costs


Interest income on loans receivable 9,566,786 14,807,269

Foreign exchange gains less losses 9,057,262 6,779,429

Amortisation on financial instruments, discounting income 8,553,049 -

Amortisation of financial guarantees 4,753,315 2,577,987

Profit from restructuring of borrowings 3,088,027 -

Income from early derecognition of financial guarantees 984,925 1,598,172

Interest income on bank deposits 276,196 326,854

Foreign exchange gain (indexation) 38,052 -

Income on initial recognition of loan received at non-market rate 25,278 59

Other finance income 11,253 -

Total finance income 36,354,143 26,089,770

1


Loss from early repayment of loans received 9,654,125 -

Amortisation of income from discounting on initial recognition ofborrowings

7,809,818 6,590,352

Interest expense on borrowings 7,744,112 7,022,937

Expenses on derecognition of loan received at non-market rate 3,672,456 2,415,243

Interest expense on finance lease liabilities 2,387,469 200,701

Costs on initial recognition and prolongation of financial guarantees 1,687,660 3,915,085

Amortisation of borrowing costs – other 1,132,888 -

Expenses on credit loss allowance for loans receivable 538,677 -

Indexation expense 516,096 -

Provisions for assets retirement obligations: unwinding of discount 68,191 38,873

Employee benefits: unwinding of discount 60,058 76,741

Expense from change in fair value of condition for changing interest ratedepending on commodity price index

(385,348) 1,009,624

Foreign exchange losses net - 452,792

Other 1,126,941 33,376

Total finance costs 36,013,143 21,755,724

1. Foreign exchange gain is presented on a net basis. Amounts of foreign exchange gain and loss on a gross basis for the year ended 31December 2018, were Tenge 36,474,003 thousand and Tenge 27,921,893 thousand, respectively.

2. Foreign exchange gain is presented on a net basis. Amounts of foreign exchange gain and loss on a gross basis for the year ended 31December 2017, were Tenge 21,297,574 thousand and Tenge 21,750,366 thousand, respectively.

1

28. Income Tax

Differences between IFRS and statutory taxation regulations in the Republic of Kazakhstan give rise to temporary differences between thecarrying amount of assets and liabilities for financial reporting purposes and their tax bases for the purposes of income tax. The tax effectof the movements in these temporary differences is detailed below, and is recorded at the rate applicable to the period of assetsrealisation or liabilities settlement.


Current income tax expense 10,499,611 5,396,687

Current income tax expense – prior periods (182,330) 424,108

Current excess profit tax expense - 5,298,263

Current excess profit tax expense – prior periods (425,674) 932,522

Total current income tax expense 9,891,607 12,051,580

Deferred income tax (benefit) / expense (521,651) 1,746,615

Deferred excess profit tax benefit - (945,414)

Total deferred income tax (benefit) / expense (521,651) 801,201

Income tax expense for the year 9,369,956 12,852,781

RECONCILIATION BETWEEN THE EXPECTED AND THE ACTUAL TAXATION CHARGE IS PROVIDED BELOW:


Profit before tax 56,060,215 35,177,531

Theoretical tax charge at statutory rate of 20% (2017: 20 %) 11,212,043 7,035,506

Tax effect of items which are not deductible or not taxable for taxationpurpose:

- current excess profit tax (425,674) 6,230,785

- deferred excess profit tax - (945,414)

- current income tax – prior periods (182,330) 424,108

- deferred income tax – prior periods (864)

- financial guarantees (810,117) (89,963)

- sponsorship aid 22,549 253,856

- effect of different tax rates in other countries 19,543 (4,115)

- profit and income not taxable according to legislation 13,428 -

- social sphere maintenance (414,953) -

- unrecognised tax loss 5 558

- other permanent differences (63,674) (52,540)

Income tax expense for the year 9,369,956 12,852,781

9796


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT





31December

2017

Adoption of IFRS 9(adjustment of opening

balance)

