Annual Report

KazakhGold Group Ltd
02 July 2007





For immediate release                                               29 June 2007



             Preliminary results for the year to 31 December 2006



Highlights

• Annual gold production at Kazakhaltyn, the principal operating
  subsidiary, increased by 172 per cent to 218,164oz

• Development of an accelerated investment plan covering the Group's
  main mines

• Preliminary work to reclassify certain ore reserves and resources at
  Aksu, Bestobe and Zholymbet, to the JORC standard, has confirmed a world-class
  asset base

• Initiation of a significant exploration programme, covering the
  Group's main assets

• Further progress with the conversion of ore resources to reserves at
  Aksu, Bestobe and Zholymbet - the principal mines

• A successful US$200 million Eurobond issue

• First investment in assets outside Kazakhstan - joint venture formed
  with Oxus Gold plc to acquire the Transgold plant and deposits in Romania

• Increased liquidity for the Group's shares - the free float is raised
  by 11.5 per cent to 40 per cent.


                                                              2006                                  2005
                                             (year to 31 December)             (14 weeks to 31 December)
Revenues (US$'000)                                         109,433                                20,357
Operating profit/(loss) (US$'000)                           33,078                                 (713)
Pre-tax profit/(loss) (US$'000)                             31,278                               (1,083)
EBITDA (US$'000)                                            42,201                                   698
Earnings/(loss) per share ($) -                               0.40                                (0.05)
Basic and diluted
Net assets (US$'000)                                       654,761                               608,110
Gold production (oz)                                       218,164                                52,691
Kazakhaltyn direct cash production                             228                                   210
cost (US$ per contained oz)
Average achieved sales price (US$                              560                                   448
per contained oz)



Commenting on KazakhGold Group's preliminary results, Executive Chairman, Dr
Kanat Assaubayev said:



'I am delighted to say that during the year we made progress towards our mission
of becoming the largest regional gold producer in Eastern Europe and the CIS
countries. 2006 was a very active year for the Group, during which we increased
our gold production by 172 per cent and developed an accelerated investment
plan. We also continued with further exploration at our properties and in
November 2006, KazakhGold made its first investment in gold assets outside
Kazakhstan - in Romania.'



Further Information:


Aidar Assaubayev                                  Sanzhar Assaubayev
Executive Vice Chairman                           General Manager, London Office
KazakhGold Group Limited                          KazakhGold Group Limited
Tel: [phone]                           Tel: [phone]
www.kazakhgold.com







CHAIRMAN'S STATEMENT

This is my first report to you as Executive Chairman, so I am delighted to say
that during the year we made real progress towards fulfilling our mission of
becoming the largest regional gold producer in Eastern Europe and the CIS
countries. It was also our first full year of operations, following KazakhGold's
Initial Public Offering (IPO) and the listing in 2005 of KazakhGold's global
depositary receipts on the London Stock Exchange.

2006 was a very active year for the Group, during which we increased production
significantly and continued with further exploration at our properties. In
October, we completed a US$200 million Eurobond issue that generated significant
interest from investors and improved our cost of capital significantly. The bond
issue has provided important additional resources to fund our growth plans.

Strategy in action

With significant gold reserves and resources in Kazakhstan, our strategy focuses
on raising output substantially at Aksu, Bestobe and Zholymbet. To exploit the
full potential of these mines, more rapidly than envisaged at the time of our
IPO, we developed an accelerated investment plan during the year. The plan is
now being extended to our other properties.



In 2006 Wardell Armstrong International was engaged to re-classify certain
reserves and resources at our three main operating mines to the JORC standard.
This will improve the quality of our reserve estimates and promote greater
international understanding of the opportunity that KazakhGold represents. The
results of the preliminary JORC evaluation work conducted in 2006 have confirmed
a world-class asset base at Aksu, Bestobe and Zholymbet.



We aim to increase the share of ore treated by carbon-in-pulp (CIP) processing,
and raise our total annualised processing capacity to over 14 million tonnes by
2011. The CIP processing technology is expected to improve gold recovery rates,
lead to more stable cash flows and a significant reduction in our average per
ounce cash production costs.



In November 2006, we made our first investment in gold assets outside
Kazakhstan. This followed a successful bid with Oxus Gold for the Transgold
plant and related assets in Romania. While this represents an exciting
opportunity for us, with the potential for high returns, the Group's management
focus remains firmly on our three main operating mines in Northern Kazakhstan.



Results and dividend

In the year to 31 December 2006 our main operating subsidiary, Kazakhaltyn,
produced 218,164oz of gold. This was an increase of 172 per cent over the
previous period. Total revenue for the year was US$109.4 million, with a profit
before tax of US$31.3 million.



During the year the Group continued to upgrade and invest in its plant and
machinery and mining structure. This has resulted in a short-term increase in
production costs as abnormal expenditure is incurred both in phasing out old
plant, and as production is established using the new equipment. As the new
plant comes on stream, the resultant production volumes will improve
significantly over time, and will help to meet the Group's target of becoming a
low cost producer.



As stated at the time of our IPO in 2005, the Board does not propose the payment
of shareholder dividends until our plant modernisation programme is completed,
and our facilities reach their designed output capacity. Thereafter, and subject
to the Group's performance, we plan to commence paying dividends progressively.



In July, the free float of the Group's shares increased by 11.5 per cent to 40
per cent. This followed the sale by Gold Lion Limited (Gold Lion) of secondary
shares in the form of Global Depositary Receipts. Gold Lion, of which the sole
beneficiaries are my family, has confirmed to the Group that it intends to
retain a majority shareholding in KazakhGold.



