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NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

FOR IMMEDIATE RELEASE

4 February 2021

RECOMMENDED CASH ACQUISITION

of

KAZ MINERALS PLC

by

NOVA RESOURCES B.V.

(a company indirectly owned by joint offerors (i) Oleg Novachuk and (ii) Vladimir Kim)

INCREASED CASH OFFER

1. Increased Offer

On 28 October 2020 the board of Nova Resources B.V. (“Bidco“) and the Independent Committee announced the terms of a recommended cash offer to be made by Bidco for the entire issued and to be issued share capital of KAZ Minerals PLC (“KAZ Minerals“) (other than the KAZ Minerals Shares already owned or controlled by members of the Consortium) (the “2.7 Announcement“) and on 7 December 2020, Bidco announced (the “Switch Announcement“) that the Acquisition was to be implemented by way of a recommended takeover offer (the “Original Offer“).

Bidco and KAZ Minerals are pleased to announce the terms of a significantly increased offer comprising 780 pence in cash for each KAZ Minerals Share (the “Increased Offer“), which has been unanimously recommended by the Independent Committee of KAZ Minerals.

Under the terms of the Increased Offer, KAZ Minerals Shareholders will be entitled to receive:

The Increased Offer Price values the entire issued and to be issued share capital of KAZ Minerals at approximately £3.7 billion, and represents a premium of approximately:

• 22 per cent. to the Original Offer price of 640 pence in cash for each KAZ Minerals Share;
• 52 per cent. to the Closing Price of 512.4 pence per KAZ Minerals Share on 2 October 2020 (being the last Business Day prior to agreement in respect of the Original Offer having been reached with the Independent Committee);
• 37 per cent. to the Closing Price of 570.8 pence per KAZ Minerals Share on 27 October 2020 (being the last Business Day prior to the date of the 2.7 Announcement);
• 42 per cent. to the volume-weighted average price of 549.2 pence per KAZ Minerals Share for the one-month period ended 27 October 2020 (being the last Business Day prior to the date of the 2.7 Announcement); and
• 54 per cent. to the volume-weighted average price of 505.8 pence per KAZ Minerals Share for the six-month period ended 27 October 2020 (being the last Business Day prior to the date of the 2.7 Announcement).

The offer document, which will contain the full terms and conditions of the Increased Offer and the procedures for acceptance of the Increased Offer (the “Offer Document“), will be posted to KAZ Minerals Shareholders on 8 February 2021 (or such later date as may be agreed between KAZ Minerals and Bidco, subject to the consent of the Panel), together with the related Form of Acceptance. For information purposes only, the Offer Document will also be sent, or made available, to persons with information rights and participants in the KAZ Minerals Share Plans.

Unless otherwise stated, the terms used in this announcement have the same meanings as given to them in the Switch Announcement.

Commenting on the Increased Offer, Oleg Novachuk, Chairman of Bidco, said:

“Bidco is pleased to announce this increased recommended cash offer for KAZ Minerals. Mr. Kim and I are proud KAZ Minerals has made consistent progress as a public company since listing as Kazakhmys on the London Stock Exchange in 2005. During this period, it has demonstrated strong governance and delivered significant shareholder returns. However, KAZ Minerals must now focus on the execution of a higher risk, capital intensive strategy to deliver the Baimskaya project. Accordingly, we believe that KAZ Minerals’ long term interests are now best served as a private organisation. 

Whilst the Baimskaya project is one of the world’s most exciting undeveloped copper assets, the implementation risks are substantial. As previously announced, the project is already facing increased costs and delays to its delivery schedule. In this context, the materially increased offer delivers a substantial increase in price from the terms of the original recommended offer in October 2020. 

We are pleased to have reached agreement with KAZ Minerals’ Independent Committee as to the terms of a recommended transaction recognising the changing risk profile of the business. This increased offer represents a highly attractive return for KAZ Minerals Shareholders ensuring they have the opportunity to realise in cash the value of their investment at a compelling valuation.”

