ENRC boosted by China stimulus spending

August 18. Financial Times

By Christopher Thompson

ENRC boosted by China stimulus spendingEurasian Natural Resources Corporation, the London-listed Kazakh miner, on Wednesday announced an 80 per cent increase in interim pre-tax profits, fuelled by demand from China.

ENRC, whose traditional markets include Russia, western Europe and the US, said the Chinese government’s 2009 stimulus plan bolstered growth in the auto and construction sectors and underpinned a rebound in carbon and stainless steel prices.

Felix Vulis, chief executive, said that production levels in Kazakhstan were back to levels last seen in first half of 2008 and that ENRC’s ferroalloys, iron ore and aluminium operations were running at full capacity.

The company, whose largest shareholder is rival Kazakhmys, has plans to increase alumina production from 1.6m tonnes this year to 1.7m tonnes in 2011 to meet growing demand for the metal from Russia.

However, ENRC was more cautious about the prospects for recovery in Europe, where it is concerned about rising government debt, the banking system and the removal of stimulus packages.

The company reported pre-tax first-half profits of $1.2bn, up 80 per cent on the same period last year. Sales were $3bn, up from $1.6bn.

Earnings per share were up 63 per cent to 70 cents, despite a 45 per cent increase in the cost of sales. The company said it would pay an interim dividend of 12.5 cents per share.

ENRC was well positioned in the downturn, ending 2008 with cash of $2.5bn derived in part from its highly profitable ferrochrome division.

Mr Vulis said ENRC was looking to Africa to diversify away from its exposure to the steel industry.

“Our strategy is not a geographical diversification but a commodities diversification and a good place to go is Africa. We’ve always been keen in energy, we’re interested in that [Africa]…but not oil and gas,” said Mr Vulis.

Indeed, ENRC’s bullish acquisition of African assets over the past five months has been widely seen amongst analysts as the firm’s “coming of age” moment.

In May ENRC bought a 12 per cent stake in Northam Platinum, a South African platinum company, which followed the acquisition of Camec – the copper and cobalt producer in the Democratic Republic of Congo (DRC) – as well as a copper and cobalt producer in Zambia.

Camec also gave ENRC assets in Zimbabwe and Mozambique. In June ENRC paid $75m for further exploration concessions bordering its assets in the DRC.

In early morning trading ENRC’s shares were down 28?p, or 3 per cent, to 939p.