August 17, 2011 / 11:52 AM / 7 years ago

UPDATE 3-ENRC seeks to reassure on governance as profit climbs

* Says committed to independent board

* H1 underlying EBITDA up 33 pct, margin steady

* Warns of near-term volatility for key commodities

* Revenue momentum to slow in H2

* Shares up 1.4 pct, outperform UK mining sector (Updates shares, adds details on acquisitions, capex)

By Clara Ferreira-Marques

LONDON, Aug 17 (Reuters) - Kazakh miner ENRC promised to stick with an independent board and told investors it would take all stakeholders’ interests into account in a key governance review, but stopped short of providing details on the long-awaited outcome.

London-listed ENRC, whose image has been tarnished by the purchase of an asset the Congolese government had expropriated from Canadian miner First Quantum last year and a boardroom spat, announced a three-month corporate governance review in June.

While investors hoping for substantial news about the review alongside first-half earnings on Wednesday were disappointed, ENRC sought to reassure on progress.

“We are on target and some time in mid-September we will come out with the full review and the full results of the review,” Chief Executive Felix Vulis said on Wednesday. “(We are) committed to a full independent board, I can assure you of that.”

Strong iron ore prices helped lift headline core profit by a third as ENRC posted first-half profit at the top end of forecasts.

But the group was hit by a 30 percent jump in costs and said it saw revenue momentum slowing and cost pressures continuing into the second half as it develops projects in Africa and Brazil.

It also warned of volatility ahead, echoing notes of caution sounded by its mining rivals in recent weeks, but said it was too soon to assess the impact of global economic turbulence on demand for key commodities including ferrochrome, a top contributor to earnings.

“All in all, consumption will shake off this nervousness, but generally the risk that any uptick will be delayed is greater now than it was a couple of weeks ago,” Chief Commercial Officer Jim Cochrane said.

“If you had asked me (two weeks ago) what was going to happen in the fourth quarter, I would have said there will be a 20 cent increase in the ferrochrome price ... Now much depends on sentiment and the impact that recent events have on confidence and, ultimately, on consumption.”

It said a surplus would continue well into the second half but anticipated a rise in demand from China by early 2012.

ENRC shares, down a quarter since the start of June, were up 1.4 percent at 641 pence by 1000 GMT, outperforming the UK mining sector , though analysts point to the outcome of September’s review as a catalyst for the shares.

“It was a good set of numbers,” Cailey Barker at brokerage Numis said. “The second half ... will probably be weaker, but the business as it stands is doing very well and once they get the permits for Brazil they will be into a different league.”


First-half underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose a third to $1.93 billion, on the back of a 32 percent rise in sales and stable margins. Operating profit rose 35 percent to $1.67 billion.

ENRC said it expected progress in its financial performance to continue into the second half but at a slower rate than the first six months of the year, with revenue momentum slowing.

Escalating costs — from rising wages to energy — have blunted the positive effect of robust metals prices across the industry in the first half, with majors including Rio Tinto missing expectations as a result.

A lower-cost producer than many rivals, ENRC was still no exception and said it expected unit costs to rise around 20 percent in 2011, in line with raised guidance.

The miner said it was boosting productivity but was being hit by higher wage inflation in China and Kazakhstan, higher financing costs and the cost of developing its assets.

Its iron ore project in Brazil, where ENRC aims to become a leading iron ore producer by 2016, is awaiting final licenses which the miner expects by the first half of next year.

ENRC has diversified aggressively and its capital expenditure plans stand at $11 billion to 2014, with spending accelerating in the second half of 2011.

Its most controversial acquisition was a majority stake in holding group Camrose, which owns the license to operate the Kolwezi asset in Congo, previously owned by First Quantum and the focus of several court cases.

ENRC said there were no talks underway with First Quantum to reach a deal on equipment, which the Canadian miner still owns despite the change in project ownership, but said this should not affect its longer-term production targets. (Editing by Paul Sandle and David Holmes)

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