ENRC Q4 ferrochrome output jumps as demand returns

Feb 03. Reuters

by Julie Crust and Hans Peters

ENRC Q4 ferrochrome output jumps as demand returnsKazakh mining group ENRC posted a jump in fourth-quarter output of its most important product, ferrochrome, reflecting a rebound in demand that could boost prices after the global downturn hammered the sector. Skip related content

“The Ferroalloys and Iron Ore divisions in Kazakhstan recovered to operate at effectively their full available capacity in Q4 2009, reflecting improved market conditions,” ENRC Chief Executive Felix Vulis said in a statement issued on Wednesday.

Analysts said the production data was largely in line with expectations and improved demand from steelmakers was expected to push ferrochrome prices higher after the European contract price fell 2 cents to $1.01 per lb in the fourth quarter.

This compares to a peak of $2.05 per lb in the third quarter of 2008.

Liberum Capital said in a note that ENRC was fully valued at a 2010 price-earnings ratio of 12, but a ferrochrome price rise would sweeten the valuation.

“We remain cautious on ENRC at current valuation levels, but will be buyers at a ferrochrome price above $1.20/lb for its low cost position and growth options via (recent acquisition) CAMEC,” it said.

Liberum said it was also wary of a possible revaluation of the Kazakh currency and the risk of further acquisitions.

ENRC shares rose 0.7 percent to 984 pence by 9:04 a.m., compared to a 1.4 percent increase in the UK mining index. They were among the top 10 performers in the blue chip FTSE 100 index last year, jumping 177 percent.


The London-listed firm said in November production volumes had returned to normal levels at the end of September and output in 2010 would return to 2008 levels.

The statement did not update the company’s outlook for 2010, but a spokeswoman said the 2010 forecast in the November statement was still valid.

“The strength of its businesses and their low cost advantage allowed the group to achieve a strong recovery from the downturn at the end of 2008. Going forward, we remain focussed on managing production levels in response to market demand,” Vulis said.

Output of ferrochrome, a key component in stainless steel, increased 57 percent to 351,000 tonnes during the three months to the end of December from 224,000 tonnes in the same period the previous year, the firm said.

Ferroalloys are ENRC’s most profitable unit, accounting for 62 percent of operating profit in the first half, with iron ore making up 31 percent.

The company, which floated on the London Stock Exchange in December 2007, said saleable iron ore pellet production doubled to 2.3 million tonnes, recovering from production cuts after a rebound in demand.

Cutbacks had not been necessary in alumina, which showed a 2 percent rise to 410,000 tonnes, and aluminium output gained 16 percent to 36,000 tonnes as a new smelter ramped up.

The firm reported the first output from junior firm Central African Mining and Exploration Co (CAMEC) , its $955 million acquisition of last September whose key assets are copper/cobalt operations in the Democratic Republic of Congo.

CAMEC’s copper cathode output was 2,771 tonnes and cobalt concentrate was 1,296 tonnes.

Kazakh rival Kazakhmys is the group’s biggest shareholder with a 26 percent holding.