Board reorganisation

Since the Group's IPO, it became clear to the Board that the role of Chairman
involves substantial day-to-day executive duties. These include operational
oversight of mining activities and ongoing negotiations with government
authorities. These functions necessarily require a full-time presence at our
operational headquarters in Stepnogorsk, Kazakhstan.  The Board considered that
a full-time Executive Chairman would be able to represent the interests of
KazakhGold shareholders more effectively in this regard. As a result, in March
2007, Peter Daresbury agreed to step down as the Group's Non-Executive Chairman.
At this time, I assumed the role of Executive Chairman. Subsequently, in June
2007, Peter resigned from the Board. Peter's leadership, support and guidance
have proved invaluable during the Group's post IPO development.



In March 2007, we were delighted to welcome Darryl Norton to the Board as an
Executive Director and Joint Managing Director. He has since been appointed
Chief Operating Officer, based in Stepnogorsk, where his main focus is
production at our principal operating mines. Darryl brings to the role over 24
years' experience in the engineering and mining industry. He joined us from Oxus
Gold, the AIM-quoted Central Asian mining company, where he was an Executive
Director. In addition, Sanzhar Assaubayev has been appointed as an Executive
Director, with responsibility for managing our London office. William Trew has
also joined the Board as a Non-Executive Director.



With immediate effect, the following changes have been approved by the Board.
Aidar Assaubayev, formerly Deputy Chief Executive of the Group, becomes the
Company's Executive Vice Chairman. Baurzhan Assaubayev, formerly First Deputy
Chief Executive Officer, becomes Joint Managing Director, Internal Affairs &
Government Relations. Marussya Assaubayeva, formerly Deputy Chief Executive
Officer - Health, Safety, Environment and HR, becomes Director, Human Resources
& Corporate Affairs.



Management and people

After the year end, we appointed Stephen Westhead as our Chief Geologist and
Project Manager, and Geoff McLoughlin as Chief Metallurgist. Both individuals
are highly experienced and are based in Kazakhstan. They joined us from Oxus
Gold, where they held similar positions. The Group is building a highly
effective international management team at Kazakhaltyn's headquarters in
Stepnogorsk. The team combines extensive local knowledge and skills with proven
international mining expertise. The new team will present its operational
growth, development and modernisation plans to shareholders later in 2007.



Our achievements over the past year, in what was a period of change and
development, would not have been possible without the skills and ongoing
dedication of everyone in the Group. On behalf of the Board, I thank all
employees for their continued support.



Outlook

Wardell Armstrong aims to continue the re-classification of our main mines in
2007. We believe there is real potential for a classification upgrade of our
resources, with a significant proportion of the Group's gold contained within
designated open pit mining zones at each deposit.



Further investment in our properties is intended, to develop their full
potential and grow our production volume in Kazakhstan and elsewhere. We plan to
commence production in our recently acquired Romanian properties during the
second half of 2007. We also intend to pursue the procurement of a licence to
recommence production at the properties acquired from Oxus Gold plc in
Kyrgyzstan. If we are successful, this will offer considerable upside potential
to our gold production.



The US Dollar in which gold is priced, remains comparatively weak especially
when compared with the Kazakh Tenge, in which many of our costs are denominated.
The Tenge has continued to appreciate due to the relative strength of the Kazakh
economy. However, the negative impact of this on our profits, of US$0.82
million, has been offset by a gold price that appreciated some 15 per cent in US
Dollar terms during 2006. Overall, the outlook for gold prices remains positive,
supported by continued demand from investors seeking to diversify their holdings
to alternative asset classes such as gold.



In general, economic conditions in Kazakhstan remain very favourable. The
business sector is increasingly viewed as integral to the country's ongoing
growth and prosperity. Supported by a booming petroleum industry, Kazakhstan's
gross domestic product has grown by almost 10 per cent annually since 2000.
Further strong economic growth is anticipated, as global demand for the
country's primary resources remains firm. Against this positive background,
Kazakhstan's President Nursultan Nazarbayev provides both the political
continuity and stability for companies such as KazakhGold to invest, develop and
create employment.



With a strong and developing asset base, an experienced international management
team, sound financing and the recently announced acquisitions, KazakhGold can
face the future with confidence.



OPERATIONAL REVIEW


                      Production Summary for 12 months ended 31 December 2006
Mining
                                  Ore Mined                 Grade                      Gold Content
Aksu                          2.247m tonnes               1.66g/t                    119,923 ounces
Bestobe                       1.302m tonnes               2.09g/t                     87,488 ounces
Zholymbet                     0.686m tonnes               2.35g/t                     51,830 ounces
Totals                         4.23m tonnes               1.90g/t                    259,241 ounces
                                                                                         Processing
                                Ore Treated                 Grade                 */**Gold Produced
Aksu                           1.76m tonnes               2.13g/t                    105,412 ounces
Bestobe                       0.061m tonnes               7.76g/t                     14,016 ounces
Zholymbet                      2.86m tonnes               1.66g/t                     98,736 ounces
Totals                         4.68m tonnes               1.92g/t                    218,164 ounces

*Total production includes a small amount of gold recovered from quartz ore and
other sources.

** The gold produced includes recovery factor.

The Group produced 218,164oz of gold in the 12 months ended 31 December 2006,
the company's first full year as a listed London company. Gold production at
Kazakhaltyn, KazakhGold's principal operating subsidiary, increased by 172 per
cent in 2006, from 80,069oz in the year to 31 December 2005 (52,691oz of gold
was produced in the 14 weeks to 31 December 2005).

At Aksu, Bestobe and Zholymbet, gold production was below expectations in the
final quarter of 2006, as a result of an unexpected period of extremely cold
weather in November and December. This had an adverse impact on the Group's heap
leaching operations at Aksu and Bestobe, although stockpiling of ore continued.
It is planned to avoid such disruption in the future by increasing the use of
more appropriate carbon-in-pulp processing at these mines.

