May 10, 2012 / 8:28 AM / 6 years ago

UPDATE 2-ENRC says revenues fell on lower prices, volume

* Says hit by drop in prices of key commodities

* Cost inflation in line with guidance

* Shares rise, come off lowest levels since 2009

By Clara Ferreira-Marques

LONDON, MAY 10 (Reuters) - London-listed Kazakh miner ENRC warned its revenue decreased “significantly” in the first quarter compared to a bumper three months a year ago, hit by weak volumes and a drop in prices for the commodities it sells.

News it was sticking to its guidance on cost - a big concern for a sector battered by the soaring price of materials, energy and labour - helped push its shares up more than 3 percent and off its lowest levels in more than three years.

“There is no new bad news on cost, so there is probably a bit of relief (in the market),” said Panmure Gordon analyst Gavin Wood.

“Essentially, the revenues are down because of commodity prices, and that is expected by the market. To me it looks fairly neutral.”

Costs, a major concern for miners and investors across the sector, continued to be driven by the rising prices of input materials, energy and labour, but ENRC said inflation was in line with guidance.

The miner - one of the world’s largest producers of ferroalloys, used in steelmaking - expects unit costs to rise up to 20 percent this year.

At 0800 GMT, the shares were up 2 percent at 534 pence, outperforming a 0.8 percent rise in the broader sector.

ENRC said in a trading statement that revenue from its key ferroalloys division, its biggest earner, deteriorated “very sharply” in the quarter against the same period a year ago, with ferrochrome volumes hit by the shutdown of its Chinese ferroalloy plant, Tuoli and furnace repairs.

VOLUME DROPS

Volumes for ferroalloy products dropped on average 8.4 percent against the first quarter of last year, with total production of saleable ferroalloys down 4.8 percent, as production of high- and low-carbon ferrochrome, used to make stainless steel, dropped.

Its iron ore division also showed “severe deterioration” in revenue compared to a year-ago first quarter lifted by record iron ore prices. Iron ore extraction and primary concentrate production dropped by 4.8 percent and 2.5 percent respectively.

Ferroalloys and iron ore together accounted for 72 percent of revenue and 78 percent of ENRC’s core profit last year. Ferrochrome prices have been hit by weak demand, while benchmark iron ore prices ended the first quarter at $147 a tonne, from highs of over $190 in February last year.

The miner said alumina and aluminium divisions were again hit by lower prices and a drop in alumina sales volumes caused by a processing problem. Alumina production dropped over 18 percent after interruptions of the supply of soda ash.

Copper, an area into which ENRC has expanded through acquisitions and its move into Africa, provided a bright spot for the group, with production up 37 percent.

Miners have been under pressure from shareholders to be more disciplined in their approach to capital expenditure, and ENRC said it would cut spending on its BMSA project in Brazil due to licensing delays.

It still expects capital expenditure to hit $2.7 billion this year, thanks to spending in the Democratic Republic of Congo after a long-awaited settlement with First Quantum over assets there.

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