Lower metal prices hit Kazakhmys

August 22. Interactive Investor

By Julie Fisher

Lower metal prices hit KazakhmysKazakhstan-focused miner Kazakhmys (KAZ) has posted a pre-tax loss of $193 million (?123 million) for the first half, impacted by lower metal prices and cost pressures.

EBITDA also fell 35% to $438 million in the six months to 30 June, excluding earnings from Kazakhyms’s 26% stake in rival miner Eurasian Natural Resources (ENRC), which is set for disposal by the end of the year.

ENRC is becoming private, and Kazakhyms will gain $875 million and a repurchase of 77 million of its own shares from the buyout. Shareholders approved the disposal on 2 August.

Despite the pre-tax loss, chief executive Oleg Novachuk commented: “It has been a solid start to the year, with production on track and cost inflation lower than anticipated.”

He highlighted increased copper production, which was up 7% to 144,300 tonnes in the first half.

“Our drive to maintain copper output through improved resource management is having an impact and we should be at the upper end of our anticipated range for annual copper production,” Novachuk said.

Kazakhmys targeted between 285,000 and 295,000 tonnes of copper production for 2013 at the beginning of the year.

But increased production had less of an impact on profit due to falling copper prices.

“The copper price has weakened in line with lower global industrial activity, but copper remains a product in firm demand, fundamental to a wide range of applications and with restricted supply,” the company said.

“We believe that the supply/demand balance will underpin the copper price in the medium term, which gives us confidence in the decision to focus on our core copper business.”

Kazakymys decided that it would be “inappropriate” to declare an interim dividend due to the “uncertain economic outlook”.

Analyst view

“While the news that the group will not be declaring an interim dividend may not be taken well by the market, the company is doing the right thing in preserving cash,” commented Louise Collinge, an analyst at Investec.

“It is positive that production should be towards the higher end of guidance for the full year but, while costs were below expectations in the first half, these look set to rise in the second half.”