Commenting on the Increased Offer, Michael Lynch-Bell, Chair of the Independent Committee, said:

“Following improved market conditions towards the end of 2020 the Independent Committee of KAZ Minerals has been engaged in extensive negotiations with Bidco. Today, we are pleased to announce a substantial increase in their offer to 780 pence per share. This increase in Bidco’s offer was achieved through the work of the Independent Committee that was established following the initial approach from Bidco and allows KAZ Minerals Shareholders to realise cash consideration for their shares at an attractive price, while recognising the increasing risks to the Baimskaya project. Based on our assessment after taking advice, and following consultation with shareholders, the Independent Committee unanimously recommends that KAZ Minerals Shareholders accept this higher offer.”

2. Background to and reasons for the Acquisition

The Consortium believes that there is a strong rationale for the Acquisition given KAZ Minerals’ shift to a capital-intensive strategy.

The Consortium also believes that KAZ Minerals’ decision to dedicate its efforts to a capital intensive strategy focused on long term growth is the optimal strategy for KAZ Minerals. The Consortium has the appetite for the significantly higher risks implied by this strategy, which demands a number of years of heavy capital investment with curtailed prospects for a reliable dividend stream. The members of the Consortium accept those diminished dividend prospects.

The Baimskaya project is one of the world’s most significant undeveloped copper assets with the potential to deliver a strong return on investment in the future. However, in the 2.7 Announcement, the directors of Bidco and the Independent Committee of KAZ Minerals highlighted that the risks to the Baimskaya project were significant and had increased. These include project delivery risks, demand and supply dynamics for copper, future prevailing prices for copper and gold, and a reliance on the Government of the Russian Federation to make the necessary investments in new infrastructure for the project.

Since the announcement of the Original Offer, certain of these risks have begun to crystallise and the Consortium believes that the project delivery risks remain significant; both the project schedule and budget remain subject to change. KAZ Minerals continues to be exposed to unprecedented wider economic instability compounded by a global financial system significantly weakened as a result of the COVID pandemic as well as consistent geopolitical tensions. These factors could reduce the ability of KAZ Minerals to finance the construction of the Baimskaya project from its own cash resources. Furthermore, there is an increasing risk that KAZ Minerals may need to make material capital investments ahead of definitive commitments from the Government of the Russian Federation in respect of all aspects of infrastructure.

Consequently, whilst the Consortium firmly believes that Baimskaya is the right project to underpin the long term transformation of KAZ Minerals and represents an attractive opportunity to deliver value accretive growth from 2027, the members of the Consortium have concluded that KAZ Minerals’ long term development of Baimskaya would be best undertaken away from public markets as a private company.

Since the announcement of the Original Offer, the spot price of copper has increased. However, the Consortium is confident that the Increased Offer Price represents a compelling value for KAZ Minerals on the basis of consensus long-term estimates for the price of copper which remain significantly lower than the spot copper price. Accordingly, the Consortium is offering KAZ Minerals Shareholders an opportunity to crystallise the value of their investment in KAZ Minerals Shares in cash at a material increase to pre-Original Offer announcement trading levels, providing certainty, in cash, in place of the Baimskaya project-driven risks to KAZ Minerals described above.

The Consortium considers the terms of the Acquisition to be highly attractive for KAZ Minerals Shareholders.

3. Background to and reasons for the Independent Committee Recommendation

On 28 October 2020, it was announced that the boards of Bidco and KAZ Minerals had reached agreement on the terms of a recommended cash offer by Bidco for the entire issued and to be issued share capital of KAZ Minerals (other than the KAZ Minerals Shares already owned or controlled by the Consortium). In reaching its decision to recommend the Acquisition to KAZ Minerals Shareholders at the time, the Independent Committee took account of a number of factors and concluded that the Acquisition provided KAZ Minerals Shareholders with a fair value for KAZ Minerals’ operating assets and development portfolio in Kazakhstan and Kyrgyzstan, whilst crystallising a value for the Baimskaya project which reflected the Independent Committee’s view of the increasing risks of the project.

Subsequent to that announcement, there have been a number of significant developments that have affected KAZ Minerals specifically, as well as its copper mining peer group. The London Metal Exchange copper price has increased by 14 per cent since 26 October 2020 and medium-term analyst price expectations for copper have also been revised upwards, resulting in stronger forecast cash flows for KAZ Minerals. The share prices of other copper-focused companies have also risen over the same period, reflecting this improved outlook.