Chargedto profit

or loss

Charged to othercompre-hensive

income

31December

2018

Tax effect ofdeductible temporarydifferences

Employee benefitspayable

(171,534) - (55,247) 197 (226,584)


(157,801) (19,984) 122,179 - (55,606)

Provision forimpairment ofinventories

(276,131) - (77,825) - (353,956)

Loans receivable withdiscounted value

- (112,934) (128,295) - (241,229)

Other accruals (33,605) - (260,976) - (294,581)

Gross deferredincome tax asset

(639,071) (132,918) (400,164) 197 (1,171,956)

Tax effect of deductibletemporary differences

Property, plant andequipment

8,659,471 - 1,286,992 - 9,946,463

Borrowings 2,336,968 1,194,041 (1,416,903) - 2,114,106

Provisions for assetsretirement obligations

313,007 - 9,144 - 322,151

Provisions forreimbursement ofhistorical costs

9,000 - (720) - 8,280

Gross deferred incometax liability

11,318,446 1,194,041 (121,487) - 12,391,000

Less: offsetting withdeferred income taxasset

(639,071) (132,918) (400,164) 197 (1,171,956)

Recognised deferredincome tax liability

10,679,375 1,061,123 (521,651) 197 11,219,044

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current taxliabilities and when the deferred income taxes relate to the same tax authority.


31December

2016

Charged toprofit or loss

Charged to other compre-hensive income

31December

2017

Tax effect of deductibletemporary differences

Employee benefits obligations (193,541) 13,549 8,458 (171,534)

Trade and other payables (216,144) 58,343 - (157,801)

Provision for impairment ofinventories

(320,156) 44,025 - (276,131)

Loss from non-contractualactivities

(15,017) 15,017 - -

Other accruals - (33,605) - (33,605)

Gross deferred income tax asset (744,858) 97,329 8,458 (639,071)

Tax effect of deductible temporarydifferences

Property, plant and equipment 8,451,842 207,629 - 8,659,471

Borrowings 1,717,089 619,879 - 2,336,968

Provisions for assets retirementobligations

380,916 (67,909) - 313,007

Provisions for reimbursement ofhistorical costs

13,099 (4,099) - 9,000

Other accruals 51,628 (51,628) - -

Gross deferred income tax liability 10,614,574 703,872 - 11,318,446

Less: offsetting with deferredincome tax asset

(744,858) 97,329 8,458 (639,071)

Recognised deferred income taxliability

9,869,716 801,201 8,458 10,679,375

OFFSET AMOUNTS ARE PRESENTED BELOW:


Deferred income tax assets:

- to be recovered after 12 months (527,576) (455,863)

- to be recovered within 12 months (644,380) (183,208)

Deferred income tax assets (1,171,956) (639,071)

Deferred income tax liabilities:

- to be recovered after 12 months 11,298,257 10,958,415

- to be recovered within 12 months 1,092,743 360,031

Deferred income tax liabilities 12,391,000 11,318,446

Recognised deferred income tax liability 11,219,044 10,679,375

9998


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




29. Contingencies, Commitments and Operating Risks

Tax legislation.

Kazakhstani legislation and tax practice is continuously developing, and therefore is subject to varying interpretations and frequentchanges, which may be retrospective. In addition, the interpretation of tax legislation by tax authorities in relation to the transactions andactivities of the Group may not coincide with the interpretation of the management. As a result, the Group’s transactions may bechallenged by the tax authorities, and which can lead to occurrence of additional taxes, penalties and fines. Tax inspections are open forretrospective review by the Kazakh tax authorities for five years.

Despite the risk of challenging by Kazakhstani tax authorities the policies used by the Group, including those related to transfer pricingand excess profits tax (Note 2), management believes that it will be able to defend its position in case of disputes, and also notes that theamount of a potential claim by the tax authorities is not subject to reasonable assessment. Accordingly, as at 31 December 2018, theconsolidated financial statements do not include provisions for potential tax liabilities (2017: no provisions recorded).

