UPDATE 1-Kazakhmys cuts first-quarter copper output to protect margins

Wed Apr 30, 2014 5:15am EDT

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(Adds comments, details on production)

By Silvia Antonioli

LONDON, April 30 (Reuters) - Kazakh miner Kazakhmys reported lower copper output in the first quarter as it reduced extraction in high-cost areas to protect profit margins.

Copper miners are trying to cope with declining ore grades and rising costs at a time when metals prices are softening. Kazakhmys, for example, is planning to move the bulk of its production to cheaper open pit mines over the next few years.

The Kazakh miner produced 69,500 tonnes of copper cathode equivalent in the first quarter of 2014, 4.8 percent down from the same period a year before, but said it was on track to achieve its full-year production target.

The decline was due to maintenance works at two mines and to the producer's choice to cut back in some high cost areas to protect its margins. The company also said extraction levels will increase over the year.

"We set a target for the year and that we will meet but obviously, if we can protect some profit along the way, then we will do that. So in the first quarter we just reduced the output slightly at some of the mines and that will return over the rest of the year," Kazakhmys head of investor relations John Smelt, said.

The London-listed company produced 294,000 tonnes of copper cathode equivalent in 2013 and expects copper output for 2014 of between 285,000 and 295,000 tonnes.

In February, Kazakhmys unveiled a plan to sell off less-profitable mines to its biggest shareholder Vladimir Kim to focus on lower-cost, open-pit mines and growth projects.

The copper producer said it was making good progress with the restructuring and will update the market on the spin-off plan in the second half of the year.

"As a reliable albeit currently high cost producer, we are not surprised to see Kazakhmys report an on-track quarterly production update," Investec analyst Louise Collinge said in a note.

"The company has some way to go in successfully executing its turnaround, in terms of completing divestments and growth projects, but we believe the strategy does have merit."

Shares in Kazakhmys were 0.9 percent down by 0835 GMT, underperforming a flat UK mining sector (Reporting by Silvia Antonioli; Editing by David Holmes and Jane Merriman)

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