* Kazakhmys takes $823 million hit from ENRC sale
* Scraps dividend
* Gross cash costs increase 5 pct, lowers guidance
* Net cash cost of copper rises almost 56 percent
* Says resumes talks on Ekibastuz sale
By Clara Ferreira-Marques
LONDON, Aug 22 Copper miner Kazakhmys
said first-half core profit dropped by more than a third and
scrapped its dividend on Thursday, as higher production failed
to offset the impact of falling prices and a relentless rise in
The Kazakh group - burning cash while it builds the two
mines that will transform its production profile from 2015 -
sank to a net loss of $962 million from last year's profit,
weighed down by impairments that included an $823 million hit
from the sale of its stake in peer ENRC.
While the $875 million it cashed in from selling the 26
percent stake in its Kazakh rival will help Kazakhmys to cut
debt that soared to $1.3 billion at end-June, the transaction
confirmed how far the value of its asset had dropped.
"The ENRC impairment looks unflattering but should have been
expected," said analyst Louise Collinge at Investec. "The lack
of interim dividend is the right decision by the company for
cash conservation, but may disappoint the market."
Kazakhmys had long intended to get rid of its stake in ENRC,
which was left over from a failed takeover attempt. The sale
will leave it more exposed to the vagaries of the price of
copper as well as by-products gold and silver, since ENRC's
profits come mostly from ferroalloys and iron ore.
"We had ambitions to work with ENRC, but the strategies of
our companies became different," Kazakhmys Chief Executive Oleg
Novachuk told reporters. "Our target now is to generate cash for
shareholders, optimise cash cost and deliver our projects. Life
without ENRC will also be bright."
Kazakhmys's closely watched core profit, however, missed
forecasts, even after gross costs - a measure which excludes the
impact of by-products like gold and silver - rose a modest 5
percent, prompting the group to lower full-year inflation
guidance to 5-8 percent from an increase of up to 12 percent.
However net cost soared thanks to a smaller contribution
from gold and silver as those prices dropped, meaning the cash
cost of producing a pound of copper including the contribution
of those metals rose to $2.32 from $1.49.
Kazakhmys, the world's No. 10 copper miner, reported core
profit, or earnings before interest, tax, depreciation and
amortisation (EBITDA), at $438 million for the six months, at
the lower end of estimates cited by analysts.
Including ENRC, EBITDA fell year-on-year to $714 million.
Kazakhmys is reviewing its assets in order to cut costs and
begin generating cash. It had negative free cash flow of $135
million in the period, one of the reasons that prompted it to
scrap its interim payout.
The miner said in February it was in talks to sell its stake
in Kazakhstan's largest power station after the state made it an
offer. It confirmed on Thursday that talks over that potential
sale had resumed after the ENRC vote went through, but gave no
Kazakhmys is investing heavily in two new mines, Bozshakol
and Aktogay, that will begin producing in 2015. They will enable
its transformation from a producer with one of the worst safety
rates among larger firms, owing to its risky underground mines,
to a copper miner with some 80 percent of production from less
labour intensive open-pit mines.
Kazakhmys gave little detail of its cost review on Thursday
but said it would cut back on mid-sized projects, suspending
four as well as halting work on a copper ore concentrator.
Kazakhmys had said output copper cathode rose 7 percent over
the six months to 144,000 tonnes. It said on Thursday that
production for the year will be at the higher end of its
forecast range of 285,000 to 295,000 tonnes.
Shares in Kazakhmys ticked 0.9 percent higher at 1030 GMT,
underperforming a 1.8 percent rise in the broader sector,
reflecting what analysts said was a mixed picture.