In light of this, the Independent Committee notified Bidco that, if the improved market conditions persisted, it would expect to withdraw its recommendation of the Acquisition unless a higher price was forthcoming at a level that it felt reflected an appropriate value for KAZ Minerals Shareholders, and engaged in extensive discussions with Bidco regarding an improved offer. Following this engagement, Bidco made a revised proposal to the Independent Committee regarding a potential improved cash offer of 730 pence per share, which after careful consideration the Independent Committee rejected on the grounds that it undervalued the company. Following this, on 30 January 2021, Bidco put forward a further increased proposal of 780 pence per share in cash.

The Increased Offer Price represents:

• an increase of 140 pence per share over the Original Offer, representing an increase of approximately 22 per cent and a total value increase of £403 million for KAZ Minerals Shareholders;
• a premium of approximately 37 per cent to the Closing Price of 570.8 pence per KAZ Minerals Share on 27 October 2020 (being the last Business Day prior to the date of the 2.7 Announcement); and
• a premium of approximately 54 per cent to the volume-weighted average price of 505.8 pence per KAZ Minerals Share for the six-month period ended 27 October 2020 (being the last Business Day prior to the date of the 2.7 Announcement).

The Independent Committee believes the Increased Offer Price:

• fairly compensates KAZ Minerals Shareholders for the increased cash flows generated since 27 October 2020 and the current improved prospects for the KAZ Minerals Group;
• represents a fair value for KAZ Minerals’ operating assets and development portfolio, on a fundamental basis using KAZ Minerals’ internal model, whilst reflecting the risks in the development of the Baimskaya project, including the increase of the estimated capital construction budget to close to $8 billion, as announced on 18 November 2020; and
• ensures that an offer is put to KAZ Minerals Shareholders at a price significantly greater than 640 pence per KAZ Minerals Share and provides KAZ Minerals Shareholders with the opportunity to realise their investments in KAZ Minerals at a premium in cash.

In coming to its recommendation, the Independent Committee’s view on the fundamental valuation of KAZ Minerals has taken account of the benefits of increased market consensus copper prices over the short and medium term. It has also taken account of the current market consensus on the long-term price of copper that, whilst higher than at the date of the 2.7 Announcement, is lower than the current spot price, which has fluctuated significantly. Given the impact of commodity prices, the Independent Committee notes that, if a KAZ Minerals Shareholder has a materially different view of long-term commodity prices than the current market consensus, the Increased Offer Price may be viewed differently by that shareholder.

The Independent Committee, which has been so advised by Citigroup and UBS as to the financial terms of the Increased Offer, considers the terms of the Increased Offer to be fair and reasonable. In providing their advice to the Independent Committee, Citigroup and UBS have taken into account the commercial assessments of the Independent Committee.

Accordingly, the Independent Committee, having carefully considered the Increased Offer and engaged with a number of KAZ Minerals Shareholders, has concluded that it will unanimously recommend the Increased Offer to KAZ Minerals Shareholders.

4. Irrevocable Undertakings

As previously disclosed, Bidco obtained irrevocable undertakings to accept, or procure acceptance of, the Original Offer in respect of 50,241,049 KAZ Minerals Shares in aggregate, representing approximately 10.63 per cent. of the existing issued share capital (excluding shares held in treasury) of KAZ Minerals on 3 February 2020, being the last Business Day prior to the date of this announcement and the aggregate of those KAZ Minerals Shares and the KAZ Minerals Shares in which the Consortium is already interested (as further described in paragraph 5 of the Switch Announcement), represents approximately 50.02 per cent. of the existing issued share capital (excluding shares held in treasury) of KAZ Minerals as of the above date. Each of these irrevocable undertakings remain binding and continue to apply in respect of the Increased Offer.

Further details of these irrevocable undertakings are set out in paragraph 3 and Appendix 2 of the Switch Announcement.