Last year, the Group treated 4.68 million tonnes of ore with an average grade of
1.92 grammes/tonne of gold. 1.76 million tonnes of this total, with a grade of
2.13 grammes/tonne of gold were treated in the CIP plants. 2.86 million tonnes
with a grade of 1.66 gramme/tonne of gold were heap leached, while 61,000 tonnes
of ore with a grade of 7.76 grammes/tonne of gold were processed in Bestobe's
flotation plant. The average gold recovery rate overall was 76 per cent.



Accelerated investment plan

KazakhGold has gold reserves and resources of 46.6 million oz, based on the
latest review in June 2005 and excluding new properties acquired in 2005 and
thereafter. With such reserves and resources, the Group has the opportunity and
capability to raise production levels even further from those anticipated at the
time of its IPO. With this in mind, an accelerated investment plan was prepared
in 2006. This is expected to significantly increase the long-term production
target of the Group.



The accelerated investment plan has a peak financing requirement of some US$120
million, which is being funded using part of the proceeds from the US$200
million Eurobond issue undertaken in 2006.



CIP processing technology has a number of distinct benefits for the Group. It
offers the possibility of gold recovery rates of over 90 per cent, compared with
some 60 per cent from heap leach processing. Under the accelerated investment
plan, the Group aims to be able to raise average recovery rates from 73 per cent
to 82 per cent. CIP processing also provides a more stable and predictable cash
flow, as heap leach technology loses its effectiveness at the low winter
temperatures experienced in Kazakhstan. CIP technology allows the processing of
both oxide and sulphide ores, and is ideally suited to regions such as Northern
Kazakhstan, where the three main mines are located.



While production should be increased significantly from 2009, the accelerated
investment plan does mean that production growth will be less dramatic in 2007
and 2008.



In 2006 the Group appointed MAED, an international firm of mining consultants,
as project managers for the construction of the new CIP plants. These new
facilities constitute the major part of the accelerated investment plan.



JORC reclassification of reserves and resources

During 2006 Wardell Armstrong International (WAI) was appointed to re-classify
certain ore reserves and resources at KazakhGold's three main operating gold
mines to the JORC standard. This follows the Group's stated aims at IPO to
reclassify its resources to the Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves ('JORC'). The Group's reserves and
resources of 46.6 million ounces are currently classified according to the
Former Soviet Union's 'Classification and Estimation Methods for Reserves and
Resources'.



The first stage of the work is the transfer of reserves (B and C1) at the major
operating mines of Aksu, Bestobe and Zholymbet to JORC.  The Group considers
that these reserves are the most suitable for rapid classification under JORC.



During the year WAI completed a preliminary JORC reconciliation study of the
Group's Soviet classified reserve statement. The initial results confirm a world
class asset base with significant potential for a resource classification
upgrade. WAI's preliminary study shows that the Group has an asset base with in
excess of seven million ounces of gold likely to be classified as either
Measured or Indicated. In addition, WAI estimates that a further eight million
ounces of gold are at the Inferred status, with a realistic likelihood of
upgrading to the Indicated category or better. Moreover, a significant
proportion of this gold lies within designated open pit zones at each of the
deposits.



In addition to this, the Group also holds nearly 22 million ounces of gold which
WAI designates as unclassified, due to the need to do further evaluation work.
However, as with the Inferred category, it is likely that a significant
proportion of this will eventually be classified as Indicated or better. An
additional 10 million ounces, currently remain as Soviet classified P1, until
further drilling and sampling is carried out to allow the conversion to the JORC
classification.



While WAI's reclassification work remains ongoing, it gave its initial
observations to KazakhGold in January 2007, stating:



'The preliminary analysis of the asset base has shown the company to have a
world class asset which through proper management will be continuously upgraded
and should yield long term benefit to the company.'



It is KazakhGold's strategy to aggressively continue its exploration and
evaluation programmes to upgrade resources to reserves, with the aim of
continuing to provide the gold ounces for mining, to meet its focused objective
to become a one million ounce per annum gold company.



In the future, WAI will work with KazakhGold's senior technical personnel to
plan and monitor ongoing exploration programmes within its project portfolio;
ensuring the optimisation and classification of reserves and resources. This
portfolio comprises nine properties acquired in Kazakhstan during 2005, as well
as properties in Romania added in 2007, together with additional properties to
be acquired as part of the continuing investment programme.



Ore processing

During the year, technical upgrading work was undertaken at all the mines,
including the overhaul of crushing and milling equipment and upgrading and
re-equipping of the shafts. This should aid the optimisation of production
costs.



In Eastern Kazakhstan, however, we commissioned a new heap leaching facility at
Kaskabulakskoe ahead of schedule. We expect production at the mine to commence
during the second half of 2007.



For part of the year, the performance of recently installed high-pressure
electro winning vessels was sub-optimal. Representatives from the manufacturers
in China have worked with us to resolve matters, in order to achieve the
designed specification of the equipment. This issue has been satisfactorily
resolved and as a result, the Group expects output of higher margin cathodic
gold to resume in 2007.



Cost competitiveness

In the year to 31 December 2006, Kazakhaltyn produced gold at a direct cash cost
of production of US$228 per contained ounce. This was in line with the
equivalent cost at the end of 2005, although higher than the US$180/oz achieved
for the six months to 30 June 2006. The reason for this short-term increase in
production costs is referred to in the Chairman's statement.



Overall, however, KazakhGold benefits from a number of distinct cost advantages,
these include:

•  Conveniently located assets

•  Quality reserves, amenable to low-cost mining techniques

•  On-site processing facilities

•  Competitive labour and electricity costs

•  Modest royalty payments

•  Local currency stability - which is important, as operating costs are
   largely denominated in Tenge.



