Kazakhstan-focused miner Kazakhmys saw shares drop on Thursday after the group more than halved its dividend as surging costs and falling commodity prices dented its bottom line in the first half.
The interim dividend was cut to 3.0 cents per share, less than 8.0 cents per share at the half-year stage last year, which the company said reflects the lower level of cash generation by its operations and the relatively high levels of capital expenditure to be incurred in the next few years.
Shares were trading 3.99% lower at 676.38p by 16:04, underperforming the wider mining sector which raced ahead in anticipation that US policy-makers would announce more stimulus measures soon to boost the economy.
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Net cash costs, a concern for analysts ahead of the results, jumped year-on-year from 93 cents a pound (c/lb) to 171c/lb in the six months to June 30th. Credit Suisse had estimated on Wednesday that cash costs would increase to 164c/lb. Overall, Kazakhmys Mining's cash operating costs increased by 20% over the year to $966m.
"Costs are a significant headwind for the mining industry and Kazakhmys has seen inflation in both input costs and labour. Kazakhstan has a relatively small skilled labour force and as the economy is dominated by the petroleum sector, it is vulnerable to labour inflation. As ore volumes increase, particularly from those mines with no adjacent processing facilities, transportation costs are also under pressure," said Chief Executive Oleg Novachuk.
In the second half, higher sales volumes should help reduce unit costs, the group said. However, lower by-product pricing combined with the higher disability provision, mean that the net cash cost for the full year will now be in the range of 160-190c/lb, above the previous target of 150-180c/lb.
Lower sales volumes and commodity prices, which saw group revenue decline 17% from $1,817m to $1,516m, meant that group earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $949m, well below the comparator of $1,608m last year. On an underlying basis, profits fell from $866m to $307m.
The firm said that its contribution from Kazakh iron ore and alloys miner ENRC - in which it owns a 26% stake - to group EBITDA dropped by 40% year-on-year due to lower metals prices, reduced sales volumes and cost inflation across its major divisions.
When questioned about what to do with its stake in ENRC, Novachuk said in an interview on Thursday that Kazakhmys was "closer than last year" to making a decision. However, due to ENRC's falling share price, a sale of its 26% interest was looking less likely.
"If we see that the value is something that we can maximise, yes, but nowadays, if you see the share prices of all mining companies are depressed - maybe at this time it is difficult to say we are closer [to a sale]," Novachuk said.
"If we are talking about a sale on the market, maybe it is not the best time."
He said that the board continues to "monitor the situation" but it has not had an offer to sell the stake.
