Kazakhmys warns on ENRC writedown as earnings drop

LONDON (Reuters) - Copper miner Kazakhmys , posting a 30 percent drop in core profit for 2012, warned it could be forced to take a hit estimated at over $1.5 billion (987 million pounds) on the value of its holding in Kazakh rival ENRC , after the shares tumbled.

Kazakhmys met market expectations with a drop driven by lower earnings, higher costs and a weaker copper price, but disappointed analysts with weaker than expected cost guidance for the year ahead, despite what it said was easing inflation.

The outlook, combined with the potential impact of writedowns, hit the miner's shares, down 5.5 percent at 08:30 a.m, underperforming a 0.4 percent drop in the sector.

Kazakhmys has for years grappled with the future of its holding in ENRC, a leftover from a failed takeover effort before its rival's listing. Last year, chief executive Oleg Novachuk said the miner was closer to making a decision, but uncertain equity markets have made the company less eager to sell.

Kazakhmys now looks set to become the latest miner to take a hit from acquisitions attempted or completed during the boom years, after ENRC itself said yesterday it would be forced to write down the value of assets in Kazakhstan and Africa.

The value of the 26 percent stake in ENRC dropped to $1.55 billion at the end of 2012 from $3.29 billion at the end of 2011. The shares have recovered since the start of 2012, but Kazakhmys - the single largest investor in ENRC - said it would write down the value of the holding to close to the market value, implying an impairment of at least $1.5 billion.

Kazakhmys' decision on the future of the ENRC stake could be critical for its Kazakh rival, which is seeking to increase its freefloat from less than 20 percent in order to comply with London regulations, but has struggled to convince its three founding shareholders to allow themselves to be diluted at the current share price.

Investors have also long sought a sale of the shares, hoping that would lift an overhang on the stock but also result in cash returning to shareholders.

Kazakhmys, which is due to announce full earnings including ENRC in March, said on Thursday that its core profit for the year excluding its Kazakh rival came in at $1.36 billion, down more than 30 percent but at the higher end of expectations.

It also posted cash costs in line with guidance and said inflation, a bane for mining operators in Kazakhstan and elsewhere, was reducing. It expects gross cash costs to increase 8 to 12 percent in 2013.

Kazakhmys also announced changes at the top, including a new chairman, former London Metal Exchange boss Simon Heale, to replace outgoing Vladimir Kim, also the company's top shareholder.

Chief Financial Officer Matthew Hird will step down in May, and will be replaced by his deputy, Andrew Southam.

(Reporting by Clara Ferreira-Marques; Editing by Myles Neligan)

Source: http://news.yahoo.com/kazakhmys-warns-enrc-writedown-earnings-drop-084532008--finance.html

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