* Tax cut will save about $40 mln a year
* Reduction agreed for 12 months but could be extended
* Kazakhmys plans to split company in two (adds analyst comment, details)
By Silvia Antonioli
LONDON June 17 (Reuters) - Copper producer Kazakhmys said on Tuesday the Kazakh government had agreed to reduce tax rates on some older assets which it plans to spin off in a move seen as a sign of support to the company’s restructuring plan.
The cut in mineral extraction tax will be applied retrospectively from January 2014 on deposits in the Zhezkazgan Region, excluding the Zhomart mine, and at the Konyrat mine in the Central Region, assets that Kazakhmys says have been badly affected by declining grade and low profitability.
The Kazakh mining firm has been grappling with rising production costs, falling copper grades and weaker price in the last few years and to tackle lower profitability it proposed in February to split the company into two.
Under the plan, London-listed Kazakhmys would focus on its lower cost assets in the East Region and on its Bozshakol, Aktogay and Koksay growth projects to become an initially smaller but more cost-efficient producer.
It would dispose of assets in the Zhezkazgan Region and Central Region, which would go into a separate private company owned by politically-connected Vladimir Kim, a Kazakh billionaire who owns about a third of Kazakhmys.
“Today’s announcement is important, in our view, as it demonstrates a willingness on the part of the government to act to support the viability of a spin out business,” Citi analysts said in a note. “We view this move as a tacit signal that restructuring will be supported.”
A spin-off of the more capital and labour intensive assets represents a more acceptable option for the Kazakh government than the shut down of some operations and consequent job cuts, analysts said.
The tax reduction is expected to result in savings of about $40 million a year at current metals prices, Kazakhmys said and although the rate cut is applicable for one year a further application can be made at the end of the period.
“We welcome this decision to reduce mineral extraction tax rates at our most challenging assets,” Kazakhmys chief executive Oleg Novachuk said in a statement. “Improved cash generation may encourage future investment, potentially extending the life of the assets and helping to maintain employment.”
The restructuring plan is expected to be put to shareholders for approval later this year and the company expects the spin-off to be completed in 2015. (Editing by Mark Potter and David Evans)