5. Financing

The Increased Offer Price payable to KAZ Minerals Shareholders by Bidco pursuant to the terms of the Acquisition will be financed with the proceeds of the VTB Facility Agreement, as amended and restated pursuant to an amendment and restatement agreement dated 4 February 2021 between, amongst others, Bidco, Holdco and VTB Bank (the “VTB Amendment and Restatement Agreement“), to reflect the Increased Offer Price. Further details in respect of the VTB Facility Agreement will be set out in the Offer Document.

VTB Capital is satisfied that sufficient resources are available to Bidco to satisfy in full the consideration payable to KAZ Minerals Shareholders under the terms of the Acquisition.

6. Conditions to the Acquisition

The Increased Offer is conditional on, among other things, receipt of certain regulatory approvals and antitrust clearances. The terms and conditions of the Increased Offer are set out in Appendix 1 to the Switch Announcement and will be set out in full in the Offer Document.

As announced on 11 January 2021, significant progress has been made in respect of the satisfaction of the Regulatory Conditions since the date of the Switch Announcement, with Bidco having received, prior to release of this announcement:

• clearance from the State Administration for Market Regulation of the PRC, confirming that it will not conduct a further review of the Acquisition and approving the implementation of the Acquisition;
• clearance from the Ministry of Industry and Infrastructure Development of the Republic of Kazakhstan permitting the Acquisition and the transfer of subsoil use rights related objects pursuant to the Kazakh Subsoil Code to Bidco; and
• a decision from the Prime Minister of the Kyrgyz Republic confirming that the Government of the Kyrgyz Republic waives its pre-emption rights in relation to the Acquisition, pursuant to the Law of Kyrgyzstan on Strategic Assets.

Accordingly, the Conditions set out in paragraphs 1(b), (g) and (h) of Part A of Appendix 1 of the Switch Announcement have each been satisfied.

The Acquisition remains conditional on the satisfaction of the acceptance condition and the remaining Conditions set out in Appendix 1 of the Switch Announcement.

7. Timetable and Action to be taken by KAZ Minerals Shareholders

Full details of the procedure for acceptance of the Increased Offer will be set out in the Offer Document and in the Form of Acceptance accompanying the Offer Document.

It is anticipated that Bidco will post the Offer Document to KAZ Minerals Shareholders on 8 February 2021 (or such later date as may be agreed between KAZ Minerals and Bidco, subject to the consent of the Panel). The Panel and KAZ Minerals have consented to this timing.

Bidco and KAZ Minerals continue to expect that the Acquisition will become Effective in the first half of 2021.

Further details of the expected timetable will be set out in the Offer Document.

8. General

This announcement should be read in conjunction with the full text of the Switch Announcement and, in due course, the Offer Document.

Each of VTB Capital, Citigroup and UBS has given and not withdrawn its consent to the publication of this announcement with the inclusion herein of the references to its name in the form and context in which they appear. VTB Capital is acting as financial adviser to Bidco for the purposes of the Acquisition.

The Appendix to this announcement contains the sources and bases of certain information contained in this announcement.

9. Documents available on website

Copies of the following documents are available, or will be made available promptly and by no later than 12 noon (London time) on the Business Day following this announcement, on both Bidco’s website at http://www.novaresourcesbv.com/Announcements.html and on KAZ Minerals’ website at https://www.kazminerals.com/investors/announcement/details/, subject to certain restrictions relating to persons resident in Restricted Jurisdictions, until the end of the Acquisition:

(a)       this announcement;

(b)       the 2.7 Announcement;

(c)       the Switch Announcement;

(d)       the irrevocable undertakings referenced in paragraph 4 of this announcement;

(e)       the Confidentiality Agreement;

(f)        the Cooperation Agreement;

(g)       the Shareholders Agreement;

(h)       the Bid Conduct Agreement;

(i)        the Share Exchange Agreement;

(j)        the VTB Facility Agreement;

(k)       the VTB Amendment and Restatement Agreement; and

(l)        the VTB Facility Agreement Consent Letter.

For the avoidance of doubt, the contents of the websites referred to in this announcement are not incorporated into and do not form part of this announcement.

Enquiries

Clifford Chance LLP is acting as legal adviser to Holdco and Bidco.

Linklaters LLP is acting as legal adviser to KAZ Minerals.

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