Priorities

As a result of the Oxus Gold transaction, the Group has been able to strengthen
its senior management team in 2007, as noted in the Chairman's statement. The
new team will present its operational growth, development and modernisation
plans to shareholders in the second half of 2007.



OPERATING MINES



AKSU (Including Quartzite Hills)



Overview

The Aksu and adjacent Quartzite Hill mines are located in the Akmola region of
Northern Kazakhstan, 18 kilometres north of the city of Stepnogorsk.



Exploration at Aksu began in 1929, when gold deposits of a quartz-vein
mineralization type were discovered. There are currently four operating shafts;
one dedicated ventilation shaft and one open pit facility in operation at the
two mines. In addition, low-grade ore is processed from tailings in on-site
tailings dams and waste dumps. Until 2005, only underground mining and flotation
processing were performed at Aksu. Ore from Aksu is now processed using
flotation, CIP or heap leach technology.

Aksu is the location of a geological exploration unit that handles all of the
Group's internal exploration work.

Reserves and resources

Kazakhaltyn estimated that the Aksu mine, which includes the Aksu and nearby
Quartzite Hills deposits, had B and C1 gold reserves and C2 and P1 gold
resources of approximately 5.3 million ounces and 15.0 million ounces
respectively. Approximately one third of the reserves identified are
concentrated in the Vera zone. The ore body at Vera continues to the surface,
allowing the Group to develop large-scale open pit operations at Vera in the
future.



Production highlights and capital expenditure

In the 12 months to 31 December 2006, 2.25 million tonnes of ore were mined,
with an average grade of 1.66 grammes of gold per tonne and a gold content of
119,923oz. During the year 105,412oz of gold was produced.



Capital expenditure was US$33.6 million in 2006. This was used mainly for
construction of the new CIP plant and for the development of open pit mining.



Processing

Until 2005, all ore at Aksu was processed using the flotation method. Then,
after extensive testing, both heap leach and CIP processing were introduced in
2005. The new CIP facility at Aksu has the capacity to treat 1.0 million tonnes
of ore annually.



Priorities

In 2007, 48,500 metres of exploration core drilling is planned. The drilling
will focus on two zones, namely Kotenko and Vera, as well as structural profile
drilling. The drilling will provide data to increase the level of resource and
reserve estimation, and verify possible extensions to known mineralised zones. A
staged increase in underground production at Aksu will increase the quantity of
high grade ore delivered to the plant.



Construction of a new secondary grinding circuit, incorporating two new mills,
has commenced and is expected to be operational in the third quarter of 2007.
This will have the effect of increasing the production capability of the plant,
as well as improving the grind size of the ore - leading to an improvement of
heap leaching efficiency.







Oxygen shear reactors are planned to be installed into the existing heap leach
circuit in the second half of 2007, which will improve gold recovery at the
operation. This will also allow the one million tonnes/per annum leach circuit
to operate more efficiently. Operating costs are expected to decline due to
reduced cyanide addition rates.



To release value from the old tailings deposited by the previous flotation
plant, a new two million tonnes/per annum slimes re-treatment plant is planned
to be constructed. This is expected to be operational at the start of 2009. The
tailings treatment plant will operate until the end of the second quarter 2011,
during which time additional equipment will be added for the eventual conversion
to a four million tonnes/per annum ore treatment plant to commence operations in
the second half of 2011.



BESTOBE



Overview

Located 80km northeast of Stepnogorsk, most of the exploration work at Bestobe
was undertaken in the 1950s. Over 380 quartz veins have been identified at the
mine of which some 285 are considered suitable for mining.



There are four underground mining locations, a dedicated ventilation shaft and
one open pit mine. Low-grade ore is contained in on-site tailings dams and waste
dumps. Until 2005, only underground mining and flotation processing were
undertaken at Bestobe.



After the year end, it was decided to cancel the joint-venture agreement with
China National Gold Corporation. The Bestobe operation has now been fully
brought back under the management of the Kazakhaltyn executive team.



Reserves and resources

According to Kazakhaltyn's estimates, Bestobe had B and C1 gold reserves and C2
and P1 gold resources under the FSU Classification of approximately 3.0 million
oz and 10.2 million oz respectively.



Production highlights and capital expenditure

In the 12 months to 31 December 2006, 1.3 million tonnes of ore were mined, with
an average grade of 2.09 grammes of gold per tonne and a gold content of
87,488oz. During the year 14,016oz of gold were produced.



Capital expenditure in 2006 was US$271,000. This was primarily for the
development of open pit mining activity at Bestobe.



Processing

The original processing plant at Bestobe was constructed in 1932. Unlike the
Aksu and Zholymbet deposits, a significant proportion of the gold can be
recovered using gravity concentration. The plant currently treats both
underground ore and some oxidised material using gravity and flotation
technologies. Gold recovered from the gravity circuit is amalgamated to produce
gravity concentrate, whilst gold bearing flotation concentrate is also produced.



Priorities

During 2007, 15,000 metres of exploration drilling is planned. This drilling
will focus on three known zones of mineralisation, to define future open pit
mining potential. This will provide the basis for a larger future programme, to
be defined.



Plant

Due to the age of the existing milling units at Bestobe, the operational
availability is low. Maintenance expenditure has reached levels where it is
financially prudent to introduce new equipment into the circuit.



The investment plan involves the installation of a new mill during the last
quarter of 2007, coupled with an efficient gravity concentration circuit. It is
expected that the tonnage treated will rise to 10,000 tonnes per month in the
final quarter of 2007.