Changes to tax legislation.

Amendments made to the Tax Code effective from 1 January 2018 did not have a significant impact on the Group.

Transfer pricing.

According to the transfer pricing law, international business transactions are subject to government control. This law prescribesKazakhstani companies to maintain and, if required, to provide economic rationale and method of the determination of prices used ininternational business transactions, including existence of the documentation supporting the prices and price differentials applied.Additionally, price differentials cannot be applied to the international business transactions with companies registered in offshorecountries. In case of deviation of transaction price from market price, tax authorities have the right to adjust taxable base and to imposeadditional taxes, fines and interest penalties.

The transfer pricing law in some areas lacks detailed clear-cut guidance as to how its rules should be applied in practice (for example, theform and content of documentation supporting the discounts), and determination of the Group’s tax liabilities within the context of thetransfer pricing regulations requires an interpretation of transfer pricing law.

The Group conducts transactions subject to the state transfer pricing control. Sales of products to the Group’s cross-border customersare set at market prices based on the arm’s-length principle.

Environmental matters.

Application of environmental regulations in the Republic of Kazakhstan is developing and the government authorities’ position iscontinually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations aredetermined, they are recognised immediately in the consolidated financial statements. Potential liabilities, which might arise as a result ofchanges in existing regulations, civil litigation or legislation, cannot be estimated but could be material. In the current enforcement climateunder existing legislation, management believes that there are no significant liabilities for environmental damage, apart from thosealready recognised in these consolidated financial statements.

The Gorup has implemented an integrated management system that includes: a quality management system ISO 9001, a system ofenvironmental protection management system ISO 14001 and the health and labour safety management system OHSAS 18001.

In October 2018 a supervisory audit of the environmental management system, operational health and safety management system, andenergy management system was carried out which confirmed their compliance with ISO 9001:2015, ISO 14001:2015, OHSAS 18001:2007.

On 1 January 2013, the Greenhouse Gas Trading System was established in the Republic of Kazakhstan. The Government of the Republicof Kazakhstan approved the National Plan for Distribution of GHG Quotas providing free of charge allocation of a limited number ofquotas between such major operators (users of natural resources) whose aggregate carbon dioxide (СО2) emissions exceed 20 thousandtons per year. Under the environmental legislation, obtaining GHG quotas should be the direct obligation of users of natural resources.Should actual GHG emissions exceed the amount of quota issued, the Group shall obtain additional quota or purchase deficient quality ofquotas at the exchange. During 2018 and 2017, actual emissions of greenhouse gases did not exceed quota given.

Provision for asset retirement and restoration obligations.

Kazakhstani legal environment and practice is continuously evolving, which may result in varying interpretations and changes in theexisting legislation, as well as introduction of the new laws and regulations. Management believes that sufficient provisions have beenrecorded in these consolidated financial statements with respect to assets retirement obligations arising from requirements of existingregulations and the Group’s operations. However, changes in the legislation or its interpretation, as well as changes in management’sjudgement may require the Group to revise its estimates and create an additional provision for assets retirement obligations.

Legal proceedings.

From time to time and in the normal course of business, claims against the Group are received. On the basis of its own estimates andboth internal and external professional advice, the Group’s management believes that no material losses will be incurred in respect ofthese claims.

Work program compliance.

In Kazakhstan, all subsurface reserves belong to the State represented by the Ministry of Industry and New Technologies of the Republicof Kazakhstan which issue exploration and production rights to legal entities. Subsurface use rights are not granted in perpetuity and anyrenewal must be agreed before the expiration of the relevant contract or license. These rights may be terminated by the Ministry if theGroup does not meet its contractual liabilities.

