UPDATE 2-ENRC H1 profit up, sees strong H2, boosts capex
(Adds analyst comment, conference call, shares)
By Eric Onstad
LONDON, Aug 21 (Reuters) - Kazakh miner ENRC's (ENRC.L) half-year profit more than doubled, and it forecast a buoyant second half, boosting shares on Thursday.
Shares in Eurasian Natural Resources Corp, up 68 percent so far this year, climbed 3.7 percent to 1,065 pence, outperforming a 1.6 percent rise in the UK mining index .FTNMX1770.
"The 1H08 result for ENRC was very strong. It beat expectations... and further earnings growth in the 2H08 is a given," Deutsche Bank said in a research note.
The group, the world's largest producer of ferrochrome, unveiled plans to nearly double its capital expenditure pipeline to $6.9 billion to boost output because of confidence in the future of the ferrochrome and iron ore sectors.
"Despite macroeconomic uncertainties, we expect higher commodity prices to hold. We anticipate a very strong performance from the group in the second half of 2008," Chief Executive Johannes Sittard said in a statement.
ENRC said earnings per share before exceptional items surged 160 percent to $1.04 in the first six months of the year, helped by buoyant metal prices and higher output.
The firm, which floated on the London stock exchange in December, proposed a maiden dividend of 12 cents per share.
ENRC said earnings before interest, tax, depreciation, amortisation and exceptional items rose 170 percent to $2.15 billion on 86 percent higher revenue of $3.44 billion.
The underlying cost of sales increased 15 percent, lower than inflation in Kazakhstan of 20 percent.
"Although we achieved a good control of costs in the first half, we expect cost pressures to prevail through the second half of 2008 and into 2009," Sittard said.
Chief Financial Officer Miguel Parry told a conference call that the group was sticking with guidance that full-year costs may rise by up to 20 percent.
CAPEX UP, MORE TAKEOVERS
ENRC, which completed two takeovers and agreed a third one in the first half, said it would push forward with its expansion programme, through both organic growth and acquisitions.
The increase in future capital expenditure to $6.9 billion from $3.6 billion will make possible a raft of expansion projects and building a new power station.
The firm will also keep on the lookout for takeovers, and this will not be made more difficult by an increased stake of 25 percent held by rival Kazakhmys (KAZ.L).
"We will look at acquisitions in the region, we have started looking more intensively in China, as a large market to be present in," Sittard told the conference call.
Kazakhmys -- which ENRC considered buying in March but failed to make a formal offer -- recently boosted its stake in ENRC to 25 percent, which some analysts said might allow the rival to block takeovers.
"The 25 percent stake does not impede our ability to do major transactions," Chief Financial Officer Miguel Parry said, adding that only a simple majority of shareholders was needed to approve acquisitions, not 75 percent.
Sittard reiterated that ENRC would not offer a board seat to Kazakhmys because they were both competing for deposits in the region, but there was no animosity between the two.
"We are not fighting each other, we have a normal relationship," he said, adding that Kazakhmys had an interest in ENRC succeeding since more than half of its market value came from its ENRC stake.
Kazakhmys has a market value of $12.5 billion compared with $23.1 billion for ENRC.
The bottom line at ENRC, also the sixth-largest iron ore exporter by volume, has been boosted by sharp rises in the price of ferrochrome and iron ore driven by heavy demand from China.
Annual contract prices for iron ore this year soared 65-97 percent while third-quarter ferrochrome prices gained 7 percent to touch another record after jumping 60 percent in the second quarter. (Reporting by Eric Onstad, editing by Will Waterman and Sue Thomas)