A second mill is likely to be installed during the first half of 2008, which
will increase the throughput to 20,000 tonnes per month. The addition of
multi-stage milling in 2010 can potentially double this again to 40,000 tonnes
per month. The new gravity circuits that will be installed will not only
maximize the overall recovery to concentrate but will improve the security and
safety around the milling units. Modern reactor cells, which will increase the
recovery of gold from the concentrate, will also be introduced in 2008.





A new plant to treat the tailings produced from the flotation plant will be
constructed, and is expected to be operational in the third quarter of 2008. The
plant will be designed to treat two million tonnes/per annum of ore. The
tailings treatment plant will operate until mid 2010, during which time
additional equipment will be added for the eventual conversion to a four million
tonnes/per annum ore treatment plant.



Heap leaching

The investment plan will increase the production output with the introduction of
a second crushing plant. It is expected that the throughput will be increased
enabling a stacking rate of 1.5 million tonnes/per annum by the final quarter of
2007.



Improvements to the solution application circuit are being introduced, to
maximize the recovery of gold during the winter months. The heap leach facility
will operate until mid 2010, when the new Bestobe four million tonnes/per annum
plant mentioned previously will take over this production, giving higher gold
recovery rates.



ZHOLYMBET



Overview

Zholymbet is located 100km south of Stepnogorsk and saw most of the exploration
work carried out in the 1930s. There are four underground mine operations as
well as a dedicated ventilation shaft. Low-grade ore is contained in on-site
tailings dams and waste dumps.



Reserves and resources

Kazakhaltyn estimated that the Zholymbet mine had B and C1 gold reserves and C2
and P1 gold resources of approximately 4.2 million ounces and 8.2 million ounces
respectively. The deposit includes a silicified zone extending 2.5 kilometres
and up to 80 metres wide. The underground ore is the Group's highest-grade
reserve, with a gold content of 21.15 grammes/tonne.



Production highlights and capital expenditure

In the 12 months to 31 December 2006, 685,964 tonnes of ore were mined, with an
average grade of 2.35 grammes of gold per tonne and a gold content of 51,830oz.
During the year 98,736oz of gold were produced.



Capital expenditure in 2006 was US$6.2 million. The majority of this was used
for construction of the new CIP plant and the development of open pit mining.



Processing

Until 2005 only underground mining and flotation processing were performed at
Zholymbet. The original processing plant was designed to treat sulphide ores
using gravity and flotation technologies. As part of the Group's modernisation
programme, the flotation sections were removed and the plant was modified to
treat tailings. A newly constructed CIP plant began operations in 2005, with an
annual throughput capacity of approximately 0.5 million tonnes. The new CIP
facility at Zholymbet is designed to treat 0.5 million tonnes of ore annually.



Priorities

Construction started on the production expansion project in the first quarter of
2007. An extensive exploration programme is planned for 2007, including drilling
and trenching. This programme will be carried out in two main areas, initially
in the silicified zone of Zholymbet and then in other targets of Southern
Zholymbet. Both targets are areas of known mineralisation. The aim is to define
the limits of future open pit areas, to allow the planning of detailed infill
drilling in the future.

Construction of a new secondary grinding circuit has commenced and it is
expected to be operational in the third quarter of 2007. This addition to the
milling circuit will not only increase the production capability of the plant
but it will also improve the grind size of the ore, leading to an improvement in
leaching efficiency. Capital investment underground at Zholymbet will increase
the amount of high-grade ore available for treatment in the plant, by the end of
the second quarter of 2008.



The introduction of oxygen shear reactors into the heap leach/CIP circuit in the
second half of 2007 will improve the reaction kinetics of the leach, and
increase the gold recovery of the operation. In addition to this, it is expected
that operating costs will improve due to a reduced cyanide addition rate.



As with Bestobe, a new plant to treat the old tailings produced from the
previous flotation plant will be constructed and will also be operational in the
third quarter of 2008. The plant will be designed to treat two million tonnes/
per annum. The tailings treatment plant will operate until mid 2011, during
which time additional equipment will be added for the eventual conversion to a
four million tonnes/per annum ore treatment plant, to commence operations in the
third quarter 2011.





KASKABULAKSKOE

Kaskabulakskoe (491 km2) is in Eastern Kazakhstan and was one of five licences
awarded to Kazakhaltyn in December 2005. Trial open pit mining commenced in
2006, ahead of the Group's planned production schedule, although no gold was
produced during the year. Stacking on the new heap leach pads will begin in
2007, while the first gold production will follow in the second half of the
year.



Previous exploration work has indicated significant resource potential. Since
the year-end a preliminary programme of exploration was started. Work has
progressed towards submission of the FSU classified resources and reserves to
the State Commission on Reserves and Resources, following completion and
agreement of the exploration contract.



EXPLORATION AND DEVELOPMENT PROPERTIES



AKZHAL

A subsoil contract with the Kazakh Government to operate at the deposit is in
place. Work has progressed towards submission of the FSU classified reserves and
resources to the State Commission on Reserves and Resources in 2007. The
crushing equipment required for the operation is expected to be delivered to
allow production to commence in the second half of 2007.



BOLDYKOL & ZHANAN

The Boldykol and Zhanan mines are in Eastern Kazakhstan and were acquired in
2005. The Group also acquired the corresponding mineral rights and other assets
in Semipalatinsk and Ust-Kamenogorsk. The assets were previously owned by JSC
Altyn Tobe and were acquired from JSC Kazkommertsbank, through a tender process,
following a loan default by Altyn Tobe. The reserves and resources for these
deposits are approved by the State Commission on Reserves and Resources.