According to the annual work program approved by the Ministry of Industry and New Technologies, the Company should achieve annualcoal production level of 5,800-8,700 thousand tons from 2009 to 2050. In 2018, the Group produced 11,598 thousand tons (2017: 10,455thousand tons).

Long-term sales contracts.

In October 2011, the Group signed a long-term sales contract for the delivery of coal. Contract’s validity period lasts until the later of: (i) 31December 2021, (ii) date, when common level of deliveries is achieved, (iii) later date agreed by parties.

Insurance.

The insurance industry in the Republic of Kazakhstan is in a developing stage and many forms of insurance protection common in otherparts of the word are not yet generally available in the Republic of Kazakhstan. The Group does not have full coverage for its plant facilitiesand losses caused by business interruptions. The Group has ensured against third party liabilities in respect of property or environmentaldamage arising from accidents on Group property or relating to Group operations. Until the Group obtains adequate insurance coverage,there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Group’s operations and financialposition.

Capital expenditure commitments.

At 31 December 2018, the Group has contractual capital expenditure commitments on purchase of property, plant and equipment ofTenge 5,172,432 thousand (2017: Tenge 20,896,847 thousand).

The Group has already allocated the necessary resources in respect of these commitments. The Group’s management believes that futurenet income and funding will be sufficient to cover these and any similar commitments.

30. Financial Risk Management

Financial risk factors.

The Group’s activities expose it to a variety of financial risks: credit risk, market risk (including foreign exchange risk), and liquidity risk. TheGroup’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverseeffects on the Group’s financial performance.

(а) Credit risk

Financial assets, which potentially expose the Group to credit risk, consist mainly of loans receivable, restricted cash, trade and otherfinancial receivables, loans issued, current deposits and cash and cash equivalents. Cash is placed with financial institutions, havingminimum default risk as of the account opening date. In addition, the Group analyses external ratings of financial institutions.

The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history.The clients, which do not meet the solvency requirements of the Group, can enter into transactions with the Group only on the terms ofprepayments. Loans are provided only to the Group’s related parties.

The Group has guaranteed the obligations of its related parties in the amount of Tenge 652,858,907 thousand (2017: Tenge1,796,988,504 thousand) (Note 17), which also gives rise to its exposure to the credit risk.

(b) Market risk

Currency risk.

Foreign exchange risk arises when future foreign currency inflows or recognised assets and liabilities are denominated in currency otherthan the Group’s and its subsidiaries’ functional currency.

The Group is exposed to currency risk on sales, purchases and loans receivable that are denominated in the currencies other than therespective functional currencies of the Group and its subsidiaries, primarily in US Dollars and Russian Roubles.

In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept toan acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

101100


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




THE TABLE BELOW SHOWS ASSETS AND LIABILITIES BALANCES DENOMINATED IN FOREIGN CURRENCIES, WHICH ARE EXPOSED TOFOREIGN CURRENCY RISK.

In thousands of Kazakhstani Tenge US Dollar RussianRouble

ChineseYuan

Euro Total

2018

Financial assets denominated in foreigncurrency

187,488,977 617,696 2,340,425 7,101 190,454,199

Financial liabilities denominated in foreigncurrency

(142,558,177) (1,441,035) (352,027) (8,575) (144,359,814)

2017

Financial assets denominated in foreigncurrency

108,094,933 2,270,548 1,243,348 - 111,608,829

Financial liabilities denominated in foreigncurrency

(101,757,320) (1,252,797) (45,577) - (103,055,694)

At 31 December 2018, if the exchange rate of US Dollar to Tenge had increased/decreased by 20 percent with all other variables heldconstant, net profit for the year would have been Tenge 7,375,081 thousand higher/lower (2017: increased by 20 percent, net profitwould have been Tenge 1,115,420 thousand higher/lower), mainly due to the foreign exchange gain/loss on translation of US Dollardenominated loans receivable, borrowings, and cash and cash equivalents.

Price risk.

