ENRC to have another crack at Kazakh coal producer

Kazakhstan-focused miner Eurasian Natural Resources (ENRC) is to have another go at persuading shareholders to give the thumbs-up to the company taking full control of Kazakh coal producer Shubarkol Komir JSC.

The company called off the proposed acquisition back in November, responding to pressure from shareholders who said that the uncertain macro-economic environment made it a bad time for the $600m buy-out. ENRC currently owns 25% of Shubarkol, and has an option to acquire the remainder, subject to the approval of ENRC shareholders.

Shubarkol is a thermal coal producer in Kazakhstan which produced around 6.0m tonnes of coal in 2010, which accounted for some 5.4% of Kazakhstan's total coal production that year.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Since calling off the takeover attempt ENRC has spoken to some of its independent shareholders and the ENRC board now believes that support for taking full control of Shubarkol is more widespread. Consequently, it has convened an extraordinary general meeting (EGM) on April 2nd, to vote on the proposed transaction.

Felix Vulis, Chief Executive Officer of ENRC, said: "There is a strong strategic rationale for acquiring the outstanding shares in Shubarkol. The acquisition of this asset will secure our access to a supply of relatively high-quality and low-cost thermal coal, favourably positioning us to meet the growing energy needs of our businesses in Kazakhstan."

The market may still take a bit of convincing, however, judging by the share price reaction, which was mildly negative following the announcement, though that may have been down to the company's 2011 figures, which were released at the same time as the announcement of the decision to convene the EGM.

Revenue in 2011 rose 16.7% to $7.71bn from $6.61bn the year before. The cost of sales was up 24% to $3.52bn as a result of rising unit costs across the group and increased volumes in the Other Non-ferrous and Alumina and Aluminium divisions.

Operating profit rose 6.1% to $4.19bn from $3.76bn in 2010, but profit before tax eased 7.5% to $2.78bn from $2.98bn. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose 7% to $3.41bn, giving an underlying EBITDA margin.

Earnings per share (EPS) were down 10% to $1.53 from $1.70 in 2010, due to a one-off gain of $298 million in 2010. Excluding this one-off gain, EPS would show a 5% increase.

The group ended 2011 with gross available funds of $658m and borrowings of $1,594m, but has gained $3.7bn of additional facilities since the start of 2011. That cash will be needed to fund an ambitious capital expenditure (capex) programme, with the company earmarking $2.7bn for capex in 2012 as part of a total project spend of $10.9bn.

"There is significant opportunity contained in our world-class international assets, and after having reached an agreement with First Quantum Minerals in early 2012 we are well positioned to become one of the world's major copper producers," Vulis maintained.

"While working towards the fulfilment of this potential, we have not taken our focus from the strengths of our core portfolio in Kazakhstan. We achieved record sales volumes of high-carbon ferrochrome in 2011 and have continued investment across our divisions to support future growth," Vulis added.

"The market remains volatile, but we expect sustained good demand for our products and for ENRC to deliver a strong operational performance in 2012. Our low-cost production base coupled with diverse world-class assets leaves the group well-placed going forward," Vulis concluded.

A final dividend of 11 cents per share has been proposed, down from 18 cents the year before. The full year pay-out also fell, to 27.5 cents from 30.5 cents, as the board stuck with its policy of paying out 18% of attributable earnings in dividends.

jh