Eurasian Natural Resources Corp.’s review of $8.8 billion of planned spending on mine development won’t negate an existing study into splitting up the company that was set up this year to seek ways to fund the expenditure.
“The strategy review and capex review go in parallel,” Chief Executive Officer Felix Vulis said in a phone interview today. “One will have an effect on the other, that is for sure, but it’s not like if we decided to delay the capex that will cancel, for example, the split of the company.”
The producer of metals in Kazakhstan reported a 60 percent slump in first-half profit today and said it planned to review spending on new developments as commodity prices slide, eroding earnings. The review follows the announcement of a study into spinning off foreign operations to boost funds for expansion.
The company, a producer of ferroalloys, iron ore, aluminum and electricity in Kazakhstan, also owns copper and cobalt assets in Zambia and the Democratic Republic of Congo.
“The company is in a position where it has to review and prioritize capex projects,” said Biraj Borkhataria, an analyst at ING Groep NV. “Investors may start to become nervous with debt rapidly rising and the earnings outlook weakening.”
Net debt rose to $3.41 billion at the end of the half from $972 million at the start of the year, ENRC said in a statement, while the company reduced its estimated capital spending for the full year to $2.4 billion from the previous $2.7 billion figure.
Net income dropped to $463 million in the half from $1.17 billion and sales slid 19 percent to $3.25 billion. Output of saleable ferroalloys, used in steel, fell 3.1 percent to 595,000 metric tons and iron-ore extraction shrank.
The company declined 8.5 percent to 379.6 pence by the close in London trading, the steepest decline since Sept. 22.
ENRC, like larger peers Rio Tinto Group and BHP Billiton Ltd., faces rising costs and lower prices as growth slows in China, the world’s biggest commodities consumer. The price of iron ore, ENRC’s biggest earner last year, averaged about $141 a ton in the half, down 21 percent on a year earlier.
“ENRC has shown a resilient performance in the first half of 2012, a period characterized by deepening economic uncertainty and declining prices for our key products,” it said. ENRC is in the “advanced stages of reviewing all capital expenditure projects that are not currently in execution.”
Further declines in commodity prices will be “limited” even though a recovery is unlikely in the second half, the company’s Chief Commercial Officer Jim Cochrane said.