The Group does not enter into any contracts for purchase of goods other than those intended for use or sale, based on the expectedneeds of the Group, such contracts do not contemplate any net settlements.

Interest rate risk.

Changes in interest rates affect mainly attracted loans and borrowings changing their fair value (debt liabilities with a fixed interest rate) orfuture cash flows thereon (debt liabilities with a floating interest rate). When attracting new loans or borrowings, management decideswhich interest rate – fixed or floating – will be most beneficial for the Group during the expected period until maturity based on its ownjudgement.

Sensitivity to changes in interest rates is applicable not only to financial instruments with floating rates, but also to loans receivable andborrowings, recognised at fair value.

As at the reporting date, the effect from changes in interest rates with respect to the Group’s financial assets is not significant.

(c) Liquidity risk

Liquidity risk is defined as the risk that the Group will encounter difficulty meeting obligations associated with financial liabilities in duetime. The Group’s approach to liquidity management is to ensure, as far as possible, the continuous and sufficient liquidity to meet theGroup’s liabilities as they fall due (both under standard and non-standard situations), preventing unacceptable losses or the Group’sreputation damage risk.

The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the reportingdate to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows (except for financialguarantees and preference shares, for which maturity was presented based on present value figures). Balances due within 12 monthsequal their carrying amounts as the impact of discounting is not significant.

In thousandsof KazakhstaniTenge

Note Carryingvalue

Cash flowsunder

agreement

0-6months

6-12months

1-3 years Over 3years

At 31 December2018

Borrowings 16 167,498,465 220,554,702 4,864,660 8,956,518 88,330,198 118,403,326

Finance lease 18 25,728,461 37,245,295 2,098,137 2,464,563 8,994,965 23,687,630

Trade payables 20 9,544,640 9,708,196 9,394,841 78,339 235,016 -

Other payables 20 8,308,216 8,308,216 8,308,216 - - -

Dividendspayable

14 85,293 85,293 85,293 - - -

Preferenceshare liabilities

63,529 184,494 - 5,951 11,903 166,640

Total financialliabilities

211,228,604 276,086,196 24,751,147 11,505,371 97,572,082 142,257,596

At 31 December2017

Borrowings 16 137,010,580 205,885,451 4,522,234 6,210,961 79,439,763 115,712,493

Finance lease 18 12,192,275 17,672,825 947,462 1,324,616 4,345,690 11,055,057

Trade payables 20 9,003,637 8,664,826 8,258,254 67,761 338,811 -

Other payables 20 7,611,438 7,611,438 7,611,438 - - -

Dividendspayable

14 84,029 84,029 84,029 - - -

Preferenceshare liabilities

56,956 190,445 - 5,951 11,903 172,591

Total financialliabilities

165,958,915 240,109,014 21,423,417 7,609,289 84,136,167 126,940,141

The Group has also issued financial guarantees in respect of the debt facilities obtained by its related parties.

During 2018, all liabilities of the Group were executed in full on a timely basis according to the terms of signed agreements.

Capital risk management.

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to providereturns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders and return capitalto shareholders or sell assets to reduce debt.

103102

Full name (year of birth)

Positions held

Serik Shakhazhanov (born in 1977) Chairman of the Board of Directors of the Company

• Chairman of the Management Board of Eurasian Group LLP from July 2017 to the present;

• First Deputy Chairman of the Management Board of Eurasian Group LLP (Member of the Board) from March 2017 to July 2017;

• Deputy Chairman of the Management Board for Strategy and Development of Eurasian Group LLP (Member of the Board) from December 2015 to March 2017

Daniyar Rakhmatullaev (born in 1985) Member of the Board of Directors of the Company

• Deputy Chairman of the Management Board of Eurasian Group LLP for Finance from October 2018 to the present;

• Director of the Financial Planning and Analysis Department of ERG Reporting Services LLP from October 2015 to October 2018;

• Director of the Department of Economics of Eurasian Group LLP from July 2014 to October 2015

Andrey Safonov (born in 1978) Member of the Board of Directors of the Company

• President of Shubarkol Komir JSC from April 2018 to the present;

• Vice President for Production of Shubarkol Komir JSC from February 2017 to April 2018;

• Chief Technical Manager for Safety and Labor Protection of Shubarkol Komir JSC from November 2016 to February 2017;

• Director of Kacharsky Ore Administration of SSGPO JSC from August 2015 to October 2016.

