OREANDA-NEWS. On 27 May 2008 KazakhGold Group announced 2007 Audited Results. KazakhGold Group is the leading gold producer in Kazakhstan, with long-life mines  and what are estimated to be the country's largest gold reserves. The Group has  an extensive expansion programme underway, which will help us raise gold  production significantly, increase operational efficiency and reduce operating  costs further, from a direct cash production cost of US\\$ 262 per ounce in 2007  to a target average direct cash production cost of US\\$ 210 per ounce over the  next five years.

In 2007 the  Group made further progress towards its vision of becoming Central   Asia's leading gold mining company. This followed a year of  intense corporate activity, investment in production expansion and the  introduction of an experienced international management team, based at our  operating headquarters in Stepnogorsk.

Results and dividend

Gold  production was 232,060 ounces in the 12 months to 31 December 2007. This was slightly above our  expectations, and 6.4 per cent ahead of the previous year's production. This  result was achieved despite unusually severe weather conditions in Northern Kazakhstan during the early part of 2007.

Revenue for  the period was US\\$ 177.0 million, an increase of 61.7 per cent on the previous  year. Profit before tax rose by 63.8 per cent in 2007, to US\\$ 51.2 million. We  achieved an average gold price of US\\$ 700 per ounce on our sales for the year,  a 25 per cent increase on 2006. As an un-hedged gold producer, KazakhGold  benefited from the strong gold price environment over the year – something we  expect to continue through 2008.

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

Realising potential

In November  2007 we announced a five-year growth plan, designed to achieve a target annual  gold production of 1.0 million ounces by 2011. We aim to achieve this through  realising the full potential of our current resources, selective acquisitions  in Kazakhstan  and elsewhere in Central Asia and  significantly increased extraction and processing at our existing mines.

Last year we  took an important step towards raising our gold production. We awarded a  contract to MAED Limited, an international engineering, construction and  consultancy group, for the design and construction of new tailings re-treatment  plants at Bestobe and Zholymbet. Each plant will be capable of treating 2.0  million tonnes of reclaimed tailings and recovering 100,000 ounces of gold  annually. Both plants are due to be commissioned later this year. Construction  of a similar re-treatment plant is due to start at Aksu later this year. The  plants have been designed so that, with the subsequent addition of further  equipment, they will form the nucleus of new, 4.0 million tonne per annum ore  treatment plants, at each of our three principal mines in Northern   Kazakhstan.

Achieving the  full potential of our Kazakh assets is central to our business strategy, and  this requires a thorough assessment of our asset base. In January 2007, Wardell  Armstrong International (WAI) completed a preliminary reconciliation study of  our FSU classified gold reserves and resources at Aksu, Bestobe and Zholymbet,  to the widely respected Australian Joint Ore Reserves Committee (JORC)  standard. The work confirmed a world-class asset base. In 2007 the main focus of  our reserves and resources work was to replace resources of material mined in  the year, and to improve the geological understanding of the resources adjacent  to our current mining operations.

During the year we took the  opportunity to acquire various assets from Oxus Gold plc that support our  geographic presence in and around Central Asia.  Investments included Oxus Gold's 50 per cent shareholding in Romaltyn Limited  and 100 per cent of Norox Mining Company Limited, which owns 66.67 per cent of  the Talas Gold Mining Company in Kyrgyzstan. We also acquired, from  a subsidiary of Oxus Gold plc, a 25 per cent interest and an option to acquire  a further interest in the Hatay joint venture project in Turkey.

These  acquisitions complement our Kazakh assets, bring additional geographic  diversification and strengthen our position further in Romania.  Importantly, they give us a presence in two emerging gold countries, Turkey and Kyrgyzstan. The  Group now owns 100 per cent of Romaltyn in Romania, which is the most advanced  of these projects. In consideration for these assets, the Group issued 3.5  million new ordinary shares, which were distributed to shareholders of Oxus  Gold plc in July 2007. As a result, we welcomed some 1,200 new shareholders in  KazakhGold.