SOUTHERN KARAULTUBE & KYZYLSORSKOE

Southern Karaultube (9.3 km2) and Kyzylsorskoe (60km2) are both located in the
Akmola region of Northern Kazakhstan, near the Group's existing mining
operations. They can both be explored and developed efficiently by KazakhGold
and were historically part of Kazakhaltyn, with the results of earlier
exploration work from the 1980s still available.



The sub-soil user contract with the Kazakh Government to operate at the deposit
has been completed and will be submitted in mid 2007. Work has progressed
towards submission of the exploration work programme to the State Geology
Commission, after completion and approval of the contract, following the review
of all previous exploration data. Drilling and trenching exploration work is
planned on Yuzhny (Southern) Karaultube during 2007.



Kyzylsorskoe is located between the Group's Aksu and Bestobe deposits. Gold
veins occur above copper-molybdenum mineralisation, in both the bedrock and
weathered overburden. Work on the Kyzylsorskoe deposit has consisted of planning
work programmes, based on the assessment of previous work and preparation for
contract submission. On submission and approval of the contract with the
Government, work must commence according to the approved programme within 30
days.



PRIDOROJNOE

Pridorojnoe (390 km2) is in Eastern Kazakhstan, close to the four deposits
acquired by Kazakhaltyn in July 2005. Registration of the necessary legal
documents was completed in 2006, and prospecting work commenced during 2006.
This followed the development of a detailed programme for the geological
investigation of the deposits.



VASILEVSKYI

Rudnik Vasilevskyi has the rights to the Vasilevskyi mine in Eastern Kazakhstan,
which is an exploration property with no current gold production. Resources have
been explored to a depth of 150 metres in zones up to 20 metres wide, with the
oxide zone extending to 20-25 metres in depth. Mineralisation is known to extend
to a depth of 550 metres, based on previous exploration. It is the intention of
the Group to assess the geological and exploration data, to prepare a work
programme to upgrade the resources.



ZONES 1 & 2 of AKSHATU

Zones 1 & 2 of the Akshatu MMC deposit (56.6 km2) are located in the Karaganda
region of Central Kazakhstan. This project is currently under review by the
Group. Documentation relating to the proposed work programmes is under
consideration by the Geology authorities, along with a contract to operate the
deposit, which has been prepared and submitted for review. Zones have been
sampled during field mapping and assays up to 10g/tonne have been determined. In
general, Zones 1 & 2 have ore with a gold content of 1.5-3.1g/tonne, and from
5-10g/tonne in iron-stained quartz zones.



RECENT ACQUISITIONS

In November 2006 the Group announced that, together with Oxus Gold plc, it had
successfully bid US$6.99 million in open auction for the Transgold plant and
deposits in Romania, that were put into liquidation in April 2005. A 50-50 joint
venture, Romaltyn Limited, was formed to own and operate the assets. As at the
2006 year end, only an advance payment had been made for these Romanian assets,
and they are not included in the Group's balance sheet.



The Romaltyn assets include a gold recovery plant in Romania, its own tailings
and stockpiles and a number of gold exploration licences. The plant was
constructed by Lycopodium of Australia, in order to treat 2.5 million tonnes of
tailings annually. The plant is expected to resume production in 2007, following
refurbishment and receipt of the appropriate permits. Overall, the project
offers the potential to generate a rapid return on investment. It also provides
an opportunity for exploration and development of additional resources in the
area.



The assets include a 2.5 million tonnes/annum capacity gold treatment plant,
formerly operated by Transgold, as well as a 50-50 joint venture company between
Eurogold and Remin, the Romanian state mining company. The plant, located on the
outskirts of the town of Baia Mare, ceased operation in 2005 when the tailings
line froze and insufficient funds were available to rectify the problem.



Other assets acquired by Romaltyn were the 8.5 million tonnes central tailings
dump, located 7.8 km from the plant, together with stockpiled gold-bearing
pyrite resources and several exploration tenements, including Sophia and June
11, over which 12-month exploration licenses should be re-instated.



Following the initial investment in Romaltyn Limited, the Group took the
opportunity to acquire the outstanding 50 per cent of the Romaltyn joint venture
from Oxus Gold plc, in a transaction that was completed in May 2007.



Priorities

It is expected that Romaltyn management will obtain the integrated environmental
permits required to commence operations by the final quarter 2007. The design
and construction of the slurry and decant water cyanide detoxification plants
has commenced and the plant refurbishment is ongoing.



Romaltyn is expected to reach full production in 2008.



Additional acquisitions from Oxus Gold plc

In May 2007, the Group also acquired additional assets from Oxus Gold plc,
comprising interests in Kyrgyzstan and Turkey (see below). In payment for the
acquisition of these assets, and the outstanding 50 per cent in the Romaltyn
joint venture (see above), KazakhGold has issued 3,541,666 new shares to Oxus
Gold plc. This represents approximately seven per cent of KazakhGold's enlarged
share capital.



Kyrgyzstan

The Group has acquired 100 per cent of Norox Mining Company Limited, which owns
66.67 per cent of the Talas Gold Mining Company. Oxus Gold has invested
approximately US$63 million on the Jerooy gold project at Talas. This included
the construction of a processing plant that is almost complete, and associated
mining equipment. The Jerooy project contains some 3.2 million ounces of gold
classified as either: Measured; Indicated or Inferred according to JORC. A
further 250,000 ounces are unclassified exploration results. The right to
develop the project is currently the subject of a legal dispute between Oxus
Gold and the Kyrgyz government. If the Group obtains the rights to develop the
project, it is anticipated that production at an annual rate of 180,000oz could
be achieved within a year of commencing production. Construction at the project
will commence upon the granting to the Group of the mining license. Currently,
the project has been targeted for production in the second quarter of 2008.



Turkey

KazakhGold acquired an option over the Karakilise copper deposit licence in
Turkey, previously owned by Oxus Gold plc's subsidiary Marakand Minerals
Limited.