Murat Murtazaev (born in 1952) Member of the Board of Directors of the Company - Independent Director

• Independent Expert on Subsoil Use of the Ministry of Industry and Infrastructure Development of the Republic of Kazakhstan; Independent Coal and Uranium Expert of the Ministry of Energy of the Republic of Kazakhstan from 2014 to the present;

• Satbayev Kazakh National Technical University, Chairman of the State Attestation Commission for the Bachelor of Mining Specialties, Chairperson of the State Examination Commission of candidates for magistracy and doctoral studies from November 2014 to 30.04.2018.

Nurlan Ospanov (born in 1960) Member of the Board of Directors of the Company - Independent Director

• Director of Taza Alem Group KZ LLP from October 2010 to the present.

AnnexesAnnex 1: board of directors

RISK MANAGEMENT





ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

WITHIN THE FRAMEWORK OF CAPITAL MANAGEMENT, THE GROUP TAKES INTO ACCOUNT THE FOLLOWING AMOUNTS:


Borrowings and finance lease 193,226,926 149,202,855

Equity attributable to the Group’s shareholders 91,803,567 40,586,001

Total equity 285,030,493 189,788,856

31. Financial Instruments

Fair value of financial instruments carried at amortised cost

Fair value of financial instruments carried at amortised cost is based on estimated future cash flows expected to be received discountedat current interest rates for new instruments with similar credit risks and remaining maturities.

Fair value of loans receivables and borrowings is within Level 2 of the fair value hierarchy and is disclosed in Notes 12 and 16. Fair valuesof other financial assets and liabilities carried at amortised cost approximates their carrying amounts.

Fair value of financial instruments measured at fair value

The Group applies judgement in categorising financial instruments using the fair value hierarchy in order to choose different techniquesand verify assumptions, which are mainly based on the market conditions at each reporting date, and fair value measurement of otherparties. As at 31 December 2018 and 31 December 2017, the Group did not have financial instruments of Level 1. The Group did notmake transfers between the hierarchy levels.

Fair value of financial instruments of level 2 are derived from standard option pricing models, discounted cash flow models using quotedprices, such as forward commodity prices.

The fair value of investments in equity instruments, related to level 3 measurement of the hierarchy, are derived based on discountedcash flow models. Significant immense assumptions relate to revenue based on the market conditions. Despite the assumptions beingsubjective estimate, management believes that potential alternatives related to this assumption do not have significant impact on overallassessment of the instrument.

32. Events after the balance sheet date

In March 2019, the Group received payments under a set of loans issued to entities under common control totaling USD 323,113thousand.

In March 2019, the Group issued loan to the entity under common control in the amount of USD 333,889 thousand with the maturity inAugust 2019.

105104

Full name (year of birth)

Positions held

Andrey Safonov (born in 1978) President of the Company

• President of Shubarkol Komir JSC from April 2018 to the present;

• Vice President for Production of Shubarkol Komir JSC from February 2017 to April 2018;

• Chief Technical Manager for Safety and Labour Protection of Shubarkol Komir JSC from November 2016 to February 2017;

• Director of Kacharsky Ore Administration of SSGPO JSC from August 2015 to October 2016

Rustam Ibrahimov (born in 1972) Member of the Management Board - First Vice President of the Company

• Member of the Management Board - First Vice President of Shubarkol Komir JSC from May 2018 to the present;

• Deputy General Director of the ERG Commercial Center LLP from September 2016 to May 2018;

• Director of ERG Trading House LLP from August 2014 to September .2016

Daniyar Abdykadyrov (born in 1983) Member of the Management Board - Vice President for Economics and Finance of the Company

• Member of the Management Board - Vice-President for Economics and Finance of Shubarkol Komir JSC from August 2012 to the present;

• Vice President for Economics and Finance of Shubarkol Komir JSC from February 2017 to the present;

• Vice President for Economics of Shubarkol Komir JSC from June 2012 – February 2017.

