Last updated: March 26, 2013 8:19 pm

Kazakhmys falls on ENRC writedown

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copper wire©Bloomberg

Shares in Kazakhmys have come under renewed pressure after the copper miner plunged to a $2.2bn pre-tax loss in 2012 following a hefty writedown on the value of its stake in fellow London-listed natural resources group ENRC.

The Kazakhstan-focused copper miner saw its shares tumble by nearly 9 per cent after it took a $2.2bn writedown on its 26 per cent shareholding in ENRC. It was also hit by lower copper sales and higher production costs.

Kazakhmys shares have lost over half their value in the past year.

The miner’s losses on the ENRC investment would have been higher if it valued the stake in its accounts at its current stock market level of just under $1.3bn. Instead, it values the stake at $2bn, based on an assessment of future cash flows rather than a straight “mark to market” method.

In a trading statement last month Kazakhmys had warned investors that a writedown on the stake in the iron ore and alloys group was likely.

Tom O’Hara, an analyst at Citigroup, said that the company, which like ENRC has a small group of powerful shareholders, was seen as a relatively risky investment in the mining sector.

“Kazakhmys has got some growth projects in the medium term but investors’ appetite for the mining sector has waned, particularly for miners which are perceived to have higher geopolitical risks,” he said. “What Kazakhmys has to do is get costs under control – they are likely to increase in 2013 due to labour cost pressures in Kazakhstan.”

Kazakhmys’s $2.2bn pre-tax loss in 2012 compared with a profit of $1.6bn the year before partly reflecting a decline in copper prices and demand following a slowdown in global economic growth. Revenues fell by 6 per cent to $3.3bn.

The company had already said that its total dividend for the full year would be 11 cents per share, down from 28 cents a year earlier. The loss per share was $4.33 compared with $1.75 of earnings a year earlier.

Nevertheless capital expenditure, which nearly doubled in 2012, will rise from $1.2bn to about $2bn in 2013 as Kazakhmys seeks to boost production from 300,000 tonnes of copper per year to 500,000 tonnes by 2018.

The company has $4.2bn in combined long-term funding from China Development Bank and Samruk, Kazakhstan’s sovereign wealth fund.

This month ENRC reported a $550m pre-tax loss for 2012 because of a $1.2bn impairment charge related to weakness in the aluminium market and other negative factors.

Shares in Kazakhmys closed 8.6 per cent down at 405p, valuing the company at £2.3bn. ENRC shares fell 3 per cent to 260p.

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