SALES

In 2006 the Group's strategy has been to maintain the broad range of products
sold whilst embarking on its major capital investment programme. The Group will
focus on increasing the output of higher-margin gold products, such as cathodic
gold and gold dore. This means a reduction in the quantity produced of cathodic
sludge, flotation and gravity concentrates as well as quartzite ore.



During 2006, 218,164oz of gold were produced and 195,328oz were sold at an
average sales price of US$560 per contained ounce. The Group's principal
customers in 2006 were in Dubai and Switzerland.





HEALTH, SAFETY & ENVIRONMENT

KazakhGold is committed to conducting its business activities in a manner that
provides a safe and healthy workplace for all employees. Equally, the Group
strives to limit the impact of its activities on the environment and the
communities surrounding its operations. This commitment is backed by a policy
designed to protect and develop employees, the community and the environment.



With large numbers of employees engaged at its facilities, KazakhGold regards
their continuing health and safety as being of the utmost importance. All
employees engaged in operations receive mandatory safety training, and are
encouraged to pursue a healthy balanced lifestyle. Through its main operating
subsidiary, Kazakhaltyn, the Group ensures compliance not only with Kazakh
health and safety law but it also seeks to move towards best international
practice. During 2006, there were no fatalities at the Group's operations.



In 2006, Kazakhaltyn made charitable donations of US$195,000 (2005: US$ 21,300)
to a range of organisations and individuals in Kazakhstan, with the
beneficiaries including orphans and the elderly.



FINANCIAL REVIEW

The year to 31 December 2006 was the Group's first full year of operations since
its IPO in 2005. The financial statements include, as comparatives, the fourteen
week period from 26 September to 31 December 2005. The accounts have been
prepared in accordance with International Financial Reporting Standards (IFRS).



Revenue for the period was US$109.4 million with approximately 60 per cent of
sales being made to United Arab Emirates, 30 per cent split between Kyrgyzstan
and Switzerland, and the balance of sales being made to Kazakhstan and Russia.
The cost of sales was US$54.7 million, producing a gross profit of US$54.7
million.  After allowing for other operating income and expenses, the Group had
an operating profit of US$33.1 million.



Interest charged to the consolidated income statement in the period, on the
Group's fixed rate bank debt and its floating rate bonds, was US$3.9 million.
However, this was offset by interest received of US$3.9 million. Profit before
tax was US$31.3 million and after deduction of tax of US$12.4 million, the
profit attributable to equity shareholders was US$18.9 million.



The Group's revenues are denominated in US dollars, while its costs are largely
in Kazakh Tenge, except for some equipment and a small number of consumables
purchased internationally. The Group has a general policy of not hedging against
foreign currency risk, in accordance with a policy of being an un-hedged
producer of gold. Further information on the management of the Group's financial
risk is contained in Note 32a of the financial statements.



For 2006, the direct cash cost of gold production for Kazakhaltyn was US$228 per
contained ounce. The average gold price achieved on sales made for the year was
US$560 per contained ounce.



The most significant impact on the Group's cash flow in 2006 was the proceeds
from the issue of senior loan notes and bonds. The Group's operations absorbed
US$13.4 million of cash in 2006, compared with cash generated of US$4.8 million
in the 14 weeks to 31 December 2005. This change, in part, reflected an increase
in the Group's gold inventory of 22,534oz during 2006. Capital expenditure
during 2006 was US$45.4 million. The Group had cash and cash equivalents of
US$204.7 million (2005: US$87.9 million) at 31 December 2006.



At the 2006 year end, KazakhGold had outstanding debt of US$222.1 million (2005:
US$ 46.6 million). This increase in debt reflects the US$200 million Eurobond
issue, which raised a net US$195.8 million after expenses. This 7-year bond was
issued at par, with a yield of 9.375 per cent to maturity. The additional debt
is being principally used to fund the Group's accelerated investment plan. The
Eurobond issue has brought about a significant reduction in the Group's cost of
capital.



Overall, the Group has appropriate financing in place to meet its commitments
and fund its plans over the foreseeable future.



Post balance sheet events

During 2007, in consideration for the acquisition of the assets from Oxus Gold
plc, KazakhGold issued 3,541,666 new shares to Oxus Gold plc, representing
approximately seven per cent of the enlarged share capital of KazakhGold
following this issue.















KazakhGold Group Limited

Consolidated financial statements for the period 1 January to 31 December 2006

Consolidated Income Statement                                         
                                                                      
                                                                      
                                               Year ended  Period 26  
                                                   31     September-31
                                                December    December  
                                                   2006        2005  
                                                 US$000       US$000   
                                                                      
Revenue                                         109,433       20,357  
                                                                      
Cost of sales                                   (54,692)     (14,863) 
                                                 --------    ---------
                                                                      
Gross profit                                     54,741        5,494  
                                                                      
Other operating                                                       
income                                            2,877        1,473  
Distribution                                                          
expenses                                         (4,148)         (86) 
Administrative                                                        
expenses                                        (15,692)      (6,954) 
Other operating                                                       
expenses                                         (4,700)        (640) 
                                                 --------    ---------
Operating                                                             
profit/(loss)                                    33,078         (713) 
                                                 --------    ---------
                                                                      
Financial income                                  3,860          277  
Financial expense                                (5,660)        (647) 
                                                 --------    ---------
Net financing                                                         
costs                                            (1,800)        (370) 
                                                 --------    ---------
                                                                      
Profit/(loss)                                                         
before tax                                       31,278       (1,083) 
                                                                      
Taxation                                        (12,420)      (1,090) 
                                                                      
                                                 --------    ---------
Profit/(loss) for                                                     
the year                                                              
attributable to                                                       
equity                                                                
shareholders                                     18,858       (2,173) 
                                                 --------    ---------
                                                                      
                                                                      
Basic and diluted                                                     
earnings/(loss)                                                       
per share                                         $0.40       $(0.05) 
                                                 --------    ---------
                                                                      
All amounts relate to continuing operations.                          