Sergey Kim (born in 1961) Member of the Management Board - Vice-President for Technical Services of the Company

• Member of the Management Board - Vice-President for Maintenance and Repair of Shubarkol Komir JSC from August 2012 to the present;

• Vice President for Maintenance and Repair of Shubarkol Komir JSC from February 2017 to the present;

• Vice President for Technical Issues of Shubarkol Komir JSC from September 2008 to February 2017.

Darya Savina (born in 1983) Member of the Management Board - Head of the Legal Department of the Company

• Member of the Management Board of Shubarkol Komir JSC from September 2015 to the present;

• Head of Legal Department of Shubarkol Komir JSC from February 2017 to the present;

• Head of Legal Department of Shubarkol Komir JSC from June 2015 to February 2017.

Annex 2: management board Annex 3: Glossary

Abbreviations

IFRS International Financial Reporting Standards

ISO International Organization for Standardization

LTIFR Lost Time Injury Frequency Rate

OHSAS Occupational Health and Safety Assessment Series

Measurement units

k Kilo (thousand)

km Kilometres

m3 Cubic metres

Definitions

Affiliates companies are considered affiliated when one company owns less than the majority interest in another company. Companies may also be affiliated when they are subsidiaries of a third company.

Alumina aluminium oxide (Al2O3), the raw material used in the production of aluminium.

API 2 the benchmark price reference for coal imported to northwest Europe and is based on the cost, insurance and freigh (CIF) delivery of thermal coal (6,000 kcal/kg NAR) at the Amsterdam-Rotterdam-Antwerp (ARA) area.

Ash content the incombustible residue created from a fuel’s (coal) mineral impurities after it undergoes complete combustion. It is one of the main parameters used to define coal quality.

Chrome ore A mineral assembly of iron-chromium oxide that is mined to produce steel through the production of ferrochrome, which is an iron-chromium alloy.

Coke a hard and porous fuel produced by heating coal in the absence of oxygen.

D-grade coal A type of coal with a high content of volatile substances, low sulfur content and low ash content. D-grade coal has a bright shine and a high heat transfer (long flame).

Dividend a sum of money paid by the company to its shareholders.

Dividend policy a policy that dictates how the company structures its dividend payout to its shareholders and the frequency with which the dividends are paid.

Ferroalloy an alloy of iron and one or more other elements (chromium, silicon, manganese, titanium and others) used mainly in the production of steels and other alloys.

Hedging a strategy to offset the risk of adverse movement in the future price of an asset.

High-grade coal a type coal with less than 10% ash content.

Low-ash coal твердый углеродистый восстановитель для электрометаллургических производств крупностью 5–25 мм с содержанием золы не более 10%

Overburden the soil and rock material covering coal seams at open cast mines, which needs to be removed to gain access to ore deposits.

Quarry an open-pit mine where different types of rock are extracted.

Semi-coke a medium temperature coke that is used mainly in the metallurgical industry as a reducing agent.

Thermal coal a type of coal mainly used for power generation.


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

RISK MANAGEMENT




106

Annex 4: Contacts

“Shubarkol Komir” KSC

Адрес:18 Asfaltnaia str., Karaganda, Republic of Kazakhstan, 100004

Tel.: +7 7212 93 01 10

Fax: +7 7212 44 05 16

E-mail: [email protected]


ABOUT THE COMPANY

MARKET OVERVIEW


FINANCIAL STATEMENT

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