In 2007 the Group appointed JPMorgan  Cazenove as joint broker and financial advisor, alongside ING Bank. JPMorgan Cazenove is currently advising  us on a potential move of our GDR listing to the Main Market of the London  Stock Exchange. Both firms are continuing to help us identify opportunities to  participate in the consolidation of gold assets in Central   Asia.

Governance and people

We have  instituted a number of changes to the Board during the year. Darryl Norton and  Sanzhar Assaubayev were appointed Executive Directors and William Trew joined  us as a Non-Executive Director. In March 2007, I was appointed Executive  Chairman, acknowledging the need for this role to include significant executive  duties in Kazakhstan.  As previously announced Peter Daresbury, previously Non-Executive Chairman of  the Group and Stephen Oke, a Non-Executive Director, resigned from the Board.  We are grateful to both for their invaluable support and guidance, especially  during the Group's post-IPO development.

At a  management level, Stephen Westhead, Geoff McLoughlin and Robert Hewitt were  appointed as Group Chief Geologist, Group Chief Metallurgist and Chief Mining  Engineer respectively. During 2007, we made eight further senior management  appointments for different roles in operations, geology and capital projects.  The Group now has a strong international management team, supported by the  necessary local expertise.

Any period of  change requires the support and understanding of employees and 2007 was no  exception. Without the significant and ongoing contribution of all our people,  the achievements of the year would not have been possible.

Outlook

In 2008 we  will focus on expanding the Group's reserves through exploration;  reclassification of our resource base into the JORC standard; modernising our  mining methods to increase ore extraction; and optimising our processing  technologies.  In order to expedite our  accelerated investment plan, the Group is considering various financing options  available to it, to progress its capital expenditure programme. KazakhGold will  also actively seek to participate in the consolidation of the Central   Asia region's gold assets, with the ultimate goal of growing our  production.

Looking ahead,  demand for gold remains firm. In part this is due to the investment attraction  of gold at a time of continued volatility in the global credit, equity and  commodity markets. It also reflects sustained jewellery buying from the Middle East and India. Meanwhile, on the supply  side, global production of gold remains flat. This imbalance between demand and  supply has helped the gold price reach record levels, since the 2007 year-end.  It rose to US\\$ 850 per ounce in January 2008, its highest level since January  1980 and passed US\\$ 1,000 per ounce in March 2008. Overall, however, we expect  the price of gold to remain firm throughout 2008.

The combined  impact of KazakhGold's investment and development plans, its strong management  team and supportive macroeconomic conditions, means I am confident that your  Group will make further significant progress in 2008.

OPERATIONAL  REVIEW

Gold production for the year to 31 December 2007 was 232,060 ounces, a 6.4 per cent  increase over the previous year. This result was achieved despite unusually  severe winter conditions in Northern Kazakhstan.

During the year, 3.48 million tonnes of ore were treated (2006: 4.68  million tonnes). The average head grade of this ore was 1.96 g/t gold (2006:  1.92 g/t). The reduction in the overall recovery rate was largely due to a  decline in recovery at the heap leach operations, which is addressed  subsequently in this operational review.

Exploration  and geology

The main focus  of the Group's geological activity over the year was to update reserves and  resources to reflect depletions of mined materials and also additional  exploration. The latter being designed to improve the Group's geological  understanding of the resources adjacent to its existing mining operations. Activity  included an assessment of the available historical geological data and further  entry into a database of both ongoing and historical FSU and Kazakh geological  exploration data. Wardell Armstrong International (WAI) is currently reviewing  the results of the work undertaken by the Group's in-house team.

The Group has  decided to utilise the Surpac® computer programme in order to allow  three-dimensional modelling of its gold deposits. The subsequent resource  estimation and reserve calculation can then be carried out according to JORC  requirements. The first phase of training on Surpac was completed in 2007 and  the programme is now being implemented.