 

 
Consolidated Balance Sheet                       2006          2005  
                                                US$000       US$000    
                                                            Restated   
Non-current assets                                                     
Property, plant and equipment                    85,316        49,797  
Mining properties                               809,592       761,975  
Exploration and evaluation costs                    950         9,013  
Intangible assets                                   857         1,092  
Long-term inventory and ore stockpile             7,549             -  
Other financial assets                                2         1,713  
                                               ----------    ----------
                                                904,266       823,590  
                                               ----------    ----------
                                                                       
Current assets                                                         
Inventories                                      21,571         7,629  
Trade and other receivables                      93,716        20,112  
Cash and cash equivalents                       204,752        87,887  
                                               ----------    ----------
                                                320,039       115,628  
                                               ----------    ----------
                                                                       
Total assets                                  1,224,305       939,218  
                                               ----------    ----------
Equity and liabilities                                                 
                                                                       
Equity attributable to shareholders                                    
Share capital                                         8             8  
Share premium                                    97,658        97,429  
Capital contributions                           510,000       510,000  
Translation reserve                              27,408           (41) 
Retained earnings                                19,687           714  
                                               ----------    ----------
Total equity                                    654,761       608,110  
                                               ----------    ----------
                                                                       
Non-current liabilities                                                
Interest-bearing loans and borrowings           217,503        24,543  
Other financial liabilities                       3,022         1,197  
Provisions                                          401           241  
Deferred tax liabilities                        293,155       271,134  
                                               ----------    ----------
                                                514,081       297,115  
                                               ----------    ----------
Current liabilities                                                    
Interest-bearing loans and borrowings             1,564        20,878  
Trade and other payables                         48,211        10,959  
Current tax payable                               5,688         2,156  
                                               ----------    ----------
                                                 55,463        33,993  
                                               ----------    ----------
                                                                       
Total equity and liabilities                  1,224,305       939,218  
                                               ----------    ----------

 


 
Consolidated Cash Flow Statement                 Year ended   Period 26  
                                                 31 December September-31
                                                               December  
                                                      2006         2005  
                                                   US$000       US$000   
Cash flows from operating activities                                     
Profit/(loss)                                                            
before tax for the                                                       
year                                                31,278       (1,083) 
Adjustments for:                                                         
Depreciation,                                                            
depletion and                                                            
amortisation                                         9,122        1,411  
Foreign exchange                                                         
(loss)/gain                                           (296)           8  
Interest paid                                        2,715          647  
Interest received                                   (3,860)        (277) 
Amortisation of                                                          
bond issue costs                                       222            -  
Provision against                                                        
non-current                                                              
financial asset                                      1,713            -  
Loss on disposal                                                         
of non-current                                                           
assets                                               3,075          640  
Equity-settled                                                           
share-based                                                              
payment expenses                                       115        2,887  
                                                   ---------    ---------
Cash flows from                                                          
operating                                                                
activities before                                                        
changes in working                                                       
capital and                                                              
provisions                                          44,084        4,233  
                                                                         
                                                                         
Increase in trade                                                        
and other                                                                
receivables                                        (73,565)      (6,095) 
(Increase)/decrease 
in inventories                                     (13,611)       5,511  
Increase on                                                              
long-term                                                                
inventory                                           (5,567)           -  
Increase in trade                                                        
and other payables                                  37,363          888  
Taxation paid                                       (1,810)           -  
(Decrease)/increase                                                       
in provisions                                         (280)         241  
                                                   ---------    ---------
Cash (absorbed                                                           
by)/generated from                                                       
operating                                                                
activities                                         (13,386)       4,778  
                                                   ---------    ---------
                                                                         
Cash flows from investing activities                                     
Additions of                                                             
property, plant                                                          
and equipment                                      (39,770)      (6,930) 
Additions to                                                             
mining properties                                        -         (114) 
Proceeds from the                                                        
disposal of                                                              
non-current assets                                   1,349          385  
Additions of                                                             
exploration and                                                          
evaluation costs                                      (540)      (4,491) 
Cash held in                                                             
subsidiary                                                               
companies at the                                                         
date of                                                                  
acquisition                                              -          565  
                                                   ---------    ---------
Net cash from                                                            
investing                                                                
activities                                         (38,961)     (10,585) 
                                                   ---------    ---------
                                                                         
Cash flows from financing activities                                     
Proceeds from the                                                        
issue of share                                                           
capital                                                  -      106,507  
Share issue costs                                        -       (9,070) 
Proceeds from the                                                        
issue of senior                                                          
loan notes and                                                           
bonds                                              195,808           24  
Issue of                                                                 
promissory notes                                         -        3,007  
Repayment of                                                             
borrowings                                         (25,044)      (6,284) 
Interest paid                                       (2,715)        (647) 
Interest received                                    3,860          277  
Repayment of                                                             
finance lease                                                            
liabilities                                         (2,697)        (120) 
                                                   ---------    ---------
Net cash from                                                            
financing                                                                
activities                                         169,212       93,694  
                                                   ---------    ---------
                                                                         
Net increase in                                                          
cash and cash                                                            
equivalents                                        116,865       87,887  
Cash and cash                                                            
equivalents at 1                                                         
January 2006                                        87,887            -  
                                                   ---------    ---------
Cash and cash                                                            
equivalents at 31                                                        
December 2006                                      204,752       87,887  
                                                   ---------    ---------




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